A PHELPS Sized Opportunity

If you don't live under a rock, you probably already know that Michael Phelps recently broke Mark Spitz's record for gold medals in a single Olympic Games by winning eight golds in Beijing. The media whirlwind since the historic feat has been incredible as Phelps has been featured on virtually every major sports and news network. As proof of Phelps's popularity, most of Phelps's races were held in the morning Beijing time so television viewers in the United States could watch his races live in prime time. The sport of swimming has not seen a resurgence this size since Spitz set the gold medal standard nearly thirty five years ago. Phelps has also been featured on countless ad campaigns leading up to the Olympic Games. Despite Phelps's success over the last four or five years, the sport of swimming has found it difficult to compete with America's big three sports (Football, Basketball, and Baseball).

Swimming officials/marketers need to take advantage of the increased exposure brought by the Olympics. Swim coaches across the country are reporting surging attendance since Phelps's performance at the Olympics. If you look more closely at it, swimming has the potential to be an enormously popular sport. Swimming is different than Football or Boxing because it is a sport that fans of all ages can actively participate in. This means the fans can relate with the athletes on a more personal level. I have proposed several recommendations that could help maintain the momentum created by Michael Phelps and the Olympics:

• First and most important, a network television deal.
  
• Along with this, full Internet coverage of all the season's most popular meets.
• More team inspired country vs. country exhibition meets that mimic the Olympic format.
• Abbreviated meets that emphasize the more popular events. This would cater to the modern attention span, or lack thereof
• A nationwide ad campaign to “introduce” the world's top swimmers to the average sports fan.

The I Word

Innovation is one of the most powerful drivers of a company's success, but why is the practice of fostering innovation such a foreign concept? Most companies spend large amounts of time and money on projects to enhance innovation, but their approach is usually flawed. Companies too often focus on innovation as a process, instead of creating an environment of creativity. Top companies need to realize that innovation usually follows an unpredictable path that is impossible to accurately foresee. This is in stark contrast to the intuition driven techniques that companies implement in other less creative aspects of their business. But how does a company go about building a creative environment? Creative companies are usually characterized by several key creative competencies.

• An efficient way for everyone in the company to have their ideas heard by people who have the power and resources to implement them
• A compensation programs that rewards creative success
• Free time that allows employees to express their creative side (Google is one popular company that implements this strategy)
• A team atmosphere that encourages collaboration
  

Google's Management Revisited

This recent article in the NY Times about Google's decision to raise prices for its employee day care services is pretty interesting considering an article that I published last year concerning Google's management structure. I have included the article in italics below:

The Impact of Management
Wednesday, August, 15th, 2007th by Matthew Stockov
I read an interesting article in the WSJ today about Google's management style. Google is well known for its innovative breed of creativity driven management techniques, such as giving employees time every week to create and develop projects interesting to them. This brings up the question, is Google's management style a reason for their success, or would the company be successful regardless?

Google is different than most cost cutting companies because it treats its employees with lavish amenities (i.e. Massages, Executive Chefs, etc). This obviously helps Google attract and retain talent, but is it helpful for the bottom line? Google's last earnings report saw a huge decrease in profit margins mainly due to hiring, which could explain a problem with the Mountainview, Ca company's foolproof talent management techniques. It could be the case that the extra revenue created by these talented individuals does not cover the cost of providing 5 star service for every employee. I'm curious as to what would be the impact of a change to a more cost effective mangement structure. Google would obviously lose key employees to other companies, but it would be difficult to measure the financial impact of such a change. I'm just playing devils advocate here, but it will be interesting to see how Google will deal with future cost pressures.

Can You Hear Me Now?

To put it simply, investing in the stock market is like trying to predict the future. Analysts attempt to predict what publicly traded companies will be financially successful in the long term (traders aside). To accomplish this, many financial pundits search for societal trends or other paradigmatic shifts to help determine what goods and services will be demanded years down the road. For example, the size and affluence of the baby boomer generation has resulted in huge profits for several well positioned industries (health care, financial services, etc.). Wise investors seek out these trends because they oftentimes result in untapped gold mines. The difficulty lies in successfully predicting the trends before anyone else does. This takes a lot of conviction and faith in one’s predictive capabilities. In saying this, I am going to play fortune teller and predict what I think will be a good investing opportunity in the coming years. After much research, I decided that the hearing aid/hearing loss industry is destined for future financial success fueled by increased demand.

In the United States, incidences of hearing loss are growing at an alarming rate, especially among the younger generation. According to a poll commissioned by the American Speech-Language-Hearing Association, “high school students are more likely than adults to say they have experienced three of the four symptoms of hearing loss: turning up the volume on their TV or radio (28% students vs. 26% adults); saying "what" or "huh" during normal conversation (29% students, 21% adults); and, having tinnitus or ringing in the ears (17% students, 12% adults).” This looks to be a direct consequence of head phone usage associated with popular personal entertainment products such as the iPod. As the usage of these products continues to grow, the need for hearing aids and other related services will grow accordingly. The demand will also see a spike once this “iPod generation” starts to age because they will encounter natural hearing loss caused by aging. Overall, this is an industry that should see rapid growth in the coming years.

