Category Archives: Retail (and Selling Things)

Joey Chestnut

Brilliant piece about Amazon, including as to (1) why Jeff Bezos is the one laughing at the analysts and armchair analysts laughing at him and (2) why not breaking out your business to the outside world is so brilliant because they get complacent.

Amazon losses are a result of gargantuan investment not because of fundamental business issues, i.e., selling a dollar for ninety-nice cents.  As Eugene Wei says in his post:

But to me, a profitless business model is one in which it costs you $2 to make a glass of lemonade but you have to sell it for $1 a glass at your lemonade stand. But if you sell a glass of lemonade for $2 and it only costs you $1 to make it, and you decide business is so great you’re going to build a lemonade stand on every street corner in the world so you can eventually afford to move humanity into outer space or buy a newspaper in your spare time, and that requires you to invest all your profits in buying up some lemon fields and timber to set up lemonade franchises on every street corner, that sounds like a many things to me, but it doesn’t sound like a charitable organization.

And Joey Chestnut?  Line of the year contender:

Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford. Joey Chestnut doesn’t just wake up one day and win the Coney Island hot dog eating contest every year, he has to spend months of training to prepare his digestive system for the feat. 

 

Uber versus AmazonFresh

Potentially like with Uber, with Amazon, it’s “something else” that provides the economics to enable same-day delivery.  In Amazon’s case, it’s groceries.  From Fast Company:

AmazonFresh is actually a Trojan horse, a service designed for a much greater purpose. “It was articulated [in the initial, internal pitch to Bezos] that this would work with the broader rollout of same-day delivery,” says Tom Furphy, a former Amazon executive who launched Fresh in 2007 and ran it until 2009. Creating a same-day delivery service poses tremendous logistical and economic hurdles. It’s the so-called last-mile problem–you can ship trucks’ worth of packages from a warehouse easily enough, but getting an individual package to wind its way through a single neighborhood and arrive at a single consumer’s door isn’t easy. The volume of freight and frequency of delivery must outweigh the costs of fuel and time, or else this last mile is wildly expensive. You can’t hire a battalion of Des unless they earn their keep. So by expanding grocery delivery, Amazon hopes to transform monthly customers to weekly–or even thrice-weekly–customers. And that, in turn, will produce the kind of order volume that makes same-day delivery worth investing in. “Think of the synergy between Prime, same-day delivery, and Fresh,” says Furphy. “When all of those things start working in concert, it can be a very beautiful thing.”

 

 

Is Google’s Last Mile Plan Uber?

Weird and fascinating.  Recall Google needs a last mile solution to combat Amazon.  This is TechCrunch:

According to one source, the deal was brought in by Google Ventures Partner Kevin Rose and led by Google Ventures co-founder David Drummond. Despite it being a later-stage investment, it was not a Google Capital deal, mainly because of the heavy Google Ventures involvement in sourcing and negotiating, we hear. The $258 million is an 86 percent chunk of Google Ventures’ $300 million dollar a year fund, and it’s unclear whether the firm will continue to make such sizable investments.

As both Google Ventures and Google Capital come out of Google’s balance sheet, this is purely a matter of semantics, and logo. We’ve also confirmed, like Swisher reported, that a meeting with Google CEO Larry Page sealed the deal — wherein Page outlined how Google’s resources could bolster Uber co-founder Travis Kalanick‘s grand plan to offer everything via iPhone.

Offline SEO

I am not sure if this is sui generis, if it’s even accurate, but this discussion in the Economist does raise an interesting question:

Britain’s brick-burdened retailers may be heartened, though, by the example of Dixons Retail, owner of Britain’s biggest electronics and computer retailers, Currys and PC World, and of similar chains in other countries. Between 15% and 20% of sales at Dixons are online, depending on the season, and the proportion is rising. But Dixons thinks the advantages which online-only merchants get by doing away with shops and sales staff are undercut by the need to pay more than high-street shops do to acquire customers (largely by paying Google for clicks on adverts) and to spend a lot on shipping. So instead of doing away with shops and sales staff, Dixons is trying to get more out of them.

Maybe the value in offline retail is to get consumers to your online site, without having to pay for expensive Google Adwords or other online acquisition techniques.

Another reason why Amazon is so well-positioned in the US.  It has a much lower consumer acquisition cost than competing retailers because so many customers (30%) start their online product searches there.  See here.

Search for Shopping

I blogged previously that a surprising number of people started searches for product directly on Amazon and Google.

The corollary to that — to Jeff Bezos’s business anywhere mind — is to sell stuff against those searches.

