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September 2015

Real Reason for Fiorina's Compaq-HP Deal?

Carly Fiorina's record as HP CEO from 1999 to 2005 has come under increased scrutiny as she has risen in the polls, and a number of people have had less than flattering assessments of her leadership (see New York Times and Politico), with a particular focus on the Compaq-HP merger, widely panned in the media as a dreadful shift in strategy from services to more hardware in sharp contrast with the main direction the computer industry was moving toward. This makes Fiorina appear a bit out-of-touch and reinforces the feeling that she didn't know what she was doing because she wasn't an engineer.

But I just came across with a very different theory in The Dictator's Handbook (Why bad behavior is almost always good politics) by Bruce Bueno de Mesquita and Alastair Smith, and I want to share the gist of it here because, although the merger was a terrible business decision, Bueno de Mesquita and Smith argue convincingly that it made perfect sense for Fiorina in her attempt to remain at the top of HP. Their analysis seems like a far more accurate assessment of Fiorina's political (if not business) skill. They argue that Fiorina was trying to build a board with stronger loyalty toward her, in order to ensure her longevity in office. This is why, they claim, she had trimmed down its size from fourteen to ten/elevent and shuffled its membership. The merger with Compaq could then be seen as a further attempt to weaken or remove her opponents from the board because "once the deal was sealed Fiorina would have to bring some Compaq leaders onto the post merger HP board" (p.55).

Instead of increasing the size of the board (she had, after all, just decreased its size), this could have been achieved by "pruning the existing board to make room for the new, Compaq representatives," who - the authors argue - would have been more likely to work with her rather than oppose her since she had been the lead advocate of the merger. The authors point out that there was a significant increase in board members' compensation around that time, "perhaps in an effort to shore up the support of remaining old hands on the board" (p,56). I won't quote their entire analysis but they make a convincing argument that the merger made complete political sense for someone interested in remaining in power. For those interested in reading more, check out pp.51-57 of the paperback edition of the Dictator's Handbook.

I've got to say, I read her memoir Tough Choices when it first came out in hardcover, and I liked it a lot. Maybe it was because there are so few biographies of women business leaders out there. I understand that of course Fiorina is a consummate saleswoman by training, adept at convincing the public the image she wants to give of herself, but the book was extremely well written, engaging, thoughtful with compelling anecdotes.

I found it most noteworthy that she comes from a family where each parent didn't really know one of their parents and picked as a second husband someone who lost his father as a young teen (her first marriage floundered when she became more assertive, which is interesting given how self-confident Fiorina seems today), and that she tried to observe a wide range of people in her life experiences, including during her much-publicized stint as secretary. Commentators have argued that it doesn't really count because she didn't remain secretary for long, but when I was in engineering school in France we all had to spend five weeks doing a blue-collar internship in our first year to work side by side with the sort of people we were expected to lead one day. The school director had decided that it was important to have that experience, even if it lasted even less than Fiorina's time as secretary.

Perhaps the issue regarding with Fiorina's "from secretary to CEO" narrative is more related to the fact that she doesn't seem to have used that interaction to develop much obvious empathy toward the people she later led at HP (and, for many, also let go). Xerox's CEO Ursula Burns, for instance, is very clear she feels very responsible for the many employees who work for Xerox, in terms that recall servant leadership (she said at a recent 92nd Y panel I attended that she realized very quickly that this [the CEO experience] was not about her.) This is something Burns's predecessor, Anne Mulcahy, has also echoed, for instance in You're in Charge: Now What? where she is quoted as worrying at night about the people who would lose their jobs if she didn't manage to turn around Xerox. When I read recent interviews by Fiorina, I don't get much the feeling that the fate of the HP employees who depended on her and her leadership was keeping her awake at night or that it is the sort of reaction that she would like to convey to begin with, but maybe I've had bad luck in the articles I have come across. Yet, I still plan to continue re-reading Tough Choices and hopefully the book will resonate with me as much as it did the first time around, so many years ago. And then I'll wait for Indra Nooyi or Ursula Burns to write their own memoirs. 


