The third observation on retail has to do with Google. As this WSJ article illustrates, it’s dangerous to be a provider of middlemen services — like travel websites such as Expedia — which intermediate between users and the actual providers of the product or service. In a world where customers turn to Google to find products, it’s better for Google as well as the actual provider to cut the middleman out of the loop, and the middleman is in danger of being roadkill when those are the incentives of the other players. (We’re going to continue to hear about this issue as it becomes part of the antitrust debate around Google, as explained in this post.)
My second observation regarding the current state of retail has to do with the Amazon price comparison app, a topic of a lot of belly aching this holiday season. The app means price transparency for many products. Some folks, including me, have been doing this anyway — going home and ordering online if time allows and the price difference makes it worth it. The app facilitates that use case, making such behavior much more widespread. The consequence as more folks adopt price-comparison is that a retailer will have to price competitively with Amazon or lose sales. Amazon will set the ceiling for the goods it sells. With Bezos and Amazon sacrificing margin for sales, this is great for consumers and will have a deflationary effect for consumer goods, putting extra oomph in people’s wallets. Unless you are a retailer, who can argue against lower prices?
The one issue, however, is that Amazon has benefited from some of its consumers free-riding and using traditional retailers as showrooms. For many products, the use case means Amazon has been free-riding off the showrooms of traditional retailers. Think about going to a bookseller, leafing through books in order to find something interesting to read, and then returning home to purchase it off Amazon. This has probably been less true over time as consumer become more comfortable making purchase decisions without seeing the product and knowing that they can return the product cheaply or for free. Still, it remains to see how retailers can get compensated for investing in displaying product for consumers who need to see and touch and for suppliers who sell products for which it’s important for consumers to see and touch in order to drive sales if there is no margin left to support physical display and customer service.
Apropos of the holiday season, I have a few upcoming posts regarding observations about retail and the Net.
Amazingly, no one appears to have quite figured out social and shopping yet. Inherently shopping has a social aspect where our networks or other trusted folks have a huge impact — we ask friends for recommendations, we are influenced by what others like, we like being commenting about what we have bought, we shop socially, etc. Yet, as explained in a recent FT article, Facebook and others have yet to figure out how to use social networks to deliver measurable results for retail. The verdict is captured in quotes by two Internet retail executives:
Jonathan Johnson of Overstock:
“I agree that the commercial aspect of social media is overhyped and no one’s really caught that rabbit yet…We’re not trying to use it as a sales piece as much as an information-gathering piece. Finding out what our customers want; whether they like a product; how could we sell it better.”
Kevin Ryan of Gilt Groupe:
“[Facebook is] an extraordinary place where people go and connect with their friends to date, they are not using it really to make concrete purchasing decisions and they are certainly not purchasing things on Facebook…Consumers today are not looking at Facebook psychologically as a place where you go to buy things.”
This is a massive opportunity for whoever figures this out before Amazon does. Of the existing social networks, in my view, Twitter and Foursquare — the user experiences of which naturally are positioned to deliver recommendations — are best positioned to solve this problem.
Fred Wilson’s thesis about the current and future interplay between smart, but cheap and dumb, but expensive products, which I posted about earlier, made me reflect on this in the context of services. My current passion is how do you take high-margin service industries, which do not operate as competitively as they should or as elements of their market structure would lead us to think. These industries defend their margins through ways that make their markets work less efficiently, whether opaqueness of price and accountability or entry barriers or other things. They stay stagnant and do not move.
The question on my mind is: How do you take the fast-moving and efficiency-enhancing and innovation-inducing technology rocking and rolling the rest of our lives and use that to force open the door and fire up disruption in these industries?
Sometimes you need a glamorous and dynamic young princess to marry in and shake up a staid, old royal family.
Any examples come to mind?
Another catchup post. Earlier this month, Fred Wilson posted a thesis on segmenting the future path of customer technology. Cheap, and shorter lifespan (because customers find it affordable to replace on a shorter timetable), technologies such as the phone are where innovation can be transmitted to a customer faster. Expensive, and thus longer held technologies, like a TV or a car, are “dumb” because the “state of the art” moves a number of cycles during the object’s lifespan. Given this, logically markets should move in the direction, where the “cheap” technologies make the “expensive” technologies smarter, or looking at it another way, where old products are kept perpetually new and current by the use of cheaper products which we can upgrade more often. As Fred puts it:
When smart and cheap devices can take control of expensive and dumb devices, we will see the dumb devices become smart.
I re-posted some of the wisdom posted by Fake Grimlock on AVC previously. Here’s another gem I’ve been meaning to repost. This is on having startup vision. An excerpt is below, but go to this link to see the rest, including, and in particular, the fantastic drawings.
