Pinterest Canvas

You would expect Pinterest to adopt a similar advertising model to that of Facebook, but they haven’t yet.  They currently only have two small sources of revenue despite their company being valued at around $3.8 billion.  They currently have a small stream of revenue from companies that “Rich Pin” which means they post real time data about prices or offers on Pinterest.  The other revenue stream is through the use of analytics generated by tracking what pictures are popular on Pinterest.  Pinterest probably keeps their cost fairly low because most of their product is user generated but the cost of maintaining servers and staff can still add up.  Many speculate that it will be difficult for Pinterest to capitalize on their high user count because it seems that they are slow to blatantly advertise.  While this lack of ads has allowed Pinterest to grow in popularity, it will be necessary for them to figure out how to monetize their product without turning customers away.

All data from an article found here:

http://qz.com/139156/how-pinterest-plans-to-make-digital-scrapbooking-worth-3-8-billion/

Canvas of Chick-fil-A

         Chick-fil-A uses a fairly standard business model for quick service restaurants.  They franchise their locations and take a percentage of top line sales as well as a percentage of bottom line profits.  Their value proposition versus other quick service restaurants is in their high levels of service and focus on quality over low costs.  Their price point is much higher than the typical competitor but people will pay it because of brand loyalty developed by quality service and high quality products.  While many quick services restaurants have implement the use of new technologies, the distribution and delivery of their product is still primarily through physical locations and face-to-face ordering.  Chick-fil-A is looking to increase the ease of ordering and picking up of food with a new application for mobile devices that will allow customers to order and pay before arriving at the restaurant through their mobile devices.  This has not yet been implemented but will be coming in the near future.  While Chick-fil-A has not changed their basic franchise location business model, they are looking to implement new technology to engages customers and reduce costs.  

Week 4 and the online Business model

            So this week we talked about multiple different business models that have emerge from the Internet or the “liquidity of information.”  Some of these models are fairly familiar by now such as the Amazon model or the EBay model.  Amazon is like the Wal-Mart of the Internet.  Utilizing a low cost structure to provide low prices on a huge variety of products.  EBay engages in the broker business model.  Either customer-to-customer or business-to-customer, they provide a platform where people can buy or sell and they take a cut or a listing fee.  The advertising model is also very familiar by now.  Websites that make money by having banner advertisements that direct people to other sites. 

            These are all familiar to me.  The most interesting discussion this week was about some other business models developed.  Notably, the model of providing free content but then having purchases within the content was interesting.  I have been familiar with this before from the consumer side.  In-app-purchases are a way to get the consumer to be hooked on your “free” product and then make a purchase within the app to advance.  This is a hugely popular strategy right now on the app store for games.  The question I wonder about is how sustainable this strategy is? 

            I am constantly frustrated by apps that seem enjoyable but become useless without a large financial commitment.  Typically these games allow you to play for a short while then make it very difficult (or impossible) to proceed with out an in-app-purchase.  I would often rather pay a price for a game up front and then not worry about the progression of how much I will have to pay to continue.  A balance needs to be struck by these app developers.  From the business side you need the customer to become hooked without being turned away by in-app-purchases to early in the game.  They also cannot wait to long to offer it because apps are often forgotten quickly for a new game. 

            Also interesting was the discussion of companies like Warby that have gone from 100% online to adding physical locations.  The most interesting thing is that you cannot purchase glasses directly from the show room.  An order still needs to be placed online.  This direction being taken shows that there is still room in this world for a physical location where people can physically interact with the product.  I think more and more these “showrooms” will become the prevalent style of shopping.  Soon instead of mall full of product you will see malls full of show rooms.  This should help eliminated some distribution and inventory costs and allow companies to deliver low prices at higher margins.  Very interesting model.

Week 3

             The first thing I consumed this week was the TED talk by Seth Godin.  I am a fan of Seth’s and have seen him speak before watching this video.  His talk was about how to get ideas to spread.  His main point was that even good ideas fail if they are not spread properly and the best way to spread ideas is changing. 

