#DemandAPlan

Image via Fred Wilson.

Facebook's 15%

You may have noticed that there are fewer posts in your Facebook feed these days. The reason? Facebook is now selling its ‘sponsored posts’ feature to individual accounts in addition to business accounts. So now, when you post an update to Facebook telling your friends that you’re going to the gym or looking forward to watching your favorite television show that post only appears in approximately 15% of your friends’ news feeds. But, if you pay a small fee (I hear around $5 to $10) Facebook will show that post to a much larger group of friends. This change has caused quite a bit of frustration for Facebook users. And rightfully so.  Many businesses and individuals have spent massive resources acquiring Facebook followers and have been using Facebook as a way to engage their customers for years. You can understand the frustration among businesses and individuals that suddenly have to pay to speak to their own network.

For Facebook, though, the move makes a lot of sense. They’re a public company now, and the market wants to know how they’re going to continue to add shareholder value.  And given that there are reasons to believe that their user growth is beginning to top off, there’s lots of pressure on them to monetize their user base.  Offering a paid product to their entire base of users – which, by the way, equates to about one seventh of the world’s population – is arguably a step in the right direction.

Of course, what’s good for Facebook’s stock price in the short term may not be good for its users. Beyond the anecdotal frustration, Mark Cuban and others are advising their companies to pull back from using Facebook as a primary marketing channel. And some of the bands I follow on Facebook have asked their users to begin following them on Twitter instead.

Facebook has to walk the thin tightrope of providing an accessible and valuable platform to the masses while it tries to monetize more and more of their user base. In the past, shareholders could argue that Facebook may have leaned too far towards providing the free platform. With this change, they’re now leaning in the opposite direction. They'll have to adapt their product and communication strategy to figure out how they can continue to thrive using this new model – and they better hope their users stick around while they do.

Results From My Super Bowl Commercial Experiment

5 years ago when I started this blog, I had a theory. The theory was that participating in big, broadcast marketing was a bad strategy. And that companies that continued to participate in it would likely see their stock prices fall over time. To test this theory, I selected a group of 6 companies that ran television commercials during that year's Super Bowl and noted their stock prices with the intention of measuring their performance against the S&P 500 index. The 6 companies were Pepsi Co., E-Trade, Anheuser Busch, Coca Cola, Bridgestone and FedEx.

Anheuser Busch was of course acquired by InBev back in 2008 so 5 years later that leaves me with 5 companies to test my theory. Here are the results:

• The S&P 500 outperformed the mean of the Super Bowl stocks by just over 13%.
• The S&P 500 dropped 2.2% during this period and the 5 Super Bowl stocks dropped 15.3%.
• The S&P 500 outperformed 3 of the 5 Super Bowl stocks.
• Only one stock price increased during the period (Coca Cola by 22%)
• E-Trade's stock price ell by 83%.

Given the small sample size, I'm not sure the data is all that conclusive. But it certainly doesn't conflict with my theory. So I'll stand by it for now...

Conscious Capitalism Talk

Here's a great talk that my former marketing professor, Dr. Raj Sisodia, gave at TEDxNewEngland about a month ago. The talk addresses how the world has changed dramatically in recent years and encourages our large corporate institutions to change too. Dr. Sisodia was without a doubt my favorite professor in business school and this talk reminds me of one of his great lectures. I hope you enjoy it.

[youtube http://www.youtube.com/watch?v=O8faXr6WhCM&w=420&h=315]

Insights From Jeff Bezos

[youtube http://www.youtube.com/watch?v=kA_0W4hIhuA&w=420&h=315]

Somebody sent me this video of Jeff Bezos being interviewed by Charlie Rose back in 2011. The purpose of the interview was to announce the new Kindle that came out at the time. In the first part of the interview, Rose really pushes Bezos on how the Kindle competes with the iPad. I loved watching the way that Bezos responds. Brilliant. If you don’t have time to watch the entire video, here are the key lines/insights for me.

• The Kindle doesn't compete with the iPad. It is the best device for long form reading. Amazon has made no tradeoffs in building the best product for long form reading.
• Amazon isn’t providing the experience, that’s Hemingway’s job. They are providing the ability to enjoy that experience.
• The number one thing that Kindle users are doing is reading Stieg Larsson. The number one thing iPad users are doing is playing Angry Birds.
• Reading a book on an iPad is like reading while someone is pointing a flashlight in your eyes.
• Amazon doesn’t want to be the 79th tablet. They want to be the best at what they do.
• He urges employees to not wake up worried about competitors, but to wake up obsessing about the customer.
• Amazon doesn’t force customers to pay for its own inefficiencies.
• Business is not a zero sum game. Competitors can thrive together.
• Amazon’s mission is similar to Sony’s missions when they started.  Sony’s mission was to make Japan a leader in building quality products. Their mission was bigger than themselves.

