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Tuesday, June 22, 2010

Did Tesco have an it-generated competitive advantage?

The answer in my opinion is yes! So what was it. As early as 1984 Tesco was delivering online shopping. According to Wikipedia:"In May 1984, in Gateshead, England, the world's first recorded online home shopper, Mrs Jane Snowball, purchased groceries from her local Tesco store in the world's first recorded online shopping transaction from the home".

From 1996 Tesco brought retail shopping on a larger scale to the web with its Tesco direct service. In 2001 Tesco was already profitable and in those days it was the only company doing so. One of the factors that was the key to this success was the fact that Tesco didn't stop with just offering to deliver groceries online.

An extract from the case reveals what other services they delivered via Tesco online: "Tesco created virtual storefronts, or superstores, that allowed it to sell books from its book warehouse, electrical appliances from its electrical warehouse, as well as videos and many other products. Tesco also added many online services: Price Check, for instance, designed to allow customers compare Tesco's prices against those of leading supermarkets and retail chains. Also included were financial services, where customers can trade shares and interact with their Clubcard Plus account; a shopping service that remembers a customer's last shopping list; and many online features all supported by an extensive help facility that thoroughly answered all customers questions".

There was no other competitor in the market that delivered these combined services online. Part of Tesco strategy was to develop and diversify itself in many sectors. While around the turn of the century the competition was struggling with its online services that required cash injections, Tesco direct had "750,000 registered customers and Tesco.com generated 70,000 orders per week on an average basket size of £85 that produced a turnover of £176 million (a 77% increase)".

Although the online division of Tesco was only good for about 1,5% of the total turnover, Tesco had a competitive advantage. It might not have been so much in the local GB market, where they will try to prevent cannibalizing their physical outlet channels as much as possible, but moreover in their expansion abroad where they could compete with local grocery companies that thus far (at the time of the case) had been unsuccessful in setting up profitable online sales channels.

And the best thing of all, if they would be very successful in doing so, they could have a global presence without having to fight the fierce competition of local physical competitors and avoid the huge overhead of having traditional shops.

Monday, June 21, 2010

Casa del Libro.com

What would have been my decision if I were the management of Casa del Libro in 2002? Would I opt to keep using the previously developed UNIX platform, or would I opt for the cheaper Microsoft version.

In hindsight it's always easy to make a choice. A traditional "management trap" is to keep hanging on to previous made decisions, especially if the company has invested heavily in it. Seeing the situation in which Casa del Libro found itself in 2002, a thorough investigation of the alternatives was more than justified. If I would be there in 2002, I would choose to stick with the expensive and complex solution, which would provide me a robust solution once internet sales took of. The cheaper version could only support low volumes and needs to be replaced when the market takes off.

Why would I do that. Most important for me is the objective Casa del Libro wants to achieve. The wanted to be the leader in the Spanish book market. Of course "catching the Internet wave and improving the market capitalization of the Planeta group as a whole was a strong motivation to launch an online initiative (at the time, all market analysts were severely punishing all firms with no presence on the Internet)". And that wave had mostly disappeared in 2002, or so it seemed.

But at the other hand, internet was the future and in a mature market there were no obvious alternatives for Casa del Libro to further expand and carry the costs of their investment in the huge database and the delivery of all those books. "The online initiative was an available way to achieve world leadership in the Spanish books market".

A second most commonly made management mistake is to cut costs in time of economic downturn. Casa del Libro "made cost control and loss reduction urgent and prior objectives in the short term, moving all the former strategic objectives to a second level". What a company should do, especially if their long term goals depend on it, is invest in times of economic downturn. They have to invest wisely and keep budgets under control. But abandoning the strategic long term goals will lead them to lose whatever advantage they might have had and lose the momentum to gain more headway. Competitors will not start investing in new technologies. Casadellibro.com already made a huge investment in an earlier stage. Once the market for online sales would pick up, casadellibro.com would be able to fully profit from it and expand their position in the market.