"Be a better boss" by HBR OnPoint

OPFA15_500The Fall issue of Harvard Business Review OnPoint (which consists of selected articles from the magazine) is entitled: Be a Better Boss - How to Bring Out the Best in Your People. I like to write blog posts about the HBR OnPoint issues because I have found them to be consistently excellent, while the quality of the HBR articles - or their usefulness to me, if you want to view things in more charitable terms - can be variable, from merely ok to truly great. This time again, OnPoint did not disappoint. Below I mention my favorite articles in the issue. I list them in the order they appear in the magazine, not necessarily in order of preference.

Short features:

You can't be a great manager if you're not a good coach, by Monique Valcour, emphasizes that "the most powerfully motivating condition people experience at work is making progress at something that is personally meaningful" so that, "if your job involves leading others... you must understand what drives each person, help build connections between each person's work and the organization's mission and strategic objectives, provide timely feedback, and help each person learn and grow on an ongoing basis." The author recommends engaging in regular coaching conversations with one's team members, with five key tips: (1) listen deeply, (2) ask, don't tell, (3) create and sustain a developmental alliance, (4) focus on moving forward positively, and (5) build accountability.

Managing and motivating employees in their twenties, by Michael Fertik, was packed with specific, actionable advice, including:

  • throw them into the deep end on their first day.
  • ask frequent questions, especially "what is the dumbest thing you're working on?", so that you can better explain why this apparently dumb thing is in fact useful for the business,
  • beware of setting up A+ 22-year-olds with 28-year-old managers ("too many managers in their late twenties are threatened by supersmart colleagues in their early twenties")
  • and more, but you'll have to read the full article to get all the tips.

Long articles:

Are you a good boss - or a great one? by Linda Hill and Kent Lineback, argues that most managers stop working on themselves. Do you understand what is required to become truly effective? Do you understand what you are trying to attain? A great manager has to manage herself ("Productive influence comes from people's trust in your competence and character"), manage her network ("The organization as a whole must be engaged to create the conditions for your own and your team's success") and manager her team ("Effective managers forge a high-performing "we" out of all the individuals who report to them.") The Measuring Yourself on the Three Imperatives table, reproduced here, should be particularly useful to managers as a diagnostic tool. 

What great managers do, by Marcus Buckingham, explains that great managers "perform their magic by discovering, developing and celebrating what's different about each person who works for them." They capitalize on employees' strengths, activate said strengths (with different strategies depending on whether the employee values recognition from his peers, his manager, others with similar expertise or customers) and tailor coaching to learning style (with different strategies depending on whether the employee is an analyzer, a doer or a watcher).

Employee motivation: a powerful new model, by Nitin Nohria, Boris Groysberg and Linda-Eling Lee provides an important framework to understand what drives employees, which the articles above describe as critical to a manager doing a great job. In particular, there are four possible drives that underlie motivation:

  1. the drive to acquire (physical goods or experiences), best satisfied by a rewards system,
  2. the drive to bond (with one's organization or colleagues, in the case of work), fulfilled by creating a culture that promotes teamwork and collaboration,
  3. the drive to comprehend, satisfied by creating jobs that are meaningful and challenging (easier said than done, I know), and
  4. the drive to defend (ourselves, our property and our accomplishments), met with fair and transparent processes for performance evaluation and resource allocation.

But by far the best article was Pygmalion in Management, by J. Sterling Livingston, an article originally published in the July-August 1969 (!) issue of HBR that remains as relevant today as it was then. The subtitle - "How can you get the best out of your employees? Expect the best" - suggested at first that this would be a so-so article full of trite pseudo-wisdom, but it ended up being remarkably good. (I suppose you can say there's a reason why it became an HBR Classic.) The author argues that:

  • "What managers expect of subordinates and the way they treat them largely determine their performance and career progress."
  • "A unique characteristic of superior managers is the ability to create high performance expectations that subordinates fulfill."
  • "Less effective managers fail to develop similar expectations and, as a consequence, the productivity of their subordinates suffers."
  • "Subordinates, more often than not, appear to do what they believe they are expected to do."

