Archive for eCommerce

Amazon: the empire hidden in plain sight

faberNovel Presentation about Amazon

faberNovel Slidedeck: Amazon the Hidden Empire

Innovation agency faberNovel has published a great presentation about Amazon which is prominently featured on slideshare.

This comprehensive 72 slide long deck called “Amazon.com: the Hidden Empire” reviews Amazon’s history and analyzes what faberNovel calls Amazon’s “three digital engines”:

1. CEO Jeff Bezos’ perfect understanding of the limitless nature of the Internet.
2. Amazon’s efforts to gain customers via multiple entry points and “own” them.
3. The seamlessly integrated ecosystem built by Amazon to create customer lock-in.

Over the years Amazon has remained my eCommerce beacon, a company I’ve admired both as an observer and as a customer. Read more

Bubble or Trouble?

Are we experiencing a second Internet bubble?
The answer is clearly: yes.

When group buying, flash sales and straightforward B2C sites like Groupon, Ideeli and Lot18 raise money by the 100’s or 10’s of million dollars in ultra competitive markets, it means that too much money is chasing too few investment opportunities. Many start-ups are caught in a race to grow by acquisition (of traffic, of competitors…), to sell out before even attempting to break even, to IPO before everyone else does… Read more

Common traits of well-funded start-ups

As I was trying to make up my mind about some modest investment of mine, I went through the recent funding announcements on TechCrunch, CrunchBase and Journal du Net to check what VCs consider hot.

Looking at 2011’s investments into eCommerce start ups, I noticed the following common traits of well-funded start-ups. It seems that the following characteristics make a start-up worthy of a sizable $10M to $100M in one round:

Mobile application. Magic words: iPhone, iPad, Android
Social media component. Magic words: Facebook, renren
Shopping application. Magic words: Coupons, Group Buying, Buying Club
Web-based application. Magic words: Cloud computing
Global footprint. Magic word: China
Localized application. Magic words: Local deals, Geolocalized
Free(-mium) business model. Magic words: Free basic service

From that I concluded that a free global mobile application, also developed for the Chinese market, that would enable Facebook and renren users to automatically geolocalize (without tedious check-in) and get a local shopping coupon to share with friends and other members of a group buying club would be a total hit.

Or would that be another Ford T?

The fallacy of unlimited shelf space

Fast Company‘s Austin Carr found a huge discrepancy between the number of search results announced by Google and Bing and the number of results that can actually be found through these search engines.
Fast Company Bing Google Pissing Contest

Fast Company Presents Bing and Google as in a Pissing Contest

To answer the question Do Google And Bing Actually Return Billions Of Search Results?, he searched for “New York Times” and counted the number of search results and result pages. Here is what he found:

– Bing: 491,000,000 results announced, only 223 available on 23 pages
– Google: 126,000,000 results announced, only 468 available on 47 pages
Harsh reality. No matter how many trillion pages a search engine can index, nobody is going to click on a page further than page 10. In fact, the majority of users will click on the first results of the first page. Why bother displaying more?
The myth of the Web’s unlimited shelf space is busted. The Web was hoped to offer equal opportunities and unlimited exposure to every product and every company, from the Bavarian Dirndl tailor to America’s largest corporation. Instead, it’s a cut-throat global competition for limited premium placement. Not much different from the fight for aisle-end display in physical stores.

Is Groupon’s valuation justifiable?

Not really.

Local deals’ leader Groupon is currently valued at $15 to $20 billion for an estimated $1 billion 12 month revenue and LivingSocial at nearly $3 billion for half that. A lot of people are raising the issue of whether Groupon’s valuation is justified.

Firstly, it’s unclear what could prevent the many competitors from chipping away at Groupon’s first entrant’s lead. Next to LivingSocial, there are more than 500 competitors in the US alone, not least Google itself with Google Offers.  Groupon is well-established in North America and in major cities around the world. It still leaves plenty of room for more local competitors, for example in smaller cities.

Groupon’s main IP assets are claimed to be 1) its superior analytics to match user profiles to deals, 2) great email marketing, and 3) an “industrialized” sales process. It sounds good, but not really like something that a Google or an Amazon could not replicate.

The most important question is whether Groupon really create merchant and customer loyalty. Groupon claims on its Web site that 97% of its merchants come back for more. I’ve been told that Groupon users are quite addicted to it. However, the main motivation of merchants and customers still seems to be Groupon’s lead in numbers of deals and numbers of customers. There does not seem to be any other major customer lock-in, not major switching costs that would prevent merchants and users to lessen their engagement with Groupon. Groupon seems to be maintaining its lead by spending the $1.15 billion it raised on sales and advertising, i.e. by burning cash rather than creating sustainable merchant and customer loyalty.

According to Compete, LivingSocial’s (main?) Web site had 60% fewer online visitors than Groupon’s in March 2011. But LivingSocial’s has a much larger number of active Facebook followers (3 million or three times more in March 2011) — which could bring more sustainable customer stickiness. LivingSocial already enjoys a 25% higher satisfaction rating on FaceBook.

Related post

Selling $1 bills for 99 cents

Putting the “push” back into online retail

The success of flash sales, private sales and local deals reminds us that online distribution is about pushing products and services to customers.

The advent of eCommerce may for some time have created the illusion that, in a Web of unlimited choices, perfectly informed online consumers would magically be able to pull the right product from the right store at the right price.

In reality, consumers can’t easily find what they need in the Web’s clutter unless Google and Bing readily show it to them. In addition, consumers don’t necessarily want to buy what shops have to sell.

End of the delusion. eCommerce puts the “push” function back into online marketing and distribution. Get those unsold inventory moving out the door! Let those addicted bargain hunters fall for the “deals one can’t refuse”… but never needed.

Selling $1 bills for 99 cents

During the first Internet bubble, many dot.com companies were spending their funds on advertising in the hope to quickly inflate the number of their users and, hence, their company value. It was called “selling $1 bills for 99 cents”.
Now (in the second Internet bubble?), selling $1 bills for 50 cents has become a popular business model, it’s called Group Buying or Local Deals and it consists in
55% discount on Groupon

55% discount on Groupon

offering online coupons for heavily discounted (at least -50%) deals at local restaurants, spas and other services.
Group buying provides a touch of social shopping: the discount is granted only if there are enough buyers.
The concept meets strong demand from both local merchants who want more foot traffic and from shoppers who can’t resist a good bargain. I wonder how far it can go. Some claim that discount coupons don’t create customer loyalty (on the contrary, consumers switch to the next coupon supplier). Others that there is an organic ceiling to what is essentially a loss leader business.