Volume 45: Prime Day, Half an IBM, Big Tech Dawn & Burger Flaming.

1. Never let a good crisis go to waste. Amazon takes on Black Friday.

tl;dr: Going early to take pressure off holiday deliveries.

Black Friday, the day after Thanksgiving in the US, has traditionally marked the beginning of the holiday shopping season. It’s when fights erupt in Walmart stores across the nation, letting everyone know that the vast majority of retailers are now seeking the profits they’ll need to see them through the rest of the year.

As the practice has spread to countries outside the US, the date of Black Friday must seem nothing less than completely arbitrary, following as it does a US holiday that has a fixed day (the last Thursday in November) rather than a fixed date.

For retailers like Amazon, the date Black Friday falls on in the calendar has always been challenging. In some years, it means a longer holiday shopping season; in others, shorter. Something that’s likely to be particularly acute this year, considering that Black Friday falls all the way out on November 27th and we’re in the middle of a pandemic that’s likely to put an incredible strain on delivery services that have already been operating at or near capacity. So what to do?

In Amazon’s case, they decided to push Prime Day out to October from March to create a new start to the holiday sales period that’s more than a month ahead of Black Friday. Other retailers have felt obliged to do the same. And I’m sure every retailer this year would like to spread the holiday shopping season by an additional month, so expect to see many more deals and sales before that magical Black Friday date.

Now, I completely understand if you want to take advantage of Amazon’s early sales period to get a deal for the holidays, but please consider small local retailers that have been absolutely crushed by the CV-19 pandemic too. A little of your money can go a long way. I normally buy novels through the Kindle app because it’s convenient, but I went to a local independent bookseller over the weekend and bought a hardback instead. I’ll probably never read it, but I reckon they needed my $25 more than Amazon ever will.

2. Two IBM’s for the price of one.

tl;dr: Halving itself to double its value.

There was a time not so very long ago when IBM was the darling of the technology industry, something former CEO Lou Gerstner in his book “Who Says Elephants Can’t Dance?” attributed largely to the fact that it didn’t split up under investor pressure to do so. But those days are long gone.

Last week, IBM announced that it will be splitting itself in two: a new and as yet unnamed company that will comprise its more traditional, declining, lower-value offerings, and a newer, slimmer, fitter IBM, that will comprise its cloud, AI and higher-value consulting businesses.

What they’re doing is pretty straightforward. The stock has been mired in place while younger tech peers have exploded in value. The reason? Growth in IBM’s future-facing businesses has been offset by declines in its legacy businesses, leading to a market valuation defined more by the anchors of the past than its potential for the future.

And that’s a big deal right now because we’re seeing a fundamental winner takes all mentality in the stock market. Capital is being allocated in a bifurcated manner. If you’re a “story stock” with a compelling story of future growth (irrespective of current performance) you’re rewarded with incredible capital inflows, higher market capitalization and a fast growing valuation multiple. If, on the other hand, you’re seen as a “legacy stock” with a low growth future (irrespective of current performance) you’re rewarded with anaemic capital inflows, lower market capitalization and a valuation multiple bouncing around in the upper single digits.

IBM is betting they can become more akin to a story stock moving forward. Showing that their cloud, AI, and consulting assets, combined with the IBM brand and customer portfolio, can drive growth that will lead to a significant increase in their market value. It’s also likely to be a good move from a positioning standpoint because it means they can bring focus to a brand that’s become unwieldy and schizophrenic as it tries to meet the needs of its varied lines of business.

While IBM is going first, they certainly won’t be going last. There are a whole load of 20th-century corporations out there that combine future assets and legacy anchors. For two specific examples in the marketing world, look no further than WPP and Omnicom, which will almost certainly be doing something similar in the future (either as a full divestment or something more like a “bad bank” style portfolio split like Citigroup did when it created Citi Holdings after the 2008 financial crisis).

At a professional level, a divestment trend is interesting because it means more big new brands in the world. I’m curious to see what “IBM2” with almost $20bn in revenue becomes. But more importantly, I’m fascinated to see how these spun out businesses choose to position themselves, identify themselves and build future-facing cultures for themselves. Just because you’ve been cast aside as low value by your parent doesn’t make that your destiny. Plenty of divested businesses become more successful than their erstwhile parent.

3. Big-tech wakes up to a new regulatory dawn.

tl;dr: Congressional investigation sets scene for a showdown.

From one company voluntarily splitting itself in two to four that don’t want to split but might be forced to anyway.

With all the craziness going on in the world, you might not have noticed the House of Representatives last week delivering the results of its years-long investigation into the market power of big tech. I won’t bore you with the details, except to say that this is one seriously well researched piece of work that dots its i’s, crosses its t’s and will almost certainly lead to one of the most profound shifts in corporate governance in the last 50 years.

The essence of the report is as follows:

• Apple, Amazon, Facebook, and Google are all monopolists that use their scale to abuse their market power,

• They should never have been allowed to get this big (the report being particularly scathing about the failure of competition regulators to enforce laws already on the books when reviewing the 500+ acquisitions these four firms have made in the last ten years)

• As a result, they should be broken up and become more heavily regulated to ensure fair competition across their platforms.