It is particularly important to seize advantage of employees' first year (after one year, their aspirations and the manager's expectations become colored by past performance) and to make one's best managers the new hires' first bosses. ("A young person's first boss is likely to exert the strongest influence on his or her career. Put your best managers in charge of new college hires.") This point struck me because I follow somewhat the career trajectory of the former undergraduates I taught when they were seniors, if we are connected on LinkedIn, and I wonder at times why some students do so much better than others in the workforce when they seemed of similar ability and potential their senior year. It's easy to say that some students can't handle the unstructured world of the workplace - in other words, that it is the graduate's fault that he hasn't done better once he didn't have to answer problem sets with well-defined questions - but for some alumni I really didn't feel that it was the correct reason. This article gave me a convincing alternative explanation. (And, dear Lehigh ISE graduates who are reading this, if you feel your self-image and self-esteem have diminished since you took a job, it is time to start looking for another one before your career sinks too far deep into the quicksands.)

Livingston argues that "superior managers have greater confidence than other managers in their own ability to develop the talents of their subordinates... the high expectations of superior managers are based primarily on what they think about themselves - about their own ability to select, train and motivate their subordinates." He further points out that "rarely do new graduates work closely with experienced middle managers or upper-level executives. Normally they are bossed by first-line managers who tend to be the least experienced and least effective in the organization." The author's description of said first-line managers is worth reading in its entirety, but I won't retype it here to keep the length of the post reasonable. (If you have the OnPoint issue, read p.102, top of second column.)

Livingston continues that "many college graduates begin their careers in business under the worst possible circumstances," which leads to disillusion and turnover. Here is a quote that particularly drew my attention: "Industry's greatest challenge by far is to rectify the underdevelopment, underutilization and ineffective management and use of its most valuable resource - its young managerial and professional talent." I wonder how today's young employees would react to this quote. Has the situation improved much in the 46 years since the article was published. 


Women and Leadership (2/2)

Bbgqb0nW_400x400This is the second part of my post on Women and Leadership. While the first part focused on comments by Xerox CEO (and a thoroughly inspiring leader) Ursula Burns at the 92nd Y and a MIT Club of NY event I attended, this part will be on the comments by PepsiCo CEO Indra Nooyi and Barnard President Debora Spar made during the 92nd Y panel discussion. 

Nooyi shared critical experiences in her childhood, where her mother made Nooyi and her sister imagine at the dining table every evening they were a famous public figure and write & give speeches about the key actions they were about to undertake in that public-figure capacity. Then Nooyi's mother would decide which of the two sisters would have her vote. (This daily ritual, when Nooyi was about 8 or 9, is even more remarkable when you know that Nooyi's mother held rather conservative views and did not work outside the home. Yet, she was adamant her daughters could do anything they wanted, and made sure they were aware of that.) Nooyi's paternal grandfather also taught her to do a job well or not do it at all.

I enjoyed hearing her talk about the environment she has faced as CEO, especially the controversies a few years back surrounding her decision to focus on healthier foods and drinks. She touched upon the push for incredible performance levels in 2001-06 before she became CEO without considering how those performance levels would be achieved and the time in 2006-08 where many CEOs had to change and companies pursued an expectations reset.

She also mentioned impatient investors, unprecedented attacks on the food industry and the pressure to break up companies without giving details, but as it so happens the part of her strategy related to design thinking is also the focus of an article in this month's Harvard Business Review, where you can learn more about what happened. She made an interesting point about the drinks at the PepsiCo meetings that gave her an early warning of the shifting trends in the population at large: from full-sugar drinks in the early 2000s to diet drinks around 2006-8 and now Aquafina (yes, a PepsiCo product) in 2015. She also made the point that "spreadsheets don't run companies", which Ursula Burns expanded upon in her remark that just about anything is possible on paper - something I discussed in my previous post. Nooyi praised great boards as a necessary condition for success as a CEO, where a great board is defined as a board who takes the time to understand strategy as well as the details of this strategy. 

Debora Spar had a refreshing take on her childhood and teenage years, which she described as rather dull years spent growing up in Westchester, NY. Her attitude was to "shut up and do your work". She also shared some key moments as a pregnant young assistant professor at Harvard Business School at a time where the faculty had very few women, trying to prepare a case about baby food in Poland with an Excel spreadsheet that was not cooperating, and gaining more and more confidence in herself in those early years. She spoke very positively of HBS, where she was promoted quickly.

