October-Design

It’s no secret that Steve Jobs was a Beetles fan. And like his predecessor, Mr. Jobs changed how we saw ourselves
and how we live our lives. Once in awhile a luminary emerges to light our way. And like Jonh Lennon before him,
Steve Jobs will be missed and the world a little darker place.

A key motivator for starting any technology project is always the Return On Investment (ROI), either in cost savings or revenue generation and or both. Depending on the project, the ROI isn’t always immediately obvious, specially with cost savings. To help illustrate cost savings, we’ll look at technologies broader impact on a common business application, payroll processing.

The evolution in payroll processing is one example of how technology has reduced a business expense to pennies on the comparative dollar. Nearly every small business participates in payroll processing. In addition to employer paying employee, there are tax, healthcare and insurance liabilities that also have to be managed.

For our illustration, we’ll use a company that has been servicing clients payroll needs since 1949. The New Jersey Company, Automatic Data Processing (ADP) went public in 1962. ADP was a payroll outsourcing service, incorporating some of the earliest computer advancements in data management and data processing. Today ADP is a $9 billion a year powerhouse, however, back in 1962 they had a client base of 300 with annual revenues of $400,000. The adjusted revenue equivalent in 2009 is about $3 Million.

In 1962, Automatic Data Processing’ average client annual value was $1,333 ($9351 in 2009 dollars). Today, payroll service companies charge about $750 a year to manage a small businesses payroll process. Compared to 1962, the cost for outsourced payroll processing, for a small business, has dropped about 92%.

The Bottom Line:
Payroll processing services evolved to an efficient and cost effective operation through technological innovation. Payroll processing also owns the distinction of being one of the first business processes to benefit from “new technology”. If innovation had stood still, and nobody adopted new technology, the average small business likely pays about $10,000 per-annum to outsource payroll instead of the very reasonable $750 per year.

The story of how technology reshaped business and reduced operating expense is played out time and time again. Warehousing, Resource Management and Allocation, Sales and Marketing are a few other examples of how technology has continued to reshape the business landscape. Technology provides a driving force behind markets and motivates business to evolve. We see it with every project we deliver.

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Pepsi Co. (NYSE: PEP) declined to advertise during the 2010 Super Bowl. I wondered in an earlier post how this would impact sales and shareholder value. While Q1 data is not available (Webcast planned for March 22), early signs seems to indicate the move didn’t adversely effect Pepsi Co. Here are a couple street signs from my windshield view. First, Pepsi recently announced (March 16th) that it would “stop sales of full sugar soft drinks to primary and secondary schools by 2012″. Applause, Applause from the teachers and school staff. While this doesn’t say they will stop sales, it does indicate that sugary drink profit margins could be affected. Why would Pepsi shoot themselves in the foot? Obviously they wouldn’t, not willingly anyway. Sales are good (annualized revenues of nearly $60 billion) along their 19 different product lines including Tropicana and Gatorade. They have the product portfolio to reformulate their offering to schools. Secondly, Pepsi is sitting on a pile of cash and will return some cash to shareholders in dividends and stock repurchasing. The early indicators are Pepsi is non the worst for ware by missing the biggest advertising spectacle that is the Super Bowl.

There is more than enough coverage for Apple. No need to weigh in on what’s happening at 1 Infinite Loop Cupertino CA as far as iPad’s, iPhone’s or any other wunder product. My Apple (NYSE: AAPL) commentary is really a request from me to Steve… FOLLOW PEPSI, PLEASE PAY A DIVIDEND. The last dividend Apple paid investors was back in December 15, 1995. Com’on Steve, share a little of that $25.6 billion dollar war chest you’re sitting on. In Steve Job’s defense, Job’s is quoted as saying he’s sitting on cash for a future “potential acquisitions and “bold” investments”. That’s about as clear as mud and an easy way out. If you’ve read my post, you already know I’m an Apple fan. I just wish that in this market climate, a little dividend would be nice now and then for the long term investor.
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P.S. Disclaimer, obviously I own shares of AAPL, but do not own shares of PEP.

Streaming Media is an accessible medium for any business or organization who want to tell their story in a rich, multimedia format. If a picture is worth a thousand words, moving pictures enjoy the power of 10. October-Design announces our new streaming media server is online and streaming media to web users. Here is a short video blog with streaming media tips. Thank you for watching and look for other video blogs coming soon.
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Pepsi has decided not to run its advertising in the 2010 Super Bowl. The decision was made because it feels it can not effectively convey it’s marketing effort in a :30 second spot, at $3M a pop (pun intended). This is another example of the unintended consequence of fragmented markets, fragmented consumers and fragmented offers.

Once it was simple. You sold one product, had limited marketing outlets and there was little choice for consumers. That was the “golden age” of the Sales Era -1950’s and 1960’s. How a few short decades and technology have completely turned that model upside down.

