Archive for category Business Model

CE#587: Starbucks’ Power Over Us Is Bigger Than Coffee: It’s Personal (Forbes)

The new “let’s make it slightly uncomfortable” model has a larger effect on the psyches of the customers – those who come to work or to play – than we might think at first. This is because the coffee house plays the central role of “Third Place” in our lives – home being the first and work being the second – and Starbucks has always been vocal about its desire to be this third place for its customer. What’s interesting is that humans actually really need this place, and we’ve needed if for practically our whole existence, according to some.

About 20 years ago, Ray Oldenburg, PhD, who wrote a book called The Great Good Place, argued that there are a number of attributes that make a third place a third place: It has to be convenient, inviting, serve something, and have some good regulars (which, he says, is actually more important than having a good host). People have had third places throughout history, and they’ve ranged from taverns to coffee houses to barbershops. They’re definitely better than street corners. Third places are different from first or second ones because we go to them in our in-between time – their voluntariness is what makes them so special and unique.

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CE#444: Domino’s Lets You Make a Pizza On Your iPad and Then Order it in Real Life (Mashable)

Domino’s Pizza has found a novel way to engage iPadusers and maybe sell a few more pizzas along the way. The pizza chain has created an app that lets you make a pizza onscreen and then order it in real life.

Domino’s Pizza Hero is a game/app that simulates the experience of kneading dough, spreading sauce, sprinkling cheese, placing toppings and cutting slices all while a timer ticks away. The object is to make the pizza as quickly as possible and to closely mimic the experience of real Domino’s workers. For instance, levels one through five of the game are called “Pizza School,” just like the real program at Domino’s. When you get to level six, your scores are based on reviews from in-game customers much like a fake version of the Domino’s Tracker, the company’s real-time feed of consumer comments.

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CE#397: Why Software Is Eating The World: Marc Andreessen (WSJ)

This week, Hewlett-Packard (where I am on the board) announced that it is exploring jettisoning its struggling PC business in favor of investing more heavily in software, where it sees better potential for growth. Meanwhile, Google plans to buy up the cellphone handset maker Motorola Mobility. Both moves surprised the tech world. But both moves are also in line with a trend I’ve observed, one that makes me optimistic about the future growth of the American and world economies, despite the recent turmoil in the stock market.

In short, software is eating the world.

More than 10 years after the peak of the 1990s dot-com bubble, a dozen or so new Internet companies like Facebook and Twitter are sparking controversy in Silicon Valley, due to their rapidly growing private market valuations, and even the occasional successful IPO. With scars from the heyday of Webvan and Pets.com still fresh in the investor psyche, people are asking, “Isn’t this just a dangerous new bubble?”

I, along with others, have been arguing the other side of the case. (I am co-founder and general partner of venture capital firm Andreessen-Horowitz, which has invested in Facebook, Groupon, Skype, Twitter, Zynga, and Foursquare, among others. I am also personally an investor in LinkedIn.) We believe that many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses.

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CE#375: Don Tapscott: Business Models for Five Industries in Crisis. WSJ

By Don Tapscott

Editor’s Note: Mr. Tapscott will take your questions in a live chat on Tuesday, July 12 at 4 p.m. London time, 11 a.m. ET. Ask your questions now.

In our 2006 book Wikinomics, Anthony D. Williams and I looked at dozens of companies that have used the Internet to transform their business models and achieve tremendous success.

However, in the five years since the book’s publication, we’ve noticed something striking: the rate of business model innovation has not accelerated. Yes, some individual companies have achieved competitive advantage by exploiting the web and networked business models. But overall the gains have been modest.

We’re beginning to understand the reason. Increasingly it’s becoming difficult or even impossible for companies to achieve breakthrough success without changing their entire industry’s modus operandi. From many examples let’s look at five:

1. Pharmaceuticals Can’t Fix What Ails Them One by One

Pharmaceutical companies are about to drop off what’s called “the patent cliff”. They will lose 25-40 percent of their revenue in the next 2 years as the patents for many blockbuster drugs expire. There is little individual companies can do to recover from this crisis and instead need an industry wide solution.

The global biomedical community is generating about 25 new medicines per year, but only a handful of these are “pioneer drugs” rather than “follow-on drugs”–variants, formulations or combinations of existing therapies.

