August 2009 Archives

Out of the Box - Rethinking Advertising

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Tim Bradshaw & Andrew Edgecliffe-Johnson:

In 2008, the only advertisement any marketer could talk about was Cadbury's drumming gorilla. The advert was made for television but was also viewed millions of times on YouTube.

Agencies were delirious at the crossover success to the video sharing site. Here, finally, was proof that traditional agencies could conquer the web with old-school marketing skills. Gorilla scooped the grand prix in film at the Cannes Lions International Advertising Festival.

By June this year, Cannes was a very different festival. For a start, the Croisette - normally packed with partying ad men - was deserted as agencies stayed away to nurse their shrinking budgets. But in any event, rather than television adverts winning awards for online work as Gorilla had, it was the online campaigns that impressed the judges across every category.

The campaign that won the most awards was the web-led Tourism Queensland contest to fill "the best job in the world" - a caretaker on an "island paradise". This word-of-mouth hit generated press coverage, including a BBC television documentary on the search for the winner, worth an estimated $100m (€70m, £62m) from a budget of just $1.2m.

This digital discombobulation, combined with the recession, has taken its toll not only on advertising budgets and fees but also on the self-esteem of a vast industry, in which the top five global agency groups are expected by Jefferies, the investment bank, to earn revenues of $45bn this year, with the marketing services industry as a whole turning over $80bn.

Google Mortgages? Lending Tree Sues Mortech

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Kit Eaton:

Google's got tentacles everywhere--and it just grows and grows and grows. But here's a head-scratcher: News has surfaced that suggests Google's getting into the mortgage business. Specifically, the loan aggregation business. What gives?

The data has popped up in a new law suit brought by LendingTree--an online business that acts as a lead-generation system for mortgages, refinancing and home equity loans. The target of its suit is Mortech, one of its tech suppliers which was supposed to have an exclusive deal with LendingTree. But somehow LendingTree discovered that Mortech was working with someone else, and brought the suit. That suspected third party is Google.

Essentially LendingTree is alleging Mortech is violating contractual exclusivity to help Google get into the online mortgage aggregation business. Within the suit's text is the following direct reference to Google's services: LendingTree has "obtained 'screen shots' of the trial version of Google's service that further indicate that, like LendingTree's service, Google will provide customers with conditional loan offers in addition to lenders' contact information." Basically it looks like Google's expanding the suite of services it offers to include helping connect you up with a mortgage provider. There's no data on specifically how, but one can wonder if Google will offer it up as a separate web page, thanks to its very specific nature, or possibly include hyperlinks to mortgage offers when you use its search engine to perform property searches. Google's declined to comment on the suit, merely saying its development in this direction so far is limited to a "small ad test unit" that it's trialing in the U.S.

The Economist:

HE IS hardly your typical distressed seller. Hugh Hefner recently sold his personal residence in Holmby Hills, California, next door to the Playboy mansion, to a 25-year-old entrepreneur for $18m--some 36% below the asking price. It will come as little solace to the ageing Lothario that the discount looked about right: house prices have fallen by one-third from their peak nationwide, and by much more than that in the worst-hit states, such as California, Florida and Nevada.

Although global financial sickness first erupted in American residential property, thanks to ludicrously lax subprime lending, policymakers have recently seemed more worried about asset classes to which the infection subsequently spread. When the Federal Reserve this week extended the life of a facility to support asset-backed securities, for instance, it was more out of concern for commercial property than for housing. Nevertheless, observers agree that America's economy--and all those banks still saddled with underperforming mortgages--will struggle to recover while house prices are still falling. The Obama administration's economic successes "will be for naught" if the housing free-fall continues much longer, says Mark Zandi of Moody's

Hence the excitement over some recent, albeit tentative, signs of stabilisation. The S&P/Case-Shiller index, which tracks home prices in 20 cities, ticked up slightly in May, its first gain in 34 months (see chart 1, left-hand side). New construction of single-family homes rose in July for the fifth straight month. Sales of existing homes are expected to show their fourth consecutive month of gains when latest numbers are released on August 21st (see chart 1, right-hand side). Toll Brothers, a big home-builder, just recorded its first gain in net orders (new orders minus cancellations) for four years. With homes now at their most affordable in living memory, relative to median income, "we've finally found a level where people want to do deals," says Pam Liebman, chief executive of Corcoran, an estate agency. The revival is largely at the lower end, which helps explain this week's $1.4-billion acquisition of Centex, a home-builder which specialises in cheaper houses, by Pulte Homes.

In Appraisal Shift, Lenders Gain Power and Critics

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David Streitfeld:

Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner's refinancing asked him to pretend it was not there.

Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.

Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.

Smartphone Sales Grow 27% in Most Recent Quarter

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Worldwide mobile phone sales totalled 286.1 million units in the second quarter of 2009, a 6.1 per cent decrease from the second quarter of 2008, according to Gartner, Inc. Smartphone sales surpassed 40 million units, a 27 per cent increase from the same period last year, representing the fastest-growing segment of the mobile-devices market (see Table 2).