Would they use the cheaper Microsoft version, they would have to reinvest in new technology at the moment when they need a good working system the most to stay ahead of competition. If they need to change they will most probably lose their competitive edge (if they were able to achieve any with a cheaper less good functioning system).

Would it have been 2010 I would probable advised the company to invest in putting their database in the cloud and invest in applications to sell these books via Mobile OS of Smartphones and social websites.

Monday, June 14, 2010

Adjust your company to ERP or adjust ERP to your company?

I thought about this question while watching the Dutch football team win from Denmark today. Should a company adjust to an Enterprise Resource Planning system or shouldn't it? Yes indeed, the game was that boring!!

So what exactly is an ERP system? The Wikipedia definition of ERP is: "Enterprise resource planning is an Integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture whose purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise wide system environment". Best known ERP systems are SAP and Oracle.

So why do companies implement ERM systems? Well mainly for two reasons;
1) Because there has been a major malfunction in the old systems running in the company. Usually these types ERP implementations are focussed on specialized parts of the entire organization.
2) The company needs to integrate all the separate data stored in a multitude of instruments in the different silos in the organization.

So who needs to adjust to whom? Implement the Vanilla version of the ERP or create a tailor made version? I think it all depends on what kind of company we are talking about. For instance, I have been working for a large international bank where, in accordance with new regulation, the implementation of an ERP and CRM system was a very high priority on the project list for many years. In this project it became clear that the company's processes were very complex, used a number of different and often outdated systems and in some cases were not even programmed in the same code. On top of that some of the processes could not be changed because they connected with systems of other organizations (like for instance clearing systems) or could only be changed marginal because they were required by law or regulation to be conducted in a certain way. In a situation like that, it will be unthinkable that the company changes all its procedures and way of working to adjust to an ERP system. It is in most cases not a feasible option. At the same time, ERP systems become very complex and expensive in situations like mentioned above. In sub parts of the ERP where the company can adapt to the system and where this would otherwise be too expensive/impossible to implement, the company will most likely adjust. In other words, it is both at the same time; yes they will adjust for a part and no for another part it is the reverse.

Companies that are less complex and are less regulated will most likely have less problems with adjusting their processes in technical/legislation terms. In those cases changing their processes might be a cheaper option than adjusting the ERP system to their organization. Most likely these companies will also be smaller in size and will have less "fat on their bones" to invest in an tailor-made ERP system. However, this does not mean they want to change the way the do their business. They might have devoted themselves on working this way, invested heavily in training personnel or there way of working has all to do with their competitive advantage. So for less complex organizations it can also be both; some companies will adapt to the ERP system others will definitely not.

Sunday, June 13, 2010

Dell Hell...what to do?

The main question aswered in this short blog: What to do when a company is confronted with a complaining customer who has a certain level of influence on the public opinion.

After reading the entire story about Dell Hell by Randy Cassingham the answer is clear to me. In a perfect world Dell would have tried to get to the root of the problem rather than to treat the symptoms, meaning try to really help out the customer at the first go with a trained specialist who can make a sound analysis of the problem, give a fair deadline for the solution and deliver an adequate solution on the promised due date. But we do not live in a perfect world and in my opinion this is as valid for Dell as for most if not all big companies. To some aspect I can relate to the cost-benefit model that lies behind these choices.

But once you do make the mistake of getting someone with a certain public infuence ticked off, than try to minimize the damage. Everyone makes mistakes, as in the Dell case. More important is how do you solve them. In my opinion Dell should have put much more effort (and much sooner) into making their unhappy customer a fan of the company again.

As long as the customer is complaining to a company it means there is still a relation between customer and company. This in turn means that there is still a possibility to restore that relationship. In this case Dell should have invited Randy to their company, showing him how their production process works, how come mistakes are made, what they try to do to solve them as good as they can and ask him where in his opinion they can improve this. Of course they need to follow up by also really implementing some of his suggestions.

