In the past five years, there has been a surge in social networking activity. As a matter of fact, Facebook use is nearing saturation, with 141.2 million US consumers, (59.1% of US internet users) expected to access the site regularly in 2012. [1] And, in May of 2011, Americans spent 53 billion minutes on Facebook. [2]

With all that time spent on social sites, you’d assume that they’re great for commerce. However, that hasn’t been the case, and we see this with brands that have tried: Nordstrom and the Gap – established retail giants – have opened up Facebook stores and they’ve had to shut them down. Gamestop, a business favored amongst gamers – an active community on the web – opened up a Facebook store and had to shut it down. Delta and Ticketmaster have also opened up Facebook stores and are figuring out how to retool them. [3] These businesses poured money and resources into these Facebook stores and no one was buying.

The reason why social networks are not succeeding as commerce platforms is because users are spending time on social networking sites not to shop, but to interact with friends. Forrester Research aptly captured this point by describing advertisements on Facebook being akin to “trying to sell stuff to people while they’re hanging out with their friends at the bar.” [4]

Yet, brands are continuing to invest in the site and expanding their presence there. By 2013, eMarketer forecasts that 86% of US companies with more than 100 employees will be using Facebook for marketing purposes. This is up from 83% in 2012 and 73% in 2011. [5]
A possible reason why advertisers are slow to catch on might be because they’re tied to a conversion funnel methodology. The conversion funnel has been the way to acquire customers since the online shopping cart was invented. In this paradigm, businesses pay millions of dollars to serve millions of impressions in the hopes that some people will click on the ad, a few people will add items to their cart, and maybe one person will actually buy something. The conversion funnel naturally lends itself to a bad user experience: Users are constantly bombarded by these intrusive messages. And in the meantime, ad networks are spending billions of dollars to optimize the funnel.

Facebook’s approach to optimization is to better integrate paid advertising into organic content. The company has always allowed advertisers to post content to their followers’ news feeds for free, but only about 16% of fans actually see the unpaid posts due to Facebook’s EdgeRank algorithm, which determines what status updates, posts and comments are shown on users’ news feeds. [6] However, advertisers can now pay to win higher visibility and integrate their advertisements into their users’ news feeds; a rationale akin to realizing that users are ignoring advertisers’ attempts at conversion, and therefore resolving to interrupt users’ conversations further.

This approach is not only ineffective but hazardous to the longevity of the platform. Every platform that derives revenues from online advertising must carefully balance the provision and layout of content with the placement and frequency of ads. A myopic approach that prioritizes the latter will eventually fail, as users will migrate from a place that no longer feels like home. And given the prolific nature of the internet, new networks eager to receive them will surely sprout up quickly.

So what is the best way for brands to use Facebook? They should inspire users to recommend products to their friends and the larger network via improved product development, customer service, and compelling incentive programs. Use Facebook as a communication channel where fans can show support of the brand, but advertisers shouldn’t mistake Facebook as a new direct response channel. Facilitate a conversation amongst users but don’t insert yourself in the middle of their conversations.

Social networking sites demand a different approach to acquiring users than the traditional methods of advertisers pushing messages to consumers. Instead of applying antiquated conversion funnel methodology to the social era, brands must play the role of facilitator by engaging consumers to have discussions around their brand. Advertisers must unlearn all of their old, inefficient habits about buying impressions, because traditional methods are not effective at engaging social users. That money is better spent in improving what you offer and how you treat your customers.

[1] eMarketer, “Facebook Marketing: Reaching Consumers in a Changing Environment,” http://totalaccess.emarketer.com.ezp-prod1.hul.harvard.edu/Reports/Viewer.aspx?R=2000961, August 2012.

[2] eMarketer, “Facebook Commerce: Reaching Shoppers Where They Socialize,” http://totalaccess.emarketer.com.ezp-prod1.hul.harvard.edu/Reports/Viewer.aspx?R=2000862, January 2012

[3] ZD Net, “Facebook Storefronts Fail, but f-Commerce isn’t a Failure,” http://www.zdnet.com/blog/facebook/facebook-storefonts-fail-but-f-commerce-isnt-a-failure/9251?tag=mantle_skin;content, February 18, 2012

[4] ibid.

[5] eMarketer, “U.S. Companies Using Facebook for Marketing Purposes, 2009-2014,” http://totalaccess.emarketer.com.ezp-prod1.hul.harvard.edu/images/chart_gifs/143001-144000/143889.gif, August 2012.

[6] eMarketer, “Facebook Marketing: Reaching Consumers in a Changing Environment,” http://totalaccess.emarketer.com.ezp-prod1.hul.harvard.edu/Reports/Viewer.aspx?R=2000961, August 2012.

