Tag Archives: retail

Book review (and much more): The Intention Economy by Doc Searls

The Intention EconomyOn 6 October 2009, Endava hosted an event for all the Premier League Football clubs (and a handful of European ones too) called Football Club Website of the Future. It was to mark the end of the transition of the IMG Digital team over to Endava.

We had a number of high profile speakers at the event including some of the Premier League clubs, IMG, Facebook, and Deloitte, who produce the annual Deloitte Football Money League report.

At the event I gave the introduction/ welcome presentation, and discussed two key concepts based on the experience moving from IMG to Endava:

  1. Football clubs have unrivalled levels of loyalty – a fan might change clubs once in their lifetime, compared to moving around financial services companies every few years.
  2. Technology trends in the marketplace.

The technology trends became a regular part of all our future presentations and events. As I look back on the various industry conferences we’ve spoken at or hosted, I can see how they developed from the Football Club Website of the Future event.

The first trends we highlighted included the following:

  1. Content won’t be free for much longer. Content overly relies on the advertising model as a source of funding. In the future, users will pay tiny amounts per page or function (such as a web search on Google, etc.) and there will be a central ‘agency’ for distributing these micropayments back to the content author.
  2. The web needs an SSO (Single Sign On) system to be the single method to log on to all websites with the same username and password (or another form of authentication such as facial recognition or text message). Facebook Connect had been launched for little under a year when we hosted Football Club Website of the Future, and I thought it was a brilliant first attempt at a web-wide sign on system. However, I didn’t (and still don’t) think Facebook is a trusted brand that I would use for everything across the web. I wouldn’t use it for my tax returns, share dealing, pensions, and so on. I would want the SSO system provided by a fully trusted organisation such as Visa, Mastercard or HSBC. It probably wouldn’t be a government or a dotcom company.

These trends have evolved, and I’ve started documenting them in much more detail since reading The Intention Economy by Doc Searls.

I was recommended to read The Intention Economy by a client when we travelled to Romania to show them one of Endava’s delivery centres (where the project management, development and testing is executed). At dinner one night I went through some of the trends, and the client asked whether I’d read The Intention Economy. I hadn’t even heard of the book at the time. The client said that many of the trends ran parallel to Doc Searls’ thoughts.

When I returned to the UK I bought the book within an hour of landing.

When I started reading the book, it was a strange feeling. It was like someone reading back to me some of the presentations I’ve been giving for the last four years (only he is infinitely more articulate and structured!)

The book covers a dozen or so different topics for the future under the banner as a customer-centric economy. These include the Single Sign On concept above, the unsustainable advertising bubble, cookie tracking, modern legal contracts, so-called loyalty schemes, big data, ownership, and the core of the new economy: VRM.

I first reported about a VRM tool (it was a mobile app) that I’d seen on holiday in Israel last summer. I called it a personal CRM tool at the time, which Doc Searls calls VRM, for Vendor Relationship Management.

The concept of VRM or The Intention Economy is simple – we are constantly being pitched stuff all the time – buy this, buy that, this is why you need this or that. However technology should enable us to say “I want this thing, who wants to match the price I’m willing to pay?”

The example in the book is landing at an airport and entering into your VRM system “I want to hire a car, with 5 seats, and can hold 3 large suitcases, and I want to pay $x for 6 days”. Searls calls these ‘personal RFPs’ (Request For Proposals). After submitting this request, the hire companies will return a result with offers.

I don’t agree with everything in Doc Searls’ ecosystem.

He highlights the overuse of cookies, i.e. tracking technology. Although the use of cookies has become too much – his example is the top fifty childrens’ websites installed a total of 4,123 cookies seems extreme. These cookies are then used on other websites to make the advertising more relevant. However cookies are mainly used to track behaviours, not individuals.

The chapter on online loyalty is over simplified for the real world. I often give an analogy that website personalisation [via the use of cookies] is the online equivalent to an old fashioned shopkeeper who recognises customers when they walk into their shop. This is a good thing – I like how Amazon knows about me and recommends relevant products.