By making someone part of the process in which mistakes are made and trying to let them create solutions for these problems, they will get involved enough to understand things can go wrong. For instance think about car drivers in traffic complaining about pedestrians and vice versa. In the same person there can be a car driver complaining about pedestrians as vice versa. It depends on where their envolvement lies. Both pedestrians and car drivers make mistakes in traffic, but as humans we tend to blame the ones that are the furthest from where our involvement and engament lies.

In short: Make you biggest critic your biggest fan and Dell Hell will turn into Dell Heaven!

Monday, June 7, 2010

Facebook 2.01, the future!

Started a mere six years ago; Facebook is now the most visited website on the Internet, with over 570 billion page clicks per month according to an article in Australian IT of 30 May 2010. After a huge surge in growth over the last year, they have already passed 400 million of the 1.7 billion Internet users worldwide. And so far there are no signs this will come to an abrupt stop. So where is Facebook going, where will they be in lets say two years time?

In a very nice article in the Guardian online of 14 of March 2010 John Naughton concludes the following: “if Facebook is to continue to grow, then it needs something more than social networking to sustain it” “but it won’t make it too big to fail”.
Listening to their own ambitions it might be a long way from where they are now. In an article on Forbes.com by Reihan Salam dated 26th of April 2010 it states; “Facebook has settled on a truly grand ambition: to serve as the infrastructure that knits together the world's information”. In the same article we can read that Facebook CEO is working on what he calls: “a new open graph initiative, which will make the web more user friendly”. According to the Facebook developers the Open Graph protocol can be described as: “The Open Graph protocol enables you to integrate your web pages into the social graph. Once your pages become objects in the graph, users can establish connections to your pages as they do with Facebook Pages”.

This all sounds great, but as said before Facebook is not too big to fail. Facebook will not be the first company, as Jeremiah Owjang so eloquently said in his article in Web design; “that is a technology supernova, it will grow explosive, then fail to innovate from political tape and sheer size and will fade away". Right now Facebook is renowned for trying all kinds of innovations at the same time. Some will work and some will not. However, there are some voices that say that because Facebook tries to be everything at the same time, it will end up being nothing at all.

What will be important is what direction will it choose. What will be their main focus; a mobile OS like Android; the Open Graph protocol annexing all your favorite websites within your FB profile? Will it remain independent? Can it create a business model that will generate enough cash to develop the new technologies? Will they go public soon, or will they be bought by Microsoft as is suggested as a real possibility in the article by Mark Cuban in SAI on the 23 April 2010.

A lot remains unsure, therefore it is hard to determine with any form of real certainty what will happen to Facebook in the next two years. In my opinion one thing will be sure, it’s going to be a fast evolving story in an ever faster changing world.

Sunday, May 30, 2010

Google; Buy, Hold or Sell?

As an old wisdom says: Do that what you are most good at and do not try to do too much of that what you are absolutely not good at. Being the techno-layman that I am, when posed the question would it be wise to invest in Google, I did not spent much time in trying to understand the details of their latest technological revelations such as Android, Chrome OS, Google Wave, Google moderator and so on. So in this blog-entry the answer will not be a story based on technological information.

Instead I went back to the basics, my basics. Whether or not to invest in a company can be brought back to the core by the following formula: Stock price = the NPV of the total future dividends or in more technical terms: Stock Price = Sum of Dividends (Div) in each Time (T) / (1 + R)^T. The question becomes clearer to me: does Google have the ability to keep making more money in the future? A few things pop-up like a sore thumb when reading analyst reports and media coverage on Google:

1) Google is increasingly being criticized on how they gather and store personal data. There have been several investigations in- and lawsuits against Google in this regard. There was the case concerning Google Street View, where the fam. Boring sued Google because they felt they invaded too far in the privacy of their home. Not to mention the case that came to light after a German investigation into the unauthorized collection of data from users of Public WIFI networks. And they face more problems in this area. According to Ari Levi in an article published in TheRecord.com of the 4th of April 2010 “In Europe, Google is under scrutiny for possible privacy, antitrust and intellectual property violations”.

