Phrenzie.com

Over lunch last year, the CEO of Clearspring Technologies was telling me that whatever you do, you have to make it easy to do business with you.

That always stuck with me.

Allowing customers to interact with you in as easy way as possible is such a simple concept, that it’s amazing that businesses don’t do it more often.

It made me think about everything, from my credit cards to rental properties.

Speaking of the former, I have two cards, a Discover Card and MasterCard (by Citibank).  I only got the MasterCard because Discover isn’t taken by as many places.

However, among the two cards, Discover has superior customer service, superior website interface, and the more extensive use of points (please…getting a card without “cash back” benefits is sinful).

MasterCard has horrible customer service (although, it’s gotten better), the user interface is okay, and the cash back is one dimensional (they’ll only cut me a check, while Discover’s cash back can be use to pay my Discover bill, increase buying power with its retail partners, and donate to charities).

Discover Card makes it easy for me.  I really wished it was taken more places.  My gut says that they might charge higher exchange fees and other charges to merchants, but it might also be due to limited demand.  My brother and his partner always tease me about the lack of acceptance, with an analogy to a Family Guy episode where, in the future, a merchant says that he hasn’t taken Visa or MasterCard in years, but he’s NEVER taken Discover.  It’s a shame they won’t let that joke die.

As far as rental properties, why not make it easy for applicants to review the apartment or house (via video), fill out an application and pay the application fee, all online?  In many cases, people are looking at multiple places in a day/week and may come back to our place.  Making it easy to come back, fill out an app and pay the app fee online sets us apart from 99% of our competitors.  Based on feedback, it’s one of the reasons why we’ve been able to rent as successfully as we have.

Other things that could be done are to allow monthly rental payments via auto debit or online and request minor maintenance repairs online.  The latter is when we have scale (like 10 units or more).

It’s a simple concept that can be very easy or difficult to implement, but has enormous ROI.

UPDATE:

I just noticed that when I tried to download a version of MasterCard’s virtual card number software, you can only do it if you have Netscape.  How many people use Netscape???  Neither Discover or MasterCard offer support for Firefox, though.

Also, I realized later that other issuing banks may have a better experience for customers for the MasterCard than Citibank.

It’s amazing that in Web 2.0 (I would put the relevant years, as Robert Scoble would have it), going into Web 2010, that some companies haven’t even gotten their basic websites down pat.  Here is a quick review of one site that doesn’t get it and one that does.

CareFirst, the health insurance company, as an example, has a website where you can log in only during certain times a day.  So if you want to check policy info, you can’t do it when you get home really late or wake up really early in the morning and want to tackle some errands.

Also, some of the basic things I can’t do, like review detailed coverages, see whether I was given the correct price on medicine by the pharmacy (formulary), policy pricing if adding certain riders, request new healthcare cards, etc.  You can, however, review broad coverages, like co-pay amounts, who’s covered and  history, but that’s about it.

It’s completely ass backward.  I mean, who ever heard of a website being “open” only during office hours???

A site that’s got it together???

Progressive.  You can do almost everything on that site.  You can see how changes in your coverages change your premium, file claims, get policy docs, and so on.  It’s a robust user interface that is obviously well synced with Progressive’s other internal and external systems.

I love it.  I don’t have to call and be put on hold to get any of the basic information.  It’s really a model of efficiency and effectiveness.  Progressive personnel can spend their time handling more complicated issues.

Shame on CareFirst and hooray for Progressive!!!

A few days ago, Hansen Natural (HANS) took an 11% hit in the stock price. I was floored. I was hoping that the price would initially pull back a little, but it easily passed through my limit price and down another 9%. Ugh!

So I immediately checked the news for anything, anything at all. What I found was an analyst’s reaction to the shareholder meeting.

I was both confused and happy.  Confused that an analyst would drop estimates based on what appeared to be an incredible lack of substantive or, at least, quantifiable information (or maybe he did channel checks, got insider info, etc.).  Hansen’s CEO said that sales were disappointing in the last two weeks of May.  What the news services did not report was that sales were still ahead of last year.  Couple that with commentary that Hansen’s Monster brand is continuing to take market share away from competitors.  Add on that the energy category, when including all sub categories, is actually growing.  The offset is that it’s core customer, blue collar workers, are having a hard time in this economy.  But I think this is somewhat mitigated by: 1) a smaller, more affordable can that’s been selling very well, and 2) the potential from international expansion, which my wife says is a VERY smart move.

