I don’t eat Chicken McNuggets, but a few years ago, I was in a McDonalds with a friend who noticed a strange price discrepancy. The dollar menu — all items for $1 — offered a pack of four Chicken McNuggets for, you guessed it, $1. Great deal! But buy in bulk, and you can get a better deal, right? This McDonalds offered a 10 McNuggets for $4.29… which, if you do the math, isn’t a deal at all. So I emailed McDonalds:
Why are the 4-piece mcnuggets on the dollar menu but the 10-piece cost $4.29? Am I allowed to buy three 4-piece mcnuggets (for 12 in total) and save $1.29?
Their reply wasn’t exactly responsive:
Hello Dan:
Thank you for your comments regarding prices at your local McDonald’s.
It’s important to know that approximately 85 percent of our restaurants are locally owned and operated by independent business people known as franchise owners. Each franchise owner determines his or her restaurant’s prices by taking our recommendations into consideration, as well as their unique operating costs. This is why prices may vary from one McDonald’s restaurant to another. Also franchise owners make decisions regarding charging for condiments.
We are sorry for any dissatisfaction you may be feeling as a result of prices at a McDonald’s restaurant. Overall, McDonald’s Corporation works very hard with our suppliers, research and development, and internal departments to consistently offer a broad menu that can be offered at a good value in our restaurants.
We appreciate your feedback and will share it with the appropriate people at McDonald’s. Regarding your local McDonald’s pricing, we encourage you to share your feedback with the restaurant Manager. We are sure the franchise owner would be interested in you comments.
Thank you again for contacting McDonald’s. We appreciate your business and hope to have the opportunity of serving you in the future.
Today’s Now I Know focused on Kinder eggs — which are banned in the United States. A reader (thanks Adam!) alerted me to another product called the Wonder Ball — originally, “Nestle Magic” — which followed the same pattern: chocolate on the outside, toy surprise within.
Here’s an ad for it, below.
So what happened? The New York Times has the story, but the gist: in July of 1997, the Food and Drug Administration told Nestle that the product violated the law; Nestle marketed the product anyway while lobbying Congress to revise the law; the Mars company (a Nestle competitor, and maker of M&Ms) fought back with their own lobbying team; Nestle ended up capitulating a few months later.
In 2000, another candy company re-released the product under the Wonder Ball name, but instead of hiding a toy in the candy, they hid … more candy! The product lasted until 2004.
Maureen Dowd is a columnist for the New York Times. This morning, the Times published her piece “My Man Newt.” I’m not going to address the substance of the article — this post isn’t intended to be about politics.
But to give context, in one part, Dowd discusses Newt Gingrich’s alleged hypocrisy. Dowd levies six distinct allegations in the course of three paragraphs, with each pair of two reinforcing the belief that Gingrich is a hypocrite. Here’s a screen shot — but don’t read it. Instead, count the number of blue links going to a source, backing up Dowd’s assertions:
Zero.
I’m not saying Dowd is making this up — in fact, each of the assertions can pretty easily be verified by looking at news reporting around the time of the actions alleged. Heck, the New York Times itself covered most, if not all of these stories.
And that’s the problem: The Times just doesn’t link to them.
The reason here is neither evil nor sloth. It’s newsprint. Dowd is probably sitting around in her Washington-area home, typing her roughly 600 words on whatever springs to mind, with a specific mindset: She has a column to fill for the next day’s paper. To the extent that she has to provide her editors with backup verifying her allegations, there is no expectation — on her behalf, or on that of the Times — that these sources are going to be revealed. After all, you cannot put a hyperlink into newsprint.
So we have to take Dowd at her word here. She’s an opinion writer, though, so it behooves her and the Times to make the facts she assert easily verifiable. For print, that’s hard. For the web, it is a problem which is easily avoided by simply using technology which has been around for two decades. (<— See how easy it is!)
And this really hurts the end product — the digital one, at least. Compare Dowd’s piece with the DNC’s “Mitt v. Mitt” video, below:
The video is full of clips of Mitt Romney saying one thing first, then the opposite thing later. It, like Dowd’s article, attempts to show that a leading Presidential candidate is a hypocrite. And the video is an order of magnitude more effective. A lot of that has to do with the medium — the audio/visual of the video versus the black and white text in Dowd’s column, but it’d be easy to bridge that gap. All Dowd would need to do is link to her sources, especially if those sources were videos of Gingrich speaking.