2) Google has had problems in China, by far the biggest potential consumer market in the world. As a result of the dispute Google shut down its operations. According to a case study by the ICMR: “By the end of 2009, Google realized that its website was being attacked and the attacks originated in China. Google also found that Gmail accounts of some of the advocates of human rights in China were broken into. In January 2010, Google reported that its corporate infrastructure had been subjected to a targeted attack from China and announced that it would not censor its results any more and was ready to shut down its Chinese operations, if required”.
However, according to the same case study, before getting in to the peek of the dispute Google had already lost considerable ground to their Chinese competitor Baidu, who had the biggest market share in the local search engine market.

3) Google faces a slowdown in its growth. In the article by Ari Levi it states ”As sales gains diminish, some investors are concerned that Google has begun to resemble Microsoft Corp., which generates billions of dollars in cash from its mature flagship business yet has struggled to conquer new markets. Google’s sales increased nine per cent last year after almost doubling in 2005”.

But despite al these warning signs that gloom on the horizon, out of all the analist recommendations on Google, there was not one Sell. Are all the annalists wrong? Well looking back in time I would have to conclude that it would not be the first time.

But they are not wrong for the following three reasons:

1) The competition might be increasing, but so does the traffic on internet. More and more people are using internet and spending more time there. In marketing there has been an ongoing shift from the more traditional ways of advertising to online advertising. Google might have a smaller part of the cake in the future, but the cake is getting bigger.

2) Google is upping the ante by investing in R&D to create or buy technology not only to improve the search engine but also outside of its core products. The recent launch of the competitor of iPhone (with Android OS), which gained a substantial part of the market share, is proving that Google is indeed capable to do that successfully.

2) Most importantly, Google is still growing. Growing in the sense of making more money. Yes, the growth is slowing down and yes, there are more eyes aimed at what Google is doing and how it is doing it. But this does mean by far that they will cease to be more profitable and will stop growing.

So....let’s go back to the beginning of this blog-entry. As long as they grow and make more money in the future than they do now, the NPV of the future dividends will go up and they company will be worth more.

GOOG: HOLD/BUY

Tuesday, May 25, 2010

Microsoft; on the road to become a DOG or will they remain a CASH COW

Let me begin by giving the Wiki definition of Microsoft. “Microsoft Corporation is a multinational computer technology corporation that develops, manufactures, licenses, and supports a wide range of software products for computing devices. Its most profitable products are the Microsoft Windows operating system and the Microsoft Office suite of productivity software”.

Microsoft has been dominating the market over the last two decades and has grown in to a monopolistic giant. On several occasions it faced anti trust lawsuits and in a way the biggest competitor that they have had to deal with, was Microsoft itself.

But lately things are changing. Over the last years Microsoft’s market share has been declining steadily. Having said that, let’s put that in perspective. As per October 2009 the most important product of Microsoft, MS Windows, still had around 91% of the market share for Internet operating systems. Are there serious problems on the horizon, or are we speaking about the fact that they finally have to face some healthy competition? Monopolistic situations are not there to last forever!

According to Yahoo finance the biggest competitors of Microsoft can be considered to be: Apple, Google and Oracle.

In my opinion Apple is by far the biggest competitor Microsoft has to deal with at this point in time. As we speak Apple has had a very good run and has introduced several successful products as MacBook, iPod and iPhone. They have done so with a, relatively speaking, low R&D budget. But success only goes so far. Somewhere in the future Apple might be less successful with their introductions and will need to invest more to sustain or increase their market share in this dynamic market.

At the same time Microsoft has been investing heavily in their R&D and somewhere along the line they are bound to come up with new and innovative ideas, at the least they have the cash to die trying!

My vision is that Microsoft probably has lost their monopoly in the market forever, but unless they fail dramatically to come up with new ideas, they will maintain a large part of the market and will be a determining factor in this market for a long time to come.

Monday, May 17, 2010

Foursquare...how do they make it profitable?

In this article I will write about Foursquare. What is Foursquare about, who are it's current users, who is Foursquare targeting as clients, what kind of business model do they use and how do they plan to develop in the near future.