 

 


 


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Will Google’s search dominance be deeply challenged by Microsoft’s current Bing strategy? I do not believe so. In arriving at my conclusion I site a recently learned framework posited by HBS Professor Clay Christensen: sustaining vs. disruptive innovations. Sustaining technologies are performance improvements to established technologies. Disruptive technologies are inferior at first, but more convenient to a certain customer segment, a segment which incumbents are usually happy to discontinue serving. Christensen further suggests that when trying to dethrone an incumbent, challengers are better positioned if their technology is a disruptive one that the incumbent initially ignores. On the other hand, when dealing with sustaining technologies, the incumbent often prevails.

Microsoft is confronting Google on its same turf. That is, Microsoft is fighting on sustaining innovations to which Google has clear visibility, and can in turn match or beat. The way Microsoft has approached the search space thus far limits the extent to which they can successfully execute a challenge vs. an incumbent. I believe the technologies that will ultimately be pernicious to Google will be disruptive innovations focused on areas where neither Google nor Microsoft currently participate.

One of the issues Google and other search engines face is the limitations of language. The concept of relevancy, heavily ingrained in current search models, relies greatly on technology’s ability to decipher human language. Inculcating the nuances of language into mathematical equations is extremely difficult. However, the more activities we perform online, the more data points and clues we create to aid search engines in understanding the true intent of our searches: physical location, recently visited sites, social media activity.

Let’s take social media as an example. On Facebook, Twitter, and other platforms, the shelf life of different topics are too short to be well served by traditional search ranking systems. Events are being discussed live. The web is no longer a static amalgamation of documents, the basis on which Google search was first constructed. But what if we could include user-generated-content as helpful data points that improve search results?

A technology aiming to do just that is a seventeen-year-old’s recent invention. I find Nicolas Scheifer new “microsearch” model, which won a prize at this year’s Intel Science Fair, a true differentiator among existing paradigms. Many of the current search models assume all words are independent from other words. Scheifer’s mathematical algorithm looks at the relationships between words in this new era of social media, where fewer words are being used and thus keywords are harder to fit in any one phrase. In this landscape, relationships between words become ever more important. We can imagine a scenario where you search for “best restaurants,” and the search engine knows that the word restaurant is related to “meals,” “dinner,” and “dining.” It also knows who you follow on Facebook, and as a result, what those individuals’ shared meal and/or restaurant experiences have been. The search results even include Instagram pictures of some great meals posted by your inner circle.

The above example might seem trivial, and indeed many people argue that Twitter and other social media don’t carry useful information. They dismiss the sustainability of these platforms in general. I disagree and cite the Arab Spring, the Haiti earthquake, and U.S. Airways Flight 1549 landing in the Hudson as examples of powerful information exchanges on these very platforms. A Google search for “Arab Spring” returns a Wikipedia page as the top result. However, before this page was created and cited often enough to earn the #1 spot in Google’s algorithm, Twitter had already reported the latest updates. Real time search matters.

I consider technologies like Scheifer’s to be more formidable competitors to Google’s stronghold than those currently implemented by Microsoft. Once social media platforms become searchable, the viability and implications of both Scheifer’s model and social media begin to gain ground. The future of search lies with augmented methods that better understand our queries by incorporating more of our online behavior.

 


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Despite the phenomenal growth of online video over the last decade – with the likes of Youtube, Hulu, Netflix, and Amazon Prime – video in education has seen lackluster development.

University libraries are estimated to invest approx. 4% of materials budgets into video, with the remainder into textbooks, journals and e-books. Take Harvard – students of the MBA program are guided through a curriculum that involves approx. 715 paper case packages, yet only 2 videos.

This may seem surprising, and to be sure the case for online video in education is strong.

First, online video is medium that resonates with today’s students. An estimated 88% of 18 – 24 year olds regularly watch streamed video today. One would imagine that this would not go unnoticed by Universities that endeavor to develop curricula and offer resources that engage and extend comprehension. Online video has proven to be very effective for educational purposes in a number of circumstances (Khan Academy, Academic Earth), providing unique opportunities for heightened interaction and student tracking and management.

Second, the growth of elearning necessitates a curriculum re-think. The level of investment in online classroom platforms – for example, Harvard and MIT’s recent joint venture edX, Stanford’s Coursera, and 2tor – suggests alignment on the view that the classroom of the future will be online. Elearning is growing 14% p.a. and has propelled institutions such as the University of Phoenix onto center stage. The need for online video as an educational tool is amplified by the transition to PC-based remote learning.

However, a couple of factors are pulling the reins on the potential of the educational video market. First, a perception held by many that video is a weak educational tool; in fact, there is significant evidence to the contrary. Video should be seen as a complement to, not replacement of, traditional teaching methods. In addition, educational institutions are typically somewhat bureaucratic and commonly late-adopters. Changing curricula and reforming instilled methods takes time. Finally, there has been a challenge of execution – designing a business model to effectively deliver solution that meets the many and vastly varying demands of Universities.