But that doesn’t happen. It’s okay to focus on the written word — I do that, too. It is not okay, as Dowd and therefore the Times do, to focuse on “print.”
Newspapers, the product, are going to die because there is digital technology out there for content reproduction and distribution than the paper and ink version newspapers employ. Newspapers, the companies, are going to die because culturally, they’re still stuck in a “print first” mindset.
Facebook seems like the perfect (or, at least, best) environment for turning ideas and products into something viral. It has three big things going for it — your messages go to many people, the people who receive the messages are people you actually know to some degree (setting aside Pages for now), and they can re-share the item in the same environment.
So I’ve always assumed that items shared on Facebook were like kindling to a bonfire, able to spark the sharing of content in ways which most content producers only dream.
But some recent data I stumbled across suggests that either (a) my data is bad or (b) it doesn’t refer nearly as much as you’d think.
On Thanksgiving, I re-published a story from Now I Know’s archives titled “How Turkey Got Its Name.” It hit the front page of reddit, which is always a good thing for a publisher, and demonstrates to some degree that it’s good content.
I was also able to see that it had a healthy number of shares on Facebook — over 800, as seen below. (To get this data, I think a friend needs to share it, and then you just type the title of the article in the Facebook search box, and this appears as an auto-complete item. I’m sure there’s a better way to do this.)
See? 803 shares.
How many visits will that result in?
In my case, only about 800. Here’s all the referring traffic from Facebook over the last two days:
It adds up to 888, but if you dig a bit deeper, only 833 of those visits went to the turkey story. That’s 1.038 visits per share — which means that it’s simply not being clicked on enough in order to “go viral,” so to speak. (I guess, technically, it is, if everyone who clicked then shared, but practically speaking, no way.)
Perhaps that’s a reflection on my content — I really don’t know (but I hope not!). Regardless, I just don’t think people click those links often enough for the content behind them to take off, at least not at the volume of ~1000 shares.
But it sure seems to me that purely as a baseball question, you would much rather give a guy a bigger and shorter contract than stretch it out over six or seven or eight years, where everyone finds themselves facing an awkward ending when the player isn’t worth the money anymore and the team has to figure out how to handle it, the player has to deal with the abuse, and so on.
Honestly, in some cases, I’d rather give a guy four years at $100 million than six years at $100 million.
Joe Posnanski* wrote that in early November. It’s obviously overstated — there’s no reason to give up the two free years. But the sentiment — fewer years, more annual dollars — makes sense.
* Given that this post is a discussion of Posnanski’s idea, I’m also using his asterisk-as-footnote thing. I don’t do this, ever; consider it a homage.
Let’s posit some other things. What goes through a front office’s head when they’re looking at free agents*?
* By free agent, I mean a guy who did his six years of MLB service time and now find himself able to sign a contract with a new team for the first time. And I mean “free agent” — not a contract extension or a buyout of pre-FA years.
First, teams sign free agents to contracts of four year and under, they do so to meet immediate needs, not speculative ones three or four years out. The year(s) at the end of the contract are sweeteners included to get the player to sign, often with the hope that the player will meet or exceed the value of the contract even at that time. Sometimes, the teams hedge this latter bet with an option year, and the player re-hedges with a buyout of that option. Randy Wolf’s contract (3 years, $28.25 million, $10m option with additional $1.5m buyout) with the Brewers before the 2010 season is a great example here.
Contracts of five years and over are different. The team may be trying to meet an immediate need, but more importantly, they’re getting a superstar in the process.* CC Sabathia versus Randy Wolf or Ted Lilly; Adrian Beltra v. Placido Polanco; Carl Crawford v. Marlon Byrd, even if that hasn’t worked out well to date.
(If the player isn’t a superstar, the team is making a huge mistake. See Carlos Lee, Barry Zito, and I bet, Jayson Werth.)
