TCS Daily

Bites and Bytes

By Dominic Basulto - April 20, 2004 12:00 AM

Building a world-class brand is tough work. Maintaining that brand through the twists and turns of a business cycle is even tougher. And, as McDonald's is finding out, revitalizing one of the world's Top 10 brands -- a brand valued at close to $25 billion -- could be the toughest of all. After 50 years of relentless global expansion that left few corners of the world unexplored, McDonald's is counting on new technologies -- such as the wireless Internet -- to prepare the company for continued market leadership in the 21st century.

In October 2003, McDonald's unveiled a Revitalization Plan that included all the classic steps for turning around an ailing retail brand: more menu options, better customer service and a more focused advertising campaign. The plan, though, included something that might not have been expected -- a willingness to embrace cutting-edge technologies such as Wi-Fi networking to make the McDonald's experience "more relevant" and "more contemporary." In other words, the Revitalization Plan was not about embracing technology for the sake of technology -- or even technology in the service of increased same-store sales. It was, quite simply, technology as part of a wholesale brand makeover.

To understand how important "brand" is to McDonald's, consider a 2003 Business Week survey of the world's top brands. According to this survey, McDonald's had the 8th most valuable brand in the world with a value of $24.7 billion. Assuming a stock price of $24 and an implied market capitalization of $30 billion, this means that the brand accounted for 83% of the company's total value in August 2003. Investment bankers from Morgan Stanley were quick to put this into perspective: "The brand is almost the entire company." Within this framework, it's perhaps no surprise that McDonald's is pulling out all the stops to protect its world-class brand.

The most visible element in the company's technology strategy is the deployment of wireless "hotspots" in many of its stores. The company has already launched a separate McD Wireless site outlining a Wi-Fi strategy that includes a 25-nation worldwide rollout of Wi-Fi hotspots. Moreover, McDonald's will brand all Wi-Fi enabled stores with an "@" sign and an "M" in the middle of the logo. While most wireless analysts have focused on ways that wireless hotspots can increase in same-store sales, it appears that McDonald's has a broader mission for wireless technology: to revitalize a 50-year-old American icon. In the process, McDonald's might very well become one of the largest operators of Wi-Fi hotspots in the world.

The story is much the same with the company's potential embrace of digital music downloads. After a rumored partnership with Apple iTunes failed to materialize (Apple eventually threw its hat into the ring with Pepsi) in November 2003, the latest rumor has McDonald's linking up with Sony to promote the new Sony Connect digital music download service. According to terms of the deal first reported by Reuters on March 22, McDonald's will commit approximately $30 million in advertising in exchange for the right to license some songs from Sony Connect. McDonald's would then be able to offer customers free songs with the purchase of certain high-margin menu items. The digital download strategy would also provide a nice tie-in to the company's new advertising campaign ("I'm Lovin' It') spearheaded by Justin Timberlake (love him or loathe him, he's the new Mac Daddy of the Big Mac).

At one time, McDonald's stood for the can-do American spirit, for the sweet fruits of American capitalism, and for wholesome Americana. When Communism collapsed in the former Soviet Union, for example, Russians embraced the arrival of the first McDonald's in the center of Moscow in 1990 as a clear sign that the Cold War was finally over. This was a scene reported the world over, as formerly oppressive regimes found themselves courting burgers and fries with the same fervor that they once embraced Lenin and Marx. Yet, nearly 15 years later, critics allege that McDonald's seems to stand for something else -- for American imperialism, for McJobs, for low-quality fast food.

By embracing the Internet, can McDonald's once again return to its wholesome American roots? Perhaps this time it will be rural America that will welcome the arrival of the McInternet as a sign of freedom and democracy. At a time when President Bush has made universal, affordable Internet broadband by 2007 a key policy goal, maybe McDonald's will find a way to leverage its brand and unparalleled brick-and-mortar presence to make a super-sized Internet as ubiquitous as Mickey D fries.

If so, it will be a clear case of an American icon successfully using Internet-based technology to makeover a brand into something youthful, hip and relevant. One day soon, "fast food" may soon be linked forever with "fast Internet" as McDonald's moves beyond burgers and fries to build the McInternet. Indeed, as McDonald's touts on its McD Wireless site: "Bites or Bytes. We do both."

Dominic Basulto recently wrote for TCS on the Attack of the Yahooligans.


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