I was happy because it represented an opportunity to invest.  I revisited my cash flow models and realized that my growth assumptions were still lower than Wall Street’s.  Hansen’s stays on top of its distribution channel (its business) and the CEO is the one who fields most of the questions on the business (rather than the COO or CFO).  As an analyst, I love to see these (among other things, of course).

So I could be dead wrong.  Stock could go down another 10+%.  But I really believe that this company is solid for the mid-term, at least: tight balance sheet, dreamy cash flows and growing market share.  To this last point, I have some buddies in the extreme sports racket, who tell me that Monster is a well-respected brand among the fans and athletes.  That’s perfect for street cred.  Btw – I bought more of HANS after it flew through my limit price.

If it weren’t for my wife, Cerece, I wouldn’t have given the appreciation for Twilight that it’s due. The books have sold millions, easily making the NY Times Best Seller List. I’ve seen that before, no biggie. Twilight, the movie, grossed over $382 million in the US (I’m scared to see how little they actually spent), and ranked #115 all time (Summit Entertainment said that the DVD sold 3 million copies on the first day). The book series have sold millions (Wikipedia has it at 42 million, and while it’s Wikipedia, I don’t doubt a figure near this number; each of the four books and the 4-book saga collection are in Amazon’s top 10 sales rank as of June 7, 2009). But I’ve heard stories about big box books translating into big office smashes (like the Da Vinci Code: #27 all-time and $758 million at the box office worldwide; Wikipedia: 57 million).

What is amazing is is the rabidity of the fan base. Outside of the official websites for Stephenie Meyer and the movie, there are countless fan sites. Two of Cerece’s favorites are the Twilight Saga, a social network thanks to the geniuses at Ning and New Moon Movie.

The Twilight Saga has over 300,000 unique visitors US (almost 1 million total visitors US). What’s compelling is a group of fans who are into fan fiction. Fan fiction is when fans write chapters or complete books based on characters and themes from the source (book, movie, etc.). Cerece was up from 10pm to 6am Saturday morning reading a 36 chapter piece. Needless to say she said it was amazing. New Moon Movie generates about 400,000 uniques, but over 1.6 million people visit the site (so they’re coming back in a BIG way).

It’s absolutely incredible.

On the New Moon Movie site, fans are so talented that they’ve created and altered posters, professionally. And they’re really, really good.

Here are a few examples.

Original for New Movie, New Moon

Fan Created Examples:

My hope is that some of these creators are offered their own gigs.

What I like about Stephenie Meyer, Little, Brown Young Readers (publishers), Summit Entertainment (movie producers), is that they aren’t trying to control and monetize (i.e., squash) the creative buzz around her books and movies. As someone who loves business and finance, this might sound strange, but I believe that you can generate more revenue from allowing fans to do their own thing.

The movie Snakes on a Plane is my poster child for this. The movie was going straight to DVD to die a slow, but potentially profitable death. But there was so much buzz around the movie, the distributers figured that it should hit the theatres. It generated $62 million worldwide, but production was only $33 million. Assuming not a lot was put in for marketing (since there was already a lot of buzz), the movie produced maybe 50% returns for stakeholders, all in. Not too shabby.

Unfortunately, stifling buzz is common in media in an attempt to control the message. When I helped run an online tv network, I saw this all the time. Media companies (not ours) were always trying to limit media sharing. But they missed a key point…so much buzz was created around the media that it actually generated additional revenue (by the way, record companies used to…and still do…assume that if someone illegally downloads content, then it’s a lost sale…this is a fallacy because the same person may not have purchased the content if it weren’t available to them for free…I know a lot of people like this).

Nonetheless, Stephenie Meyers is a talent. I’m really happy for her and her team. Cerece certainly likes her.

I’ve been reading a lot about threats to GameStop’s business. Some are VERY valid, some are a little less than. Here are my thoughts on one stemming from Amazon, BestBuy and Toys-R-Us getting into the trade-in video games business (I haven’t found too much on BestBuy and Toys, but let’s just presume they are in this too).

