Thanks, Steve.

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The rationale seems straight-forward: Apple’s competitors rent. By choosing to only sell, Apple sets its service apart… it’s a premium service. iTunes becomes the place true TV lovers go to build their collections. (It’s worth noting that with iCloud, a purchased episode will always be available to you on any iTunes-connected device.)

But here’s my question: Why $1.99?

The reports are that the price was set in order to appease the studios. $0.99 was too cheap for their tastes.

This seems reasonable at first glance. $1.99 for a 30 or 60 minute episode is cheap compared to buying a 90 minute movie for $20 or $30. But is that really the best comparison to make? Is $1.99 really a good deal? Or are we getting ripped off?

A more appropriate comparison would be to ask how much money is made per viewer when a show is aired on TV. For most channels, the only revenue is advertising. (For the sake of this discussion, I’m not going to take into account subscription channels like HBO.)

Math Time:

TV advertising rates are done on a cost-per-thousand (CPM… the M being “mille”) basis. I’m not an expert on media costs, so I’ve had to do a bit of searching. Estimates on average CPMs are a bit all over the place, but your average 30 second spot sells for $5 to $25 per one thousand viewers. Let’s go with $25.

If an hour-long TV show has about 18 minutes of commercial time, that’s about 36 commercials.

If each spot paid $25 per thousand viewers, that works out to $900 per thousand viewers. Meaning each viewer is worth about $0.90.

Now, iTunes is selling episodes for $1.99. After Apple’s 30% cut, that leaves the show with revenue of $1.39.

If customers purchase an episode and only watch it once, iTunes is generating 54% more revenue per episode per viewer than TV advertising does. However, if they watch the episode twice – the equivalent of watching it at least once on rerun – TV might provide revenues of $1.80 per viewer. Suddenly the iTunes sale is providing 23% less revenue. (Remember: iTunes sales are a one-time thing. No matter how many times you watch an episode, the company doesn’t make any more money. With TV, they get paid every time the show runs.)

It keeps going downhill from there, of course. We can start to see why the studios/networks (or whoever owns the shows) would be nervous about anything less than $1.99 per episode.

Conclusions:

1. To date, we’ve seen $0.99 as the sweet spot for selling music and apps. It’s a magic number that makes purchases sky rocket. $1.99… not so much. If $1.99 is the best they can do, can digital downloads ever beat the TV subscription model?
2. As I’ve said before, when you look at the true costs of media creation, we begin to see how much benefit we get from having TV subsidized by advertising. It’s estimated that the average American household watched 8 hours of TV per day, maybe more. If all of that was purchased on iTunes, they’d be spending $16 a day on TV alone. Even if we assume half of everything being watched was a rerun they’d already seen, that’s still $8 a day, $56 a week, $243.33 a month, and $2,920 a year. Anyone else feeling a tad bit appreciative of all those disruptive ads right about now?

–

Some Caveats:

1. There is a big difference between how much money an advertiser pays for a 30 second spot, and how much the studio that made the show actually gets. I’m not expert, but let’s assume that at the very least the network running the ads is taking a significant chunk. I don’t know the percentages, so I left that out of my calculations.
2. A $25 CPM appears to be a premium rate. I don’t really know, but that’s what the interwebs tell me.
3. All in all, the point of the math above was to get a basic sense of how the money works out, with wide margins of error.

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So the big news today is that Steve Jobs has stepped down as CEO of Apple. The big concern from apple fans and investors is whether Apple can continue to be as innovative and lead the market the way they have since Jobs returned in 1996, or whether he was the magic ingredient and it’s all down hill from here.

For what it’s worth, here are my thoughts on this.

Apple’s success has of course been entirely because of Jobs. If it wasn’t for him, Apple might not even exist anymore. That being said, it’s not like he personally designs and engineers things. So what exactly did he do?

The easy answer is he provided leadership. But again, in an organization the size of Apple, what does leadership mean? I think in Apple’s case, Steve Jobs’ leadership meant two things.

First and foremost, he picked the people to drive the bus. In Good to Great, Jim Collins shows from pretty solid research that a consistent pattern with great companies – companies who’s earnings and stock price consistently beat the market year over year – is the CEO focuses on finding the right people. Job #1 isn’t managing the company. Job #1 is finding the right people to manage the company.

I think it’s pretty clear that Jobs has done a remarkable job at that. Few companies even have CEOs with name recognition. Almost the entire executive board at Apple is easily recognizable, with exception to maybe the CFO and legal guy: Tim Cook, Scott Forstall, Jonathan Ive, Ron Johnson, Bob Mansfield, Phillip Schiller… these guys all command media attention any time they want it. They’ve been groomed. In 1996, the only executive worth talking about was Steve Jobs. Today, you have a roster of all-stars leading the company.