She made interesting comments about the situation two-income families face today: while women today are raised to believe they can do everything, if both parents work outside the home, who is going to take care of the home? She contrasted her time at HBS when it was a very male dominated environment and her time now at Barnard which is an almost completely female dominated environment, and made the point that power is displayed in different ways, conflict is handled in different ways, so that it is important to recognize the different ways men and women approach leadership, otherwise the issues women face in male-dominated environments (most companies today, one has to admit) will not get resolved. She also pointed out that women tend to drop out from the workforce when they have kids, but extending the maternity leave may not be the sole answer, because even if the maternity leave could last two years at full pay, when it ends you then have a two-year-old to take care of, and then what do you do? Later come the parent-teacher conferences, the bake sales, and all these events that are (more often than not) attended by mothers rather than fathers. Spousal support was emphasized by all three panelists as particularly important, but Nooyi pointed out that she feels some accomplished young women today still believe they have to make themselves be smaller than they are in order not to have their husbands feel threatened or diminished. 

Spar also asked the rhetorical question during the Q&A on how to teach college students such as Barnard students resilience, especially those students who have had an "easy glide" in their academic path all the way into college (not meaning they don't challenge themselves, but instead that they have easily succeeded so far in the challenging endeavors they have pursued). How do you create safe situations for students that will stretch them, allow them to fail and help them grow? 

The conversation then drifted to the importance of mentorship. Both Nooyi and Spar had fascinating insights into this part. Spar pointed out that one sees a willingness to learn in the good mentees - a desire to become better and to improve their contribution to the company, rather than a pure focus on success. Nooyi shared that she receives multiple requests every week from people who would like her to mentor them, but good mentorship doesn't work that way. You don't pick mentors, mentors pick you. 

***

I'll end with something I forgot to write in my previous post about Ursula Burns. Someone asked the inevitable question about discrimination, and Ursula Burns's answer was most telling. She said she had expected gender/racial discrimination, but the one that had taken her a bit by surprise was age discrimination. By that she explained that some people had had trouble taking her seriously because of her young age when she was starting out and getting promoted. This is an issue that will resonate with many talented twenty-somethings, I'm sure. She also asked audience members to think about their own biases, instead of assuming that they have none.  

All three women at the 92nd Y came across as remarkable and thoughtful leaders who make wonderful models for younger women today.


Women and Leadership (1/2)

I attended a panel on Women and Leadership at the 92nd Y the other day, where I was fortunate to hear Xerox CEO and Chairwoman Ursula Burns (the first African-American woman to head a Fortune 500 company), PepsiCo CEO and Chairperson Indra Nooyi (consistently ranked as one of the world's most powerful women, as well as the company's first Indian-born and first female CEO) and Barnard President Debora Spar. I also had the good fortune to attend the MIT Club of NY event "A Conversation with Ursula Burns" a few days later, and found myself utterly inspired both times by the advice those women generously provided the crowds in attendance. 

Below are some of the notes I took at each event, grouped by speaker. (At the panel, of course, each question was answered by all three speakers taking turns.) The speakers are in alphabetical order. 

Ursula Burns was my favorite panelist because of her no-nonsense attitude - I think she calls it her "New Yorker attitude" - and straightforwardness. In these days where leaders constantly worry about being misquoted and prefer bland answers to ones with substance, it is refreshing to meet a CEO who tells it like it is and makes no apologies for it. This also reflects well on Xerox, which has substantially expanded the reach of its operations since its beginnings and is now a leader in activities such as e-discovery for legal firms or back office for health care records. The company used to be about copying, and then scanning; now it seems that the ability to (machine-read and) index scanned documents is the next frontier of document processing. 