What is Foursquare?
Let's start by briefly explaining what Foursquare is about. When you go to their website www.foursquare.com you will find a site that has some similarities with other social websites such as Facebook. The design of the website is fairly simple and consist out of an animated graphic design, a clear reference that the site can be used to get in contact with friends and a hard to miss button to "join now". Furthermore there is some streaming data of people in all kind of locations doing things that are not really clear unless you are already familiar with the concept of what Foursquare is all about. For this the online tutorial comes in handy: "How to unlock your world with Foursquare".

In the video tutorial they not only explain how to use Foursquare but they also market it to their targeted users. They are doing this with phrases as "with Foursquare you will be able to find happiness around the corner" and "you need a passion for exploration". It emphasizes that it is simple to use, you only need a cellphone with ability to download apps and a Foursquare account. It uses other social media, such as Facebook and Twitter, to widely spread your message to your friends.

In an article by nick saint in business insider dated 28 january 2010 it is described as "Foursquare is primarily for letting your friends know where you are and figuring out where they are. Secondarily, it's for collecting points, prize "badges," and eventually, coupons, for going about your everyday business". You can use Foursquare to post your location on twitter or on Facebook, so it reaches your personal network beyond the boundaries of Foursquare alone. The locations can vary from a Business School like IE, a Star bucks or a tapasbar.

Foursquare operates in the business know as "location services" and according to a CNN article by Peter Cashmere dated November 19 2009 it has Gowalla, Loopt, Brightkite and Google's Latitude as main competitors. According to the same article Foursquare will not have an easy ride to grow in this market and might be overtaken in the future by new initiatives in this segment for instance from Twitter, however right now the writer of this article thinks that Foursquare has an competitive edge in the market as he states "All of these services, I'd argue, lack the highly addictive game play that appears to have Foursquare users hooked".

Who are the users?
In my search to discover who Foursquare is primarily targeting as users, I found it hard to obtain any solid information on the topic, which in itself may not be that strange. Most likely is doesn't matter that much to Foursquare who signs up to their service, as long as the number of users is fast growing. I have to add that this is merely my humble opinion. However for the current and future clients of foursquare this may be (very) important information and right now it is becoming an increasing point of focus in marketing related articles on the subject, as I will discuss in a later paragraph of this blog entry.

In my opinion up until now foursquare attracts a specific target group called "the early adapters". This is a term derived from the the diffusion of innovations theory by Everett Rogers. In this theory early adopters are described as "the second fastest category of individuals who adopt an innovation. These individuals have the highest degree of opinion leadership among the other adopter categories. Early adopters are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters". Foursquare makes use of relative new tools as smart phones with apps, relatively new media as Twitter and Facebook and it presents itself as being an innovative way for exploring people to connect with each other.

Although a growing number of people is starting to use smart phones with apps and media like Twitter, in my opinion the market of "location services" is still in an early phase and not yet on the point where early majority or late majority join in. According to Rogers theory "Early adapters" make up about 14% of the total market and "Early majority" about 34%. For the future of Foursquare the movement from the one to the other segments might be crucial in terms of getting enough users to attract clients. Later more on this.

So who actually are the clients of Foursquare?
First thought might lead you to say the users, but as long as the service is and remains free for users, this group can not be seen as clients. The people or organizations that buy or will ultimately end up buying the service Foursquare is providing are the real clients.

As is visible on the home page, but also on the pages after signing in, Foursquare partially obtains income from what I would call "the more traditional clients" through straightforward product advertisements on their website, these are companies that have a direct connection with the operating system of foursquare such as iPhone, Blackberry, et cetera

But is does more than that. Going back to the homepage, the button which offers the ability for businesses to use foursquare to reward customers reveals part of the other targeted clients. These are the small to medium enterprises that benefit from people connecting on Foursquare and drawing in more clients and therefor generating more profit for these businesses. Foursquare started out with "making business deals with local bars and restaurants offering free food and drinks to users who became the “mayor” of their venue, or in some cases just checked-in". This is evolving into a paid service as we will see in the last paragraph.

