The WalMart reality: what Silicon Valley doesn’t want (or get)

There’s a certain arrogant but humorous P.T. Barnum flair that accompanies a core Silicon Valley notion that a company’s value is higher if it doesn’t have a growing revenue model. Fortunes have been made via this slight-of-hand, slipping beneath the cracks of common sense and traditional business logic. Money has that effect on people, I suppose. It reminds me of the head-scratcher in the mortgage loan portfolio foolishness that led to our economic collapse five years ago — that you could make a TON of money by selling bad loans. Huh?

The essential lure of technology and technology investments is big money fast, so the core approach of 99.99% of venture capital initiated start-ups is — and must be — top-down. It uses the global reach of the Web to dazzle everyone with numbers so astronomical as to set aside common sense. The trick is to build the scale rapidly to initiate dynamic value, regardless of whether the economics make sense. I got caught up in this game with my own Web start-up and lost. Our investors-cum-“advisors” took a perfectly sound, albeit bottom-up concept and destroyed it by switching it to top-down.

A fascinating CNET article alludes to the same problem with Facebook, and those of us especially in local media need to pay very close attention. Opportunity is knocking. More on that below.

Traditionally — at least in the U.S. — business growth has come through expansion: create something that works somewhere, and expand it elsewhere to grow the company. In this way, systems and processes are put into place that cater to the people who bring in the revenue. In some cases, it’s consumers; in other cases, it’s other businesses. Regardless, the interaction between the company and revenue is the tried and true method of up close and personal.

Walmart logos over the yearsWalmart is a great example of this. According to the Forbes Global 2000 list, Walmart is the world’s 18th largest public corporation and the largest public corporation when ranked by revenue. Wikipedia notes the company is also the biggest private employer in the world with over two million employees, and is the largest retailer in the world. It has 8,500 stores in 15 countries, under 55 different names.

Yet, it all started with Sam Walton opening Walton’s Five and Dime in Bentonville, Arkansas in 1951. Walton’s strategy for success was simple: make money by volume sales at slightly lower prices than competitors. Sounds familiar, right? He opened the first Walmart Discount City in Rogers, Arkansas in 1962 and began spreading outward.

In the modern start-up world, headquartered in Silicon Valley, businesses want nothing to do with 60 years for growth, and so everything is shortcutted in the name of scale. Scale without revenue, after all, provides only the illusion of business bigness, or the potential for bigness.

In the CNET article (Frustrated advertisers to Facebook: Take our money — please!), writer Paul Sloan says Facebook has become a victim of its own success. While Facebook users can interact and relate with anybody, Facebook itself ironically relates or interacts with very few.

It’s automating its process and using technology to increase efficiency. But that’s not the same as dealing with a human being; big advertisers are a needy bunch who want hand-holding. However, plenty say they can’t even find anyone at Facebook to take their calls — or their money.

Here, for instance, is Mike Parker, the co-president of U.S. operations of Tribal DDB, talking about his frustration with Facebook: “For the longest time, we’ve been trying to call Facebook to do business with them and there’s nobody to pick up the call,” said Parker. “They’re very focused on the consumer experience, and less focused on revenue and working with advertisers.”

And here’s David Smith, the CEO of digital agency Mediasmith: “Facebook just doesn’t seem to care. They’re still trying to grow this thing. The question is, do they want the big bucks?”

This inability to make contact in order to do business isn’t limited to Facebook either, especially from a local perspective. Have you ever tried to reach someone at Google to discuss business? I’ve actually spoken with someone at Twitter about local business, but the prices were so outrageous as to evoke only an odd form of belly laugh.

You see, when you build a business from the bottom-up, you have no choice but to immediately cater to the needs of the people who are paying you. Since venture capital supports Silicon Valley, companies are able to sidestep the issue in the name of generating scale, because revenue isn’t really the mission. Local media companies sit back and watch this happen without seeing the opportunity to seize the revenue while others are building the scale. I remember one media company owner who asked, after I proposed creating a local search portal, “Do you honestly think we can compete with Google?” In scale, glitz and tools? Of course not, but most definitely in market revenue, especially with a television station at its disposal to promote the site. Advertising at the local level, after all, is sold, not bought. I don’t care how sweet the social media application is, the opportunity for revenue is local, because the preponderence of the app’s use is local. Self-service ad software, no matter how simple it may seem, is no substitute for listening, interacting, and the occasional hand shake.

Advantage local media.

Comments

  1. advantage local media?

    terry,

    seen the stock prices of those ‘advantaged’ local media enterprises lately?

    reminds me of the trading in american motors at $4 a share while gm was in the $70s.

    not a perfect analogy as gm wound up being bailed, but amo is also no longer.

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