I like Pepsi’s decision, no matter how risky. Advertisers need to talk to their consumers the way those consumers want to be spoken to and in a way they want to hear it. Another way to say this is – put away the blunt instrument (TV) and pick up the razor sharp, surgical suture, it’s operating time.

In a company press release, Pepsi says it wants to reach it’s consumer through “Cause Related Marketing” and the Internet. “Every Pepsi Refreshes the World” is the tag they’ve chosen and Pepsi intends to stay engaged with their consumer through social and web media. Obviously, measuring the success of social, viral, stealth and cause marketing is mostly a leap of faith without ever finding the bottom. But no matter, the methods are proven and top line sales will always be the guiding light. Whether you pull an “86% share” (industry jargon- out of 114M TV households (U.S.), an estimated 99M will be tuned in to the Super Bowl) or measured by a high BlogPulse.

I started off with unintended consequence and end with causation. Pepsi diversified its original offer from the young pharmacist at his North Carolina drug store offering a refreshing drink now to the multi-billion dollar conglomerate it is today. The effect of which is one venue will never be enough too fully engage with it’s fragmented consumer. Enter the new age of micro marketing.
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Obvious reference to the rock band AC/DC aside, let’s get right to the point. According to National Retail Federation’s Holiday Survey, Black Friday weekend went like this. More consumers (195M in 09 vs. 172M in 08) spent less money per capita ($343 per person down from $373 in 08); total dollar volume was up $41.2 Billion in 09 vs. $41 Billion in 08.

What I find more interesting is best illustrated by my wife. My wife and Sister-In-Law went shopping from midnight until 9AM the next morning. Mind you, my wife treasures her sleep and if given the choice, would have rather slept than shopped. But the deals were too good and selection to great. Also they were not alone in their nocturnal quest to get “the deals they deserved”.

This economy has forced consumers and retailers alike to change their behavior in order to maintain a level of consumption each are accustom to. Some notable examples of retailers risky behavior include several opened on Thanksgiving (ex. Old Navy) or opened at Midnight Friday morning (ex. Toy’s R Us, Walmart). Did their gamble pay off? Early returns say department stores were the big winners and specialty retailers and deep discounters had a ways to go. And perhaps that was the motivation for retailers to be more creative in their quest to pry money from our tiny claws.

No post about Black Friday would be complete without mention of Cyber Monday. Nearly one quarter of consumers shopped online, approximately 100 million Americans according to National Retail Federation. 87% of retailers offered some special promotion only available online through their eStores. Some promotions featured free shipping or “one day sales” events. Hitwise.com reports that among the top 500 online retailers, Amazon.com took the top spot(15%); Walmart.com came in second(9%); Target was third(5%); BestBuy was forth(3%) and JC Penny fifth(2%). I personally shopped the Apple store and almost bought a laptop, but the $150 discount (biggest I’ve seen all year for Apple) just wasn’t enough to get me to part with my hard won cash.

All-in-all this Holiday shopping season appears to be shaping up as predicted, flat to modest improvement over 2008. What I take away from this as a marketer is that nothing is out of the question in this economy. The more creative an organization can be, the more likely they will be rewarded. Likewise consumers are willing to go the extra mile if they believe the “deals they deserve” are on the line.
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I once dealt cards at a charity poker tournament and was amazed to observe the pile of $1 and $5 dollar bills moved around the table from player to player. Today’s news on retail sales reminded me of that experience, only now the consumer is dealing the cards. Sitting at the table are all the big box retailers vying for a share in a limited pile of ones and five dollar bills.

Wal-Mart (WMT: Q3 .84 cents/per share, expected .81) and Target (TGT: Q3 .81 cents/per share, expected .79) both reported better than expected earnings but it was at the expense of furniture, appliance and hardware stores. Why are general merchandisers doing better than specialty? Simple, you and I have limited resources and are spending hard won CASH on bare essentials and sitting on the rest.

With unemployment now at 10.2%, credit card circulation falling (by 18% just since the beginning of 09) and stimulus winding down, recovery is shifting squarely on to the shoulders of a stressed and stretched consumer.

Indeed, retail sales rose 1.4% in October. But wait, when you exclude automotive sales, retail only grew at a modest .2%. Avoiding a double dip recession will depend on the consumer and how they feel about the their future prospects. Are consumers cautious–optimist or concerned–pragmatist? If the later, we’ll have some ground to cover before business can breath easy.

Black Friday is nearly here, the apex of the retail shopping season. It will be interesting to see the post game results. Not just the percent of growth or retraction, but also the distribution of either success or failure. Will the general merchandiser walk away from the table as the clear cut winner? Or will everybody get a little piece of the pile? Stick around, my analysis will be posted next week.
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White House economic adviser Paul Volcker recommended on Monday that the administration shift priority away from consumers on to public works projects as a mechanism for spurring and sustaining U.S. economic growth.