Thirdly Foursquare is growing fast in number of users and therefore becoming an increasing interesting marketing tool for big companies. In the last months it has been making more and more deals with large corporations as Pepsi co, HBO, Warner Bros, et cetera. It offers them a more general "brand marketing" in the form of the possibility to follow a brand or special campaigns such as the Pepsi co did in December 2009 in New York, as described in the article by Kunur Patel in Business Insider dated 4 february 2010. Some of these deals are not earning foursquare money, but others are.

Increasingly more important for potential clients of Foursquare, as discussed previously, will be the question; "how do I make sure I reach the right customers through Foursquare"? Douglas Lin wrote the following about this in an article in Media dated 5 March 2010: "brands will need to understand that just because a user “checks in” to a nearby location, doesn’t mean they are your target audience for an offer. As the space matures, demographic and psychographic information will start allowing marketers to more accurately segment and target influencers through to prime consumer prospects. Location will become just another (albeit very powerful) attribute for marketers to better target their audiences". A more clear definition of the users on Foursquare in terms of increasing the information asked in their profile might be an unavoidable evolution in a world where "location services" are bought by clients in order to use them to increase sales.

Coming to the point where all previous information comes together, the following question arrises: What is the business model of Foursquare and how do they want to further develop?
They started out as a free service without a clear business model. Their initial intent was and still is growth. In an article the NY times of 18 october by Jenna Wortham the following was written "So far, Foursquare has no revenue, and the company is still developing its business model. Mr. Crowley and Mr. Selvadurai say they are focusing on trying to build up the infrastructure, expand the user base and develop a database of locations".

As discussed before Foursquare is starting to make deals with big brands and is obtaining revenues from this. They also use VC funding to further develop the company. In my experience this means there must be a concrete plan to develop the company in to a model that creates earning, otherwise no VC will invest. As we know "free lunches do not exist".

And in the article by Kunur Patel we can read that indeed there is a plan. It reads the following; "Recently Foursquare announced is planning paid services for three tiers of businesses: small, privately owned stores and restaurants; brands with retail chains. For bigger brands, Foursquare is developing an analytics dashboard so businesses can track who's coming into their stores. Then, deals could be sold against impressions such as web ads, clicks such as search ads, or a completely new model: cost per check-in".

Foursquare primarily focus was to grow and now it is beginning to have enough substance it is starting to explore the possibilities to earn money with their database of locations and customers. They have defined different segments of clients they can target and are developing tailor made services for these three segments. The number of users will remain very important for Foursquare not to lose interest from big companies. Only having early adapters as clients will not be enough. They will move to new innovations as fast as they have joined Foursquare, just because that is the nature of this target group. Foursquare needs to attract early majority and eventually late majority groups. But also their position compared to new competition (Twitter and Facebook recently announced they are also coming on the market with a "location service") and the ability to offer there clients a service that will give a measurable result of increased sales (either through add clicks, check-ins or campaigns on Foursquare) will be a crucial factor in how this company will further develop.

What rests is my opinion on whether or not as a user Foursquare "me da tres pepinos"? The answer to this question so far is YES. I have been using foursquare for a couple of weeks and yes; it is a very funny tool to let your friends know where you are. The badges aspect and mayorship are completely wasted on me, simply because the incentive to actively get involved is too low. But this is very personal and absolutely not enough to say that Foursquare "me da tres pepinos". So why do I say it? What for me is important and the crucial factor in why I will not actively use Foursquare is that I cannot make any distinction between which friends I want to let know what information. I either reach them all or none. And this is besides the fact that when I disperse the message via Facebook, I have to assume my friends are online, either with their MAC, PC or smartphone. The push messages on the smartphone do not include wall post by others. So using for instance an app like what's up or PING is still a better alternative for me. I do not have to pay for sending these messages, I can reach a selected group of people as I might not feel up to meeting everybody in my network that is close. And I have more certainty if people will show up, because they will respond to me. This is something you can also not do with Foursquare.

Comments, additions or questions.....post them!!