This is a challenge that I am currently taking on with my sister. Eighteen months ago, we launched Kanopy which aggregates videos from major and independent film producers and delivers this content to Universities through a state-of-the-art video streaming platform. Recently, Harvard signed up for some videos – check them out here. I would love the feedback!

 


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Nagging Questions

Network-Effect vs. Unmet Customer Need?

Over the last few weeks, our class has discussed several online business models that were heavily reliant on network effects as part of their mobilization strategies. While I understand the substantial value of network effects, what worries me is how this knowledge may stunt ideation as entreprenuers, particularly around concepts we have learned in other courses, such as identifying unmet customer needs and finding solutions to meet their demands. If you can think of a great idea that solves a customer need, but does not have strong network effects, does that debunk your idea as a great business?

For example, if we look at the e-commerce businesses for Lululemon, a brick-and-mortar yoga apparel retailer (http://shop.lululemon.com/home.jsp), one cannot clearly see the benefits of network effects. Having more online customers doesn’t necessarily have a positive impact on current online customers yet the business itself can still be successful, albeit never reaching “viral” proportions say a Twitter or Facebook could achieve. Do we immediately undermine this business (or this type of business)?

So to reiterate, should we box ourselves into only online businesses that have strong network or should we rely on our noses for a good business concept, regardless of any network benefits. I’m sure there’s a common ground between the two but how can we quantify the decision? Businesses with network effects, while lucrative, can work negatively if the business never generates enough buzz to reach scale. On the other hand, non-network effect business ideas, while less profitable, can arguably generate a “safer” less volatile ROI. The finance guy in me would say “just use an IRR or NPV calculation to factor in the riskiness”… but something tells me the answer is not that simple.

 Replicating Offline Strategies Online?

Another nagging question I’ve had was whether or not replicating offline strategies online is really the way to succeed. Marketing 101 would teach us that have a singular consistent strategy is preferable since you want to present a singular product to your consumer. But given how different offline and online consumers are, both in terms of how they digest information and how they make decisions, could a different online strategy yield better results?

Let’s use the case on Big Skinny as an example. This thin wallet company primarily focuses on the “impulse shopper”, who is wowed by a salesperson at a street fair. Even though this strategy has proven highly successful offline, is this necessarily the marketing plan we want to recreate offline? Wowing the customer online can be very difficult since many online consumers have learned to either ignore or temper down showy advertising. Instead, could Big Skinny simply proliferate its products on large online retailers like Amazon and try to compete as a purchase alternative to a rational wallet buyer who is seeking to compare several wallets in his/her decision making process? I’m aware that this hypothesis can be confirmed with A/B testing but are there frameworks or historical references we can use to better understand what makes replicating offline marketing online more or less successful?


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Yes, it’s another business model acronym – we’ve all heard B2B and B2C and B2B2C. No, it’s not a new element of the Periodic Table. Yes, it’s value has been pegged by eBay CEO and President, John Donahue, as a $10 trillion opportunity. It is Online-to-Offline (O2O) Commerce. According to the Pew Research Center, 78% of American customers research products online before purchasing. So, the question is: Is O2O a necessity for the continued breath and ultimate survival of local brick-and-mortar business? I say, yes.

At the end of the day, a local retailer does not want to pay for a click that stays on the Internet e-commerce highway or results in a loss of interest and closing of the webpage. They are however willing to pay for a consumer to walk through the door, interact with a sales associate, and make a purchase. This act of closing the redemption loop is what O2O aims to do. The question of how this space will look in the future is not as clear as a simple yes or no answer.

Online-to-Offline (O2O) Commerce is the use of online and mobile to drive offline local sales or redemption. More simply put, it is offline purchasing propelled by the web.

With the rise of e-Commerce and the Internet shopping boom back in the 1990s, the general thought trended towards a demise of physical in-store shopping. Fast forward fifteen-plus-some years later, and it turns out that we still stroll through malls and street storefronts to spend money. The online retail world is growing by the minute, but will the traditional way of shopping ever truly die? That’s one question that probably doesn’t have a direct yes or no answer. Predictions are only predictions at the end of the day. What if Congress does pass legislation for online sales tax (Momentum Builds for Internet Sales Tax)? Today, this is not a uniform process across states, but it could have the potential to negatively affect e-commerce as well as its subset, m-commerce.

For now, the answer lies in the merger of these two trends -technology and brick- together at last. This is good news for the hundreds of thousands of local brick-and-mortar businesses that have felt left out and gasping for air with the rising popularity of e-tail and Internet marketing. Now, they can breath again – O2O to the rescue.

When taking a bird’s eye view of this rather large, continuously evolving space in the market, which is not yet clearly optimized or defined, I came across six particular themes (some of them revolving around trendy buzzwords, but still important in my mind) that I would like to discuss below.

