Amazon Prime Air image prime air 2

I first came across Jumia when I was in Nigeria this summer following conversations with a fellow HBS student who was interning at Jumia. He was there to review their Nigeria operations and then go help the company launch in Kenya.  Jumia wants to be the Amazon of Africa, and it is no surprise that majority of the founders are former Amazonians, who started the company in Nigeria in 2012 with funding from Rocket Internet.  Today Jumia has warehouses in 10 African countries.

The Jumia founders have seen the potential of e-commerce in Africa. With a population of just over 1 billion opportunities in this space are endless.  According to a report by Frost & Sullivan, e-commerce is expected to be worth US$50 billion by 2018 compared to US$8 billion in 2013 in Africa. However, like its inspiration Amazon, Jumia operates at substantial losses and due to substantial infrastructure challenges in Africa, lack of cashless payment systems, low levels of internet penetration and the endemic lack of an actual addressing system in many areas where majority of the population live. Jumia’s staff complement far exceeds that of Amazon in order to make up for the various inefficiencies in the African market.  The Managing Director of Jumia in Cote d’Ivoire, Francis Dufay, purports that only improvements in Africa’s infrastructures like roads will enable Jumia and others be able to meet the ever growing demand of e-commerce sector on the continent.  I actually disagree and I believe that African entrepreneurs need to think creatively about addressing their perceived infrastructure challenges.

For example, how many years did Africans lament the inability of their governments to provide reliable telephone lines and service?  We saw all those complaints nullified with the penetration of the mobile phone, and this revolutionized communication and even facilitated transactions with mobile money in Africa.  I believe the octocopters or drones, which will be launched in the next couple of years will revolutionize e-commerce and delivery systems in Africa.  Amazon is taking the lead in fine-tuning these new drones and once all technical and regulatory barriers are overcome these drones will revolutionize delivery services in the US by making delivery of small packages faster.  A Washington Post report, estimates the sales of drones will be worth US$11 billion in the next decade, but this also includes personal drones. These drones can cost as little at $499 and as much as $6,000. But in Africa, this means that the need for good roads and addressing systems will be circumvented and we will no longer need to wait for government to come mark where I live and tar our roads to make it easier to get my delivery.  If I have a cellphone everything will be done using it.

I imagine a world where I can order a product on my phone and then an e-commerce company can take my order, I pay using my mobile and then when I am ready for delivery I let the company know and the drone is loaded with my package, gets my GPS and takes off and goes to the coordinates where I am located. Then once my package is dropped outside my door, the drone sends notification to my phone and then I come out and pick it up.

Some naysayers worry that is technology will never get off the ground and that it will not work. But in the world there are always naysayers, think of those who laughed at the Wright Brothers when they were adamant to invent a flying vehicle that would be able to carry us across oceans in the air? Every great technology has its fair share of critics. Some of them argue that the technology will not be approved by the FAA in the US because of high crash rates and poor maneuvering.  I have no doubt that the technology will continue to improve and be more superior and address these concerns and others.  Some also argue that the technology will be subject to high-jacking and theft.  I ask myself what makes a delivery guy immune to those? Nothing and in fact it is better a machine is high-jacked than an actual human being.  But what these cynics fail to think of is that the technology can be fitted to the drones to track their movements and even little hidden security cameras.  In fact, one final argument is that people will game the system and pretend they did not get the package.  I have heard of instances where people game the system today with our current postal services.  And so these hidden security cameras can also be installed in the drone to take a picture of who picks up the package before they fly off back to base.

I strongly believe in the future of e-commerce in Africa, but it will not happen with the current inadequate infrastructure we have.  Yes we must continue to work on improving the infrastructure but this may take years, time we do not have. Revolutionary thinking and adoption of out of the box technologies can change the way Africa develops and even leapfrog us into new businesses and industries beyond even our wildest imaginations.

By: Laone Bukamu Hulela


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During the last couple of decades, we have been introduced to technological innovations and tools that help us deal with daily activities much more easily and effectively. The way we shop and communicate with each other, consume information, travel, and pay bills has changed dramatically since the introduction of the Internet. Notwithstanding these innovations, when it comes to political elections we are stuck with the old-fashioned paper ballot system.

Internet voting would have eliminated problems related to distance and accessibility, allowing every eligible citizen to vote, regardless of their location at the moment. It would have also eliminated long queues and save time at polling stations, which eventually would have caused a meaningful increase in voter turnout. Moreover, Internet voting would have drastically reduced election expenses, which governments could direct toward education or investments in healthcare.

If we look at election procedures through the perspective of the younger generation, the entire process that involves physical voting ballots in school buildings looks unattractive and outdated. How can we expect the youth to show up at voting centers, stay in line for some time, and mark the name of certain politicians or political parties if they do almost everything with the involvement of digital tools?

So, after thinking about the aforementioned positive effects, it is quite logical to ask, “If we trust the Internet when we do money transactions, then what stops us from implementing voting over the Internet?” The answer is pretty obvious when we think deeper about online business and the philosophy of elections.

