Bear Market for Bear Stearns

For $234m JP Morgan has bought a bank, Bear Stearns, that was worth $20 billion last year. Either they have got the bargain of the century or Bear Stearns has the equivalent of a football team's worth of rogue traders. It is more likely they have bought this on the cheap, given the support the Fed has also agreed to give, making it a great symbol of how the banking sector is capable of making money even when times are hard.

What I find striking about this deal is that it reminds us how the banking business is built on confidence and how easily that confidence can be destroyed. I'm sure there are some real problems with the Bear Stearns business but I'm also sure there are many assets (not least their real estate in NY) that are worth considerably more than the $2 a share JP Morgan is paying. I'm pretty sure the brains at JP Morgan will be able to clean up the Bear Stearns business, which then only leaves them with a confidence challenge. That is a classic PR challenge that in this instance is going to run right across their sector. It will be fascinating to see how they respond to this in the short term. As a sector they tend to be fierce competitors but if they want to maintain the confidence they need right now they are going to have to work well together and show the world they can weather this storm. It's classic crisis management stuff but for an industry as a whole not just Bear Stearns who at this point are the victim.

It's all the economy's fault

As news about a weak US economy continues to get posted, you can expect businesses to hide poor performance behind this economic curtain. In truth not all businesses that do poorly are suffering from a bad economy. Many are simply suffering from poor management and poor products. Of course if you dominate a market with huge market share then you will feel the effects of a shrinking market more than most in all likelihood. But most companies don't dominate. Most companies have a tiny share of the market. So even if the market is shrinking they could still grow by taking market share away from a competitor. To do that they will of course have to run a better company than the competitor. That may not be easy, especially in an uncertain economy but it's not impossible. So next time you hear a CEO blame the economic climate for worse than expected results you should ask yourself whether it really was the economy or was it that they made some bad calls?

What's Steve Jobs HPA?

In sports, averages and ratings are calculated for everything. Baseball is full of players stats such as RBIs and ERAs. In (American) football, quarterbacks have YPAs and in basketball there are stats on free throws and rebounds to name but a few. I was wondering today whether you could also create stats for business leaders. For example how many of the products Steve Jobs has unveiled in the last few years have gone on to be hits? Put another way, what's his Hits Per Announcement, or HPA, average? If such a score could be calculated it would probably show that Apple's CEO is scoring well. The logical conclusion being that he must be taking performance enhancing drugs and will likely face a grand jury some time in the next year or two, once they've finished with Barry Bonds.

The real economy needs to speak up

Last week WPP's CEO talked about the 'real economy' and how it's actually holding up quite well. The same day, IPG also put out some positive statements following good results. Indeed if you look at the business news in recent weeks there have been a string of relatively positive statements made, albeit with some caveats attached. The only sectors that have continued to spew out bad news have been banking, housing and the some parts of the auto industry. Even retail has seemed pretty robust which lead a Forbes columnist to pick Target as a stock worth buying now that its PE has dropped to around 16. All this suggests that there are two economies playing out right now. Unfortunately only one of them seems to be getting any attention. The 'real economy' as Sir Martin called it seems to get a passing mention, whereas the the mean, ugly one that the banks are wrapped up in seems to get a mountain of coverage. It sounds to me like the real economy needs some marketing support.

Why this recession will be different

There seems little doubt that the US economy is in some form of recession. Whether that recession is impacting all the states and all parts of the economy is another matter. The auto industry seems to be getting hit while tech remains relatively strong. Perhaps that has something to do with the fact that modern cars will last decades, whereas computers still seem to need replacing every three or four years. Anyway, that's a whole other subject.

What I've been giving thought to is how this period of economic change will differ from the time of the dot com crash. One item really stands out to me and that's stock options. When the dot com market was booming tech companies were giving staff relatively large amounts of stock and lower basic salaries. As a result when the crash happened staff were left with big tax bills on stock that wasn't worth anything and salaries that were artificially low. This made many employees nervous about accepting options as a form of compensation even in companies that had good prospects. Couple this with changes in accounting rules that made the idea of issuing stock options less attractive and you had a situation where companies have been forced to look at more traditional rewards. They have also had to sell people on the idea that the job they were offering would actually be worth taking.

So if we assume that the market does take a beating at stocks drop 15%, the impact on the economy could be quite different. Last time around, those with stock in public companies were trying to sell fast before their tax burdens grew too great. This time around the magnitudes are so different that the rush to sell shouldn't be as dramatic. Also, this time around people are earning higher basic salaries. This has two implications: 1. People are less dependent on stock for compensation so a bad day on the market won't mean as much 2. If companies need to trim costs they shouldn't need to lay as many people off in order to achieve the same cost saving.

