Final Analysis: Do Microsoft's Celebrity Endorsements Work?

| FROM THE PRINT EDITION |
 
 

Do celebrities influence you? More specifically, do their endorsements make you buy stuff? Are you more likely to shell out a few hundred bucks on a Windows Phone 8 because Gwen Stefani says it allows her to stay creative and never miss a thing in her busy life? Will it make a difference to you if Jay-Z, an old Friend of Microsoft, jumps aboard the Windows Phone bandwagon, as has been reported by some media outlets?

In case you haven’t noticed, Microsoft likes famous people. Remember when Jerry Seinfeld appeared with Bill Gates in those goofy TV commercials in 2008? Or when Queen Latifah helped Gates announce Microsoft’s vision for digital entertainment in 2004? Jay Leno shows up regularly as a Microsoft accomplice. Conan O’Brien, too.

Attaching the company to famous people is a strategy that, for better or worse, is something Microsoft’s marketing execs believe in deeply. It’s their way of telling the rest of us that it’s OK to want and own something Microsoft makes.

At the official launch of Windows Phone 8 in October, former iPhone user Jessica Alba joined Microsoft CEO Steve Ballmer onstage to tout the features and advantages of the new phone. Alba wasn’t articulate or even all that knowledgeable about the product, but the point was obvious: Here was this glamorous young actress—a busy mom to boot—offering her cherished imprimatur to the media horde.

Same with Stefani. She’s an accomplished singer. A fashion mogul. A wife and a mom trying to keep her life in balance. And the Windows Phone 8 helps her do that. Why wouldn’t we want one, too?

As Thom Gruhler, Microsoft’s vice president for Windows Phone marketing, put it recently to The Seattle Times: “It’s creating this permission. I know it’s OK. It’s acceptable. I can pull that out at a dinner party and say, ‘Hey, Gwen Stefani has that phone. Check it out.’”

Don’t know about you, but if I’m at a dinner party where someone pulls out his or her smartphone and starts dropping celeb names, I am long gone before the tiramisu arrives. But that’s just me. Celebrity endorsements are as old as advertising. I mean, if you’re a caveman and you’ve just discovered fire, wouldn’t you covet an endorsement from the celebrated artist who’s been doing all those critically acclaimed cave paintings? (“Before, I could only paint during the daytime. Org’s fire invention allows me to be creative all the time. I absolutely love it!”)

It’s human nature to attach an idea that you think is cool to someone who is perceived as cool. It’s also human nature to look at celebrity endorsements and wonder what they imply about a company that uses them. Are these tactics rooted in inspiration? Or desperation?

Writing in Ad Age last year, marketing executive Jonathan Salem Baskin worried that Apple had lost some of its own considerable cachet by employing Samuel L. Jackson, Zooey Deschanel and John Malkovich to promote the iPhone’s Siri feature. “Hiring famous people is what Microsoft or Acura do when they get Jerry Seinfeld to try to make their brands funny,” Baskin declared. “It’s what packaged goods brands do when they can’t think of anything better to talk about.”

Not that Apple hasn’t used celebrities before. But Baskin’s point is that Apple doesn’t need celebrities. It usually is happy to let its products do the talking. Which leads me to wonder if Apple felt uneasy about the Siri feature and decided to ask the cool kids for help. And if Microsoft will ever feel confident enough not to rely on them.

JOHN LEVESQUE is the managing editor of Seattle Business magazine.

Looking for high investment returns? Consider investing in a family business.

Looking for high investment returns? Consider investing in a family business.

 
 

Investors do not lack opportunities to deploy their capital, but being able to generate respectable returns is much more difficult. Part of the problem is finding unique investment opportunities with significant upside in a crowded market. The best option may be to put money to work in a privately-held company.

But private companies pose challenges when it comes to understanding their business, and analysis of the company may be fraught with pitfalls. Or it may be that investors are simply not aware of the opportunity in the first place.

There is, however, an important trend that is clearly discernable in relation to family-held businesses. Wealthy families and individuals are increasingly attracted to the idea of providing capital directly to family businesses as part of their overall investing strategy. And the attraction is reciprocated – family-owned businesses are increasingly open to the idea of wealthy families and individuals providing capital.

At Cascadia Capital, we are seeing a rapid increase in the practice of families investing in families, which can be a highly effective solution for both businesses and investors. Family businesses can be attractive investments, particularly for other family businesses, private companies, individuals, or family offices, which are wealth management companies investing on behalf of a single family or individual. Family run businesses often employ management styles that these investors understand well and can offer portfolio diversification without the hefty fees charged by private equity funds and investment firms; fees that, over time, can add up to millions of dollars.

According to a recent survey by the Family Office Exchange, about 70 percent of family offices now pursue this strategy of direct investing. This may be, in part, due to a shift by family offices seeking to bypass layers of fees and a lack of transparency and control that are inherent to the private equity fund model. Instead, many family offices now prefer to invest directly on a deal-by-deal basis offering more direct control, additional flexibility for longer-term holds, and lower fees. 

From the perspective of family businesses, a significant number are considering alternative solutions to meet their strategic objectives. In the event of a sale, an acquisition by another family can be a compelling solution compared to a private equity or strategic buyer transaction. And when seeking financing for business activities, direct investments from family offices can offer significantly more flexibility than funding from private equity firms that are beholden to rigid criteria and fixed investment periods.

 

The benefits for family businesses of having a direct relationship with their investors or buyers can be numerous. For example, if a family is looking to sell its business, family office buyers can provide liquidity and the opportunity for owners to exit without having to sell to a competitor. If a family is looking for additional financing to fund growth, direct family office investments can offer more favorable terms than other traditional sources of financing.

 Importantly, wealthy families and individuals are more likely to take a long-term view of their investment and are not constrained by exit strategies devised to maximize value within a given time period. Further, these investors often made their money owning and operating successful companies and, as a result, are more likely to understand the nuances and unique challenges of family run businesses. 

This investment trend, while also being experienced in other parts of the country, is gaining momentum in the Pacific Northwest. We are increasingly finding private direct investments to be an effective solution for our family-owned business clients and our family office clients.

Choosing the right investment partner is one of the most challenging decisions a family business can make. We have worked with many private, family run businesses to design long-term, flexible capital solutions and introduce our clients to suitable family office and private investors with common objectives.

 For family offices, like any investment opportunity, buying into family businesses can be very attractive, but it is not without risk. Prior to investing, proper analysis calls for extensive financial due diligence to ensure interests and incentives are well aligned in the transaction. Success depends on ensuring both a structural and cultural fit. We actively encourage family business owners and family investors to work with experienced advisors to carefully explore every available option before determining the best course of action.

Christian Schiller is a managing director at Cascadia Capital, specializing in advising family businesses. Cascadia Capital is a Seattle-based investment bank serving middle market clients, globally.