"Despite the challenging market, some devices sold well as consumers who would usually have purchased standard midrange devices either cut back to less expensive handsets or moved up the range to get more features for their money," said Carolina Milanesi, research director at Gartner. "Touchscreen and qwerty devices remained a major driver for replacement sales and benefited manufacturers with strong, touch-focused midtier devices. However, the decline in average selling price (ASP) accelerated in the first half of the year and particularly affected manufacturers that focus on midtier and low-end devices, where margins are already slim."

Virtual Properties supports real time Main Street mobile websites and a branded iPhone / iPod Touch app (with no per transaction or page load mapping fees!). Brokers and agents should use these sites and apps to become familiar with the mobile environment. Things that may work on a link heavy home page or website often get in the way in a mobile environment. Very few devices actually work well with mobile websites.

Is 4% Enough For You?

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Jay Deragon:

Many firms try and dominate their market via sales. They think sales is largely driven by the number of customers they can acquire.
Scott Morgan writes:
Budgets continue to be slashed. Brands are disappearing. Media is getting more fragmented. The only thing getting bigger is our federal deficit. So as a marketer, how do you capitalize on a world that is getting smaller in so many respects?

What marketers are starting to discover is that the target universe is smaller than originally thought. So small, in fact, that 4% of a brand's consumer base is driving most of the business. This deeper dive into audience targeting is what I call the 4% Factor. Simply stated, it is another level down from the typical 80/20 rule of prioritizing (80% drive, 20% of the business) because, well, everything is getting smaller.

So what do you do about it? Embrace it. Start thinking about ways to employ addressable media, digital media, one-to-one marketing and, of course, social media to reach that core 4% of consumers who have the greatest propensity to identify and recruit others to your brand franchise.

The 4% Factor goes well beyond a loyalty strategy -- it is a penetration strategy -- designed as a competitive approach to protecting and growing your business. Simply put, start smaller to get bigger faster. It also tends to be a much more sustainable approach than traditional strategies of casting a really wide net, going through trial and then hoping to retain a percentage of new customers.

Realogy Reports Second-Quarter Loss of $15 Million

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Oshrat Carmiel:

8 billion in 2007, said its second-quarter loss narrowed after the company cut expenses to offset a decline in revenue.

The net loss decreased to $15 million from $27 million a year earlier, Parsippany, New Jersey-based Realogy said today in a statement. Revenue dropped 27 percent to $1.02 billion.

The residential real estate slump is cutting revenue for brokers including Realogy, owner of Coldwell Banker and Century 21. Prices are being brought down in part by discounts on foreclosures. U.S. foreclosure filings hit a record in the first half, a sign that job losses and falling property prices deepened the housing recession, according to data provider RealtyTrac Inc. of Irvine, California.

Realogy's 10-Q can be found here. The 10-Q includes a discussion of Realogy's secured and unsecured debt and liquidity:
In connection with the closing of the Merger on April 10, 2007, the Company entered into a senior secured credit facility consisting of (i) a $3,170 million term loan facility, (ii) a $750 million revolving credit facility, and (iii) a $525 million synthetic letter of credit facility.
Interest rates with respect to term loans under the senior secured credit facility are based on, at the Company's option, (a) adjusted LIBOR plus 3.0% or (b) the higher of the Federal Funds Effective Rate plus 0.5% and JPMorgan Chase Bank, N.A.'s prime rate ("ABR") plus 2.0%. The term loan facility provides for quarterly amortization payments totaling 1% per annum of the principal amount with the balance due upon the final maturity date.
The Company's senior secured credit facility provides for a six-year, $750 million revolving credit facility, which includes a $200 million letter of credit sub-facility and a $50 million swingline loan sub-facility. The Company uses the revolving credit facility for, among other things, working capital and other general corporate purposes, including permitted acquisitions and investments. Interest rates with respect to revolving loans under the senior secured credit facility are based on, at the Company's option, adjusted LIBOR plus 2.25% or ABR plus 1.25% in each case subject to adjustment based on the attainment of certain leverage ratios. At June 30, 2009, the amount available for borrowings under our revolving credit facility was $4 million (after giving effect to $136 million of outstanding letters of credit).

The Company's senior secured credit facility provides for a six-and-a-half-year $525 million synthetic letter of credit facility for which the Company pays 300 basis points in interest on amounts utilized. The capacity of the synthetic letter of credit is reduced by 1% each year and as a result the amount available was reduced to $518 million on December 31, 2008 and to $515 million at June 30, 2009. On April 26, 2007, the synthetic letter of credit facility was used to post a $500 million letter of credit to secure the fair value of the Company's obligations with respect to Cendant's contingent and other liabilities that were assumed under the Separation and Distribution Agreement and the remaining capacity was utilized for general corporate purposes. The stated amount of the standby irrevocable letter of credit is subject to periodic adjustment to reflect the then current estimate of Cendant's contingent and other liabilities.
The Company's senior secured credit facility is secured to the extent legally permissible by substantially all of the assets of the Company's parent company, the Company and the subsidiary guarantors, including but not limited to (a) a first-priority pledge of substantially all capital stock held by the Company or any subsidiary guarantor (which pledge, with respect to obligations in respect of the borrowings secured by a pledge of the stock of any first-tier foreign subsidiary, is limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary), and (b) perfected first-priority security interests in substantially all tangible and intangible assets of the Company and each subsidiary guarantor, subject to certain exceptions.

