Focus On: Eric K. Clemons

Everything New Is Old Again: iPad 2 Ups the Stakes in the Tablet Wars

Posted on March 3, 2011

“Six months ago, I was a pioneer. Now, I’m old school.” That comment — posted on Facebook by an Apple user — pretty much sums up the feelings of iPad owners following the roll out of Apple’s next-generation tablet.

The iPad 2, which goes on sale March 11 with data plans available through AT&T and Verizon, was unveiled by Apple CEO Steve Jobs, who made a surprise appearance at a launch event in San Francisco despite being on medical leave. The new iPad is 33% thinner, up to 15% lighter and promises to be much faster. There are two cameras — one on the front and one on the back — to assist with video calling, and a new adapter (sold separately) that plugs into a TV and allows content to be viewed on the big screen. Possibly the most visible new addition is the “smart cover” screen protector, which doubles as a stand for holding the iPad upright and comes in a rainbow of colors. (Watch Apple’s demonstration video for an example.)

What Apple hasn’t done is deviated from the key features that helped sell nearly 15 million iPads since the device was launched last year, according to Wharton operations and information management professor Eric Clemons. The iPad has “sufficient memory, a great screen, very low weight, a great user interface and access to the Apple App Store,” said Clemons, who bought an iPad 2 on Wednesday.

“Apple dominates because of the device itself, the App Store and the ease of integration with Apple’s laptops and desktops,” Clemons notes. “Nothing in the new machine weakens any of these.” While Clemons would have liked to see the next-generation iPad come with more memory, he says the company is providing the upgrades that consumers were waiting for, such as a streamlined design and the new camera. “Only the memory upgrade was missing. On the other hand, I did not expect to be able to play my movies on a hi-def TV yet.”

Forrester analyst Sara Rotman Epps predicts that in 2011, the iPad 2 will claim 80% of the U.S. tablet market share. “Apple understands desire,” Epps wrote in a blog post. “The first thing consumers will notice about the iPad 2 is how it feels: lighter (by a crucial two ounces) and thinner (at 8.8mm, thinner than an iPhone 4). Color triggers emotion: iPad 2 comes in not just black but white, with multiple colors in the thin ‘smart covers’ that snap into place with ‘auto-aligning magnets’ and clean those unsightly fingerprints off your screen. The rest is important but more cerebral: dual-core processor, HDMI video-out converter for the 30-pin connector, etc. Emotion enters back into the equation when consumers see what they can do with the device — see their loved ones through FaceTime, touch-edit videos in iMovie, improvise on touch-instruments in GarageBand and actually sound good doing it.”

After the iPad became a hit, Research in Motion, Motorola, Hewlett Packard, Dell, Samsung and others unveiled competing devices. “The tablet wars are far from over,” Epps wrote. “We have yet to see a play from potential disruptors like Amazon, who could enter the tablet market at a lower price point, or Sony and Microsoft, who could offer radically differentiated value propositions. Things could get rowdy. But for now, Apple still defines the tablet market, with a product consumers will desire at a price that’s hard to beat.”

In a recent Knowledge@Wharton story on tablets, Wharton experts agreed. Apple may have defined the initial rules of the game, but like the smartphone market, the tablet arena is expected to be one of multiple players. “It’s not too late for tablets,” management professor Saikat Chaudhuri said. “You can compete on technology or distribution as you try to reach your installed base. You can also compete in a niche segment if [that segment is] large enough.”

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Three Questions about the AOL-Huffington Post Deal

Posted on February 8, 2011

The takeover deal  that America Online (AOL) CEO Tim Armstrong and Huffington Post co-founder Arianna Huffington announced on February 7 has set media mavens chattering. As has been widely reported, the troubled web services provider has agreed to acquire the fast-growing news and analysis website – which boasts 25 million unique visitors a month – for $315 million. Following the acquisition, Huffington – who is the eponymous publication’s editor in chief – will become the president and editor in chief of AOL’s newly minted Huffington Post Media Group, which includes online publications such as Tech Crunch, Engadget, Patch, and so on. During the past two days, Armstrong and Huffington have been predictably upbeat in media interviews, touting — as is generally the case after such announcements — the synergies that will flow from the merger.

Will that really happen? Or could the AOL-Huffington deal go the way of the AOL-Time Warner merger of 2000, which was hugely hyped during the dot-com bubble, but eventually destroyed lots of shareholder value before falling apart at the end of 2009? Knowledge@Wharton decided to find out by posing three questions to Wharton faculty.

1. Does the AOL-Huffington Post deal make sense?

Eric Clemons, a professor of operations and information management at Wharton, believes it does, especially for Huffington herself. “A week ago, she was an opinion leader; now she is also a wealthy media mogul,” he says. “AOL is a portal with an audience and Huffington Post can infuse that portal with interesting content,” adds Eric Bradlow, a professor of marketing and co-director of the Wharton Consumer Analytics Initiative. “From that point of view, it makes perfect sense. The Huffington Post is looking to broaden its base, and the acquisition cost of AOL may be – although I am not sure – less than the acquisition costs of new customers using standard acquisition methods.”

Kevin Werbach, a professor of legal studies and business ethics, favors the deal. Noting that AOL faces huge challenges, he says, “At least Tim Armstrong and his team have a coherent strategy. AOL wants to be the first pure digital mass media company. It’s betting that it can get sufficient scale with relatively low-cost yet relatively high-quality online content to create a powerful advertising vehicle. Huffington Post is one of the crown jewels of blog media. It has built a very large audience for a totally new online media property, and it has a valuable brand and network of relationships in the digital world. The price is high, but AOL’s current management realizes it needs to push in all its chips to have any chance of succeeding with the turnaround.”