• New antitrust laws and stronger enforcement are needed to ensure that market power of this scale is never allowed to happen again.

It would be tempting to say “so what, Congress writes reports that go nowhere all the time.” Well, here’s why this time will probably be different. First, the investigation itself, while being accused of partisanship because it didn’t focus on the censoring of conservative voices on social media, is extremely thoroughly investigated and comprehensive with specific policy recommendations. Second, by publishing this document a branch of the US government is setting out a blueprint for competition authorities across the world to take a closer look at these firms, and finally in the halls of power there’s an increasingly bipartisan realization that something needs to be done and in society as a whole we’re increasingly cognizant that the playing field needs to be leveled.

So, what happens next? Well, in the immediate term it’ll likely depend on who wins the November election and what the makeup of the new Congress looks like. With Democrats in power, I’d expect more robust enforcement and faster. With Republicans, less so, but it won’t be nonexistent.

I view all this through the capitalist lens of economic dynamism, innovation and renewal. These firms all did great. They won the game. Well done. Now let’s break them apart so we can all play the game again, spurring investment, competition and innovation that’s currently being stifled in the process. How much venture capital do you think is just sitting on the sidelines, refusing to fund anything that is competing with Amazon, Google, or Apple right now? A huge amount is my guess.

4. The burger flaming problem with marketing.

tl;dr: There’s so much BS. Let’s look for the evidence.

One of the things that drives me utterly insane about the marketing world is the sheer amount of bullshit thrown around by self-aggrandizing blowhards. (Which I guess includes me now that I write this, ha ha). It’s like the days of MadMen never really ended, they just moved to Twitter and LinkedIn.

Let’s start with “Start with Why” by Simon Sinek, over which the rhetorical battle-lines are drawn daily on LinkedIn. Typically someone will state that its utter bullshit, and then others will pile on that not only isn’t it bullshit but it’s the single most compelling idea in business history. But he wrote the book in 2009. We have 11 years of evidence to look at to make an informed choice about whether to follow this path or not. Either the approach works or it doesn’t, so why on earth are we allowing this to devolve into little more than he said/she said in 2020? (For the record, I’ve looked and found little evidence to support it as the foundation for a successful brand strategy. As an approach to leadership and organizational inspiration, it might have more value, I don’t know).

Then we get into the ideological world of “what is a brand anyway?” which has become equally absurd. On several occasions recently I’ve heard folks in the business stating that “Amazon isn’t really a brand”, occasionally qualified with the followup statement “well, not my definition of a brand anyway.” And that’s the thing, we seem to be taking a choose your own adventure approach to branding. Of course Amazon is a brand, and an extremely powerful one at that, but hey, if you can just choose your own definition then you can claim that it isn’t, not really.

Then we get to the nature of people themselves. I’ve seen many variants recently on the meme that “all strategists are empaths” or that “empathy is the sole qualification necessary to be a great strategy leader,” which gets lots of head nods but is nonsensical on its face. First, it's a massive overgeneralization to claim all strategists are empaths. I’ve met many who’ve had the empathy gene surgically removed and plenty of them are still effective. Second, what the empathy as the prime qualification argument usually boils down to is “don’t hire asshole egotistical strategy leaders,” something I’d wholeheartedly agree with, but it’s an entirely different point. Creative services has a really bad history of enabling aggressive sociopaths who are good at selling. Fixing that is a structural problem that frankly should be table-stakes irrespective of role. While empathy certainly matters, I’d place curiosity, critical thinking, ability to inspire, ability to cut-through, and an actual understanding of what strategy is ahead on any list of key attributes for a strategy leader.

So finally, let’s talk burgers. Why burgers? Well, for two reasons. First, because it’s become one of the most intense and ridiculous ideological wars on “advertising Twitter” (yeah, that really is a thing), and second because comparing the commercial results of Burger King to those of McDonald’s is probably the closest thing we’ll ever get to a lab experiment of what happens when two very similar businesses take two very different approaches to the same task.

Here’s what it basically boils down to. On the one hand, there are those who laud Burger King for “punching above its weight” through award-winning advertising creativity that enables them to compete harder and stand out as a smaller business with smaller advertising budgets than McDonald’s. On the other hand, we have those who laud McDonald’s commercial results, superior same-store sales growth, and more effective advertising at impacting the business.

The first group poo poo McDonald’s as merely benefitting from its scale. The second poo poo Burger King as commercially naive. So who’s right?

Like many things, it isn’t as cut and dried as that. Yes, McDonald’s benefits from scale. And, yes, Burger King needs to do something to stand out and offset its lesser scale, which does point you toward emphasizing greater advertising creativity.

But, and this is a really big but, the results don’t lie. Burger King consistently performs poorly compared to McDonald’s when we look at same-store sales.

So really, this seems less of an example of creativity versus scale and more a question of execution. McDonald’s is simply executing its strategy much more effectively than Burger King is executing its. This shouldn’t be so hard to figure out, but of course it doesn’t work out that way across the flattened context and ideological battle lines of social media.

Anyway, my point is this: Don’t blindly accept what you are told, no matter who is telling you and how much you might respect them, especially if that person is me. Instead, be critical in investigating what’s being said, connecting the dots, looking for the evidence, and come to your own conclusions.