At both events, Burns spoke in very positive terms (glowing terms, in fact) about her predecessor, Anne Mulcahy, who seems to have had a personal and professional path very similar to Burns's and whom Burns counts among her most important mentors. Burns specifically described the great leadership skills Mulcahy demonstrated when Xerox teetered on the brink of bankruptcy in the early 2000s. Mulcahy also gave Burns, when the latter was about to become CEO, the advice that she didn't have to be the same type of leader that Mulcahy had been. (Apparently Mulcahy was profoundly loved by her troops and she embodied the "saintly leader" style of leadership.)

Burns's loyalty for and profound commitment to Xerox shone through her speeches at both events. She described a conversation she had with someone at the time where the future of Xerox looked extremely bleak and Burns could have left, where that other person, who was very close to her, asked the married Burns to compare the situation at Xerox (where Burns had by that point worked for twenty years) and the potential job offers elsewhere with her 13-year-or-so marriage and a romantic opportunity elsewhere. It was obvious for Burns she'd stick with her husband no matter what. That helped her articulate the answer to her professional dilemma. Not everyone would have reached the same answer, but it is to Xerox's credit that it's been able to attract and keep people with high degrees of loyalty to the company. (Put another way, I think the type of people who do well at a place like Xerox are people who have "loyalty" as one of their key values.) Maybe - which is what Burns explained at the MIT event - a reason why she never wanted to leave was that she's held at least 25 jobs at Xerox during her tenure there. Sometimes people think that changing companies is the only way for them to do something new, but that may also show short-sighted thinking on their part.

Burns also came across as a humble leader, in the sense that she was very quick to point out again and again that Xerox's success today belongs to its 140,000 employees rather than any one leader. This was made clear when she talked about how she was sometimes asked "how did you do it?" about Xerox's turnaround. She said that there is a false belief that "Superman flew in" but really it was the work of her 140,000 employees. She advocated allowing employees to see possibility and then taking a chance - allowing them to be confident enough and surrounded by the right people to make the right decisions on their own. She also said she doesn't like when people come in to ask if they can do something, because they typically know more about the situation than she does, and the most suitable approach for her at that point is to ask them questions to help them clarify their thinking.

Burns also touched upon the "Bring your whole self to work" model at Xerox, which she thinks is key to longevity in the workplace, and pointed out that many role models at the moment look differently from the way women and minorities look, but women and minorities should not try too much to assimilate - don't pretend you like country music if you don't but work for a Southern company, for instance - because that's really not what is being asked of them. In other words, focus on authenticity. One of her key mentors, besides Anne Mulcahy, was a Caucasian gentleman with whom she had absolutely nothing in common (opposite political views, no overlapping tastes in anything, etc) but who became a great friend. This also highlights the fact that there really is no formula to make mentorship work, and might explain why so many formal mentorship programs fail. (At the MIT event she also quoted with attribution Debora Spar's take on mentorship during the 92Y panel, but more on that in the second part of this post.) 

Burns also said repeatedly there is much too much emphasis on money these days, especially when looking at the placement record of engineering students who then go to work for finance companies instead of contributing to the discovery of new products or processes. But she was also careful to say in the Q&A when asked about the advice she would give to people nearing 50 that those people should be careful with their money so that they keep options open and can take action if they feel they're getting stuck doing things they don't like at that stage in their career. They should also, she said, give some serious thought to what they're going to do with the rest of their life - a question she said too few people at that age ask themselves.

In the Q&A she also discussed the ongoing sustainability efforts at Xerox and its commitment to corporate social responsibility, as well as what she is doing to mitigate a repeat of what happened in the 1980s at Xerox Research Center, which made critical discoveries in modern computing that it didn't use. This allowed Apple to get these discoveries and grow to the company it is today. She talked about the importance of partnerships, but was also quick to highlight that Xerox would not have used the technology the way Apple did, so in a way the technology was able to "find" the company that would use it best. Xerox's future plans seem to focus on innovative business processes (especially for document-intensive processes) in a wide range of industries.

I'll end this post with something that Burns said at the 92nd Y, following a question to Indra Nooyi about the challenges she had faced a few years ago when it was not clear she was making the right bet in focusing on healthier products and an activist had advocated she break up the company. She emphasized (and I'm writing this in my own words, so this is not a direct quote of how she phrased it) that it is quite easy to "make the math work" on paper for many strategies that outside observers may think of, but one also has to recognize that the current strategy of a company is the result of careful considerations by the company's leadership team taking into account not only shareholder returns but the long-term impact on customers and communities.