Amazon: Amazon’s trade-in model (which is run by a third party, NorAm International) seems cumbersome and doesn’t address the same customer that GameStop focuses on.

I would need to ship my game to Amazon, wait (because it’s shipped via US Postal and goes through Amazon’s own quality control), then upon approval, I get a credit to my account to buy other games. I think hardcore gamers (GameStop’s customer) want a more immediate payback…go to the store, trade in (or trade-up), then buy right on the spot. Casual gamers (Amazon’s customer) might be different, but chances are, they aren’t trading games. More so, it only works if people can’t sell their stuff on Amazon Marketplace (presuming that Amazon will buy it).

I have to check some more, but initial reviews suggest that Amazon is following Gamestop’s trade-in prices. So there’s no benefit of using Amazon.

Btw – Amazon was thinking of competing with Netflix (Wal-Mart was also thinking of competing ). As a result, NFLX’s stock suffered greatly. Both companies opted out (actually, I don’t think Amazon ever started, but just thought about it). But honestly, among the two, Amazon had the better database of determining which DVDs to rent (neither had the data to determine how long to rent, though…which was critical). Now, NFLX owns the space.

Speaking of Netflix,snail mail was the EXACT reason why people said Netflix would never overthrow Blockbuster.  So I can’t understate this factor.  However, I also don’t think Amazon will be as disruptive as people have said because of the different market customer segments each company serves (see below).

BestBuy/Toys R Us – It takes expertise to work a trade-in business model: from pricing, to demand, to inventory management. As far as trade-ins, BestBuy’s and Toys’ do not have this expertise. So I really don’t think they are reasonable competitors.

I could see Amazon being a more adequate competitor because it has the database of selling/buying used game trends (Amazon Marketplace), but I don’t think it that reasonable for the reasons above.

Both – The typical customer of GME is a hardcore gamer (GME calls them “electronic game enthusiasts”), whereas the typical video game customer at AMZN, BBY and Toys is a casual gamer. So I believe that the customer retention will not change considerably.

Having said all this, my hope is that GameStop’s management is not arrogant enough to think that competitors and, more so, new distribution channels don’t pose a significant risk to the company. They have to explore these in depth and come up with real “Plan Bs”.

For example, why wouldn’t GameStop explore electronic distribution? I’d rather see them cannibalize their brick store sales and while growing new distribution (for net overall company growth) than to let someone else do it to them.

UPDATE

A LOT of people are very concerned about GME’s lack of a moat, particularly for used games.  I disagree.  GME has a relatively big moat (think Netflix again).  Both companies used their expertise and infrastructure as competitve advantages.  That’s why Wal-Mart couldn’t sustain a rental DVD model, like Netflix.  Trading in games is not as easy as you’d think.  Their’s pricing and inventory management, coordination with regulatory authorities (the GME store I visited volunteered the fact that they DO send information to the local police, as required by LAW), among other things.

I also think that there’s a recessionary reason to trade in games and there’s a functional reason (because you’re tired of the existing game and want something new).  I would think that casual gamers would have more recessionary reasons than functional, and thus trade in games for non-games (like paper towels), which are offered by Amazon and Wal-Mart. But again, GameStop tends to serve hard core gamers, who are more apt to have functional reasons to trade in games.

It’s a shame that people are so ready to call an end to GameStop because of a start-up company, OnLive, that hasn’t launched yet.

Some of the headlines were puns off of the GameStop name, but pretty much read the pretty much the same…streaming video games online to PCs and TVs would crush GameStop’s brick and mortar business model.

There are several observations/questions…

1) It’s not the idea, but the execution that counts. It won’t launch until Winter 09, and many things can change, like product delays, lack of funding (remember, the business is a start-up)

2)  Will pricing and demand be enough to pay for the costs of running the business while enticing games to use the service?

3) Will latency and other major technical potential problems be worked out by the time of launch or soon enough after

Nonetheless, this COULD be another Blockbuster v Netflix (remember, people said that no one wanted to wait for DVDs in the mail).

No question that management at GameStop should watch OnLive and see how they are doing and formulate Plan B (I really do hope they don’t think they’re Superman) just in case.  I mean, EA, Take-Two and other major publishers have apparently signed on, so there HAS to be something to it.

