Online Ads

So that's already the last week!!!!! Wow that was really fast. Now what I did this week:

• Pages 200-239 in the text
• "Secret of Googlenomics"
• Read the Facebook article
• Read the Pinterest article
• Read "Why Advertising is Failing on the Internet"
• Read "Advertisers Face Hurdles on Social Media Sites"

The FB and Pinterest article did not provide info that really surprised me. Advertising accounts for nearly 86% of FB's revenue, or more than $1 billion. That of course is more than I expected. After all people using FB want to connect with friends and are maybe open to product related info from social contacts. Unsolicited online ads on the other side are more annoying. While I found FB $1 billon revenue from ads a little surprising, I think Google's revenue from online ads is more believable. People googling product info are in a buying mood. Many of them want to make a purchase or at least are less annoyed by targeted ads, so placing an online ad through Google pays off for a retailer. 

I don't really agree with the the text "why advertising fails on the internet". Sure people are becoming more skeptical of ads, and can be annoying, but it is still a huge market and companies wouldn't dump that much money in it if it didn't pay off. I think people don't take the claims for face value but they still influence buying decisions. With all the choices we have we need a starting point, and everything being equal the product we recognize from an ad might be one. 

Pinterest's Rising Star

Pinterest is basically an online pinboard that has gained immense popularity since its inception 2010. It allows users to copy content from the web and pin it to a personal board which can then be shared among users. It’s essentially an online version of a scrapbook or photoalbum which enables the user organize and collect images he cares about. That basic concept is enhanced by the ability to pin all kinds of content and links and share the personal boards with the Pinterest community.

Pinterest follows the “Brokerage Business Model” that ultimately generates revenue by connecting potential customers with sellers. For Pinterest that’s businesses in the fashion, food or design market. The Pinterest users that make it interesting for businesses to partner with Pinterest are mainly female, middle class in prime earning age and with disposable income.

Social media sites like Twitter and Facebook are key partners but also competitors. Pinterest is ranked 4^th of the most popular social networking sites[1]. In contrast to the other social media sites Pinterest focuses solely on visual content, which gives it an edge over the other sites, as the trend is more towards sharing of visual impressions than text. That concept is also more attractive for retailers interested in partnering with Pinterest because the unique use of visual content enables businesses to present their products more effectively.

Currently Pinterest doesn’t have a revenue stream. Nevertheless Pinterest is valued at $2.5 billion[2], which according to VCs is justified with the growth in users, and it’s unique value proposition. The growing online traffic in combination with the described features are compelling arguments for businesses to use Pinterest’s platform, enabling Pinterest to generate revenue very soon.

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[1] http://www.ebizmba.com/articles/social-networking-websites

[2] J.J Colao, http://www.forbes.com/sites/jjcolao/2013/05/08/why-is-pinterest-a-2-5-billion-company-an-early-investor-explains/

Business Canvas for REI

The business I chose for the business canvas model assignment is REI, a privately held retail cooperation selling outdoor recreation gear, sporting goods and clothing through retail stores and online.  The customers are mainly younger, more affluent city dwellers active in physical outdoor activity. They seek both reliable, high quality merchandise often for serious outdoor adventures, as well as outdoor influenced fashionable apparel for city outings. REI is basically is basically a ‘Brick-and-Mortar” retailer with an online storefront, where both channels complement each other. The website is an extension of the physical stores and is designed to provide the same personal assistance as the actual stores with cross-links and customer reviews. Online orders can be picked up or returned at stores.  The company delivers value through it’s merchandise offerings, membership benefits, positive customer experience, outdoor school, adventure vacation offerings and environmental as well as community initiatives which give the REI brand a socially and environmentally conscious image that resonates well with the target customer segment.

Net sales for the year 2012 were $1.9 billion, which provided a net income of $29 million. The membership dividends accounted for $89 million of the overall costs.