Consumers accounted for 70 – 75% of the U.S. Gross Domestic Product which annually ranges between $40 – $50 trillion dollars. Mr. Volcker suggest that economic growth move from consumption with its pattern of boom/bust cycles, to one of infrastructure projects (electrical grid, highways, communication), green technologies and exports.

This has sub text from Franklin Delano Roosevelt who enacted several programs under his “New Deal” (1933-1945(3 terms)) administration, creating the public works playbook Mr. Volcker now seems to be reading. FDR used big public works projects to help pull the U.S. out of a long protracted depression/recession (1929 – 1941) where unemployment reached 25% and GDP fell about -29% to the lowest levels in 1933.

By comparison, we are sitting at 9.5% unemployment (nationally) and -12% (aggregated) real GDP from Q3-2008(start of consecutive negative quarterly results) through Q3-2009(first positive (3.5%) number in 5 quarters) according to Bureau of Economic Analysis.

Consumers will play a diminished roll in future growth but only because our spending habits have temporarily changed and will likely remain so for some time. However, we are a consumer driven society and while the recession has slowed growth in our voracious appetite for consumption, the jury is out on whether consumers remain penny pinchers in the long term.

Already there are tremors that would suggest we will once again power the economy yet again with our hard won cash. Maybe the impetus begins with new innovation, maybe it comes from wage growth or downward pricing pressures. Regardless, the American consumer is a live and well, even if they are still a bit apprehensive.
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Every once in awhile I like to “data dive” with the hopes of uncovering some factoid relevant to a question. Today is one of those days and the question I wanted to answer was “how big is the world wide web”? As is the case with any broadly defined question, there are numerous sources from which one can extract a myriad of answers. For our purpose though, we’ll focused on a few sources which will be identified shortly. So let’s go…

The World Wide Web by Active Domains: 112,583,548 (Alexa.com, Oct. 26, 2009)
Domains can be thought of as the address on a store front or house. They come in seven flavors, .com, .net, .info, .org, .edu, .gov, .biz.

• The Number One Alexa Ranked website is Google.com. Google gets (on average) 7% of the daily U.S. traffic or about 4.8 million visitors (Hitwise.com, July 2009). By contrast, October-Design’s Alexa Rank is 23,089,903 and gets on average 7 visitors a day.

The Number of Internet Users, World Wide: 1,668,870,408 (InternetWorldStats.com, Oct. 26th, 2009)

Internet Users by Country
• China – 338 million
• US – 227 million
• Japan – 94 million
• India – 81 million
• Brazil – 67 million
• Germany – 55 million
• UK – 48 million
• France – 42 million
• Russia – 38 million
• S. Korea – 27 million

• The highest percent of population with Internet Access is the U.K. with 79.8% having access;
the U.S. is second with 74.1%
and Japan is third with 74% of its’ population having Internet Access.

Estimated Number of “Indexed” Documents On the World Wide Web: 21.44 billion documents indexed (Oct 26, 09)
The key word is “indexed” which is the act of search engines reading a documents content and storing its information. It has been estimated that there are over 1 trillion documents online. However, not all documents are accessible through search engines or been indexed, nor do they have public facing hyperlinks.

Now for some analog world comparisons (just for fun):
• Population of New York City: 8,143,197
• Est. Number of Businesses in NYC: 485,000
• New York City is the United State’s largest regional economy and the worlds second largest city economy after Tokyo, Japan.
• New York City region represents $1.2 trillion of economic activity (2008 conference of Mayors); the 2008 total Gross Domestic Product (GDP) for the U.S. was $14.2 trillion (Source: U.S. Department of Commerce).

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Apple (AAPL) beats Wall Street’s Earning Estimate by .40 per share, reporting a $1.82 per share results for its’ fiscal forth quarter (ending in September).

The primary driver behind this success story is Apples’ brand, and the consumers who continue to purchase iPhone, iPod -Touch and Macintosh PCs.

“This isn’t just a one-quarter phenomenon, there’s something bigger going on. There’s a paradigm shift from a cell phone, (to) a computer in your pocket. Apple’s going to run away with that and ultimately, the numbers are going to be inching up as we go forward into 2010,” Gene Munster, senior research analyst at Piper Jaffray, told CNBC.

“You know, it proves that even in a challenging economy people are willing to pay for what they perceive to be high quality product and a good value product,” said Cross Research Analyst Shannon Cross.

Our interest in this story is the last quote. “people are willing to pay for what they perceive to be high quality product and a good value product”. Another way to say it would be people are willing to pay for a brand if that brand fulfills its promise at a perceived value. Apple is certainly one of the premier brands fulfilling its’ promise to consumers.

Investment note: If you were smart, and bought Apple stock about a year ago, and sold it today (October 20th), you would have made about a $100 per share. That’s the power of a brand, hard at work.
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