FIRST THING DISRUPT SELF
EVERYONE GOOD AT SEE CAN’T. EVERYONE LIVE IN WORLD FULL OF IMPOSSIBLE.
EVERYTHING THAT MATTER IMPOSSIBLE UNTIL SOMEONE DO IT ANYWAY.
STOP BEING EVERYONE. STARE AT WHY NOT UNTIL IT GIVE UP AND BECOME HOW TO.
STARTUP IS DO THING EVERYONE HAVE EXCUSE NOT TO.
VISION IS STOP EXCUSES, MAKE FUTURE INSTEAD.
NOW GO BIG. THEN BIGGER
WHAT YOUR PRODUCT CHANGE?
IF ANSWER NOT “WORLD”, GO HOME. WORLD HAVE ENOUGH LITTLE IDEA. GET OUT OF LINE, DO SOMETHING BIG. NO CAN HAVE VISION LOOKING AT SOMEONE’S BACK.
WHAT IF ONLY HAVE LITTLE IDEA? SMASH IDEA. THROW AWAY DETAIL. THROW AWAY FEATURE. THROW AWAY CAN’T.
INSIDE LITTLE IDEA IS BIG PROBLEM HELD DOWN BY CAN’T. SET IT FREE.
STARTUP IS SOLVE PROBLEM NO ONE ELSE WILL.
VISION IS SOLVE PROBLEM NO ONE ELSE SEE.
One business model for Internet radio is advertising — the model that, in one form or the other, has monetized many of the Internet’s biggest successes including Google and Facebook. A couple of interesting metrics and challenging dynamics are touched on in the WSJ today in making that model work for Internet radio.
In terms of market numbers, radio advertising is expected to come in at $16.3 billion this year. In contrast, online audio streaming ads are $550 million (with $225 million of that accounted by Pandora). Online audio streaming has not decimated the radio business, the way online advertising undercut classified ad spending.
In terms of dynamics, unsurprisingly, the radio industry is using its intermediaries to undermine Internet radio. Arbitron — the ratings relied on by advertisers — doesn’t measure online radio, making it hard for Pandora and others to sell their inventory by providing a third-party “apples to apples” measure of effectiveness to advertisers in the form that they are used to. Pandora is turning to another firm to generate such ratings, demonstrating that business model disruption often involves building up one’s own market infrastructure to reach the customer.
I love the “excess capacity” thesis which in part appears to underly Uber — filling up the days of drivers who may not be booked solid for rides. I also love the better user experience — bypassing a surly dispatcher for a phone app is winning. But the confusing part is the pricing. At at least 2X the price of a cab or black car ride (in New York, for Uber, rides from the airport to Manhattan are $70 from LGA and $85 from JFK), there are natural limits to how much market share this can capture. It appears that Uber is following a strategy, aiming to get that part of the demand curve, willing to pay a large premium above the market price, whether it is customers who are price insensitive or customers at price insensitive times. With the premium going to the drivers enabled by the premium prices, supply will be there to match demand. But this is not a service likely to replace the existing market. Scale will be achieved by applying the model and the technology in many geographic markets, rather than capturing large share within a market.
This blog is about the innovation enabled by the Internet in its many incarnations and the industries that have been disrupted by non-experts. The digital world has empowered almost anyone to take on incumbents.
But what about hacking the rest of the world? Imagine the same revolution in the tactile, physical world, as that same creativity inherent in so many folks, when enabled by tools that allow it as proven in the digital realm, is unleashed in physical products — furniture, housewares, clothing, anything 3-D, etc. These tools enabling this physical creativity include hardware such as Arduino micro-controllers, 3D printers, and software such as Google Sketchup. Here and here are some overviews of this movement.
Do you move forward with your idea when there are basic questions that you cannot answer yet?
In a Founder Stories interview with Chris Dixon on TechCrunch, Michael Bloomberg explains that entrepreneurship involves relying on one’s gut, taking action despite not knowing all the answers:
People…they mean to be nice…[they say] you’re right, I am sure, but just in case or Are you sure?
Entrepreneurs can’t answer the questions that, for example, government needs before you put government money: what’s it going to look like?, how are you going to build it? What color is it going to be? Who’s going to sell it? How much are you going to charge for it? What’s it going to be called?
None of those things do you have an answer for at the beginning.
So, maybe appropriately, with government money you can’t put it into a project that is so ill-defined, which is why governments don’t innovate…but it’s also why big companies don’t innovate, because they develop a bureaucracy that makes a lot of sense, but it prohibits or prevents real innovation…
You gotta have some balance. Yes, you need some checks and balances, but you also have to have some things that you can do with your gut…that’s where the great things are done.