Archive for April, 2012

$1 Billion for 30 million leads?

April 9th, 2012 No comments

The era may never be over. Mark Zuckerberg’s just spent $1,000,000,000 (that’s a billion…) on Instagram. Have you heard of Instagram? Of course you have (well, maybe not)! It’s become popular as the hipster photo-sharing program with clever lo-fi filters for your mobile phone. It’s a nifty little social network in the crowded space of social networks and using grainy retro film-like effects to take otherwise stinky mobile phone snaps and turn them into “art” (scare quotes intentional, but not sarcastic) is a darn clever idea.

30,000,000 people (that’s thirty million) use the site and they look to be pretty engaged users. They upload their pictures not only to Instagram’s website, but also to a range of other social network and blogging tools like Tumblr and Foursquare (and sometimes, even Facebook).

So, what did Facebook buy? Certainly not the clever photo filters. Not the social networking model. Not the software. All of those things are either in place or easy to replicate. The only thing I can think of is that they bought 30 million active users. Some (let’s assume many) were too hip to even use Facebook. They got the user activity, where else their logging in, and even what they’re taking pictures of. Of course, much of this information is available about the 845 other active Facebook users, and I am surprised that growing its user base is a big concern for Facebook. If their business model is advertising which, one way or another much of it is, than selling 845 or 875 million users seems hardly enough to make a case. Of course, improving the knowledge of of these users actions increases their value, but at the end of the day, advertisers only have so much of their budgets to pay to acquire new customers.

E-mail direct marketing lists are expensive, but they rarely cost $30 per lead. On the other hand, they rarely contain this much active information about the users. And maybe the money isn’t real, since much of it will be Facebook stock and that means that upcoming suckers who support the Facebook IPO will be buying a 30 million strong customer list. Remember, Instagram makes $0.

Or perhaps Facebook just bought out a competitor. Some pundits are proposing just such an argument. Silly, of course. OK, sure, Instragram is growing at an incredible pace, but just how do you get from a really nice photo-sharing site to an all encompassing social network company? And does anyone really think that growing from 0 – 30 million is, while amazing and impressive, somewhat easier than growing from 30 to 845 million? And what if Google bought them? It’d be a better match for Google, and I can imagine some legitimate concern, but now we’re back to the question of amount. Is it worth one billion dollars just to weaken your competitor? I think Google’s social networking competitor just spent a load of cash—doesn’t that weak their position?

Maybe you’ve seen ABC’s reality program Shark Tank. In this television show, venture capitalists decide if they’ll invest in ideas pitched to them right before the camera. Of course, being the vultures they are, they only want to invest in businesses that actually do, well, business…you know, the kind that make money? I wonder how well Instagram would have done on TV.

Many of today’s start-ups talk about being flipped, that is, sold for millions, as part of their business plan. Andy Grove, former CEO and founder of Intel recently told NPR that his two least favorite words were “exit strategy.” I’ve always felt that the best exit strategy a company could have, is just go and be a successful company. Build a business, sell something, repeat. During the era, that idea went out of fashion. Well, if Facebook has its way, it’s not coming back into fashion any time soon.

Categories: Business Tags:

The best online shopping experience. Hint: it’s not Amazon

April 4th, 2012 No comments

Brick and mortar stores are in trouble, but so are we. Brick and mortar stores like Best Buy will surely be missed once their gone, even if we’re the one digging their graves. Every shopper with a smartphone has probably already engaged in some form of “showrooming.” Showrooming is the act of going to the camera store to get a feel for how well a new model feels in the hand only to purchase it much more cheaply online. Today Amazon even offers an app that allows shoppers not only to scan barcodes and compare with the online price, but to buy the product right there for less money-guaranteed.

Many items like groceries, where freshness is hard match, or clothing wear fit is difficult to ensure, resist showrooming. Electronics, the heart of of Best Buy’s business, are a different story. Once I’ve convinced myself that my new gadget will fit in my stereo cabinet or on my kitchen counter, there is little incentive for me to purchase it locally. Shoppers go to Best Buy to confirm the few things that online retailers haven’t been able to convince them of, and then place an order online where it’s often significantly cheaper, because, well, Best Buy has to pay all those clerks, and keep the lights on in their attractive showrooms in convenient locations.

We’re using Best Buy and others like them as a place to touch and feel products and make our final decisions, but we’re only rarely paying for that privilege. Even though we have an interest in the status quo, it’ll be hard to convince Best Buy’s stock holders if they can’t make any money. The real beneficiaries are online-only stores like Amazon.

It isn’t easy to be an online only retailer, but Amazon addressed many of the needs of their customers’ unique situation. Price and selection are very big drivers, but not the only ones. In addition, consumers need to decide which items to buy and determine if a product really does fit needs and expectations. Amazon offers an array of tools from suggestions to user reviews that do wonders to remove the obstacles to online purchasing. The rise of efficient logistics from FedEx and UPS has sealed the deal, turning the FedEx man into Santa for adults. Of course, avoiding sales tax isn’t bad either, even though most states insist that you’re not really legally doing this. Perhaps this inadvertent discount was necessary to jumpstart online retailing, but, today, even if we lost the 5 – 10% advantage, many purchases would still stay online. We may love Amazon and other online retailers, but they’re getting a free-ride, paid for by brick and mortar show rooms for their goods.

It’s not impossible to be both. Perhaps the best online retailer today is Recreational Equipment Incorporated. REI has managed to sync their online and real-life shopping experience to the point that it’s almost invisible. Buy online, ship to the store. Not available in store, we’ll get it for you from our catalog. Same price, same products, same service.

I bought a compact video camera recently. I was able to choose the product completely online thanks to copious reviews and comparisons with a variety of similar products. I didn’t even visit a brick and mortar store. Still, after I’d played with it for a day, I realized it wasn’t going to meet my needs and wound up having to return, at my own shipping expense, to the online store where I bought it.

I’m replacing that camera with a different one available at REI. Still buying it online, but this time, if there is any problem with that camera or it doesn’t meet my expectations, it can go back, at no extra expense to me, to my local store. I can both showroom and return the product from the brick and mortar store, but buy it conveniently online and have delivered to my door. It truly is the best of both worlds.

The REI model could work elsewhere. Imagine if a new electronics superstore charged a membership fee, just to enter their stores. I imagine it like this. You pay $100 per year to be a ElectroShop member, and you get $120 a year credit towards your purchase. You can buy from our online catalog and pick up your item in our store, or have a look at a sample in the store and place your order online. You’re motivated to purchase from us because you’ve already paid ahead of time for the privilege, (hey, we’ve got to keep these lights on somehow) and because we offer the easiest return service out there. Electronics can be heavy or expensive to return to an online store, but here at ElectroShop, you can just bring it back, no questions asked.

Best Buy might find it hard to implement this model, but something has to be done to cover their costs, because right now, we’re getting this showroom service for free and the going out of business sales are proof that the current model is not sustainable.