Whilst I completely agree with Searls’ key point that the advertising industry has become a huge bubble that now sustains such a large industry, it is necessary. If there was no advertising, customers simply wouldn’t know about new products or services. There needs to be a balance. In June last year I posted an article about Tencent in China, who have revenues of $1.5bn per quarter – not from advertising:

I find it fascinating that whilst most US/ UK B2C digital offerings are focussed on advertising models, especially Facebook and Google, Tencent are earning money from subscription models and e-commerce.

Why isn't The Intention Economy owned by Creative Commons?
Why isn’t The Intention Economy owned by Creative Commons?

Doc Searls is the editor of Linux Journal, so he is a strong advocate of open source. He puts his case for open source in the book, however it’s unbalanced and I see the software industry from the opposite side of the fence, where vendors do want to earn profit from selling software. He then moves on to discuss why Creative Commons (essentially open source Intellectual Property). At the end of that chapter I agreed with his thoughts on this, and decided so change some of the content strategy on this blog – make it more open and not hold back on personal thoughts. However, The Intention Economy book is copyright!

It’s a shame that Searls doesn’t have any retail experience. Although he cites a number of conversations with CEOs of huge retailers, they are completely biased towards their own model (e.g. of not having loyalty schemes) rather than providing a balanced argument.

The Intention Economy is the best business/ technology book I’ve read for a long time. I thoroughly recommend you read it. The style of the writing with lots of short chapters, and an opening argument and closing ‘so, then’ closing argument makes it easy reading.

Most importantly though, Doc Searls gets across how companies need to get back to customer centric organisations. The current organisational trend is that branding and marketing and advertising and other departments within an organisation are becoming more distant from paying customers, even during the recession.

We need to reverse the trend and put the customer first. This can be accomplished through changing corporate culture (making senior managers physically meet customers in their own environment) and systems such as VRM.

I’m delighted to see large organisations begin to do this. At the Visa conference last week, before I’d finished reading The Intention Economy, I could see how the CEO and CTO were discussing key concepts from the book – putting customers first.

How high street retailers can wake up

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With the news of Blockbusters closing, hot on the heels of HMV and last year Comet, I was asked my view of the British High Street this week.

Firstly, I feel extremely sorry for the staff at any retailers being closed down. I’ve been through redundancy processes myself and they are really unpleasant, turning the most confident people into nervous wrecks overnight. I recommend any staff direct their anger at their senior management for lack of foresight, even when it was incredibly obvious how business models were changing due to the Internet becoming more ubiquitous.

It’s easy to forget that Internet sites employ people to. Amazon employs over 2,000 people in the UK. My brother-in-law’s Internet business employs half a dozen people including warehouse staff. I doubt his business would have employed more people if they owned a retail shop.

The Internet is now its own standard way of shopping. During the 2012 festive season we bought almost every present online. My wife does all of our shopping over the Internet, including a local greengrocer who she emails orders to and they deliver, for free. The only time I ever go into a branch of my bank is to deposit cheques.

Internet shopping is a mature industry. It’s now a default way of shopping.

For some, there is the shopping ‘experience’ of going to a huge shopping centre, or somewhere like Harrods. Personally I don’t enjoy the experience of shopping on a weekend. The thought of going to Lakeside, Brent Cross, Westfield, etc. makes me instantly start thinking of what else I could be doing with that time.

High Street retailers cannot sit still expecting consumers to feel sorry for them. They need to adapt their business models, whether its superior customer service – so good that you will buy from them, and ensure they are competitively priced at the same time. 

How to get help with online marketing for small businesses

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Last week I was invited to a networking event hosted by Rob Tyson of The Tyson Report and Triberr.

As regular readers will know, I am interested in small UK businesses, mainly because my grandfather started a small shop in Camberwell shortly after the war, which my dad looked after until retiring some five years ago.

I’m acutely aware that small businesses need as much help they can get, and in some ways the Internet has created a level playing field, but small businesses struggle with the complexities of the Internet and it takes too much time to research the necessary material.

Step forward Rob Tyson. Rob has created a subscription based website which helps small businesses understand the nuances of Web marketing.

His website is based on a freemium model – a lot of content is free, the first month costs £1 and thereafter it’s £19 a month.