Coming up in the second part of this post: Indra Nooyi's and Debora Spar's comments at the 92nd Y.


What is the razor and what is the blade? Insights into Amazon’s digital strategy

Amazon’s legal battles last year with Hachette on the price of the publisher’s e-books unmasked an important flaw in the distributor’s digital strategy: it has been acting as if both the Kindle and the e-books were the company’s own complementary products, to be priced by Amazon as it so pleases. Hachette, however, has felt very strongly that it should price the e-books of its own writers, at a higher price point than what Amazon found desirable. (Part of the issue is that a book, once printed, is a tangible product, whether it is sold at Barnes & Noble or at Target, while an e-book can only be read with an e-book reader, which blurs the lines between Amazon as content distributor and Amazon as content gatekeeper, if not co-creator.)

Amazon’s behavior is in line with the well-known “razor and blade” business model made famous by Gillette at the beginning of the twentieth century, where a product (the razor) is sold at a cheap rate to generate demand for a more expensive complementary product (disposable blades). The fundamental question in analyzing Amazon’s strategy through this framework – widely accepted in business schools, consulting companies and multinational companies today – is to identify the razor and the blade. This is not as easy as one would think.

One possibility is to identify the Kindle reader as the cheap razor and the e-books as the expensive blades – a view strengthened by the availability of free apps allowing Kindle e-books to be read at no extra charge on a computer or on a smartphone. But, as anyone who has been following the protracted drama between Amazon and Hachette will know, Amazon has not sought higher prices for e-books. Instead, the opposite has happened: Amazon has argued in favor of higher sales volume driven by cheaper prices, while Hachette has advocated for higher prices. In other words, the publisher apparently sees its e-books as the key revenue generator (the blade) and the Kindle as the support that delivers the revenue-generating product (the razor and, unless Hachette develops its own e-book reader one day, someone else’s to boot). For Amazon, though, it is not unreasonable to conclude that its own Kindle device really is the blade – perhaps not disposable as quickly, but generating renewed demand at every technological iteration – and its partners’ e-books are the cheap razor. This, obviously, will not endear Amazon to publishing companies.

Attempting to fit Amazon’s case in this well-known and widely accepted business model also provides a simple way to articulate important challenges in the Amazon-Hachette conflict and more broadly the position of e-books in the publishing industry. First, Gillette manufactures both the razor and the blade. In that context, it makes sense to sell one product at a low cost to drive demand in the other. But which company would want to manufacture the cheap razor alone while someone else reaps the profit from selling expensive blades? Yet, the conflict between Amazon and Hachette can be interpreted exactly in those terms. Part of the issue is that Amazon’s role evolved from distributor to gatekeeper or even content co-producer when e-books came on the market. Its attempts at creating original content to read on the Kindle, for instance through the Amazon Singles program, can be interpreted as a full implementation of the original razor-and-blade model. In general, though, books are created independently of Amazon. One wonders what would have happened if Jeff Bezos, instead of buying the Washington Post, had acquired a publishing company.

Because a book’s content can be delivered through other channels such as hardcover, paperback and audiobooks, and the Kindle itself has other uses besides serving as an e-book reader – in particular to watch movies or play online games – it is ultimately a mistake to condense Amazon’s digital strategy into a traditional razor-and-blade framework. This also means that Amazon’s apparent attempts to push Hachette’s products into a “razor role” are flawed. In seeming to belittle as a “razor” a product that, for its manufacturer, is a “blade”, Amazon has created a public-relations issue for itself at a moment when investors wonder whether it will ever make good money and pay its investors back.

Perhaps it is time to update our business metaphors for the digital age. Amazon would have saved itself a lot of (often bad) press coverage if it had realized from the start that Hachette’s books were not the cheap razor to its Kindle blades. The “Amazon and Hachette” business model may become known as a model where both parties grudgingly collaborate with each other in spite of opposite price pressures to generate great value from two relatively cheap products. Only e-book readers can tell publishers which passages readers highlight most and how many readers finish their books or, if they don’t, where they stop. A reader who doesn’t finish an author’s book may be less likely to buy the next one, and knowing which chapters did not sustain his attention would be valuable information to a forward-looking publisher.