ACOs, Consolidation & The Cost of Healthcare

There was a good article in Becker's Hospital Review the other day pointing out 8 key issues that hospitals and health systems are facing in 2013. In it, Tom Carson, a partner at Welsh, Carson, Anderson & Stowe talks about how ACOs are shifting more power to hospitals:

The biggest flaw with ACOs is that they are driving more power to hospitals — not to doctors. Very scary, and I am a hospital guy. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up in a midsize market — and doctors don't have that capital. So hospitals are pitching that they will be ACOs, and buying up practices. Ever meet a hospital administrator who wants to work to empty his beds? This means more power in expensive institutions, more consolidation of those giants — and more bricks and mortar and more costs. And with zero antitrust enforcement in the last 30 years in the hospital world, we are cruising for regional hospital-based oligopolies — not good for doctors, patients or our hopes for a more efficient system. And the well-intentioned concept of ACOs is feeding that fire.

This leads to a super interesting question. That is, will the regional pricing power that comes from the consolidation that is required to form an effective ACO actually offset the cost reduction that was intended when the model was formed? In other words, will ACOs actually increase, instead of decrease, the cost of healthcare?

Escape Fire

I watched Escape Fire: The Fight to Rescue American Healthcare the other night, a documentary on healthcare that was a 2012 Sundance Film Festival Winner.  The film doesn't offer any revolutionary ideas but it’s very well done and gives the viewer an excellent picture of the challenges facing the U.S. healthcare system.  It’s also pretty entertaining.  The film's title was inspired by the Mann Gulch forest fire in Montana back in the 1940's -- a super interesting story in its own right.

The film also does a great job of laying out some interesting and powerful healthcare related statistics. I thought I’d capture some of them here:

• The cost of healthcare is expected to hit $4.2 trillion annually within the next four years (20% of our GDP)
• 20% of patients account for 80% of healthcare costs
• 75% of healthcare costs are caused by preventable illnesses
• Average cost of healthcare in the U.S. = $8,000 per person; versus $3,000 in other developed nations
• There are only two countries that allow pharmaceutical companies to advertise directly to consumers: New Zealand and the United States
• Since 2000, premiums for employer health plans have risen at 4x the rate of inflation
• Smoking is responsible for 1 in 5 deaths in the U.S.

If you're interested in the U.S. healthcare system and where it's heading I highly recommend checking out Escape Fire.

Groupon, Chest Pain And Consumer Behavior

It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.

Some Thoughts On Sandy

I wanted to take a moment to thank my family, friends, employer, colleagues and staff in my building for their concern and offers of support in the aftermath of Hurricane Sandy. I was very lucky in that I live in the Flatiron neighborhood of Manhattan and was far away from the flooding; though I lost power, running water and sanitation in my apartment and office. I was able to get out of the city on one of the few buses leaving town yesterday afternoon and am now safe and sound in Boston.

Having no power and being forced to conserve my cell phone battery gave me lots of time to reflect on the events of the last few days. I thought I’d post some of my thoughts here:

1. Serious weather events really are local. You don’t truly appreciate the carnage and impact on those affected until you see it up close.
2. It really, really troubled me that NYC’s 911 system was receiving 10,000 calls every 30 minutes following the power outage: 1.) because there are so many morons calling 911 for non-emergencies and 2.) because there isn't any effective way to triage those 911 calls so people with life and death emergencies had to wait on hold. I've been thinking about ways that those calls could be triaged and I think there’s a good startup opportunity here – given the vast amount of information that our cell phone and email providers have on us there should be some intelligent (and profitable) ways to solve this problem.
3. Just after the power went out in New York, police cars turned on their blue flashing lights and slowly circled around the impacted streets. I saw a police car go by my apartment literally every three or four minutes. This was a smart move to give people a safe feeling and I’m sure it reduced any potential looting or other crime.
4. Twitter is incredibly useful during a crisis.
5. For the most part, people don’t need to evacuate their homes to avoid the hurricane itself, they need to evacuate to avoid the miserable days following the hurricane when they’re stuck in their wet home with no power, running water, sanitation or cell phone coverage. I think a lot of people miss that point.
6. Mayor Bloomberg did the right thing by asking President Obama not to come into New York City. The police resources that would've been required to facilitate his visit had much more important things to do.
7. Mayor Bloomberg sent the wrong message by ringing the opening bell at the NYSE that the city was up and running and open for business. People from all over the New York, New Jersey and Connecticut areas hopped in their cars and drove into a city that was just at the beginning stages of a recovery and caused massive gridlock.  New York City should not be open for business when the entire subway system is down.
8. Walking around Manhattan at night when the lights are out is really surreal.
9. It’ll be interesting to see the impact Sandy has on the Presidential election. If people see the federal government making a positive impact it should help President Obama but if things still look bad on Tuesday it might help Governor Romney.
10. Weather events like this are likely going to be much more commonplace going forward. I’ll save the climate change discussion and the role of government for another post. But citizens should use Sandy as an example of the importance of being ready when a disaster hits. Having an escape plan and an ample supply of non-perishable food, water, rain gear, flashlights, battery-powered radios and back up cell phone batteries is critical for everyone. Because even in a city of eight million people with all the conveniences that could be imagined, you just might find yourself on your own.