Today, some data, showing that this is becoming a real business for Amazon.

amazon-ad-rev-chart

In other words, worldwide revenue is about 25% higher:

AmazonWorldwideNetAdRevenue

This is apparently better revenue than Twitter, which suggests a decent market cap from the ad revenue for Amazon, given that ad revenue has a higher margin than retail.

Narrow Passages, Blind Alleys, and Broad Avenues

Jeff Bezos’s latest shareholder letter — a guide to proactively disrupting yourself:

One advantage – perhaps a somewhat subtle one – of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. We think this approach earns more trust with customers and drives rapid improvements in customer experience – importantly – even in those areas where we are already the leader...

I can keep going – Kindle Fire’s FreeTime, our customer service Andon Cord, Amazon MP3’s AutoRip – but will finish up with a very clear example of internally driven motivation: Amazon Web Services. In 2012, AWS announced 159 new features and services. We’ve reduced AWS prices 27 times since launching 7 years ago, added enterprise service support enhancements, and created innovative tools to help customers be more efficient. AWS Trusted Advisor monitors customer configurations, compares them to known best practices, and then notifies customers where opportunities exist to improve performance, enhance security, or save money. Yes, we are actively telling customers they’re paying us more than they need to. In the last 90 days, customers have saved millions of dollars through Trusted Advisor, and the service is only getting started. All of this progress comes in the context of AWS being the widely recognized leader in its area – a situation where you might worry that external motivation could fail. On the other hand, internal motivation – the drive to get the customer to say “Wow” – keeps the pace of innovation fast…

As proud as I am of our progress and our inventions, I know that we will make mistakes along the way – some will be self-inflicted, some will be served up by smart and hard-working competitors. Our passion for pioneering will drive us to explore narrow passages, and, unavoidably, many will turn out to be blind alleys. But – with a bit of good fortune – there will also be a few that open up into broad avenues.

 

 

Google Glasses and Retail

The law of e-commerce:  Things seem to get worse for retail and better for e-commerce (i.e., Amazon) the less friction there is between computing power and shoppers, e.g. smartphones versus going home and firing up the desktop/laptop.

So, if people are walking around with Google Glasses, there is no friction/social embarrassment with price/quality checking, which, I think, is good for e-commerce and price comparison services such as Google Shopping and some new type of comparison shopping service that I have not thought of, and heralds even more bad for old-school retail.

Purchasing Intent and History Coming Together

I previously noted that 30% of shoppers start their searches for products on Amazon.

Now Amazon is jumping into that business in an even bigger way by offering targeted ads on its websites, Kindle e readers, and its own advertising network.  Amazon’s competitive advantage is the browsing and purchasing data it has on its nearly 200 million active shoppers, i.e., most everyone.

As the FT reports:

Marketers note that Amazon is now charging prices that rival its competitors and that its ad business stands out from the pack because of its massive reach, rich data-set based on actual customer data and personalisation techniques. The more that consumers and advertisers go directly to Amazon to search for products, the bigger the threat the company poses to others – especially Google – experts and analysts said.

Colin Gillis, technology analyst at BGC Partners, said: “What’s the difference between a user and a customer? The difference is a customer has given you their credit card data. Google has millions of users, but far fewer customers.”

The combination of purchasing intent (as demonstrated by the 30% figure above) with verified purchase history (as demonstrated by nearly 200 million active customers) is worth watching.

Gifting: Show Me the Money

Whether it is because of the economy or it marks an even more interesting permanent change in customer gifting behavior and gift-receiving preferences, gift cards apparently were the thing last holiday season.  In fact, they are apparently worth a 50% discount to many gift receivers according to the FT:

In a sign of the limited faith many Americans have in the discernment of friends and family, 49 per cent of people said they would prefer to receive a $25 gift card than a present worth $50, according to a survey by First Data.

If gift-giving is moving more toward gift cards, an interesting question is whether this is an additional headwind to niche retail.

If the preference for gift cards is maintaining as much liquidity as possible, then rationally retailers with the broadest selections — the Amazons and Walmart — will have even more sales move their way.

Amazon: Searching For Stuff

The most surprising statistic that I have heard in a while: a significant number of shoppers start at Amazon before Google.  The Economist reports:

Some experts think Amazon also poses a threat in this battle to find things. “Google used to be the toll-taker, directing people to Amazon,” says John Battelle, a seasoned Valley-watcher and the founder of Federated Media. “Now people are increasingly bypassing it and going straight to Amazon to find and buy stuff.” He has a point: Forrester, a research firm, reckons that 30% of America’s online shoppers begin their search for a product at Amazon.

This is in interesting contrast to my post yesterday about online education and Google.  In some ways, Google is more weighted toward services/products that operate with sales cycles requiring qualified sales targets on the front end such as online education and insurance, rather than retail products.