* Note that superstar acquisitions often involve subsequent moves to make them fit in right. A-Rod move to third base when the Yankees acquired him; Carlos Beltran meant Mike Cameron shifted to RF; the Mike Piazza acquisition lead to the trade of Todd Hundley; Adrian Gonzalez meant Kevin Youkilis moved to 3B; etc.
If this is true — and I’m pretty sure it is — there is a big disconnect between goals and execution on behalf of the teams. The goal is to improve at a specific position for the upcoming season, but the method is to tie allow for the creation of problems in subsequent years. This doesn’t make much sense.
My solution: Buy what you want, even if you have to pay more. How?
I believe that a free agent signing a three or four year deal will gladly take a one year deal paying, roughly, 1.5 times the annual average value (“AAV”) of the multi-year deal, instead. So a guy who could get a $50 million, 4 year deal on the open market would accept a one year, $19 million deal; a $27 million, 3 year guy would take a one year contract paying him $12 to 13 million.
In most cases, I posit, the player would sign, if not prefer, the shorter deal with the much higher AAV. There are definitely some issues with this — and it won’t work for all free agents.
1) The player has to be relatively young and healthy; a quick and dirty approximation suggests he has to turn no older than ~34 in the last year of the contract and not have any obvious health issues which would make a subsequent lucrative deal unlikely.
Basically: if you’re taking a very short contract that pays a lot, you’re doing so because you expect to make it up and then some in subsequent years. If that’s not likely, you aren’t taking the shorter contract.
After the 2007 season, the Mets offered Luis Castillo a four year, $25 million ($6.25m AAV) contract. Castillo had bad knees and would be 32 in 2008, so at the end of the contract, he’d be 35 and have really bad knees. There’s no way he’d take a ~$9 million contract and leave about $16 million on the table.
2) The player needs to have at least one other competitive offer on the table. Let’s take Oliver Perez, who received a three year, $36 million deal from the Mets a year after Castillo robbed the Shea stagecoach. Would he have signed a one year, $16-18m deal? Probably not, because no one else was offering him anywhere near $12m a year for 2+ years, and it’s not entirely clear that he’d get that contract a year later.
3) If the player can get a five+ year contract, he’ll take that contract. Pretty straightforward — it’s simply too much money with too much security to pass up. Similarly:
4) A four year deal with an easily vesting fifth year is a 5 year deal. Basically, for our analysis, we should treat many vesting years as simply contract years, as the player and team both expect it to vest.
But note in most of those cases (certainly in situations 1 and 2, and in non-star cases, 3) the team shouldn’t have offered the multi-year pact either.
* * *
The really bad side effect of offering a player a three or four year deal is what I call “contract plaque.” Contract plaque occurs when the third and fourth year of a deal no longer align with the needs of the team, leading to a misallocation of funds. It’s not necessarily a huge problem, of course — even if Marlon Byrd’s third year under contract with the Cubs becomes a mismatch, he’s only under contract for $6.5 million.* But there are three factors which can cause contract plaque to become a big problem:
1) The player isn’t worth the contract;
2) The team is no longer that good; and/or,
3) The team has a cheaper (even if lesser) solution at the player’s position, but a bigger need at another position.
* Byrd’s situation is an example of why a team should prefer a longer term deal — he signed for a huge bargain.
Let’s use Jason Bay as an example.* Before the 2010 season, Bay signed a four year, $66m deal with the Mets — an AAV of $16.5m. Using the 1.5x shorthand, I am assuming that Bay would have accepted/preferred a one year, $25m deal instead of that onei
* Bay’s a terrible example. He violates all four of my caveats. He’ll be 34 with questionable knees in the fourth year of his contract. There really were no other bidders except maybe the Red Sox, and they weren’t going to go to four years. And his contract has an easily vesting fifth year. So he probably wouldn’t have accepted a one year, $25m deal if the Mets gave him the choice. (Note that if the Red Sox had offered $50m over three years, and the Mets simply offered $25m/1 and no four+one year pact, he very well may have taken the Mets offer.) But I’m a Mets fan so he’s an easy player to analyze.