Finally, here are some helpful tips from FEMA on how to help the victims of the storm.

Image via Nameen.

Employment Sectors

Albert Wenger had a good post the other day noting some of the changes in employment in the U.S. over the last couple hundred years.  He uses the chart below to illustrate the massive losses in agriculture and manufacturing jobs. Some might argue that this chart indicates that our economy has weakened as a result of these losses. But Albert also notes that while these sectors have seen massive decreases in employment, overall employment as a percentage of the population has actually increased during this time (from 32% to about 45%).  There is no doubt that this kind of change causes of lots of pain in the short term, but it's also clear that the creation of new companies and entire industries is critical to the long term health of the economy.

Healthcare: Big Government Vs. Small Government

James Suroweicki has a great column in the New Yorker this week laying out why he believes Romney’s healthcare plan won’t work. Regardless of your opinion on the matter, he calls out some important and unique qualities of the healthcare industry that should be considered when weighing both candidates’ plans; that is, weighing how much we should rely on the free market versus the government to solve the healthcare cost crisis.

I recommend reading the entire article but here are a few of the most notable things to consider:

1. Unlike most consumer goods, healthcare consumers don’t have the expertise to properly value one treatment, hospital, or doctor versus another.
2. Most major healthcare purchases are made by insurers, not consumers, so they lack a direct say on the price of a treatment.
3. One way for a buyer to get a seller to reduce their price is to walk away and not buy the product at all.  In healthcare, consumers can’t just walk away from treatments like they can a new car or a new cell phone -- they have to buy the treatment to survive.

These fundamental realities of the healthcare industry make this issue far more complex than the simple big government/small government ideologies that many of us use to guide our political and economic beliefs.

The Healthcare Mandate's Impact On Healthcare Costs

I read Goldman Sachs’ recent report on Election Outcomes and Potential Impact to Healthcare Stocks earlier this week.  Basically the report outlines what’s likely to happen to the different healthcare verticals in the event of a Romney win or an Obama reelection.  The vertical that will be most impacted by the election seems to be hospitals and health systems.  The reason is that the universal healthcare component of Obama’s Affordable Care Act will dramatically change the payer mix for most hospitals.  Suddenly 30 million people will have insurance on one day that didn't have insurance the day before.  That means that people who weren't inclined to get care are more likely to get care (more hospital revenue) and, perhaps more significantly, hospitals will get paid for the care that they give to patients that don’t have insurance (more hospital revenue). In addition to helping hospital stocks, the conventional thinking seems to the be that the healthcare mandate will also lower overall healthcare costs.  To illustrate that point, here’s a vicious cycle that’s currently driving up the cost of care that may be disrupted significantly with the roll-out of the mandate. Let’s use an imaginary uninsured patient named John:

1. John doesn't have insurance.
2. John gets sick.
3. John doesn't want to pay for care out-of-pocket so he delays seeing a doctor.
4. His condition gets worse.
5. His condition eventually gets so bad that he shows up at the emergency room and gets lots of acute (and expensive) care.
6. He doesn't have the money to pay the hospital so the hospital loses lots of money.
7. To make up for this lost money, the hospital charges its insured patients more for their care.
8. To make up for these price increases, the insurers raise their premiums.
9. Because of the high premiums, people drop their insurance.
10. Repeat.

By requiring John to get insurance, he’s more likely to seek care earlier, thus reducing the costs and losses to treat him, thus allowing hospitals to lower costs, thus allowing  insurance companies to reduce their premiums, thus allowing more people to afford insurance.

Of course what sounds good in theory may not work in practice. But it’ll be interesting to see how the mandate will impact healthcare costs should Obama win in November.