As you can probably tell, I'm no economist but I do believe that the relative absence of stock options in the current economy could have a big bearing on how a recession plays out.

No news is bad news

Yahoo! may not want Microsoft to buy them but I suspect they are enjoying the attention the Microsoft offer has brought to the brand. For a while now Yahoo! has been struggling to regain the spotlight from Google. With Microsoft's offer they suddenly have that spotlight albeit for different reasons. I'm curious to see whether this attention translates into increased sales revenues - I suspect it could. If it does, the old saying that: "no news is bad news," may well prove correct.

btw - for those of you that track this blog, you may recall my YouTube measure. Since I last checked (which was back in December) Google's postings have increased from 169,000 to 192,000 (an increase of 13.6%), while Yahoo!'s have increased from 123,000 to 149,000 (an increase of 21%).

Creston spins out of a difficult US market

If you read the latest PR Week UK front page news that Creston has pulled out of the US you may have come to the conclusion that the US was a dangerous place for PR agencies to be right now and that firms such as ours and Huntsworth must be struggling. I’d like to refer back to our recent AGM update where we talked in positive terms about our business here in America and also refer people to Huntsworth’s update where they suggested they too were trading well.

The story inferred that large agencies are going to find it harder if a recession strikes (shocking news) but fails to make a coherent argument as to why – there only real suggestion is that in tough times people go to smaller less expensive firms. As an agency head that has worked through a recession or two I’ll tell you that in recessions clients get cautious, which means they tend to want to work with firms they know will still be there when a recession ends. Equally, better talent tends to also play it safe and opt for agencies that are likely to survive and that tends to be the bigger firms. So as you can see I’m not really following the logic of this news piece.

My next observation is that even having read the following paragraph several times I’m still not sure what it means: “Agencies under the umb¬rellas of mid-sized conglomerates such as Chime, Next Fifteen Group and Huntsworth, which are reliant on central costing, could now find their budgets under close scrutiny from clients, according to analysts.” What exactly is “central costing?” Do they mean that PR budgets are somehow managed centrally by big customers across the globe? If so I suggest they interview a few clients and they’ll soon learn that the vast majority of budgets are set market by market.

My last point is that I’m rather surprised PR Week didn’t contact the midsized holding companies they referred to for a perspective on this news. Perhaps if they had the Creston spin would have been exposed. My hat goes off to Creston though. Let's face it, they did manage to deflect some pretty bad news and suggest that they were now better placed than others to deal with the US. I just wonder who really bought that news.

Is there a link between Green and the economy?

Six months ago Green was everywhere in the media. Major companies were clamoring to be seen as the greenest business with Dell perhaps being one of the most ambitious in this regard. As economic uncertainty has increased Green appears to have slipped from the agenda. It is almost as if Green was a luxury companies and consumers could afford when times were good. Interestingly it has also failed to be a pillar of any of the Presidential nominee campaigns. I find this rather disturbing but not that surprising. This does present a challenge for those of us that believe Green is more than just a convenient way of appealing to certain consumers. The answer, I believe, is in adapting the Green message to suit the market. Right now the message needs to be less about good citizenship and more about how Green can actually help companies be more efficient and reduce costs. For example, companies that adopt advanced video conferencing now in lieu of having staff flying back and forth will be doing the environment a favor but will also be saving huge amounts of staff time and thus increasing productivity. In other words Green needs to think like a business and listen to its customers. If it doesn't I fear it will take a back seat for a while to come.

Same destination, different route

It's easy to believe that when the economy changes, so does the mission of a business. The reason it's easy to believe is because it's at least partly true. If the economy changes, so does the economic opportunity... at least in the short term. However, I would argue that looking longer term the goals of a business should remain unchanged. This means if a business is aiming to lead or create a market it should still aim to do so. Of course its timescales may get modified but the destination shouldn't (Unless of course the economy wipes that market off the map!). So if the commercial objectives remain unchanged but the means of achieving them get modified, then I'd also argue that the communications objectives should remain while perhaps the strategies may be reviewed. So as the storm clouds around the US economy continue to build, I'd encourage communications professionals to remind their staff not to take their eye off the prize but instead to look again at the route they may take to get there.

People like good adverts and bad PR

If you search online for 'great' or 'best advertising' you'll find sites such as bestadsever.com and bestadsontv.com. If you search for great or best PR, you'll find very little. Indeed there isn't a site (yet) that collects all the great work done in this area of marketing. There are however a host of sites that collect all the bad work done. One being prdisasters.com. It just goes to show that people love to see talking babies, horses with flatulence and dancing lizards just as much as they like to see CEOs stumbling to handle the media when things go wrong. Maybe PR Week should start a Best PR site and each month upload their winners.