I spoke to Rob at the event, not for as long as I’d like because there were lots of others there, and he seems a genuine guy who wants to help small businesses. I asked him what his long term plans are, and whether he would help large companies, and he said that he wants to focus just on smaller companies at the moment – usually less than a dozen people, running a business as well as a website.

At the networking event was a wedding photographer who has reduced his marketing spend (at one point he was spending 50% of his revenue on marketing) through Rob and a charming lady who is setting up a London tour guide business and needs help promoting it online.

I’ve read Rob’s blog, and it’s straight up, direct content. There’s no fluff, and something to take away from every post.

If you’re a small business, I recommend following Rob on Twitter and taking a look at his site.

 

LinkedIn’s future looking good

LinkedIn have had a third quarter and with quarterly revenues up 81% to $252m, they are set to have annual revenues of $1bn.

It’s still staggering how on revenues of $252 million they still only make less than 1% profit of $2.3m, although being fair to them, their EBITDA is $56m – 22% of revenue.

Their income is split as follows:

  • 55% Hiring Solutions (recruitment)
  • 25% Marketing Solutions (advertising)
  • 20% Premium Subscriptions (sales and headhunting)

This is a healthy mix – I’m still concerned how many Internet businesses are based on an advertising model. It works so well for some (Google), not necessarily for others (Facebook) and I prefer mixed models where it’s closer to a freemium or retail model (Spotify, Amazon and LinkedIn).

LinkedIn have successfully implemented the freemium model perfectly – most users can get value from the site without paying a penny. Users who want more information about other people’s profile, or want to contact people they’re not connected to, or look at who’s been looking at their own profile, can upgrade.

LinkedIn has become synonymous with Internet based recruitment and B2B business networking. Two thirds of LinkedIn’s revenue comes from the US, so there’s still huge opportunity in Europe and Asisa (22% and 7% respectively). To continue the B2B toolset acquisition, I would expect them to buy an events organiser such as EventBrite.

Direct to consumer has its challenges

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Following on from my earlier post describing Endava’s Supplier and Partner day, one of the presenters talked about how some brands have faced new challenges when moving into the direct to consumer space.

Many of the brands that we see, in face most of the superbrands that we recognise, require a retailer as a middle man. 

The top 10 brands of 2011 are:

  1. Coca-Cola 71,861 ($m)
  2. IBM 69,905 ($m)
  3. Microsoft 59,087 ($m)
  4. Google 55,317 ($m)
  5. GE 42,808 ($m)
  6. McDonald’s 35,593 ($m)
  7. Intel 35,217 ($m)
  8. Apple 33,492 ($m)
  9. Disney 29,018 ($m)
  10. Hewlett-Packard 28,479 ($m)

Out of those 10, you usually need to walk into a retailer to buy Coca-Cola, IBM, Microsoft, GE, Intel and HP’s products. Of the remaining four, I would estimate most people buy Apple and Disney products not in an Apple or Disney store, leaving only Google and McDonald’s as direct to consumer superbrands. I think you get the picture.

The Web created a link between brands and consumers. Remember, many brands took a while to create a website, and it took several years to break out of the ‘brochureware’ style site. 

Interacting with consumers? It took the social media revolution for most brands to start communicating. 

However the web didn’t create customer service issues. This started happening with mobile apps. The two main reasons for this is the fundamental difference between web and mobile apps; and charging for content.

The first point is that a website can be changed by the brand, and the customer won’t have access to an older version of it. Now, a brand can produce a mobile app for a current campaign, and needs to think what will happen to that app once the campaign finishes. Think of all those London 2012 apps out there on smartphones… what will happen to them after the Olympics? They will be legacy applications, and it takes a strategic brand to think about the migration post the campaign. In the web world, you can simply redirect the user from the finished campaign to another page. 

The second point is when brands charge for apps, or for the content inside an app. For many brands, it’s the first time they are taking revenue directly from a customer, and this brings on customer service issues they have previously never needed to deal with.

Photo courtesy of Katie Lips on Flickr

 

Internet World 2012

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The Internet World 2012 exhibition at Earls Court was far improved from previous years. It was bigger, busier and generally more upbeat – perhaps a good indication of the market, even if it was the same day that the UK re-entered a recession.

