Shortfall of $891,465,650 of Customer’s Money – Yes, They are Losers

For some 2012 was a rocky year. On a macro level we’re all suffering the repercussions of Greece’s debt problems, we’re walking on eggshells wondering how the rest of the so-called PIGS (Portugal, Ireland, Greece Spain)are going to fare. The US economists are still arguing about the double dip and housing prices are something there is no debate about, it’s entirely pessimistic.

Although if you live in any major city you might start wondering if the recession is like Santa; Everyone talks about him but no one actually sees evidence. Any decent restaurant has a line of truffle hungry patrons waiting around the bar for 90 minutes for a table, organic suppliers are still committing extortion with prices akin to an arm, a leg and your first born for a bunch of gnarled carrots. While trustifarians are occupying Wall Street, the upwardly mobile are occupying lounge-bars sipping gold-leaf cocktails make it clear that there is buoyancy in our economy.

At the end of any year there are the winners and the losers. MF Global are clearly in the loser camp after filing the eighth-largest U.S. bankruptcy claim in history. MF Global reported a shortfall in customer accounts at $891,465,650 as of close of business Friday, October 28, 2011. Three days previously, they reported a quarterly loss of a casual $191.6 million. In response Moodies and Fitch cut MF credit rankings to Junk. They are not the only ones to be downgraded this year and perhaps it’s interesting to note that similar to the other high profile case in question (U.S. Government), they used their customers’ cash to try bail themselves out of their sinking luxury cruise liner.  No doubt the investigations into the MF Global CEO Corzine and his cronies will provide more salacious gossip far into 2012.

Reed Hastings, the blogger aka CEO of Netflix opening remarks at every board meeting this year just may be: “let’s never mention 2011 again”. The company’s share price dropped  a jawdropping 60% which is possibly a rational response to gouging fees from core customers whilst announcing plans for global expansion. I’m not sure who came up with the genius customer loyalty strategy but I can guarantee: The research behind that decision was not exactly what we might call solid. Imagine being a fly on the wall at the meeting to hear that great business idea born:

Marketing: “I have an idea, to enhance customer value and relationship why don’t we divide DVD rental and movie downloads and charge separately.”

Billing: “That would cause more accounting dreams for us – more work for the same revenue, let’s do it!”

Loyalty Program Genius: “Customers will become more loyal as they will have two accounts instead of one”

CFO: “Our actuary has gone over the figures and the operation costs will be higher so we’ll need to charge more”

Bozo: Ok we will now charge $15.98 per month instead of $9.99 for the same service

All: Cheering and patting themselves on the back for their ‘innovative’ ideas.

The end result was 2 million subscribers cancelling Netflix accounts. Extrapolate the LTV (life time value) of those two million subscribers and multiply it with new competitors in the market, you’ve got yourself a corporate fiasco on your hands.

Groupon’s dismal IPO opening this year had blind-sheep commentators decrying the “next tech bubble bust”. Anyone with half a synapse firing, even with a whisky induced hangover would understand that there is nothing “tech” about printing a coupon to take to a restaurant. If we label Groupon as a tech company The Wall Street Journal is also, as is the sushi bar down the road, because they have a website. For the sake of sanity let’s call Groupon a database marketing company, a business model operating, long before Google became a verb. Now we understand why Groupon’s IPO didn’t reach stratospheric proportions. Speaking of which…

Linkedin would be classified, even by the most resolute conservatives as one of the year’s runaway successes. Every silicon valley VC (whether vulture or venture) salivates for an idea like this. We have to wait till next week when we discuss the winners of 2011. One thing is for sure, whether it was a good year or a bad one, we’re all looking forward to a 2012.

Bye for now, feel free to share your thoughts on failures below.

JJ.

jjenno@marketsensus.com

http://www.marketsensus.com

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