Borderless Communities and Flat Issues Build Global Brands

Global PR is nothing new, nor is the concept of a global economy. However, now for the first time we are seeing what a global economy really means and that in turn is changing PR thanks to what I’d call Flat Issues and borderless communities. In the past a global economy meant new business models and new markets for goods and services. Now it means common attitudes to brands and common fears about issues. Consumers around the developed world pay little attention to where their products are made but they do care about many of the same things. "Are these bananas organic?" "Is Microsoft evil?" "Should America leave Iraq?" Ten years ago I'd theorize that only a small percentage of the issues people cared about in one country were shared with people in another. Today I'd suggest that on any given day almost a third of the issues on people's minds are common across multiple markets.

Now this both poses a challenge and creates an opportunity for anyone trying to build brands. On one level brands need to worry about where input to issues will come from. For example a firm in Sunnyvale CA may well get berated online by someone in Frankfurt, Germany even though they don't officially do business in that country. On the other hand, a brand that is having a tough time in one country may turn to customers in another to help them shift perceptions. This idea isn't new but for the first time people may actually find it works thanks in large part to the rise of social networks/media. Social media offers the chance to break out of a country by country approach to influencing opinions and instead focus on communities with common interests. For brands wanting to take advantage of this they need to know where there is common ground (the flat issues) and understand the scope of a community. This means either doing some research or making an educated guess. I'd of course vote for the former.

So for anyone trying to build a global brand, I'd suggest they start by identifying both the communities that break borders and the flat issues that unite them. That's where the opportunity to take advantage of global markets really lies.

Google's stance is hard to swallow

Google is clearly scared that if Microsoft succeeds in buying Yahoo! it will lose it's dominance in the search/online ad sales business. So it is using the idea that if a deal gets done Microsoft will suddenly become the dominant email and instant messaging player as a way to get the deal called off by antri-trust lawyers. There are few things that make this a hard line to swallow:

1. Microsoft is already the dominant email supplier in the workplace thanks to Outlook. Indeed if you taker the email market as a whole I'm sure Microsoft is way ahead of any rival thanks to Hotmail so this doesn't really change things that much.
2. They are so obviously picking a fight that has nothing to do with the real... fight. The real battle is about online ads. Google has been killing the competition for several years now thanks to the dominance of its search engine. A deal with Yahoo! would simply make Microsoft a real competitor as opposed to a potential competitor.
3. They think it is OK for them to be a dominant player but not Microsoft. In effect they are suggesting that Microsoft's history suggests that if they become dominant in the Internet business then they will treat the Internet just like they did the PC business and that will be a bad thing. I think we all know that even if Microsoft pulled off this deal and even if they then de-throned Google, the governments around the world would be watching them like a hawk. And the governments have been pretty successful in getting their way when they take on Microsoft in court.

Of course you can't blame them for reacting to the deal but judging by the drop in Google's share price (now below $500 for the first time in over six months) it is clear that the market thinks they are running scared. I almost wonder whether they would have been better to play down the deal rather than look as if they are scared by it.

PS - I know Yahoo's name has an exclamation mark after it but Google's Blogger won't allow me to use one in the labels section...

We live in really interesting times

There are times when there seems little of great importance going on in the world. Right now there is more news than is possible to digest:

1. Stock markets in turmoil as they struggle to figure out if there will be a recession in the US and other parts of the world.
2. A stimulus package for the US economy
3. The biggest US interest rate cut in 25 years
4. Super Tuesday is looming and Obama and Clinton are fighting (again - Iowa Nice seems so long ago)
5. The Palestinians have found that unlike the Israelis the Egyptians will accept people simply demolishing the border between them so they can come and buy much needed supplies
6. The Italian PM resigns (that seems to happen every few years though)
7. A rogue futures trader allegedly costs French bank Societe Generale $7.14 billion

Against this amount of news it would seem almost impossible for any company to get on the front pages or be a lead story. Tough times for PR people...

MarketWATCH

If you read MarketWatch you will know they have cleverly embedded live stock quotes in their stories. It does add a nice dimension when you are reading a piece and suddenly one of the stocks listed shows an updated price. With today being another hugely volatile day on the markets, the article I was reading looked like it was covered in Christmas lights as the stocks kept changing. Indeed I ended up not reading the article and instead just watching the stock prices.