There were lots of seminars across a number of theatres. In fact, there were so many seminars and theatres over the three days that I got confused and ended up sitting in the wrong theatre a few times – but the topics were interesting enough to stay.

Two of the better presentations were from Artificial Solutions and Orange.

Artificial Solutions

Andy Peart described how virtual online assistants, such as Anna on Ikea.com, provide value to consumers and increase conversion rates.

Andy started by quoting Gartner: “By 2015, 10 percent of your online “friends” will be nonhuman”

Anna from Ikea understands 21 languages across 23 countries in a natural language, and because users interact with ‘her’ (why are virtual assistants always female?) from a webpage, she understands the context (specifically, the product) of what the user is querying. She converts over $14m of revenue a year – hence the title of Andy’s seminar “Expanding the role of your most productive virtual employee”.

Artificial Solutions ran some independent research that 96% of users visit a website to resolve a query instead of calling first, and that query should try to upsell just like a call centre would.

Orange

The focus of Orange’s presentation was A/B Testing – essentially it’s testing different solutions on different sets of users to see which is more effective.

Google do this all the time and often publish their results. They tried 41 different shades of blue for Google AdWords.

Back to Orange and their A/B Testing for push communications – such as email and bill inserts.

The first take away from the session was not to take the results of these push communications at face value.

For instance, one of the key metrics for sending emails is the open rate. If users look at an email, then great – they’ve seen your ad. Orange found that their iPhone users have the highest percentage of opening their marketing emails, and they were delighted. However, one step into the detail showed that Orange iPhone users were one of the lowest click-through groups. So they opened their emails but didn’t do anything with it.

Orange had another good point with ‘holdout groups’. These are consumers who aren’t included in the A/B Testing – to prove whether the marketing initiative (i.e. the email send) is worth doing at all. In fact, when Orange segment their users, they have holdout groups inside each segment.

All this talk of email though – and bill inserts still provide the highest consistent ROI of all push communication. I think it’s all about putting the information in someone’s hand. Email is too ‘removed’ – a leaflet is more valuable. Electronic ink will become very powerful in the hands of marketers.

And finally, Orange segment their users into several groups, including Socialites, Pragmatics, Maximers and many other groups. Maximisers are ambitious and active, career focussed workaholics.

Orange find it difficult to work with Maximisers – getting them to open emails and click on them, despite extensive A/B Testing. And that was their last point – some groups are just too difficult to market too, so concentrate on the ones who you can convert and work on increasing their ARPU (Average Revenue Per User).

Retail and brand convergence

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The line between brands and retailers is now greyer than ever. Fifteen years ago customer bought products almost exclusively through retailers. Then the Internet changed that model, and brands started going direct to customers. Facebook further changed the model, enabling customers to interact with brands even more easily.

Let’s take an example of airline tickets. Fifteen years ago everyone booked flights through a travel agent – basically a retailer. Nowadays most people book flights direct with the airline (the brand). On average, 200,000 people ‘Like’ Virgin Atlantic, British Airways, RyanAir and easyJet on Facebook.

We’re already seeing electronics manufacturers setting up their own High Street shops – Sony, Panasonic and Apple are good examples. Except for the last brand, I imagine most people who go into the shop are there to browse and try products, which then go on to purchase online.

One key advantage of brands, (or manufacturers – most of the time they are the same thing), going direct to the consumer and having an interaction with them, is that they can better understand the market, and improve their product or service. A lot has been made of consumer insight and its value to marketing department; however I think the value of consumer insight can and should be to the whole organisation.

The future will enable more customers to buy directly from brands up to a point – I can’t imagine a time where I’ll stop using a supermarket and start buying soup from Heinz, drinks directly from Coke, frozen vegetables from Birds Eye and crisps from Walkers.

Photo courtesy of Laurent Dechoux on Flickr

Contactless and mobile payments

On Sunday I popped into my local butcher (they haven’t all been put out of business by hypermarkets) and tried paying using my contactless debit card. At first, the guy behind the till didn’t want me to use contactless because he didn’t think his till could handle it, but I tried and he was amazed how fast the transaction was finished.