Big data...and what it means for marketing

“The Numerati”: That’s certainly an interesting article. I mean the value of big data for all kinds of purposes, not just marketing, is a permanent theme of news articles, posts in social media, opinion pieces. Not that I’m especially happy with it. I like to be the focus of attention, but not necessarily THAT kind of attention. But it’s not surprising. And in the Quant. Analysis class we learned to find correlations between data to forecast demand. Of course that was on a different level than what “the Numerati” describes.  But now on to the different ways in which businesses can exploit that data collections. As “the Numerati” states, the big data by itself is useless, like a big puzzle with the pieces thrown randomly on the floor. What gives it value is the ability to extract targeted information out of the huge pile of data. The ability to put that information in context increases the value even further. 

In week 3 Seth Godin in the video clip stressed to move away from the main market segment to the underserved small but well defined fringe segments. “The Numerati” pushes that concept further by moving away from the concept of segments altogether and towards the individualization of marketing. That requires data analysis on an individual level to allow the marketer to serve the person surfing the web the right advertisement at the right time. Of course the value of sophisticated big data analysis is not just limited to marketing, but useful for very diverse purposes, such as city planning, ordering of flu shots or for workplace improvements.

I also liked reading “The Retailers Guide to Big Data” because it really gives you a good visual overview how “big data” affects the retail business. The text shows the areas in retail which the analysis of “big data” affects most. Not surprisingly marketing comes out on top. And the text also offers a game plan, explaining the steps that need to be taken.

Somehow I wasn’t able to open “”Big Data and You”.

Week 4 Web Business Models

 What did I read or watch: This week I found very interesting. Especially the examples, but I'll come to that later. So the first two bullet points were reads and the other ones were video clips.

· Business Model Generation p 56-119

· Business Models on the Web

· Warby Parker

· Bonobos

· Hointer the new way to shop

· Recorded breeze session on “Emerging Business Models on the Web”

 Topics discussed, messages conveyed and content learned through the texts:

The text in the “Business Model Generation” describes the unbundling of businesses. The non-core types of business and activities can be spun off, as is described in the Telco example. The different business types could also coexist in the same company, but need to be treated as separate units with a different focus. The Long Tail as business model advocates for selling a large number of niche products. Which is what Seth Godin stresses when he recommends looking at the un- or under-served fringe customers. The business model can also be based on connecting content providers with content consumers. These Multi-Sided Platforms allow the enterprise to profit from both groups, but both groups are essential for the business to succeed. As discussed in previous weeks the goal is to turn passive users into active participants.

The text on “business models on the web” discusses the different categories of web-based business models and the opportunities that exist within each category. It also suggests how traditional companies, such as manufacturers, can adapt to the digital world. The internet strategies that could implement for the different businesses are exhaustive. It was good that the text came with examples to understand how that concept can be implemented. Reading the article really gives you a sense of the number of ways businesses can incorporate web tools into their existing business model or start a new line of business solely based on the web. I think the author did a good job breaking down the different web-based business models, and I was amazed at the different sub-categories there exist within the 9 main categories.

Discussion of the examples presented:

Most exciting for me were the examples of Warby Parker, Bonobos and Hointer presented in the videos. They show how brick and mortar storefronts can complement the online retail business. The challenge for a web business is to figure out how they best interact with the customer and how to set up the transaction with the customer. The customer will only accept the model if it offers him a convenient purchase experience. In the fashion industry, which includes apparel and eyewear, a physical customer contact point needs to be positioned before the transaction so that he/she can choose a product that fits her/his size and style. In traditional online retailing that’s hard to do, and mailing back unwanted items is the opposite of convenience. Netflix figured out a system how to ship DVD to the customer and have him return the item in a hassle free way 10 years ago, but that system can’t easily be adopted by the apparel industry with its bigger items and customer specific components. Customers don't want to have to package the unwanted item and drive to a postal office or UPS store in order to mail it back. The idea to use a physical brick and mortar storefront to allow customers to check out the products and pick an item they like, and have the rest of the transaction done online combines the advantages of traditional with online retail. The retail space those hybrid businesses rent doesn't need to have much storage and can be smaller and cheaper than is required for traditional stores. That cost savings allow higher margins and part of it can be passed on to the customer who enjoys the low sales price of an online business and the peace of mind to have bought the right item and not having to deal with returns of unwanted ones. After all the fear of buying the wrong size, color or style, and having to send it back and waiting for the replacement is what keeps many people from ordering more online. For online retailers it can also mean a boost in sales since customers who step into a store are more likely to do a purchase than someone visiting the website of an online retailer.