Stock Markets in Turmoil, Currencies Calm

It has been a wild ride for the various exchanges around the world today. As you will likely know, the DOW opened down 450 points, only to recover most of it after news of a 0.75% cut in interest rates by the Fed. That said if you look at the chart throughout the trading day you will see it has bounced a round quite a lot even after the interest rate news. The same can't be said for exchange rates. If you look at the exchange rates, you will see they have moderated over the day with far less volatility. Given the connection between interest rates and exchange rates you would expect there to be some shift in the value of the dollar following the unexpectedly large interest rate cut. Yet the dollar is only slightly worse off than it had been suggesting currency traders see more good news in the rate cut than bad. I'm curious why the opinions of currency traders haven't been sought today by the likes of AP. I'm pretty sure they'd have some useful input to the discussions going on following the rate cut.

La, La, La - Can't hear you!

You know when someone is trying to tell you something and you do anything you can to make sure you can't hear them? Well it would seem the various stock markets have become a little like that in the last few weeks. In the US Apple announced sales of the iPhone are doing great and the stock tumbled. Intel then announced profits up 50%, their stock was pounded. In our sector, Huntsworth and Chime both put out positive trading updates only to see their stocks fall - despite the fact that in both cases they used expressions like: "we are confident about our prospects for the year ahead." So it would seem the best thing to do right now is stay below the radar if at all possible. Positive corporate news, it would seem, is more likely to remind analysts you exist and drive your stock down than do the opposite. It makes no sense of course but it's hard to argue with.

How green is your FedEx?

Somebody wanted to FedEx a file to me today rather than email it to me even though it was only 8Mb and wasn't the most important document on the planet. I couldn't help but wonder how many files like this actually get sent via FedEx, UPS or DHL. I am guessing the number is quite large. Now in many cases it is because people want an original signed copy. My bank in the UK is big on this. I can converse with them via email quite happily but as soon as I want to transfer some money between the UK and the US I have to send a letter. What makes that all the more crazy is that today they emailed me to say they'd received my letter but could I just email them back to confirm what I'd just written to them about... All this bureaucracy must be doing a huge amount of damage to the environment. I wonder how many flights and truck journeys could be saved if a secure, digital transfer mechanism could be agreed that even small businesses and consumers could use so that orginals didn't need to be sent? Of course I can't see the likes of FedEx lobbying the government for such a thing as they'll lose business so maybe it's the sort of thing the likes of Google and other Internet giants should take up as a sign of their good citizenship.

Gates may have another career ahead of him

If you haven't yet seen the Bill Gates video from CES you should. click here. It's interesting to watch as he's clearly a little embarrassed when he introduces it and yet on the video he is quite a good actor - the gym scene is perhaps my favorite. Oscar winning potential? I don't think so but he could play the odd cameo role. Acting aside this has to be good PR for Microsoft as definitely shows their sense of humor.

Goldman Sachs Sees Doesn't see a Great 08

Reuters just published a piece saying: "Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter. In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent. The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said."

We all hate to read pieces like this as they suggest we are set for a year where belts/purse strings will be tightened. Of course, the reality of markets is that some businesses will thrive during a period like this and some will truly suffer. The challenge we all face (assuming GS is correct) is how to make sure we are in the first category. At the end of last year I wrote a piece on what agencies should do when recessions loom. I'd like to reiterate the advice in that but I'd also like to add some other points:

1. Make sure your work is focused on the same things the board is worrying about. If you don't know what they are worrying about you should be worried. You need to know. Now of course we are all aware that in many businesses getting to the board is tough. That said, there are always access points so make it your mission.

2. Worry about the small things. When markets are bad people get nervous and look for the mistakes. Avoid making them. Good agencies have their share of good detail process people, people who can spot a tiny mistake. Give these people a voice and make it clear that they need to be listened to.

3. Provide insight. Recessions are like fog. They reduce corporate visibility making it hard to plan and even more difficult for businesses to act. Keep clients aware of what is going on around them. Give them data and some appropriate analysis that helps them understand what is going on. Decision making in the good times is easy as it gets less attention. In tougher times, everyone questions everything. The more insight you can give, the more you can help people feel good about the decisions they are making.

Of course it could well be that Goldman has it wrong. Over the holidays I met a couple of investment bankers from Merrill Lynch and Morgan Stanley. Interestingly they both said they have several "chief" economists to make sure that they can never be wrong. In other words, as long as their economists don't agree on the future one of them will be right!

Microsoft, Sprint and Blackberry Sync on Messaging

You may have noticed Microsoft's ad campaign for their smart phone platform which is built around the tag line Start Doing More. The idea being that you can get a lot more done with a Microsoft based phone. Meanwhile Sprint is running TV ads that end with the line "people might wonder how many of you there really are" (because you can now get so much done that is). Last there's RIM's Blackberry ad that has some line about a bigger world. It seems they are all focussed on what a mobile platform can do and not on why their particular platform is better...