I said that Steve Jobs’ leadership was focused on two things. The first is picking the team, as I’ve mentioned.

The other is salesmanship.

And that’s where I think we’re going to see a big difference in Apple moving forward. No one is as good of a salesman as Jobs. Not at Apple, and arguably not anywhere else in the world either.

One might not think that that’s all that important. People already love Apple products. As long as they keep churning out great products, people will buy them. Profits will soar. But that view of things really overlooks what Steve Jobs does as a salesman.

Who else would tell the press that the buttons in their new operating system are so gorgeous that people would want to lick them? Who else has the gall to call their new product magical? Who else can get fans psyched up about the covers for said product, all because of magnets? Who else could convince the world that a locked-down system actually provides you with greater freedom than an open system? It’s not just that he was right about these things. It’s that he convinced the world he was right. He sold it.

Steve Jobs’ “reality distortion field”, as his critics like to call it, has a way of eventually shaping reality to his vision. He might start off in dreamland, but his dreams have a way of coming true. And at least half of the credit for that is due to his salesmanship skills. His mastery of the media.

What I’m saying is that I have no concerns about the quality of Apple products moving forward. Where I do have doubts is whether anyone at Apple will be able to get us all to see the big picture, to buy into the vision, and ride along until that vision becomes a reality. Without that, there is no magic. There is no revolution. It’s just magnets.

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A few days ago, Google released a video advertisement that takes “mundane” products like email and maps, and shows how powerfully meaningful they can be.

Go ahead… try not to be moved by this:

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One of the areas they pioneered (or at least embraced) was: “Customers Who Bought This Item Also Bought.” It’s a simple recommendation engine that shows you the other items most commonly purchased by the people who bought what you’re looking at. It doesn’t seem all that revolutionary today, but it was still a bit of a breakthrough at the time.

Another method they’re using is allowing users to tag books. So you might tag Suzanne Collins’ The Hunger Games as “post-apocalyptic”, “dystopian”, “young adult”, “sci-fi”, etc.

Or you might assemble a gang of online trolls to tag A Billion Wicked Thoughts like this:

Click to see a larger version.

See those tags at the bottom?

• mansplaining(462)
• bad science(450)
• bad research(414)
• authors failed research methods 101(406)
• psuedoscience(371)
• surveyfail(362)
• phds written in crayon(361)
• complete crap(342)
• disclaimed by boston university(337)
• junk science (319)
• Etc.

Ouch. To be clear, I haven’t read this book. I have no idea if it’s any good or whether the backlash is deserved or simply the work of hundreds of teenagers with nothing better to do.

But it’s enough to make me think twice about the “wisdom of crowds.”

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But honestly, I just wanted an excuse to share this video with you. So forget the pretense. Here it is. Enjoy!

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For evidence of my prejudice on this, see:

• Is Groupon worth it? No. Here’s why.
• Think social media can replace advertising? Think again…
• The “New Media” Challenge

That said, I actually love social media. I love blogs (I’m a blogger, as evidenced by the fact that this is a blog). I like Twitter (here I am @marioparise). I don’t want to imagine a world without YouTube.

I think social media is extremely effective for some purposes.

Denis Bertrand, my colleague and french-language blogger at Développez votre auditoire, can attest to the power of social media for arts groups.

People participate in the arts. When you go to a play, you’re not there to passively watch a show. You’re participating.

You participate by:

• Clapping wildly when the curtain goes down;
• Laughing at the great jokes;
• Gasping at the shocking plot twists;
• Offering silent reverence at the really important, emotionally moving parts;
• Talking about the play before, during, and after the performance;
• Thinking about the play before, during, and after the performance;
• …and so forth.

Similar facts hold true when you go to a concert, see a comic live, or visit a museum.

The arts are inherently social. Even if you enjoy art all by yourself, you’re connecting with the artist through their work. Art is entirely about connecting as people in various ways.

It only makes sense, then, that social media is a perfect fit for arts groups. Social media is the most efficient medium ever developed by man for helping us connect to one another.

Politics is about connecting to people.

In almost every way, politics is simply a form of high-stakes performance art. The politician that connects with people the best wins.

That’s why they go from town to town, holding rallies, to see people face-to-face. Nothing is more powerful than that.

But you can only shake so many people’s hands. And once you do, you have to move on.