Once publishers have extracted insights from this data, they might develop strategies to put on the market books that customers will read to the end, or include private customer feedback surveys, the answers to which – in contrast with today’s Amazon.com reviews – would only be sent to Amazon.com or the publisher but would not be posted online unless the customer agrees to. The publishing industry is one of the very few industries left that at the moment do not directly ask customers (readers) for their feedback on a product (book) they have purchased. Private customer surveys would allow a broad range of questions (one hopes that “do you feel the price you paid for this e-book was appropriate for the value you derived from this book, and if not, which price range would you suggest for it?” will someday make the list), similarly to hotel surveys with an optional page to add a review on the TripAdvisor website.

Perhaps publishers would discover that the price points for certain e-books are too high, not because Amazon is telling them so but because customers are speaking their mind. Or they might become aware of issues or opportunities for improvement they would not be aware of otherwise. Amazon, through its acquisition of the online book rating site and reading community Goodreads.com, should also be able soon to make far better recommendations than what it is doing now, which amounts to listing what customers who bought this book also bought. The data made possible by e-books thus opens many new opportunities for gaining sharper insights and better serving customer needs.

While Amazon and Hachette have recently come to an undisclosed agreement, negotiations with other publishers are set to open in 2015. The next battle in the e-book price wars is already looming. Sharing the data captured by the Kindle – making the data the expensive “blade” for all involved – would be a welcome first step in re-establishing long-term partnerships between Amazon and publishers on a stronger, more collaborative footing.


Pricing at The New Yorker

NewYorker_PricesIt occurred to me the other day that the New Yorker has increased its retail price by over 28% in a year, in two increases of $1 each, so that the price is now $8.99. (See picture.) The Economist, being smarter about those things, doesn't print its retail price on the copies it sends subscribers, but I saw at the bookstore that its retail price is $7.99. I found The New Yorker's price increases interesting for multiple reasons. I'll try to list them below while giving my thoughts some semblance of order.

First of all, I'm sorry to disappoint all The New Yorker fans who read my blog, but I don't think it is worth more than The Economist. Actually, to formulate this in a stronger way, when you use as a basis of judgement whether a publication is important to understand the world we live in today and as a quantitative metric of its importance the retail price it charges its customers, I think The New Yorker is worth less than or perhaps just as much as The Economist, but definitely not more. A lot of articles in The New Yorker are hit-or-miss: some articles are stunningly good (especially those by Alex Ross, Joan Acocella or Peter Schjeldahl) and certain in-depth investigations or profiles fill an important need in today's media landscape (anything by Jane Mayer or Dexter Filkins), and then there are entire issues of The New Yorker that I put straight into the trash bin right after receiving them because there's nothing in the table of contents that makes me want to read. Please spare me the song of "The New Yorker is so great it should charge even more" or variations thereof such as "The New Yorker deserves to be more expensive than a cup of coffee at Starbucks". I don't know what you buy when you go to Starbucks but the cups of black coffee at Starbucks are massively cheaper than $8.99. (They're of the order of $2 and change at Port Authority Bus Terminal. Really.) Heck, I don't even think the venti Frappucino with an extra shot is $8.99. So it's a bit easy to give The New Yorker a free pass on its price just because it's The New Yorker. (I have included a list of recent articles I've enjoyed at the bottom of this post. I swear, there have been plenty.)

My first reaction when I noticed the price increase was: uh-oh, The New Yorker either has money problems or is under pressure by its owners to make more of a profit. (The magazine is published by Conde Nast, in case you're wondering. You'd think, though, that with The New Yorker festival and ancillary merchandise such as books, desk diaries and more, that they'd be among the best positioned magazines to be financially healthy.) But I'm also reading Subscribe Now! Building Arts Audiences Through Dynamic Subscription Promotion by Danny Newman, and if you're ever tempted to buy this book I'll save you the price of the paperback and summarize the book for you in one sentence: subscribers are the solution to all (performing arts organizations') problems.