Bay, of course, imploded and found himself injured — concussed. And the Mets just stunk. Finally, two years later, the Mets are still bad and, well, so is Bay — and they owe him $16.5 million. Meanwhile, the team has Lucas Duda who can play left field* and a big whole at 2B — and a solution, in Jose Reyes, if they just had an extra $16.5m or so laying around.
* Duda is probably going to be the Mets RF, so yes, the Mets would need a RF if he played left. But that’s really neither here nor there. Duda is likely a defensive disaster-to-be in right and really should be playing left, and the Mets are in the situation right now where a guy like Cody Ross or Ryan Doumit would be fine in right, for about $3-5 million. Or screw it, just put Fernando Martinez in there. You get the point.
In order to do this, Omar Minaya would have had to find $10 million during the 2009-2010 off-season. Bay earned $15 million in reality; I’m paying him $25 million. That’d be pretty easy. Minaya paid $5 million to Jeff Francoeur*, $2 million to Alex Cora (!), $3.3 million to John Maine, and habitually gave out too much money to random relievers. And, all said and done, Minaya ended up spending 10% less money than in either 2009 or 2011 (and added $1m in a patently stupid deal to acquire Gary Matthews Jr.) So there was definitely a way to get this done, assuming incorrectly that signing Bay was a good idea in the first place.
* Francoeur probably was worth around what he got paid, but that’s hardly the point. When the Mets signed Bay, they already had Frenchy, Pagan, and Beltran under team control, and at the time, they believed Beltran was healthy. The Bay signing effectively moved Pagan to the bench, and only because Minaya/Jerry Manuel failed to realize that Pagan was much much better than Francoeur.
And for subsequent years? We have a built-in solution. If you want to retain Bay, you may be able to do so for the same $25M (or less); if not, there’s $25m coming off the books. (And with the new CBA, you could make him a qualifying offer of $12m and get a draft pick or two when he leaves. But honestly, I came up with this scheme before the new CBA was leaked, so I see that as icing. Significant icing, but icing.) Given that the 2011 Mets would have been better served by an outfield of Duda-Pagan-Beltran and $16.5 million left over, it’s doubly a no-brainer.
* * *
I floated this idea on Twitter and one of the concerns is that if you kept doing this, you’d be constantly overpaying. I’m 100% sure that’s right. I’m also increasingly convinced that it’s irrelevant — because you won’t keep doing this.
First, the system optimized toward your emerging assets, allowing you to exploit the market failures created by the reserve clause system while giving high reward, low risk players a shot. That’s a wonky way of saying that if you have a prospect who is underpaid because he’s not yet a free agent, well, he won’t be blocked by an overpaid veteran — and that low cost veterans can be given the chance to thrive where higher cost ones may be currently sitting.
This is a big deal, I think. It’s part of the problem that Posnanski was hitting on in his quote way above. The Mets 2010 outfield should have been Duda, Pagan, Beltran, with no mention of Jason Bay. Their 2008 and 2009 rotation should have included Jon Niese and/or R.A. Dickey from the get go, respectively, without wasting starts on Oliver Perez.
Second, there is no reason to do this if the team isn’t likely to compete even with the player. It’s a “strike while the iron is hot” move. There’s no reason to sign Jason Bay to a $25 million contract* if the team is unlikely to compete even if you have him. It’s much better to spend that money on amateur free agents and overslot draft pick contracts.
* Again, Bay’s an obviously bad example. There’s no reason to sign him to a $25 million contract ever.
And finally — and most importantly — teams are constantly overpaying anyway. The Mets are too obvious an example, having effectively paid out over $25 million to Perez, Castillo, Matthews Jr., Beltran, and K-Rod to play for other teams (or no one at all).
So I don’t really think that these one-year overpays are necessarily a slippery slope; in fact, there’s a good chance they contrary to intuition, it’s the opposite. And I’d love to see the Mets give it a try.
Sesame Square — the Nigerian adaptation of Sesame Street — stars Kami, the world’s first HIV-positive Muppet (introduced by South Africa’s Takalani Sesame), and Zobi (pictured), a blue cab driver who educates children about malaria. The production has its lighter side, too. Zobi is the…
This last weekend, Now I Know grew tremendously, picking up over 3,500 new subscribers — 25% growth in basically a day. Thanks for joining.
