December 2006 Archives

Bubble & Squeak

The Economist:

While America's housing market cools, property elsewhere is still hot.

IN MANY countries, people are showing little sign of losing their appetite for residential property. Although the pace in several of the raciest markets around the world has eased a bit in the last quarter, prices have risen by more than 10% in the past year in eight of the countries in our table. The Economist has been collating these house-price indicators since 2002, allowing us to track the global residential-property boom (see chart).

However, in America the steam has come out of the housing market. In the year to the third quarter, the index of house prices compiled by the Office of Federal Housing Enterprise Oversight (OFHEO), a regulator, rose by 7.7%, the smallest year-on-year increase for three years. In the quarter itself, prices rose by only 0.9%, the weakest for more than eight years.

10 Best Places to Own Real Estate


Many Americans looking at the values of their homes are asking not whether it will fall, but how much. But in fact, more than half of the 100 top markets in the U.S. are slated to rise next year.

Forecasts for 100 real estate markets

Fortune asked Moody's and real estate valuation company Fiserv Lending Solutions to give us their take on what lies ahead for housing in the country's 100 largest metropolitan areas.

2006 Brand Autopsy Top Marketing Books

Brand Autopsy:

Best Book Title
** THE HUMMER and the MINI ** (Robyn Waters)
This is a book on trends where the author, Robyn Waters (former trendmeister at Target), contends consumer trends emerge from discovering trend/countertrend paradoxes such as … luxurious commodities, less is more, and healthy indulgences. Smart stuff. Smart title.

Golden Raspberry Award for Over-Promising and Under-Delivering
** OUTSIDE INNOVATION ** (Patricia Seybold)

Co-creation is a hot marketing topic these days and OUTSIDE INNOVATION promises to show us how to harness customer innovation to design better products and programs from the outside in. Unfortunately, the book under-delivered on its promise. I struggled to read through this chunky 400-page book and when I did finish it, I was left uninspired and uninformed on how to exactly weave customer innovation into the company creation process.

Mastering the Three Worlds of Information Technology

Andre McAfee:

The information age has brought with it a host of new technologies--and an overabundance of choices. Managers are hard-pressed to figure out what all those innovations do, let alone which ones to adopt and how to implement them. Furthermore, many so-called advancements haven't lived up to expectations: Frustration, delays, and even outright failures tempt many executives to avoid dealing with IT altogether. But those who turn away are selling their companies short. Executives have three critical responsibilities when it comes to IT: They must help choose technologies, using an inside-out approach that keeps the true needs of the business in mind; smooth the adoption of those technologies, taking into account that they may encounter strong resistance; and encourage their exploitation by leveraging already standardized data and work flows. What's most important, though, is that they look beyond the individual IT projects they select to the broader picture of how IT is likely to affect the organization. Information technology can be classified into three types, each of which provides companies with a particular level of change. Function IT encompasses technologies--such as spreadsheet and word-processing applications--that streamline individual tasks. Network IT includes capabilities like e-mail, instant messaging, and blogs and helps people communicate with one another. Enterprise IT brings with it approaches such as customer resource management and supply chain management and lets companies re-create interactions between groups of workers or with business partners. Different types of technology bring about different types of organizational change, and managers should tailor their own roles accordingly. Categorizing IT in this manner can help leaders determine which technologies to invest in and how they can assist organizations in making the most of them.
Successful information technology implementations require 3 things:
  1. Strong, engaged leadership, willing to implement business process changes for the good of an organization;
  2. Training and support staff who understand the business and can apply technology to solve line of business problems;
  3. A scalable, reliable technology infrastructure.
In that order. Often, we see technology used as an answer seeking a question. This reflects little or no leadership at the top and the ability to simply spend money in the absence of strategy.

Apollo Management to Take Realogy Private

Well, that didn't take long. Former Drexel Burnham Lambert banker Leon Black returns to the Cendant/NRT world by taking Realogy private. Dennis Berman and Jim Hagerty have more:

In a further sign of private equity's widening influence over the economy, buyout firm Apollo Management agreed to purchase real-estate services firm Realogy Corp. for $6.6 billion, company officials said yesterday.

As the holding company for such operations as Coldwell Banker, Century 21 and the Corcoran Group, the former Cendant Corp. arm is one of the most powerful players in the U.S. residential real-estate market, with a hand in one of four brokered U.S. home sales.

That position has put Realogy in a tight bind given the faltering domestic real-estate market. The company is forecasting sharp revenue declines for the foreseeable future, a bleak outlook that has weighed on its shares since they were first offered to the public in July.