As I searched for publicly traded companies specializing in hearing loss, I quickly realized that most of the bigger companies are privately owned. I did come across a company called HearUSA (EAR), but its financials were discouraging. I had trouble even finding a year when the company turned an actual profit. Since most of the major providers of hearing loss services are privately owned, I decided to target bigger medical conglomerates that have invested in hearing loss products. The best company I found was the tried and true Johnson and Johnson (JNJ). Anybody who has invested in this company in the past has easily recognized this company’s penchant for financial consistency. I found an article in the NY Times that details how Johnson and Johnson has invested in a company that created an innovative hearing aid that has gotten rave reviews from its users. Even though Johnson and Johnson’s exposure to the hearing loss industry is low, investors can take great comfort in the fact that Johnson and Johnson is a well diversified company with great management.

A Great (Free) Online Budgeting Tool

I have been searching for the best free online budgeting tool that I could use to keep track of my expenses, and I think I found it. Buxfer, is a free service that allows users to seamlessly synchronize their credit and debit card transactions to their Buxfer account. Buxfer is compatible with most banks, as long as they have downloadable online statements. It also allows users to tag purchases to see where their money is going. It even has a place to record cash transactions. I would recommend this site to anyone who needs a little help keeping track of their money.

Where The New 3G iPhone Misses the Mark

On Monday June 9^th, Apple unveiled its new second generation iPhone. The new iPhone will be available for purchase on July 11^th. The new phone/iPod will run on a 3G network, providing users with a much faster network than the first generation iPhone. It will also be more business friendly by providing email support and Microsoft Office compatibility. Here’s the kicker, the 8GB model will sell for $199, and the 16GB model will sell for $299. The popular 8GB iPod Touch currently sells for $299. This is interesting because the iPod Touch is basically an iPhone without the phone capability. It seems there is a little price discrepancy here. How is it that a touch screen iPod/phone is $100 cheaper than a touch screen iPod?

AT&T is the exclusive plan provider for all iPhones. Apple and AT&T maintained an agreement for the previous iPhone that required AT&T to pay Apple a fee for every iPhone purchased. For the second generation iPhone, AT&T will subsidize the price of the phone instead of paying a fee directly to Apple for each phone sold. This helped Apple cut the price of the second generation iPhone in half. The interesting thing to see is what this price cut will do to the prices of the other iPod models, and how it will affect Apple’s bottom line.

Apple simply cannot continue to sell its current iPod models at their present prices with the introduction of the cheaper iPhone. For example, I could just buy an 8GB iPhone instead of an 8GB iPod Touch, and save $100. The difficulty lies in the fact that the other iPod models cannot rely on a subsidy to cut the price. This means the price cuts will directly affect Apple’s stellar margins. CEO Steve Jobs plans to unseat Research in Motion as the world’s top Smartphone provider with a faster lower priced iPhone, but he runs the risk of killing the famous iPod product line. This could be disastrous for the company because the iPod is what brought Apple back into the limelight after a period of uncharacteristic failure in the 90’s. It will be interesting how the introduction of the 3G iPhone will affect Apple’s financial statements. I predict drastically lower margins with considerably higher revenue because of increased sales of the new iPhone.

Should Zuckerberg Step Down as Facebook’s CEO?

Mark Zuckerberg is the 24 year old co-founder and CEO of the wildly popular social networking phenomenon, Facebook. In 2004, Zuckerberg dropped out of Harvard and moved to California so he could spend more time developing the website. Facebook currently boasts more than 70 million users worldwide. It is also one of the most visited websites in the world. Despite this success, the company has failed to use its size and intimacy with its users to attain any considerable financial success. This brings up the question, should Zuckerberg step down from his current role of CEO?

Facebook is a private company, which means it is not required to publicly disclose its financial information. Nonetheless, Zuckerberg has made it a habit to disclose Facebook’s financial information to the public. For the year 2007, Facebook announced revenue of $150 million. This is a pretty meager amount considering the potential revenue generators that the company possesses in its favor. Despite Facebook’s lack of financial success, Microsoft is one company that sees potential in the young social networking company. Microsoft recently paid $240 million for a stake in the budding company. The $240 million contribution by Microsoft was based on a $15 billion valuation of Facebook. A $15 billion valuation is pretty generous considering Facebook isn’t even turning a profit.

Why has Facebook failed to take advantage of its position in the marketplace? Marketers are drooling over Facebook’s possible advertising opportunities. The average Facebook user spends more than two hours a month on the site. Its users also divulge large amounts of personal information about themselves that can be used for highly targeted advertising. The company’s main problem is dealing with privacy issues. Holding large amounts of the general public’s sensitive personal information takes great responsibility. Facebook has had considerable resistance from its users in response to its use of advertising on the site.

Reasons Why Zuckerberg Should Step Down as CEO:

• Zuckerberg is only 24 years old, with zero management experience. Bringing in a veteran who has experience with Silicon Valley start ups could be just what Facebook needs to right the ship.
• Zuckerberg has failed to prove that he can turn the website into a money making vehicle. Zuckerberg could hand the CEO reins to someone with more experience, while staying on with the company as a senior strategist.

Reasons Why Zuckerberg Should Remain CEO of Facebook:

• Bill Gates dropped out of Harvard with no experience, and he ended up doing pretty well for himself. Enough said.
• Bringing in a new CEO to replace the founder has usually spelled disaster for many well known companies (ex. Starbucks, Apple, etc.).
• Facebook could lose the startup culture that has brought it so much success. Zuckerberg seems to have an amazing sense of what users want in a social networking website. Bringing in a more traditional CEO could spell disaster in the fickle social networking sphere. Why mess with success?

In my opinion, I believe Zuckerberg should stay on as CEO for several years before he can truly be evaluated. If he has failed to bring financial success after several years, I believe it should be time to search for a CEO with more experience. Only time will tell.