If you’re new, here are a few things you probably should know about Now I Know:
1) I publish it Monday through Friday, at roughly 6:45 AM New York time. There are times when it comes a bit later, but those are rare. I don’t publish on the weekends or on US holidays, but I’ll warn you about the day off in the previous days’ emails.
2) I always send from my personal gmail address. So if you want to comment or otherwise mention to me, just hit reply. Similarly, if you have a story suggestion, that’s the best way to let me know.
3) I try very hard to reply to all of those messages. I even reply to blank emails (which are usually caused by people reading on the phones and accidentally replying) because hey, you never know.
4) The “Related” links are Amazon affiliate links.
5) I don’t have much of an editorial calendar. I typically have one or two drafts written, at most, and there’s no real theme. For example, I don’t have a Halloween-themed issue running today.
That said, here are a few archived Now I Knows which are about candy.
The Candy Desk — a desk, in the Senate, filled with candy;
Pumpkin Saving Time — how Halloween caused Daylight Saving Time to move (to a degree);
Zapped Chocolate — a piece of chocolate lead, accidentally, to an incredible invention;
Miranda Piker and the Chocolate Factory — the other child who visited Willy Wonka’s chocolate factory, and the fate that befell her — until editors removed her from the book’s pages.
For a $20 billion company, Yahoo is in shambles. Four years ago, its shares were trading at about $30; now, they’re struggling to stay over $15. The board recently ousted the CEO and now, it’s at least an even bet that Yahoo will end up gobbled up by another company or sold to a private equity firm.
But if Yahoo stays independent, here’s an idea for their long-term health: start an incubator for digital media startups.
(And honestly, this same analysis would apply to Aol, too.)
If you’ve been here before, you know that I have a daily email newsletter (“Now I Know”) which is my hobby/side project. I don’t consider it a “startup” per se, but it’s a useful example. It’s not my first media project, either. Counting tiny ones which I quickly abandoned, I’ve probably had a half dozen. The other significant one was ArmchairGM, which I co-founded.
In every case, I’ve had three major pain points. All three would be solved by having the right partner/investor, and that partner/investor could be — and should be — Yahoo. It’s not about the money: it’s about the value Yahoo can provide by leveraging its current platform for the benefit of the media startup.
Pain Point 1: Audience Acquisition
Personally, I’ve become very good at this. Now I Know has over 13,000 subscribers and its archives (which I’m slowly repopulating) will break a 250,000 uniques this month. That’s good for a one-man band. But I’ve only become good at it because of a lot of hard work and a ton of failure.
And relative to what Yahoo could do, those numbers are tiny. Rounding errors, even.
Yahoo could crush those numbers without even trying. With over 100 million people visiting each month from the U.S alone, even minimal promotion could lead to a 10,000 subscriber base (or incremental gains) in one shot. For example, an article ranking yellow cake mixes has nearly 1,000 recommendations on Facebook.
Imagine if twice a month, Yahoo aimed its front page fire hose at an archived version of Now I Know, with a call-out to subscribe much like my friends over at mental_floss have. How quickly would the list grow? Much faster than the 1,000 or so a month I’m doing now.
Pain Point 2: Keeping the Site Up
Hit the front page of reddit, digg, etc, and your server is toast. Or have something reverberate through the web. Or — well, basically, if you succeed in getting a lot of attention for your content, you may not be able to meet the demand from a server/uptime perspective.
If you’re a technologist, maybe that isn’t true. But if your strength is media, then it probably is. I’ve thankfully finally solved the problem for Now I Know, but it was a constant struggle for ArmchairGM and caused me to deep-six a tiny, short lived project in the interim (which is a blessing in disguise). It also was a big problem for Now I Know for a while, which is why most of the archives are still on Mailchimp’s site and not moved over to my own domain.
Yahoo doesn’t have this problem, at all. If Yahoo hosted the media startup, the startup would be able to focus on the business, and not on this center of costs and frustration.