Despite increased research spending the impact on the number of new medicines approved is negligible. Pioneer drugs address societal needs but also their discovery will allow pharmaceutical companies to grow because consumers are willing to pay for such innovation.

It is in everyone’s interest that those involved in the quest for pioneer drugs share rather than hoard information. Unfortunately, the current structure of drug research encourages the industry to protect its ideas and material with intellectual property rights or restrictive collaboration agreements. The public sector too has been encouraged to secure intellectual property on early-stage discoveries.

Nor is the clinical trial process as open as it could be. The outcomes of these trials, particularly if they fail, are not published until several years after the termination of the projects, if at all. A corollary is that the pharmaceutical industry is downsizing research and focusing on less risky activities.

Instead, the industry should share some of its clinical trial data, such as results from failed trials or from control groups. “This will not undermine the competitive advantage of companies,” says former Merck executive Stephen Friend, now a champion of the open source biology movement: “It will enable it, by changing the basis on which companies compete and setting a platform for a sustainable industry.”

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CE#363: Lessons in Longevity, From I.B.M. (NYT)

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AS it turned 100 last week, I.B.M. was looking remarkably spry. Consumer technologies get all the attention these days, but the company has quietly thrived by selling to corporations and governments. Profits are strong, its portfolio of products and services looks robust, and its shares are near a record high. I.B.M.’s stock-market value passedGoogle’s earlier this year. Not bad for a corporate centenarian.

Yet, not so long ago, I.B.M.’s corporate survival was at stake. In the early 1990s, it nearly ran out of money. Its mainframe business was reeling under pressure from the lower-cost technology of personal computing.

New leadership was brought in, and thousands of workers were laid off. It was part of the company’s painful journey to what might be called “post-monopoly prosperity” — that is, a new path to corporate success once a dominant product is no longer the turbocharged engine of growth and profit it once was.

“I.B.M. faced the challenge that all great companies do sooner or later — they dominate, they lose it, and then they re-create themselves or not,” observes George F. Colony, the chief executive of Forrester Research.

I.B.M. met the challenge, moved beyond the mainframe and built a business increasingly based on software and services. So as it celebrates a milestone, the company holds lessons for others.

Evolving beyond past success is a daunting task for companies in all industries. But that problem is magnified in the technology arena, where companies can quickly rise to rule a market, seemingly invincible, until a shift in the technological landscape opens the door to a new generation of corporate dynamos.

That is certainly the test that Microsoft is struggling with today, as it seeks growth beyond its lucrative stronghold in personal computer software. If they are to prosper for the long haul, Google and Apple, too, must reach beyond their dominant businesses. Each of these companies, in its way, is trying.

So, then, what broader insights are to be drawn from the I.B.M. experience?

One central message, according to industry experts, is this: Don’t walk away from your past. Build on it. The crucial building blocks, they say, are skills, technology and marketing assets that can be transferred or modified to pursue new opportunities. Those are a company’s core assets, they say, far more so than any particular product or service.

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CE#353: Why Groupon Is Poised For Collapse (Techcrunch)

Imagine you’re a small business owner. You have to choose between two propositions:

  1. You can pay $62,500 for marketing. You’ll get a whole lot of customers coming through your door. No guarantees if they will ever come back, but they’ll come once.
  2. I’ll pay you $21,000. You get $7,000 in about 5 days, another $7,000 in 30 days and the remainder in 60 days. In exchange, you’ll give my customers cheap products for the next year.

I’ve been working on local for a long time and I know it’s hard to get small businesses to spend money on advertising. Really hard. Even getting $200 a month ($2,400 a year) is a high hurdle to meet.

There’s no way a business will sign up for #1. Most merchants would laugh you out of the store if you asked for $60,000.

Except they are. In droves.

Although they sound completely different, #1 and #2 are really the same—it’s the Groupon business model.

Businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk” ways to acquire new customers. In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk.

Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. The $21,000 that the business in this example gets for running a Groupon is essentially a very, very expensive loan.  They get the cash up front, but pay for it with deep discounts over time.  (This post applies to Groupon operations in the United States and Canada; it’s different in other parts of the world.)

In many cases, running a Groupon can be a terrible financial decision for merchants. Groupon’s financials also raise questions about its ongoing viability. Buying Groupon stock could be as bad a deal for investors as running a Groupon offer is for merchants.  This is my opinion, but I have some facts to back it up.

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