We work very closely with one of the big European payments companies, and had been discussing contactless with them last week, and so I told the sales assistant in the butcher that his transaction fees cost less using contactless than chip and PIN. He said that he’d tell his boss.

The timing was interesting because this morning I went to a presentation at Intellect, “Contactless payments: A retailer’s perspective” by Julian Niblett from Boots.

Here are some of the key points from the presentation, together with his view of the future, and I’ve added some of my comments as well.

  • Boots are the second biggest retailer in the UK with 2,600 stores
  • At the moment a third of transactions use a card
  • Only 30 stores have contactless – a joint investment with MasterCard
  • Less than 2% of card transactions are contactless 

In terms of the value proposition for the retailer, given a choice between rolling out more self-checkouts and contactless, the former will always win because contactless has far less value to the consumer.

That said, their analysis is that first time customers who try using contactless it will continue to reuse it.

Julian asked how many people in the room have used a contactless card. Around a third put up their hands, which is well above the national average. Julian pointed out that watching consumers use a self-checkout, many people still aren’t sure how to insert their card into a card reader properly let alone ‘educate’ them to use another physical method of payment.

One of the issues in Boots’ case is that there’s no business case to offer contactless. Cash is still the cheapest cost at 0.5p per transaction (many of the costs of cash are both subsidised by the banks, and many of the ‘costs of cash’ are fixed). 

Also, contactless transactions cost less for a retailer, but the retailers are wary of the payment companies who have usually increased costs once a new technology rollout hits tipping point. This happened with chip and PIN, and retailers expect the same to happen from contactless.

The near term future

·         Tfl will use contactless cards as an alternative to Oyster this year. This will help the wider public use contactless more often, and consumers are expected to start using them more often in retailers.

·         Visa are going to be helping Boots with a wider rollout across London due to the Olympics.

The longer term

One of the key issues at the moment is that there is no customer demand for contactless. However, retailers can see that there is a demand for using a mobile phone for payments.

We all have more and more cards in our wallets for payment and loyalty schemes. Both of these will move into a smartphone apps, with numerous retailers already leading the way, and PayPal and Google Checkout leading the way with their payment apps.

Julian discussed a great consumer experience all based on a mobile, with coupons, a store loyalty card, payment and electronic receipts, and probably no need for a till at the end of the shopping trip. However there are very few customers who want to shop this way at the moment.

It was a really interesting presentation, and if you’re in the banking or retailer value chain, you should probably get in contact with Julian as he was very open with his analysis and data points (some of which I can’t publish here).

My take on contactless payments is that it will move to mobile, but it will become more complicated for consumers. My debit and credit cards have never run out of battery before – what happens when you want to buy something but have no battery in your phone. In fact, my cards are designed to be much more rugged than my phone – not only do they not require any power at all, they’re also waterproof and shock proof. And therefore they will stick around for a long time.

Amazon removing more cost centres

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It’s quite rare in most industries for a market innovator to become the strongest company in the sector. Usually the market creator is overtaken by a more efficient competitor, who has more time to see what not to do. This has been the case with most industries, not just IT.

One of the first ecommerce web sites I remember using was Amazon. It reduced the cost of books by a huge factor and its recommendation engine is still seen as one of the best in any website. The fact that it launched in 1994 and is still one of the most profitable companies in the World is impressive.

In terms of financial scale, for UK readers, Tesco has a market capitalisation of £31bn and Amazon has a market capitalisation of $89bn. For US readers, Target has a market capitalisation of $35bn.

Turning costs into profits

One of the business initiatives that most people admire Amazon for is how they turn their costly IT organisation from a cost-centre to a profit centre – called AWS (Amazon Web Services). Essentially, running Amazon.com and all the international sites requires a massive amount of servers in data centres all around the world. When I visited one of our US data centres a few years ago we had an area (called a cage, because it is one) and our next door neighbour was a cage several times larger for Amazon.

Anyway, Amazon realised it had a huge IT infrastructure and converted the spare capacity into a facility enabling anyone else to use their infrastructure. Companies can rent this capacity on an hourly charge. And many companies do use it.