Pain Point 3: Ad Sales
Pretty self explanatory, right? Small indy publishers do not have ad sales teams. Instead, they are already looking at ad networks and/or Google AdSense to power their revenue; Yahoo could be that for their hand-selected media startups. (To be clear: I’m suggesting that Yahoo syndicate its premium ad buys to these incubated companies. I’m not suggesting a return to the awful awful Yahoo Publisher Network model.) This would make it immensely easier for the startups to get to “ramen profitable.”
* * *
So that’s why this would work for the startup media companies. But why would it work for Yahoo?
1) They’re already outsourcing their content creation — but with none of the upside.
But wouldn’t it be better for them if they gave Dan Frommer, say, $40,000 (as an investment) and grabbed equity in SplatF. Note that Frommer is already well established, and SplatF has already demonstrated itself to be a viable media product (#32 on the Techmeme leaderboard; reasonably good viral pickup; Frommer’s reputation; etc.) Yahoo would drive traffic to SplatF, rep its ads, and host the site, but it would otherwise be managed independently. Chances are, it’d be the size of most of the tech blogs out there pretty quickly — assuming Frommer could hire quickly enough.
This isn’t to say Frommer — who I’ve never met — would accept. But you could see a similar story happening, many times over. In fact, it’s a model is easy to repeat across verticals.
2) The investments wouldn’t really cost Yahoo much, if anything.
I don’t have data from Yahoo, but I do have some for Aol, via their “Aol Way” deck from earlier this year. For low end articles, Aol was doing $5 CPM. And those articles cost them $25 a pop. Some fuzzy math means that each post needed 7,000 page views to break even; that’s $35, so we’ll go with that. For high end, they were making $9 CPM and required 40,000 PVs to break even; that’s $360, and the deck says $250. So Aol’s math is $1 of investment in content requires $1.44 in revenue to break even.
Let’s say, again, that my $40,000 investment is in the right ballpark. Let’s also assume that Yahoo offers the media startup a 2-to1 split on ad revenue, with the startup getting the lion’s share. We’re probably close to the $9 CPM here, but let’s go with $6, just to be on the safe side.
Yahoo is paying $40,000 — lump sum — during the period the media company is in the incubator, let’s say a year (but note that the two sides can easily agree to continue the hosting and ad sales relationship, if not the audience acquisition part). At $40,000, Yahoo needs to make about $57,600 to break even, using Aol’s numbers. At $3 CPM — Yahoo’s cut — they’d need the startup to serve 19,200,000 pageviews during the length of the relationship.
Looking at my own traffic numbers, and noting that Yahoo hasn’t done a single thing to help me grow it, I can say pretty confidently that a high-quality media project can hit that.
Basically: whatever lump-sum payment Yahoo makes to get its equity investment come back via ad sales. There’s almost no risk here, even if you swing big and make a thousand incubated investments in a given year.
3) Yahoo can win without an exit.
And imagine if the investment is in a platform. Think Yelp or Wikia or CafeMom, or maybe even reddit (which actually was a YCombinator company). Or a user generated recipe site; gdgt; SBNation; etc. A site where the community produces the content and the editors are benevolent overlords.
These sites can do tens of millions of pageviews a month even early on. According to quantcast, Wikia, which is still a privately held, venture backed company, is doing about 800 million PV/month. But even in July of 2008, per quantcast, it was hitting about 200 million. It wouldn’t be hard to see them, if a Yahoo-backed incubated company, sticking with Yahoo as their ad provider (even if only for remnant) for a long, long time.
4) And Yahoo can buy the site in the end.
Yahoo would definitely want a first right of refusal over any acquisition. Because they’d own a percentage of the company beforehand, any acquisition would be less expensive for them than others; also, because they’d potentially be handling a lot of the operations stuff and ad sales, they could better estimate the value of the company. It wouldn’t be hard, at all, to imagine Yahoo growing tremendously by acquiring those companies they incubated.
* * *
Yahoo’s roots, historically, were in curation: Find great stuff on the web and share it in directory format — “home-brewed lists of favorite links.” They once linked to a nascent site called Amazon after calling its CEO to warn them about the torrent of traffic; Amazon’s business took off soon after. That day has come and gone, but Yahoo can recapture that — and capitalize on it — if they embrace entrepreneurs.