Nonetheless, Apollo is taking on a large wager -- some $2 billion of its own capital -- that real-estate sales will recover shortly and that Realogy will maintain its strong brand names. Apollo has the benefit of hyperliquid financing markets, which are backing the rest of the purchase while allowing it to assume an additional $2.4 billion or so in existing Realogy debt and other liabilities.

Black's Apollo group partnered with Cendant to create NRT some years ago. Cendant later purchased Apollo's interest. Realogy's most recent SEC filings can be found here.

Advertising Funds: The Google Life: Treat Employees like Kids

Aaron Swartz:

Google's famed secrecy doesn't really do a very good job of keeping information from competitors. Those who are truly curious can pick up enough leaks and read enough articles to figure out how mostly everything works. But what it does do is create an aura of impossibility around the place. People read the airbrushed versions of Google technologies in talks and academic papers and think that Google has some amazingly large computer lab with amazingly powerful technology. But hang around a Googler long enough and you'll hear them complain about the unreliability of GFS and how they don't really have enough computers to keep up with the load.

"It's always frightening when you see how the sausage actually gets made," explains a product manager. And that's exactly what the secrecy is supposed to prevent. The rest of the world sees Google as this impenetrable edifice with all the mysteries of the world inside ("I hear once you've worked there for 256 days they teach you the secret levitation," explains xkcd) while the select few inside the walls know the truth -- there is no there there -- and are bound together by this burden.

The Consequences of Marketing Hype and Flash

Wal-Mart fired Julie Roehm, a fast rising advertising exec recently recruited from Chrysler last week. Roehm has become a poster child for all that is perceived to be wrong in the advertising world:

  • Lewis Lazare:
    But what did Roehm accomplish in a brief 10 months on the job as Wal-Mart's senior vice president of marketing communication? Nothing less than destroying just about everything she touched in what had been a fairly well-defined and successful corporate culture, including relationships with two ad agencies -- Bernstein-Rein and GSD&M -- that worked for decades to help build Wal-Mart into the dominant brand it is today.

    In the wake of Tuesday's stunning revelation that Roehm was out the door at Wal-Mart, plenty of people, including us, wondered what qualified this woman to hold one of the most powerful marketing positions in America. And no one we've talked to who worked with her at Wal-Mart or knew of her previous career could tell us with any conviction that she had the credentials to wreak havoc on Wal-Mart's marketing department.

  • Peter DeLorenzo:
    I'm talking about people who were so far out of their leagues and so far removed from what a proper marketing/advertising person should act like, that more often than not their behavior, combined with their utter lack of professional relevance, bordered on the criminal. And they proceeded to do deep damage to their brands - and to the heretofore unsullied reputations of the people who actually did conduct themselves with the utmost in professionalism and creativity.

    The most blatant example of this kind of marketing malpractice (before the Roehm episode at least) was the devastatingly dismal period in GM history not long ago when that esteemed Proctor & Gamble refugee John Smale unleashed a phalanx of so-called marketing "experts" on the corporation who were going to finally "fix" GM with the etched-in-stone tenets of marketing success as espoused by P&G's vaunted "brand management" philosophy. Smale appointed Ron Zarrella as his brand management guru and chief proponent of Smale's "Profit through Marketing" doctrine - which was based on the fundamentally flawed premise that GM could market their way to prosperity - while relegating the importance of the product itself to a subservient, if not outright inconsequential, role.

  • Michael Barbaro & Stuart Elliott:

Time to Move On?

Matthew Swibel:

Real estate agents are given to euphemism--you know what "cozy" means in an apartment ad--but it would be hard to sugarcoat what's going on in the housing market. At Long & Foster, the largest U.S. privately owned residential real estate brokerage, sales volume was down 16% in the first nine months of 2006. In its home city of Washington, D.C. and nearby, the inventory of available single-family homes is 59% higher than at the same point last year and is at the highest point in eight years. The condo market is beginning to crater, too, with the median price 5% lower than it was at the end of 2005.

P. Wesley Foster Jr., the 73-year-old cofounder and chief executive of the company, is sugarcoating nothing when he describes his cost-cutting efforts. "We found out we had some person watering plants on the payroll," he says. "I said, 'Let the damn things die.'" More recently he slashed a corporate advertising campaign by 75% and zeroed out a companywide summer picnic and the annual sales manager retreat at the luxurious Homestead resort in Virginia.

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