Amazon won’t release revenue figures directly, however some reports have estimated its more than $500m annually.

Marketplace

Another innovation that Amazon had to implement, this time by force was their Marketplace. eBay started taking some revenue away from Amazon, so Amazon started allowing third party sellers to sell products on Amazon.com. Fast forward to the present time, and it’s quite often that a consumer will buy something on Amazon, which is actually another merchant – whether it’s a sole proprietor or a multi-national organisation.

If a consumer currently buys something from Amazon, if it’s actually Amazon who sell the product, it will come from an Amazon warehouse and be delivered directly. If it’s a third party seller, Amazon have a clever interface (and contractual terms) which notify the seller to deliver the goods within a set time period.

Removing more cost centres

However the latest area that Amazon is moving into is fulfilment.

Amazon is encouraging merchants who use its platform to send their stock directly to Amazon’s warehouse and Amazon will take care of the rest. They’ll fulfil (pick and package) the order and deliver it to the customer. So if you sold glass vases, you would instruct your supplier to deliver a pallet of vases to an Amazon warehouse and spend all your time and energy making the Amazon pages look as good as possible.

This is ingenious for a number of reasons:

  1. It turns Amazon from a traditional retailer who needs to buy a certain commitment of goods for x and sell at x + y% markup – into a risk free business because it doesn’t need to buy the goods up front
  2. To compete against this model becomes ever more expensive, because the sheer capital infrastructure costs are now prohibitive
  3. Amazon will increase its economy of scale for delivery costs
  4. It encourages merchants to use Amazon as the primary channel, because Amazon performing merchant’s fulfilment requires less overheads and easier.

The fulfilment model is an interesting concept, because it turns retail and distribution into a service and it moves a lot of the risk (of buying the items up front) up the supply chain from the retailer (Amazon) to the distributor.

 

Early thoughts on Christmas and football

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This Sunday, that’s the 9th October, don’t go to Oxford Street because the road will be shut. It will be shut because the Christmas lights are going to be hung up. It feels strange that last week in London the temperature was over 30 degrees and next weekend Christmas lights are being hung up.

Fifteen years ago, even five years ago, the Western world was buying discs and tapes of films, music and computer games.

At least the retailers on Oxford Street could sell something because yes you can still buy a physical DVD or BluRay, but it’s now easier to download an ‘on demand’ movie via Sky, cable or BT Vision.

Music CDs? In our house we use Spotify (Premium – so that we can use the iPhone app in the car) to listen to music. I haven’t bought a music CD for years.

The one physical format that has stood the test of time is computer console games. Although you can download demos for the Wii, PS3 and XBox, most consumers still need to buy a physical disk for the latest releases. 

Perhaps the main reason for still needing a physical disk is the price point. A music ‘album’ (how much longer before no one understands what that word means?) costs under £10 on Amazon. Watching a film on BT Vision and Sky is under £5. Compare those costs to the latest football game, FIFA 12, which is £43 on the PS3 and Xbox. Perhaps buying a product for over forty quid is too much for a virtual object.

There’s also a school of thought that because most games are bought as presents, you need to be able to wrap and hand it over. I don’t necessarily agree with this because a console such as an Xbox has a much higher age group and the gift element doesn’t apply so much. And personally I’d welcome downloadable full games because my kids wouldn’t be able to scratch the disks without any possibility of exchanging the useless £45 circular plastic.

Back to FIFA 12 for a moment… at the time of writing this post:

·         Xbox and PS3 versions both cost £42.89

·         Wii version costs £32.99

·         PC version costs £27.51.

(All those prices are from Amazon).

Now hop over to the iTunes store to buy FIFA 12 on an iPad. It’s £5.99. Why such a huge price difference? I wonder if the iPad version cannibalises the other formats, or whether it helps market the other formats (i.e. iPad users try the iPad version and think it’s so good that they want it on their Xbox).

At least if you do visit Oxford Street this weekend, you can download FIFA 12 to play on your iOS device while the lights are being put up.

Photo courtesy of dark delicious on Flickr