Advertising is useful at reaching anyone and everyone. It’s effective at getting a message out. But it doesn’t help you connect with voters. It’s shallow. (I think this is why ads tend to be negative. It’s easier to slander your opponent using mass media than it is to make people like you.)

Enter social media.

Social media fills the gap between one-on-one in-person connecting, and mass media message dissemination. (Say that 10 times fast!)

When Obama won the U.S. presidency, his use of social media was a clearly important factor. It wasn’t the only one, but it was important. I predicted at the time that his campaign would become the new standard, and all politicians would use social media in the same or similar way.

Much to my surprise, this hasn’t really panned out. Sure, they’re all on Facebook and Twitter, but they’re not really using social media. They’re mostly just pasting press releases and using it as an advertising channel.

This is an opportunity loss, and I’m very disappointed.

What every politician should be doing with social media:

1. Recognize that anyone who willingly follows/friends you on Twitter/Facebook is a potential volunteer. Not a hardcore door-to-door volunteer, but the passive kind. The kind that would be happy to plaster your logo on their Facebook page and retweet your posts – IF you’re inspiring. Which brings me to…
2. Learn how to inspire people. People want to participate. They want to like you. They wouldn’t be following/friending you if that wasn’t the case. So make it easy for them. Hire copywriters or poets if you need to, but learn to say things in inspiring ways. Be quotable, damn it.
3. Pay attention to the people. One of the great things about social media is it makes it easy to know what people are thinking. We’ll tell you exactly what’s important to us, if only you’ll listen.
4. Make it easy for people to support you. (More on this below.)
5. Be present. Yes, you’re busy. Yes, your team is managing your social media presence. But show up every now and then. Rally the online troops. Make it clear just how important they are to you and how much you appreciate their support.
6. Send a personal thank you (or make a personal phone call) to your most active supporters. Pick one person a day whose going above and beyond to support you, and take the time to say THANK YOU.

“4. Make it easy for people to support you.” - Expanded

Think of it in levels. Some people want to help you just a little bit. Some people want to lay their lives on the line for you. And there’s a whole lot of in between:

1. People Friend/Follow you.
2. People Like/ReTweet your posts.
3. People Share your videos and articles.
4. People plaster your party logo on their own profiles.
5. People send emails or Facebook messages or Wall Posts to all of their friends, encouraging them to Friend/Follow you.
6. People buy political swag (t-shirts, buttons, hats, iPhone apps…). You can charge a premium because people are also buying them as donations.
7. People opt to make phone calls on your behalf. (Obama’s volunteers could log into the My Obama site at any time and get a name and phone number to call to encourage people to vote for him. I believe they had sample scripts to read. Think of it as crowd-sourced telemarketing. )
8. People opt to go door to door on your behalf. (Same as #6 above, but in person.)
9. People donate to the party.
10. People join the party.
11. People become part-time or full-time volunteers at candidate or party headquarters.

You can probably think of a number of other things that could be done. But by and large, politicians right now seem to be doing points 1-3 and 8-10. They’re skipping items 4-8, which is where I think the real potential is.

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Thankfully, there’s never been a better time to do all of those things.

The principles behind low-cost, low-risk, high-return marketing are simple:

1. It’s not expensive if it pays. When marketing works, it pays for itself several times over. You’ve heard it before, but it bears repeating: “Marketing is an investment.”
2. You can lower your exposure to risk by starting small and seeing what works. The goal is to spread your risk over a large number of thoughtful experiments, in the hopes of discovering an approach that will work. Once you find the right approach, you invest more heavily in it.

It’s like poker: You wouldn’t go all-in on your first bet, would you? Sure, it might pay off. But the odds are not in your favor. Winners place smart bets and limit their risk on any given hand.

The Safe Way to Market:

Here are 8 tips I’ve learned over the years to minimize risk and maximize results:

1. Don’t rely on genius. Yes, your odds of success improve dramatically if you work with geniuses, but they are still fallible. Don’t rely on intuition. Use creativity, inspiration, and genius to develop ideas, but don’t assume those ideas are going to be winners.
2. Test headlines with AdWords. Before you invest in the development of an entire campaign, and the commit to all the  media costs associated to it, test the ideas out first. By creating an AdWords campaign, you can test different headlines, subheads, offers, and URLs to see what gets clicked the most. Don’t worry about where the ads go to when clicked; it can go to an error page for all I care. All we’re looking for is clicks. If a headline/subhead/offer combo pulls in drastically more clicks than all the rest, there’s a pretty good chance that’s a winning concept.*
3. Test headline/visual combos with an online display campaign. Again, don’t expect this to generate sales. We’re simply extending step #2 above to including visuals. It’s a bit more expensive, but not as expensive as committing to a TV campaign only to realize the concept doesn’t sell.
4. Test different email campaigns. Once you’ve settled on a rough concept and offer, you can run A/B tests on your email marketing. The bigger your list, the more chances you have to test different ideas, and the more info you can get from this process. Again, the idea is to try variations on a theme so you can see what works and what doesn’t. You’d be surprised how often minor variations of headlines or graphics provide drastically different results. By using a site like Campaign Monitor, you can see which versions resulted in the highest open-rates and click-through rates.
5. Test different landing pages. Setup your AdWords, display ads, and emails to link to a landing page address, and use Google’s Website Optimizer to run A/B tests on the landing page. Again, this is your opportunity to test even more variables, more ideas, more offers. By running Google Analytics, you can compare the results to see which versions resulted in the highest average time spent, highest clicks, and so forth. (If you sell products online, you can take this a step further and see which approach actually leads to the highest sales conversion rates.)
6. Grow your media buy slowly. It’s better to commit to a year-long campaign in just one newspaper than to go big and buy up media everywhere you can. You’re in business for the long-haul right? Do the same with your marketing. When you’re confident the campaign is working, add another newspaper or a magazine or a radio station. Slow and steady wins the race.
7. Reinvest your new revenue back into your marketing. By this point, your advertising should be paying for itself, and then some. Just put it right back into the marketing. In this way, your marketing will grow all on its own, your sales will continue to increase, and you won’t be investing any new money into that process. Congratulations, you have a money making machine.
8. Always measure your results! Even when you’re confident in an approach and decide to invest in print, TV, radio, or direct mail, make sure you have some way of knowing what works. Common methods include using different 1-800 numbers, different landing pages, coupons with trackable codes, or just plain comparing sales before, during, and after a campaign.

* Not all concepts are going to be AdWords friendly. In the words of the immortal Bill Bernbach, “You can’t storyboard a smile.” You certainly can’t reduce that smile to text. But if your primary goal is to limit risk, maybe you should stick with ideas you can test.

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Assumption #2: If a business is in the business of making money, then everything it does must serve the goal of making money.

Ergo:

1. Everything any business invests in must serve the goal of making money.
2. Marketing -  a business investment - must help a business make more money than it would otherwise.
3. If marketing (or any other investment) is good at making money, the people responsible for it will preach this fact to the high heavens, because it makes it easier for them to make more money for themselves as well.

Which tells us that:

1. If something seem to resist attempts to measure its ability to make money, it’s probably not very good at it. (Examples: social media, online display ads, sock puppets.)
2. If something is really complicated, it’s probably B.S. There’s nothing simpler than the question, “Does it make more money than it costs?”
3. If something is making you money, keep doing that. Consider doing it more. (Examples: direct response TV, email marketing, simply having a great product, being polite…)
4. If you don’t know if something will make you money, there’s no shame in giving it a shot. But limit your risk, and make sure to track the results. The only thing worse than failure is not knowing you failed, and not learning anything from it.

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And by “effective”, I mean their ability to boost revenues.

The answer? About 2%.

So let’s get this straight. Let’s say you offer $100 worth of product for $50 (Groupon deals are typically half-off or more). You then pay Groupon and their ilk an additional $25 for the privilege. (Or so I hear. I haven’t used it myself because I’ve never thought this was a good idea.) If that’s true, you’re now receiving just 25% of the revenue you used to get for the product you’re selling. Odds are, that’s either a losing sale, or you have very high margins on your products.

The hope, of course, is that this is a loss leader. You lose a little money now, but hope to get people to keep buying, thereby making up for it with after sales. The trouble is even the world’s greatest retail companies appear to only be able scratch out an extra 2% of revenue for all that risk and effort.

In other words, what you receive in return for slashing your price by 75% is a 2% boost in revenue in the short-term and irreparable damage to your brand in the long term.

Wake up, folks. Anyone can boost sales with radical discounts. But it’s a dangerous road to take. If I can buy your product for 50% off today, why should I pay full price tomorrow? Deep discounts should be reserved for getting rid of old stock. It’s not a great way to build a business.

If it was, we’d all just give our stuff away for free, because if slashing prices can boost sales, bringing them down to $0 will boost them even more.

Marketing is supposed to increase your perceived value, not erode it. The point of driving up demand is to be able to command better pricing. The only businesses that win in the discounting game are major retailers like Wal-Mart (who have the clout to force their suppliers to slash costs) and discounting services themselves. For your average small business owner, this type of marketing “strategy” is a loser.

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