            He spoke about how mass marketing used to be the best avenue to communicate to people.  Marketers were targeting the “average person.” Advertisers shoot for the middle because most people are in the middle and so you would expect the highest return on investment.  However Seth points out that the middle has become increasingly good at ignoring mass marketing.  One of his best points was about how people have more choices and less time in the world now.  With less time and more to choose from, people tend to just stick with what they know and ignore marketing.  This is primarily true when it comes to the average person.

            Seth takes this to mean that we should not be targeting people that don’t want to listen.  Instead we should be targeting the first adopters and innovators that are willing to listen.  We should be striving to make are products so good that they are remarkable.  Make them so good that people actually remark about them.  Turn this group of people that are looking for a new product into advocates for our product.  It is better to be different, and therefore remarkable, than to be average.

            I also greatly enjoyed the recording of Gil and Frank talking about the Long tail Theory.  I was not aware of the term “Long Tail Theory” but I understood the concepts behind it.  It pretty much says that the demand curve is flattening between the very popular and the less popular.  The 80/20 rule might be flattening out a little.  The most interesting part of their talk was when they talked about while even if this is true it might not be so easy to build a business model around.  While it might be true that you can sell more of the less popular items now than before, it doesn’t mean it is profitable produce them.  Volume is still needed in many cases to help offset costs of production.  In addition to this problem, they mentioned that the less popular items are sometimes met with less satisfaction from the customer.  This could result in the loss of return business if you focus on selling products that are not as mainstream.

            Both these things also lead into the main point of the article about the death of segmentation.  More data that is available will drive marketers to be more specific with their marketing.  Segments will grow smaller and smaller until we are focused on marketing to individuals.  I think this will lead to more and more customizable products and services.  No longer will you be able to mass produce one product and sell to the masses.  There are no more masses anymore.  People are becoming more and more independent.  This will force a shift in marketing and business strategy.

Week 2 Learnings

            Ok, I am back to share some more thoughts from week 2.  This week focused on some very interesting topics about the effects of the Internet and more importantly social networks on business.  The short video lecture about the liquidity of information presented several different ways of doing business via the Internet.

            First it spoke about the fairly familiar strategy utilized by Amazon.  Amazon utilizes the Internet to capitalize on economies of scale never before seen.  This allows them to have such low operating costs and achieve great business success.  There is nothing you can’t buy on Amazon and they deliver it at a very low cost.

            The lecture went on to speak of various other forms of business made available by the Internet and the rapid communication that it provides.  The most interesting were the concepts of crowdsourcing and social business.

            Crowdsourcing is pretty much the idea of allowing the public to do the work collectively.  This is a great concept from a business standpoint for several reasons.  First it can be a great way to eliminate or limit costs.  People are often willing to contribute ideas or work to a project just simply for the joy of creating.  If you can tap into this desire you end up with low cost labor that produces high quality work because they care about it more than an employee might.

            The other benefit is the social aspect of crowdsourcing.  People with a common interest that work on a common goal for the joy of the work.  These types of projects often yield the highest results.  You can tap into a knowledge and skill base beyond what you can employ.  In addition, the social aspect allows many consumers to feel more a part of business.  People are interested in creating and to feel like they have a hand in creating generates value to the customer.

            These two concepts were also the main point of the article The Dawn of the Human Network.  This article gave many examples about how crowdsourcing has changed the way companies operate.  From startups like Threadless, which began with a crowdsourcing model, to the adoption of crowdsourcing by P&G, crowdsourcing has increased productivity and profitability.

            The main point that came across to me is summarized best by this quote from the article:

            “The best person to do a job is the one who most wants to do that job; and the best people to evaluate their performance are their friends and peers who, by the way, will enthusiastically pitch in to improve the final product, simply for the sheer pleasure of helping one another and creating something beautiful from which they all will benefit.”

            It is both the efficiency and the social nature of crowdsourcing that makes it so effective.  The combination of the human networks power being utilized for business gains is the future of business.  This article did and excellent job of portraying this.

            The other article assigned was interesting but short.  It was titled How to Build Your Startup Without Learning Code.  The main take away was the fact that the traditional model of creating a business plan and then seeking financing is going away.  It is much more about the visual presentation of your concept.  This can be achieved in a number of ways but mainly the idea is that the concept is more important than the business jargon of a formal plan.  Great ideas are what makes business turn.