Kartik Hosanagar, a professor of operations and information management, is enthusiastic about the AOL-Huffington Post combination. “It’s a great decision by AOL,” he says. “It’s clear that unique content is a key part of AOL’s strategy. AOL has moved out of the algorithmic aspects of an Internet presence – for example, search — and focused instead on content and advertising. With the Huffington Post, AOL gets highly differentiated content with a clear brand identity and content strategy.”

 According to Hosanagar, “Arianna Huffington recently quoted Tim Armstrong as saying, ‘AOL has brand awareness but no brand identity.’ There’s no doubt that the Huffington Post has clear brand identity. Anyone going to the Huffington Post knows exactly what kind of content they are getting.” Moreover, the Huffington Post’s content strategy is a valuable asset for AOL. This strategy includes its “sourcing strategy (including use of celebrity content writers) and social strategy (thousands of bloggers). Hosanagar notes that in buying the Huffington Post, “AOL is not just getting a great brand; AOL wants the Huffington Post’s successful content strategy to permeate through the rest of AOL.” That is the reason, he argues, why the deal is not just about bringing the Huffington Post under AOL’s brand. “It involves realigning AOL’s media assets and creating the Huffington Post Media Group so that other AOL properties like Engadget benefit from the content strategy,” he says.

2. What are the principal risks and how can they be addressed?

Wharton professors believe the principal risk lies in the belief that the Huffington Post’s content combined with AOL’s distribution will generate enough online advertising to create value beyond the transaction’s costs. According to Clemons, “The major risks for AOL are, basically, that they cannot monetize this or any of their other new online content sites. They will continue to have traffic, which is good, but right now Tech Crunch and the Huffington Post do not have paid subscribers, and no online media site has succeeded so far in producing significant ad revenues or revenues of any other sort.” Bradlow believes that AOL is primarily a transactional portal for services such as e-mail, and if its audience fails to engage meaningfully with the Huffington Post’s content, then AOL’s strategy could fail.

Werbach points to several other risks. “The risks include all the normal ones in any acquisition: culture clash, integration, identification of synergies, strategic merits and valuation,” he notes. “Plus this is really a bet on the growth of online advertising tied to something other than search, which isn’t guaranteed to pay off. Arianna Huffington is a unique figure, who isn’t used to working within a corporate management structure. Her team and contributors are used to working within a scrappy, sexy startup, not the passe AOL. AOL’s management and now Huffington will have to carefully manage the company’s stable of semi-independent content franchises, but this has always been AOL’s challenge, especially during its Time-Warner period.”

3. What advice would you offer Huffington to help the merger succeed?

According to Bradlow, the Huffington Post Media Group should systematically look at content from the Huffington Post that is “viewed and consistent with the AOL audience.” In addition, he says, “measurement tracking (i.e. web science) should be used to understand which Huff Post content is successful on AOL’s portal.”

In Werbach’s view, AOL should follow up the Huffington deal with another merger. “The logical capstone deal for AOL would be to merge with Glam.com, [a collection of women-oriented beauty and fashion sites] which is the other company that has successfully embarked on a similar strategy,” he says. “Glam’s valuation may be too rich for AOL. Logically, though, it’s the appropriate partner to help scale up further. Glam has flown under the radar, but its traffic is massive.”

Are Huffington and Armstrong listening?

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Google’s Shake Up: Why Now?

Posted on January 21, 2011

Search “Google” today and you will come up with wide-ranging coverage and speculation concerning the Internet giant’s decision to name company co-founder Larry Page as its new CEO, replacing the firm’s current chief executive, Eric Schmidt.

Schmidt, who will become the company’s executive chairman, said in a post on Google’s blog that the decision to restructure is based on the increasingly complex nature of managing the company’s growth. According to an article in The Wall Street Journal, Google said that it aims to “streamline decision making and create clearer lines of responsibility and accountability.”

Official accounts aside, however, observers are speculating about the motives behind what the Journal calls “the biggest management shake-up since the Internet search giant was an obscure California start-up.” While some cite an increasingly tense relationship between Page and Schmidt, others note that recent failed acquisitions — such as Google’s attempt to purchase group buying site Groupon — and growing competition from social networking site Facebook are signs that the company is ripe for change. In fact, Facebook presents a particularly pressing challenge: According to Internet analytics firm Hitwise, the social networking site usurped Google’s position as the most-visited site in the U.S. in 2010.

According to Wharton operations and information management professor Eric Clemons, “there is a perception on the street that Schmidt has been more of a care taker/administrator than a visionary leader.” He notes that this particular assessment is not necessarily “fair,” given the experiments in search the company has undertaken during Schmidt’s tenure, and other advances, including Google’s expansion into Japan and the successful promotion of its Android operating system.

However, he agrees that Google is facing particular threats. “There is some danger that Google’s ‘don’t be evil’ image is going to collapse, some danger that search will be regulated, and some danger that Facebook will be the next player in search.” He adds that although search “will never lose its dominance” on the web, a site like Facebook — or perhaps Facebook combined with Microsoft’s Bing — could make paid search obsolete with “a better form of social search.”

What, then, should Page focus on when he takes over as CEO in April? According to Clemons, “Control the cowboys…. Google’s behavior was cute when it was a tiny company headed by a group of committed techies; it’s now increasingly seen as rapacious and dangerous, defensive and monopolistic. Set some limits on corporate behavior, truly stop accepting evil and do so before regulators in the E.U. and the U.S. come down really hard.”

According to the Journal, Schmidt tweeted the following after the changes in leadership were announced: “Day-to-day adult supervision no longer needed!”

“The boys are back in charge, this time with a much more powerful toy,” Clemons says. “Anything goes. Be afraid, be very afraid.”

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