Mobile, Mobile, Mobile! Apps, Apps, Apps! So-Lo-Mo? Everything is going mobile, and with this m-takeover comes a social as well as a local component. (SoLoMo=Social-Local-Mobile). Buzzword overload? Probably. However, the question in the O2O world becomes how will the ad, the deal, or the promotion link to more quality costumers and the actual purchase transaction? There are a number of different ways to link the two, the vast majority of which involve Smartphones and/or Social Networking. Forrester Research estimates that mobile commerce will be worth $31 Billion by 2016 (see growth chart below). The point is that consumers already have, and will continue to have, more choices at their fingertips today than they did yesterday. With that, local retailers will also have more ways to bring in business and keep consumers happy, and hopefully, consuming.

Knowledge Base. O2O has the power to enable local businesses to track, monitor, and measure what works and what doesn’t. This is an important element of digital marketing, which offline businesses do not have the tools to capitalize on. What if you couldn’t fully quantify or evaluate the ROI of a very expensive marketing campaign, or a promotional deal? Where should you invest next? Which local markets are saturated and which demographics are buying which products? What is driving the actual foot traffic to your storefront? And, more importantly, how can you drive more?

Real-time. Think about it. Everything we do online is triggered in real-time, based on what we are doing, who we are, and where the all mighty Internet thinks we may look next at that special moment in time. We search for a keyword and ads pop up related to our search or our previous browsing history. Bing even marries this to our social likes and friendship circles. Local needs to get a piece of this pie – it’s too valuable not to. If you are strolling down Union Street in San Francisco, stopping in a boutique here or a coffee shop there, you are going to be inclined to seek out a specific local store or stay a little longer to look around if there is a promotion that pops up on your mobile device as you’re walking by. The technology exists. It just hasn’t entirely caught on yet – the O2O start-up space is crowded, and regardless of whether the end result is a “winner take all” scenario, it will soon be the new norm. Real-time triggering exists in union with geo-location targeting, which again, could be seen as an invasion of privacy to some and completely genius to others, and check-ins. You want to know who a costumer is when they walk in the door. How do you target that costumer if you are a local business with little online presence? By sending real-time push-notifications to the user, the local retailer is able to not only get into the user’s pocket (literally), but also track how effective this type of location-based marketing truly is through data analytics and a product knowledge base that has the power to steer local businesses toward ultra-targeted and performance-based marketing techniques.

Accountability. By compiling a data base of consumer behavior and product knowledge, the local retailer is much smarter. Additionally, the retailer now has access to reviews and metrics that help him or her take accountability for the business. If a specific promotion didn’t bring in any repeat costumers or a number of consumers returned a specific product or a review was written about a specific sales person, the local business now has the tools to collect this data, evaluate it, and improve, without delay. This helps the local business stay competitive and innovative, while hopefully increasing its consumer base loyalty.

Closing the Loop@POS. Early movers, like Groupon and LivingSocial, capitalized on the daily deals O2O market. This specific element of O2O was successful, but is also experiencing a lot of local level criticism due to revenue shares skewed towards Groupon and lack of retaining LTV costumers. LTV matters, and it can be difficult to create loyalty with a deal-a-day model. Start-ups and technology companies have gotten creative in terms of new ways to close the redemption loop while creating loyalty and a quality consumer base along the way. Transaction level targeting or point of sale (POS) targeting, which uses card-linked and mobile payment technology, to recognize a customer and offer him or her the most relevant deals is huge. Some companies are even partnering with banks to have deals and savings show up on the actual bank statement. With mobile payment companies linking to financial institutions and credit card issuers, plastic is about to become a whole lot smarter. This has huge implications for O2O, so much that I could fill an entirely new blog entry.

Physical Business Model Adaptation. This is one of the most interesting innovation areas that I have seen in the O2O space. Companies like Bonobos, an e-commerce men’s retail site, are setting up “skeleton” guideshops in order to offer the offline retail experience with less fixed cost than a full store experience. This technique allows the consumer to come into the store for the benefits of trying on clothing and testing fit before buying. Though Bonobos is an online retailer, they are actually innovating in the opposite direction of most, making sure to create a presence offline while keeping their primary e-business online.

The O2O industry is expanding by the day. O2O platforms are affecting purchasing habits, expanding both human and plastic memory, and giving consumers more options. O2O is also giving the local brick-and-mortar retailer not only the tools to seal the deal from online searching to offline purchasing, but also ultimately the opportunity to survive and compete in an increasingly e-dominated world.

Sources:

http://www.forrester.com/Mobile+Commerce+Forecast+2011+To+2016/fulltext/-/E-RES58616?docid=58616

http://pewinternet.org/Reports/2010/Online-Product-Research/Findings.aspx

http://www.zdnet.com/blog/btl/ebay-ceo-were-at-an-inflection-point-in-commerce/60538

 


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