Unsecured debt:

Beginning with the interest period which ended October 2008, the Company elected to satisfy the interest payment obligation by issuing additional Senior Toggle Notes. This PIK Interest election is now the default election for future interest periods through October 15, 2011 unless the Company notifies otherwise prior to the commencement date of a future interest period.


ased upon the Company's current financial forecast and additional equity available through December 31, 2009, as set forth in the 2008 Form 10-K, the Company believes that it will continue to be in compliance with, or be able to avoid an event of default under, the senior secured leverage ratio and meet its cash flow needs during the next twelve months. The Company has the right to avoid an event of default of the senior secured leverage ratio in three of any of the four consecutive quarters through the issuance of additional Holdings equity for cash, which would be infused as capital into the Company. The effect of such infusion would be to increase Adjusted EBITDA and reduce net senior secured indebtedness.

Dave Winer:

I've done a lot of building on the url-shortener, as have quite a few other developers. They just announced that they're shutting down. It's not clear what the timeframe is and how long we have to transition. Nor is it clear what will happen with all the urls that are already out there, will they break, and if so, when? Permalink to this paragraph

The mess this creates makes me feel pretty queasy. I wish this were someone else's problem so I could watch from afar and think "There but for the grace of Murphy go I." But this time the problem is mine. I've done a fair amount of building on, and I have at least a few users, Nieman and Jay Rosen among them, who are using my tool. Really glad I didn't open up the 40twits app for broader use. Permalink to this paragraph

If there are any url-shorteners out there that support the same functionality as, please post a comment here. Permalink to this paragraph

And Twitter, when your DDoS problems are cleared up, please take a look at obviating the need for url-shorteners. This is a harbinger of much more serious problems down the road, should prove not to be a profitable business, as has proven. Permalink to this paragraph

Karen Weaver & Ying Shen @ Deutsche Bank [288K PDF]:

The U.S. economy has been overwhelmingly a consumer economy. For much of the past decade, U.S. consumers have been greatly enriched by rising home values coupled with "easy credit," enabling them to monetize their home equity early, and often. Some economists estimate that homeowners were extracting 25-30% of every dollar of increase in home equity, primarily for consumption.2 But now, the Joint Center for Housing Studies reports that home equity had fallen 43%1--$5.9 trillion--from 2005 (peak) levels to the end of 2008.

Even if home prices stabilize, it seems unlikely that we will again see the confluence of factors (or one might say mistakes and debacles) that facilitated the millennial wave of consumption. For many, the home has morphed from piggy bank to albatross. The questions now are, how will this wealth destruction drag on consumption and how will outsized mortgage burdens be resolved?

In this paper we look at the issue of "negative equity,"3 the situation where the borrower's total debt obligations exceed the home's current market value. We estimate both the number of borrowers who currently have negative equity, and, using our home price forecast,4 the number of borrowers who we believe will reach a negative equity position before prices stabilize.

Regulating British Real Estate Agents

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The Economist:

MOST people are all too familiar with estate-agent speak, in which "charming" means tiny and a "mature garden" is a jungle. The firms are only doing their job, which is to sell houses. Recession has made that tougher, and the temptation to indulge in hyperbole even greater.

This is harmless stuff, but estate agents who lie and cheat more seriously have enjoyed years of little or no regulation. It is only since October 2008 that they have had to become members of a redress scheme, so that complaints against them--for bigger sins than abuse of the English language--are handled in an orderly fashion. Such sins often involve taking secret commissions or failing to disclose hidden charges. Two schemes to resolve disputes exist, the bigger of which is run by the Property Ombudsman (TPO). Its ultimate sanction is reporting an estate agent to the Office of Fair Trading, which can put him on a register that bars him from practising. More than 130 are on the list.

When Customer Conversations Replace Marketing

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Donna Hoffman:

It's hardly news that the Internet has evolved into the primary vehicle for communication, information, and commerce. But in a surprising twist, today's online customers--as both producers and consumers of their own content and services--ferociously guard their online experiences. This trend, which goes far beyond Web buzz, is catching some executives by surprise and making others more than a bit worried.

What does this development mean for your company? In effect, that its marketers are being replaced. As markets morph into Web 2.0 "conversations" and consumers gain much greater freedom to pursue their own interests, customers are doing things that online marketing managers don't necessarily want--or expect--them to do. For example, they can easily connect with one another, often using multimedia sites such as YouTube and Flickr, so they themselves can satisfy their need for information about products. What's more, consumers may trust information obtained in this way much more than they do information from your company. What will happen when these consumer experiences are much more interesting than anything your marketers have put up on the Web?

Executives can use a model we at the Sloan Center for Internet Retailing have developed called LEAD (listen, experiment, apply, develop) to create a road map that will help companies thrive in the online world's environment of constant change.

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