Actually, if customers want another distribution channel, GameStop should work on  anyway to meet that demand, as a practical business exercise.   CEO, Daniel Matteo, said on the 4th quarter earnings call that they’ve seen these types of things come and go.  I have no doubt about it.  Again, it’s not about the idea, but execution.

It’s just too soon to tell.

Borrowing from the immortal band, Public Enemy, “Don’t Believe the Hype”.

I don’t believe the expected profits from Wells Fargo…sorry, but I don’t.

The problem I have is that mark-to-market accounting has been suspended, and, I presume that companies can be a little more lax in writing down assets that are worthless or otherwise unsaleable, and still be considered compliant with GAAP accounting.  Thus it’s hard to gauge the exact amount of write-downs that should’ve been taken on their balance sheet, and thus the exact amount of income and equity.

Nonetheless, Wells wrote down about $37 billion from the Wachovia acquisition and took a lot of hits in the 4th quarter in 2008.

So they may have been trying to push as much crap in 2008.  No problem.  If I were them, I would’ve made 2008 a washout year and looked to 2009 as the fresh start, too.

But my doubt on earnings is based on the high level of unemployment (despite lower than expected new jobless claims), which will drive future write-downs, and loosened yet still relatively tight credit markets, which should limit revenue growth.

Earnings will probably be as strong as the press release states…Wells Fargo wouldn’t have issued the press release if it wasn’t going to happen.  I’m more focused on the quality of current earnings (limited write-downs mentioned above) and future earnings.

Sure, I could be wrong…been wrong before.  Been right a lot of times too.

Well, not that extreme, but the head of one of the best known and respected investment banks, Goldman Sachs, said that salaries on Wall Street should be revisited.

Draw your own conclusions, but the story seemed pretty interesting.

Several news outlets have it, but here are a couple links.

NY Times

Yahoo (AP)

This is insane.

FASB suspends mark to market accounting for investments.

So investors and others looking at the balance sheet of any company can be lulled into a false sense that the balance sheet actually represents the assets and equity/capital of a company.

If people wanted banks to be able to lend more, in light of the lower capital they have due to lower valuations of assets, then why not relax the actual REGULATIONS that govern the amount they can lend???

I know, I know…too smart for politicians who bullied the FASB (Financial Accounting Standards Board) into making the new provision.  They even threatened to create legislation to relax the rule.

I guess these methods were a lot easier than relaxing the regulations, which I would admit would be onery, with both federal and state regulations to contend with.

But still, the rule doesn’t change a single substantive economic thing.

Instead of an investment being worthless, it’s now worth the $10 million that the company thinks it should be worth in a stable economic environment.

Go figure…

Btw – mark to market accounting means that a company states the value of an investment on its balance sheet at the market value of investment.  If it’s a loss, it lowers the company’s total equity/capital.

That’s it, if I hear one more pundit talk about the spike in oil prices over the last few years being due to large demand from China, India and other developing countries, I’m gonna puke.

Did these countries’ GDP all of a sudden go from 0-60 in 4.4 seconds  and then stop in 112 feet (for the Tesla…let’s keep it green and cool)?  It’s not like China and India were just created, and just as fast, dropped off the globe (by the way, the world is actually flat, apparently). 

While I heard the increase in prices were due to Chinese and Indian demand, I really didn’t hear the same reason for the precipitous decline.  I mean, oil prices drop by over 70% in one year.  If the run up was due to Chinese and Indian demand, then the decline must be from them too, right?

No, the reality is that exchange-traded commodity prices are based on two supply/demand curves…supply/demand of the derivative traded, and the underlying supply/demand of the commodity.  So in this case, I believe that the level of supply/demand of oil was different than the supply/demand of oil contracts.  Honestly, in a normal cycle, this is sometimes called arbitrage.  This would explain skyrocketing oil prices and the subsequent enormous decline. 

The exact point is that, for some reason, the enormous rise and fail of oil prices was probably due to more speculators in the market than people credit.  T. Boone Pickens, king of oil, predicted oil prices would go above $100 in 2007 and was an investor in oil through his BP Capital.  He’s sitting on the sidelines as prices drop, but is, once again, predicting oil prices above $100 in/around 2009.

He’s also pushing for alternative energy too, which is interesting for a traditional oil dude.