Week 3: Individualization of Marketing

In week three my reading included the “death of segmentation”, “origins of social media”.

As in previous texts the message is again for marketing to accept the “system of engagement” where the marketer needs to engage the target audience rather than just stuffing the message down the consumer’s throat. The “death of segmentation” emphasizes the need to look at the individual rather than the average customer in the respective segment. This individualization of marketing allows the marketer to connect with the potential customer on a personal level where the individual becomes actually interested in the offering because he/she has the feeling that the promotional gig is actually about him/her and not about the product being advertised.

“How to get your ideas to spread” stresses a similar point. Individuals can choose whom to listen to and need to feel addressed personally. Seth Godin also points out to focus on the neglected fringe customers rather than the “average people” who are in the center of the market, because the individuals on the side of the market curve feel that it’s finally about “them” and listen. And they don’t only listen but also spread the “good” word.

The speed with which a “bad” word, or better the grievances of dissatisfied customers spread is the story with which “The New Influencers” start.  The main topic however it the role blogs have in the universe of social media and how effective this slingshot can be in the hands of David when he faces off with Goliath. 

Now what do I think about it? Individualization of marketing, and making the individual want to see the (individualized) advertisement is certainly a good approach. I don’t want to listen to, and read, something that I feel is not addressed to me. And info through social media sites have more authenticity. But does this make market segmentation irrelevant? I don’t really think so, rather I see different marketing tools coexisting and complementing each other, in the same way as marketing activities through social media don’t completely replace a TV commercial. Individuals want to be reached at different levels and in different ways at different times.

Week 2 -- Crowdsourcing

What did I watch/read:

I watched / read the text and clips on crowdsourcing as well as the podcast "info liquidity". I also checked out the post on how to build a startup w/o writing code. I still want to watch the Alma Whitten video clip on internet security.

What were the most important/interesting topics I came across the last week and what did I get out of it?

The main topic of the texts and video clips was certainly the concept of crowdsourcing and the opportunities it holds for businesses. Key to a crowdsourcing-powered project is to form an online community where “the crowd” can have a certain degree of ownership of the project or product. The ability to interact with other participants, learn from each other and have fun together in this online community are essential ingredients for a successful crowdsourced business or product developed through crowdsourcing. That business can be a new startup or a project from an established company like P&G. The tradeoff is the lack of control to some degree as well as the release of IP. When set up efficiently crowdsourcing can be very effective since in theory it can tap into an unlimited supply of human knowledge, skill and brainpower. The participants want to contribute to the development of a product and share product related information, which means that marketing efforts by the company can be limited, and the business carries itself. The crowdsourcing concept can be expanded to financing of a product development again by allowing the online community to own a share of a business or product they feel passionate about.

What I found interesting was the P&G example b/c previously I associated crowdsourcing and crowdfunding more with web-based startups with a novel idea, not established big companies. In my own organization the issue of IP would probably prevent opening up development initiatives to the crowd. When thinking about crowdsourcing I also had pure web based activities in mind not engineering and lab R&D, which requires equipment and facilities. 

What would I learn more about:

I’d surely like to learn more about the breadth and reach of crowdsourcing in areas I normally wouldn’t associate with that concept. Since I work in chemical R&D I want to check out InnoCentive or YourEncore. 

I liked the post on how to build a startup w/o writing code and want to dig deeper into the links provided in the post. I also initiated a FB discussion on that topic since some people in my network are very interested in it.