The long version of the book summary is: subscribers are the solution to all (performing arts organizations') problems and don't believe anyone who says that their performing arts organization can behave differently because every single time the author has been involved in a subscription drive he's been able to help sell many more than expected, put more people in the theater than expected and find more subscribers than anyone thought possible. You've got to admire someone who was able to write an entire book short on specifics around one sentence, but he did, and clearly the man has a very strong track record in sales, both of subscriptions and of his book (which is now a bit dated anyway).

Having the book in the back of my mind, it then occurred to me that perhaps, just perhaps, the increase of The New Yorker's retail price could reflect not any financial trouble or pressure by owners but a desire to push more occasional buyers of The New Yorker toward subscriptions, which provide more financial stability for the magazine and allows for the funding of the in-depth features that have less commercial appeal by the success of those that do. Introductory subscription offers are $12 for 12 weeks (it is interesting that the introductory subscription webpage states that subscriptions will be automatically renewed after the 12-week introductory rate but doesn't state at which rate). Gift all-access (print + digital with archives access) subscriptions are $70 (rather, $69.99) while renewals of all-access subscriptions are $100 per year ($99.99 to be precise), or $2.13 per print issue. So now, even if you only read one New Yorker issue out of four, you are better off renewing your subscription rather than canceling and buying it in the newsstands once in a while. (You can't be too precise with those calculations, though, because the subscription price might increase and you also have to factor in the value of the convenience to get the magazine in your mailbox rather than remembering to trek to the newsstand to buy one and the value of having access to the online archives.)  

It is worth pointing out that the New Yorker operates under an automatic auto-renewal model when you renew online: your credit card gets automatically charged at auto-renewal time. Other magazines offer auto-renewal as an option but let renewing subscribers renew their subscription without auto-renewal. Of course the magazine will refund you if you cancel your subscription later, but it does increase the hurdle for a subscriber to drop out. Which, from a revenue management perspective, is a very good thing. From a customer care perspective, it is maybe not quite as good. If there is also an increase in subscription price, then two things may happen: (1) you may not notice it because they don't tell you in advance and then your credit card is charged and it's done, (2) you may actually begin to think that perhaps since you don't have time to read much of The New Yorker anyway, you could spend the money on something else. On the other hand, for people who do subscriber to The New Yorker, the subscription can be an "identity symbol": they're the sort of people who care about the topics The New Yorker writes about, and will renew no matter what (unless the price really becomes exorbitant), in which case it might be just as well to make auto-renewal automatic because subscribers would then be very price-insensitive.

So what is the summary of this long post?

(1) Revenue management and pricing are topics that fascinate me. Unsurprisingly, I do research in them.

(2) The New Yorker should take a page from The Economist's playbook and not print the retail price on the issues it sends to subscribers, because people like me notice the tiniest things. And then they write 1,200-word blog posts about it and feel very happy about their posts. (Go to point (1) for a refresher.)

(3) The New Yorker is very good at ramping up prices to move people toward a subscription model and keep them subscribed.

(4) Even if you only read one issue of The New Yorker out of four, you're better off staying subscribed.

Finally, as a random idea, The New Yorker should consider having prizes for the best in-depth feature published in its pages in a given year, the way Harvard Business Review does. It could also involve subscribers by running contests where readers would pick the best articles from the online archives over a certain period. It seems to me that the online archives are a bit underused, and their format is not easy to read online, unless perhaps on a tablet. While The New Yorker has published some collections of its articles over the years, there is the potential to do a lot more. Perhaps it could involve subscribers in picking the articles that would be included in some of the anthologies. Another worthwhile question would be how to create more of a community among New Yorker readers and subscribers beyond the New Yorker festival, perhaps through a network of book clubs where people meet and discuss certain articles. Of course it all depends on the objectives The New Yorker has for its readership and how its readers fit into its big-picture strategy. If the goal is for the articles to have maximum impact (either for their intrinsic worth or to keep advertisers happy or both), then strategies to make current occasional readers and subscribers read more articles or read articles in depth might be worth investigating.

Some recent New Yorker articles I think highly of: