Deep in the Heart of Texas!

Yumiko and I are moving to Austin Texas this month. I’ve accepted a job with a dotcom there. I want to send out all our love and appreciation to everyone we’ve met while here in The Lou. For what it’s worth, I’ll be one closer to the Alamo.

We’ve got some things that we’re not going to take with us. Some bookshelves, a glass computer desk, some books. Please let us know if you’d like them.

and another:

Yahoo, you know I love you...

Yahoo! is in play, again.  Microsoft has been rumored to renew it’s offer, Google may be lurking around, and Alibaba, the China ecommerce marketplace / payment method / sourcing B2B giant, has also been very public about it’s wanting to buy Yahoo!.  In my opinion, Alibaba may offer the best path forward for Yahoo.  My take on the reasons why:

Microsoft – Meh. Microsoft has been desperate to get something to counteract Google’s rise.  As the world moves ever closer to full-cloud operations, the desktop apps become more and more irrelevant.  Yes, people will be using Outlook and MSWord for years to come, but that’s just inertia, it’s not growth.  Bing was a good shot, but it’s still getting 3rd place behind Google and Yahoo for keyword buys from companies.  If MS could acquire Yahoo, they would increase their share of keyword revenue, and might get enough core revenue to start making something.  However, this doesn’t really do anything for Yahoo– it just gets them bought out and assimilated into Redmond.  Meh.

Google – Nope. I doubt the Federales would allow this one: Google already controls possibly 80% of the online advertising revenue out there– if they bought Yahoo, that share could surge up to 90%.  Monopoly (funny how companies are getting to that status faster and faster…).  Here again, Yahoo would just become a brand within Google, and probably quietly left to ebb away into nothing as users were migrated over to GMail, G+, and Google Apps.

Alibaba – Interesting. Yahoo already owns 46% of Alibaba.  There’s a certain I Ching symmetry/irony that could come if Alibaba were to buy out their own “father”.  If Alibaba were to get Yahoo, it would give them a solid beachhead to take all their platforms developed in China to bring to international markets: Tmall, Taobao, Alipay, and Alibaba B2B would gain a US-based staff and org in one fell swoop.  But the important piece that Jerry Yang should consider, IMHO, is how Yahoo! might survive and grow into something sustainable: Yahoo! would likely disappear inside Microsoft or Google, but it stands a good chance of staying on– and perhaps thriving– as a branded portal inside the Alibaba group: as a company, Jack Ma (CEO of Alibaba) tends to segment out new markets, pour money in as needed, and then interconnect companies as much as possible.  Yahoo! enjoys strong portal loyalty with its users.  It’s a decent news aggregator for people, it’s got a kick-ass web mail client (Zimbra).  With all of these, Alibaba could suddenly gain a portal face for it’s considerable marketplace engine in Tmall and Taobao, as well as an ability to link Alipay’s payment services for micropayment content delivery as ipads and tablets push more and more rich content behind paid firewalls.

TMall, the online marketplace for “officially” licensed goods for sale in China, recently announced a severe (5x-10x!) jump in registration fees for businesses. Spots in the mall used to cost a small business owner about $1000 per year. Now, that could jump to over $5000 – $9000 (RMB30,000 – RMB60,000). The backlash has been harsh: small business owners spent all last weekend ordering stuff from the bigger vendors, making up fake addresses, jamming up online chat channels, or even having orders delivered to their house just to refuse payment (a quirk of China ecommerce: payment isn’t finalized until the customer takes physical possession on her doorstep). Taobao, TMall’s owners, are furious, their clients are furious, and now the Ministry of Commerce has intervened to tell both sides to calm down.

What are the takeaways here? Let’s riff for a second:

  • TMall’s move is obvious, and probably overdue. They have a reputation of very arms-length client management, probably because they have so many clients and it’s essentially a self-service model. If anything, the yearly fees for being on the site might have been too low. Chalk it up to artificially lowering prices in order to gain early mover position and long-term marketshare. TMall has an estimated 1/3rd of all ecommerce, if not higher.
  • The backlash from the vendors was to be expected: what was TMall thinking by jumping for at least a 5x in price? There are a lot of small businesses that really shouldn’t be on TMall in terms of sheer profit/loss. Good online marketing talent is tough to find in China, and a lot of these small businesses would probably have left over the next year or so anyway– more so if TMall had ratcheted up prices like any other service offering in a rational market.
  • TMall was intended from the start to be a step or two up from the counterfeit wonderland that is Taobao.com: where anyone can simply open up an online store with little or no requirements or proof of legitimate access to goods (think Yahoo stores but in a land where all the stuff is made in factories down the street and the grey market is chugging along at a nice clip). All the competing marketplaces are aiming higher and higher in the luxury chain. Online shoppers like the bling.
  • The government of China, which has welcomed ecommerce with open arms, doesn’t seem to want to get too dirty on this one. Their statements have been admonishments to both sides: TMall must respect the small business owner; people should voice their concerns through legal channels. Taken at face value, that’s a victory for TMall, as these people sending false orders and jamming websites are (technically) committing fraud. I don’t think anyone will go to jail over this, but both sides have been handed a yellow card.

We’ll see what plays out over the next few weeks on this one. Stay tuned

UPDATE: Tmall has announced a 9 month grace period in the new fees, along with US$282M investments to help small biz. It seems the threat of government intervention worked…

The All Seeing Eye

Jeff Bezos Sees All! (From illuminatiwiki)

Rob Malda (aka CmdrTaco) recently posted his skepticism over the Amazon Tablet because of its Silk web browser.  His quick (and insightful) analysis zeros in on the way that the Silk browser functions as a direct window to the Amazon Cloud.  Silk isn’t actually downloading all those webpages, it’s showing you a proxy of every webpage that exists over on the Amazon proxy servers.  So what?

It’s not done for speed, as Rob points out, any CPU on the market holds its own for speed.  It’s not to save bandwidth– there’s no 3G on the tablet, just WiFi (where packets are “free”).  Here’s the speculation: Amazon wants to control (and track) all those packets.  Essentially, Amazon is parking a set of eyeballs over your shoulder and seeing exactly which webpages you look at, how long you look at them, and what you do on them.  So what?

Because this is the Holy Grail for targeted advertising, that’s what.  If Amazon knows that you spend all your time looking at motorcycle bits or frilly dresses or garden equipment, or biker dudes wearing frilly dresses holding garden equipment, then guess what you’ll see next time you click on the Amazon store that is ever so conveniently at your fingertips now.

Amazon is going Google one better: Google knows what you like, and serves up the appropriate advertisement and search results.  Amazon is now taking you one step closer: not only can they show you what you like, they actually have some shit for sale, and all you have to do is “one click”.

I googled "Monopoly Panda", and this is what I got.

The Alibaba Group dominates the ecommerce landscape in China.  It owns Alibaba, which is sort of a clearing house for finding sourcers or supply-chain providers for products.  It also owns Taobao.com which is rumored to control upwards of 70-75% of all ecommerce in China.  It also runs 支付宝 (Alipay), a payment system not unlike PayPal.  Beyond this, Alibaba is launching additional “upscale” portals, deal-of-the-day sites, private sale sites, and even putting its tow into media.

Dominance.

That dominance comes with a price, however.  Despite Taobao’s almost monopoly-level control over shopping, other portals have popped up and are getting some sustainable numbers.  Amazon is backing it’s own horse, XIU.com is cherry-picking off the top brands, 360buy.com, paipai.com, dangdang.com, M18.com (not the Latino gang, that’s M13.) are all showing some traction.  In a few months, we may have a real race on our hands.

Until now, most of these portals have had to knuckle under and use Alibaba’s payment gateway or go with some sort of simplified COD procedure.  But, as with all things on the intarwebs, business models get copied, code becomes commoditized, service parameters become standardized, data formats unified: these other shopping portals are beginning to make waves of developing their own payment methods or their own membership loyalty programs.  Due to the Network Effect, I doubt these additional payment gateways would get very far, but they might get far enough to give Alibaba a headache.

So what does Alibaba do in response?  Jack Ma, the Chairman for Alibaba (Chairman Ma?) has signaled that he may spin off the Alibaba empire into separate groups.  There are a few layers to this:

  • On the surface, Mr Ma says he wants to potentially take Alibaba through and IPO, which would bring rewards and riches to the employees and investors.  There’s no reason to doubt this motive.
  • Tactically, by spinning off certain parts and going public, Alibaba could dramatically reshape the relationship with their largest investor Yahoo and Softbank (where it seems there’s always been an undercurrent of conflict)
  • Strategically, Alibaba can extend its monopoly in payment gateway and supply chain clearing while allowing the other marketplace portals to rise a bit, or at least become more flexible overall, if each unit is operating independently.

In other words, the dominance will continue, it just won’t be so obvious and up front.

Acquisitions are so attractive.

eBay has acquired the open source ecommerce platform Magento.  Personally, I’m a fan of Magento’s functionality and flexibility, and also a big fan of open source applications.  In general, getting acquired by a large company is a good thing, so this should all be beer and skittles, right?

Maybe.

Open source projects rarely do well when acquired by a large company, especially when that company isn’t really lined up behind open source as a culture, nor when the acquired application isn’t in the company’s wheelhouse (sometimes it’s worse when the open source code is in the wheelhouse: witness Oracle’s botching of OpenOffice or near miss with MySQL).  Both demerits are in play with this acquisition: eBay is neither an open source company (like Red Hat or Canonical or Mozilla), and eBay has it’s own ecommerce flea market, not a history of publishing software for users.

eBay is pushing toward its X.Commerce platform: a complete suite for digital marketing and commerce for (what I would assume) mid-market businesses.  This makes sense: eBay has PayPal and also recently acquired GSI, who was known for having a decent client list and a string of warehouses around the country (and internationally) to provide logistics and fulfillment.  I described this as “following Taobao” a few weeks ago.  What GSI wasn’t known for was its ecommerce platform.  I’ve heard from around the community that GSI’s platform was in the middle of a complete tear-down and rebuild, as various bits of acquired code simply weren’t playing nicely with each other.

Questions:

  • Will eBay really move its main commerce branding beyond the flea market image they have (compared to Amazon)?  Can they (without sacrificing the huge cash flow that comes from that flea market)?
  • Does GSI’s platform really suck that bad that Magento is seen as a replacement for it?  If not, how will the GSI platform and Magento play nicely with each other?
  • Magento is open source.  If eBay is serious about keeping control of it, they’ll have to get out there publishing code often.  Otherwise, we’ll just fork it.  Culturally, can eBay pull this off?

I’ve launched a few Magento sites, and I wish them well.  I look forward to seeing what’s coming, but I also will start looking for an alternative if things go pear-shaped.

Loosely translated as: Bring this ring to Mordor's Chevrolet for big savings and free hot dogs!

I just signed up for Shopkick, a micro-couponing site that gives out 2-3 “kicks” every time I view a coupon on their app. The coupons are from stores within 500 meters of where I am right now, along with the promise of 30-50 kicks if I actually cross the threshold of any of these stores, then even more if I take a photo of the lifestyle poster on the back wall of the store… you get the idea.

This comes on the heels of Groupon which was offering deals to get me to sign up, or LivingSocial to introduce new hip stores in the mall with frozen yogurt and yoga classes before we go antiquing over at Pottery Barn.  Two steps behind all of them is Facebook, which keeps hinting at offering some sort of viable credit/coupon mechanism, but somehow fails to achieve any penetration beyond Foramville credits to the addicts. Shopkick, Groupon, LivingSocial and the rest all jump into Facebook’s lap for user registration, and jump right back out again.  Let’s face it: in terms of shopping, Facebook is little more than identity verification and an address-book virus with permissions turned on.

All these sites/apps/gimmicks are trying  for the same thing: peeling away some of the huge dollars that companies will spend to get you to start on the journey that will eventually end up with you opening your wallet.  For those who don’t want to remember MBA school, it goes something like this:

Brand Awareness -> Consideration -> Product Shopping -> Purchase -> Support

Groupon and LivingSocial are doing pretty well on that first step, but as I’ve discussed before, they may be giving away too much for the retailer to maintain any margin, and might actually attract the wrong demographic with massive discounts.  But then again, as my friend Patrick Evans points out, Groupon does ask for the purchase right there (up front), so any margins may be recovered on the breakage.

Shopkick’s approach looks to be different: micro-rewards for micro-steps.  Look at the coupon, 2 points.  Walk by the store in the mall, 2 more points.  Walk into the store, 30 points.  Take a photo of a product, 30 more points.  Actually talk to a sales person, 50 points!  It’s more game-like, and doesn’t require any up-front purchase.  It’s a soft-sell.  What remains to be seen is if people will run around the mall haranguing the sales people all day just to collect points  with zero intent of actually buying anything.  But then again, what else is new?

It’s still a race– no single coupon dealer network has been able to run the table yet.  There is no magic key to unlock all doors; retailers are barely catching on to mobile phones still, let alone really being able to exploit (nicely) a path to get the right coupons to the right customers.  The ring, I think, is still out there somewhere.

Forrester wave for ecommerce platforms 2009

GSI announced today that it’s selling out to eBay for $2.4B, which is a lot of money for an also-ran player in the ecommerce space.  But that’s not what drew my attention on this.  It’s the parts that eBay isn’t buying, or maybe that Michael Rubin wanted to keep for himself: shopRunner and ruelala.

ShopRunner is essentially Amazon Prime for the rest of us schmucks that don’t work for The Empire.  It’s a federation of online retailers who offer up yearly subscriptions to customers.  Pay $50 once, and enjoy free overnight shipping for the rest of the year–  A good deal, actually if you buy more than 6 or 7 items a year online.  The subscriptions are transferable across retailers.  If you’re a shoprunner member on shoes.com, then you’re also a member on sportsauthority.com or drugstore.com or borders.com (if they last through the summer).  ShopRunner has a future of becoming a serious consumer powerhouse– it knows what everyone is buying across all those sites, it can bring discounts, and it can introduce new properties to consumers.  It’s all about logistics and customer fulfillment now, and ShopRunner is in a great place.

RueLaLa is a private deal site.  I’m less impressed about this part.  I think the ‘deal of the day’ site is cool and all, but it may have run its course in terms of growth.  The ‘private sale’ model likely has an even shorter half-life: once people realize that the perception of exclusivity is just that, a perception, then the passion will fall off, and RueLaLa will wind up for what it really is: a discount outlet for branded goods.  Sales will be solid, but outlets are never sexy.  There may be an exportable SAAS model there, and I know that RueLaLa has been trying to put that together, but I also know that converting one site into a SAAS platform pretty much requires a complete tear-down and rebuild, or starting from scratch.  At that, RueLaLa is really just a cash-flow to fund something else.  We’ll see on this one.

On the other side of this deal, eBay is moving up the value chain a bit, and picking up some legitimacy in the process.  Let’s be honest, when you hear the word “eBay”, how many of us instantly think “beanie babies” and “random junk flea market”?  eBay has a branding problem, and that’s caused a revenue problem: eBay was never taken seriously as a shopping platform for “real” companies, even though they have a huge amount of traffic and do an enormous amount of sales.  Theoretically this all changes now with the acquisition of GSI: it’s a true B2C ecommerce platform and fulfillment/logistics network.  (GSI always differentiated itself from the other platforms by offering not just the website infrastructure, but the fulfillment warehousing and other logistics goodies).

eBay was always a distant 2nd place behind Amazon.  This doesn’t really change that, but it does indicate a different tack: rather than try to go against Amazon head on in terms of product mix and navigation and pricing, eBay is showing that its’ going for the Taobao model: build up a store from the grass roots small vendors by providing them an ever growing amount of  tools and merchandising functions, then cement in the relationships with an exclusive payment method and legitimate company retailers in the mix.  Taobao, for those of you who’ve never heard/seen of it, pretty much owns the China market to a level that Amazon could only dream of: some estimates put over 70% of ecommerce going through Taobao at one point or another.

eBay is looking to solidify it’s own market space.  Consumer-to-consumer sales? check.  B2C sales? check.  In-house payment method? check.  Fulfillment value chain? check.  The only thing missing now is physical retail space.  I used to think that Amazon would buy Sears or Target.  Now, eBay may get a shot.

eBay made a smart move on this.  Michael Rubin made an even smarter one.

Try-N-Save

Marge needs a smart phone first...

Groupon, the group discount site that has spread rapidly thanks to social networks, has seen explosive growth over the last few months.  the company has run extensive TV campaigns in Japan and Europe, as well as even buying some tasteless Super Bowl time last week.  Many of my friends are Groupon users, some are Groupon junkies (I can tell by their constant Facebook bragging/recruiting).  But what about the retailers that are offering these Groupon discounts?  Is it catnip to build buzz, or carrion that invites the vultures?

A common understanding in merchandising is that offering discount products brings in the discount buyers.  Unless your business is All-A-Dollar or Try-N-Save, these are not necessarily the customers you want: discount goods by their very nature have little or no margin, and discount buyers will complain, require service, and generally gum up the fulfillment chain just as much as any other customer (if not more so in some cases).  The business slang for them is ‘bottomfeeders’.  Insinuate whatever you want to from that.  (Please note that I am not calling my good friends ‘bottomfeeders’, they are wonderful people with a savvy sense of finding deals.  I am just relaying the merchandising term.)

So, when would a merchant want to deploy a Groupon strategy?  Here are some points to consider:

Groupon or other clearance discounting is a GOOD IDEA if:

  1. You have a perishable or seasonable product that otherwise will be worthless in a matter of weeks (but not too perishable– a gift food company in Japan is getting sued for using Groupon to send out rancid meats and fish to hundreds of subscribers).
  2. You can run the math, and assuming that Groupon clears out all product, you still cover enough margin to support fulfillment
  3. Margin doesn’t matter on this one, because the word-of-mouth provides a great marketing opportunity.

Aha!  That last one is the siren song for many merchants that decide to go with Groupon.  They figure that if they give away 400 teddy bears or free cocktails or back massages or whatever, the word will spread and their marketing campaign will be off to a running start.  I have no doubt the Groupon salespeople only reinforce this belief.  I would submit that it’s based on some faulty assumptions and likely to get many small businesses in trouble.  Here’s my take on the dangers.

Groupon is NOT A GOOD IDEA for any combinantion of the following factors:

  1. Your business requires the same fulfillment costs no matter who the customer is or how much they pay.  Restaurants fit in this category: a dinner for two requires the same amount of cooking, serving, and cleanup for a couple baying the full $60 as it does for the people using the $25 Groupon.  Unless your restaurant is 80% empty, this is a bad idea.  And if it is 80% empty, I would guess the problems are somewhere else…
  2. The word-of-mouth factor that Groupon supposedly provides is not sustainable or exploitable.  Groupon will bring in a flash mob of a couple hundred customers, and a decent fraction of those customers will brag about the deal on Facebook.  However, unless the merchant has a way to exploit and continue that buzz, the flash mob is exactly that: a flash (and gone).
  3. The flash mob is usually trying to recruit others to participate in the deal– they’re actively telling other bottomfeeders that there is a low-margin item/service for sale at your business.  This will result in bringing in more bottomfeeders as well as possibly damaging your brand.

Discounting is a hard drug to kick.  Groupon is a strong one: used carefully, it can be a kick of adrenaline; used indiscriminately, it’s a quick dose of crack.

See also: One Ring to Rule the Mall

The I-Ching for comment threads - balance your reach, volume, and passion. (image source: chinesefooddiy.com)

Do you read the comments thread at the bottom of a news article?  Do you ever get anything of value from it?  Websites have wrestled with the ‘comments’ section for over 14 years now (since the beginning of the web, really).  How to guide a comments section along to where it actually provides useful and helpful content, and not just random people throwing out grammatically-challenged non sequitur?  We’ve seen sites try various methods: rating the comments, rating the raters, completely open forums, targeted censorship, random censorship, oligarchies, democracies, and anarchies.

Here are some basic generalizations that I’ve seen:

  1. There is an inverse relationship between the breadth of topics (reach) for a given website and the cohesiveness of its audience. The greater the breadth of topics, the lower the cohesiveness of the readers.  Said in reverse, the more targeted the topics of discussion, the tighter the demographic for the group of responders.  For example: both USAToday.com and ForeignPolicy.com can cover the exact same issue (i.e. Wikileaks), but USAToday.com will be all over the map for comments, while foreignpolicy.com will be pretty tight.  This is because the demographics for USAToday are pretty much 20M+ Americans who stayed in a hotel last night or are stuck at the airport, while ForeignPolicy.com is limited to those eggheads at Foggy Bottom and college kids wanting to sounding erudite at a local bar.  We can call this ‘reach’.
  2. There is a positive correlation up to a certain point between breadth of topic (reach) and the volume of respondents/commentators (volume). The more topics covered on a given website, the more channels of bringing in audiences for readership, and thus the more chances that people will respond.  This is true to a certain point, until a website becomes so generalized in nature that the passion drops off, and ends up becoming a limiting factor on comments.
  3. There is a positive correlation up to a certain point between passion of topic and the volume of respondents/commentators (volume), in that passion requires responses, and that requires a certain amount of volume.  Overall, a wider audience means a greater stage for performance, and invokes a greater passion among commentators, up to a point.
  4. After a certain point, volume begins to harm passion, and the discussion threads will either:
    1. bifurcate into smaller groups where volume is reduced but passion continues,
    2. devolve into a flame-war with eventually someone invoking Nazis, or
    3. dissolve away with someone posting a bunny with a pancake on it’s head.
  5. There is an inverse correlation between breadth of topic (reach) and passion of topic. This is likely a general sociological point, in that experts can only show their expertise among learned peers.  People won’t argue the finer points of civil war reenactment accuracies on usatoday.com, but they will on history.com, and watch out if you ever find yourself at reenactmenthq.com
  6. Quality is likely a balance between reach, volume, and passion.

Quality is a very tricky thing to define, let alone quantify.  The rules laid out above all build to that last one: quality.  Quality online discussion threads bring a lot of benefits to a website– they generate return visitors, they provide great Google-food, they inform the product, reduce returns, build brand value, and inform both the reader/user and the website owners about their demographics.

How to build quality online threads?  Evaluate your website carefully:

  • How is your reach?  Is it broad or narrow, or somewhere in between? You can tell by the rate of responders to other posts: too broad and you’ll see random comments without responses.  Too narrow and you’ll see great passion but little cross-over and probably some flame-wars.
  • How is your volume?  Do you get not enough comments or too many? For most of us the answer is usually ‘not enough’, and in the rare cases of ‘too many’, there are mechanisms/technologies available to guide the threads to maintain passion and thus build quality.
  • How is your passion?  Do your commentators have insufficient passion or too much? We’ve all heard the 90-9-1 rule: 90 people will view a website, 9 will read comments, and 1 will actually write something.  That makes a good guide: are you getting comments from 1% of your traffic?  If not, you’re lacking passion.  If you have too much passion, you’ll know it pretty clearly (see the indicators for flame-wars above).

We can see many different ways to build quality.  In general, the comment thread technology out there really only kicks into gear once a certain reach, volume, and passion are already in place.  There’s no default order on which one to do first, but know you have to build all three to get to “quality”: extend your reach, build your volume through incentives or questions, and then invoke that passion by personally connecting your readers/customers/users to each other and to your products.

© 2010 Dave Jenkins contact me via twitter @davejenk1ns or via email blog at davejenkins dot com Suffusion WordPress theme by Sayontan Sinha