First, online transactions are not as safe as we think. Well, it is notably safer for consumers, but for merchants and financial institutions that are involved in e-commerce, it is quite risky and they lose billions of dollars every year. The reason why we have the perception that it is safe to spend money online is that these institutions never held consumers responsible for loses, and reimburse clients if losses occur.

Secondly, even though it sounds rational to compare e-commerce with the online voting, the procedures and requirements are significantly different, mainly in issues related to security, anonymity and verifiability.

Security. Losses from online transaction fraud could be acceptable for merchants, if they compare it with their overall profits. It is okay for them to have a few cases of theft amid thousands of transactions. However, it is not an acceptable ratio for elections, given how often candidates win with tiny margins.

Anonymity. It is a vital part of all political elections. Voting should be done anonymously, which prevents voters from being pressured and influenced before, during and after the elections. It turns out that nowadays, it is very difficult to build a system that will satisfy both the security and anonymity requirements of elections. Basically the more secure the system is, the easier it is to figure out who voted for whom.

Verifiability. Although the paper ballots look outdated, they are being used as physical proof that indicates that a “certain number of people in certain district voted for a certain political party or a candidate.” Is there any other way to verify votes after online voting, given that we also need to maintain anonymity of each voter? Experts say, “None so far.”

Essentially, online voting requires technology and security measures that we do not currently possess. But hopefully in the near future innovations that are being developed by businesses will respond to the security, anonymity and verifiability requirements of political elections, which will eventually help democratize the democracy.

Note: There are several countries, including the U.S. and U.K. that have been conducting experiments with online election at the local level. However, so far Estonia (the country where the Skype was built) is the only country that is conducting online voting countrywide. Unfortunately, the experts group that monitors online elections in Estonia found serious problems that basically question the legitimacy of online voting. 

References:

1. De Castella, Tom. “Election 2015: How feasible would it be to introduce online voting?” BBC. April 27, 2015
2. Gross, Doug. “Why can’t Americans vote online?” CNN. November 8, 2011
3. Cameron, Dell. “Online voting is many years away, thanks to widespread security concerns.” The Daily Dot. Jul 13, 2015
4. Duncan, Geoff. “It’s the 21st century! Why aren’t we voting online yet?” Digital Trends. November 5, 2012
5. Charlton, Alistair. “Election 2015: Why can’t we vote online?” International Business Times. April 17, 2015
6. Talbot, David. “Why You Can’t Vote Online. Fundamental security problems aren’t solved, computing experts warn.” MIT Technology Review. November 5, 2012
7. Arthur, Charles. “Estonian e-voting shouldn’t be used in European elections, say security experts.” The Guardian. May 12, 2014
8. Kobie, Nicole. “Why electronic voting isn’t secure – but may be safe enough.” The Guardian. March 30, 2015
9. Jefferson, David. “If I Can Shop and Bank Online, Why Can’t I Vote Online?” Verified Voting.

By: Vugar Salamli


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Oxford Dictionaries announced this month that their “Word of the year” for 2015 does not contain any letters in it. The “word” their editors chose to reflect what people identify most with is a pictograph, or more commonly known as an emoji:

Smile

Emojis have been around for quite some time; however it wasn’t until recent years that this practice grew exponentially into a culture phenomenon. For instance, if you opened any communication apps or text messages of a group of millennials, you will find yourself staring at an assortment of different emoji exchanges. This phenomenon might be the most popular in millennials but certainly exists in other age groups as well. Generally, in the U.S., the younger the user, the more frequent emoji he or she uses.

This phenomenon is also not restricted only to the English speaking population. In fact, some argue that it all started from a messaging app from Japan.  Currently, it has also taken all the Asian countries by storm. For example, the popular Chinese messaging app WeChat is observing emoji exchanges surpassing textual exchanges for a significant portion of their users. Interestingly, in China, Emoji use is not as closely linked to age. Due to the difficulty of typing Chinese language for older population on their phones, emoji communication actually tend to be even more popular with the older audience. (My parents only send me voice messages and emojis on WeChat).

Internet exists as a means to achieve more efficient communication and information sharing. Therefore is it not surprising to see that due to the power of internet, our most efficient means of communication – words and language is being challenged and evolved. Indeed, Emojis do have an advantage over words in several aspects: They add authenticity and an emotional layer; they are shorter, more convenient and sharable; they are also ubiquitous, easily recognized and transcend most language and cultural barriers.

It is no surprise then to see messaging apps taking advantage of this popularity to monetize emojis. After all, this is not so difficult. Many messaging apps, such as Line and WeChat, now have a freemium model that charges users for specialized emojis.

However, the money doesn’t just stop there. By nature, emojis have very strong network effects. The value of an emoji depends on the number of people installed and the frequency used. And through its nature of sharing, the network effect is even stronger as users want to be linked to other users and share the emojis which helps to turn them viral. Monetization does not have to follow the service function directly, and this is where it gets interesting – monetization can come through indirect benefits in creative ways.

In retail and e-commerce, brands have taken notice of this trend and have evolved their communications strategies to attempt to insert themselves into the daily conversations of both existing and potential consumers. In the past year, more than a dozen of brands have incorporated emojis into their marketing efforts to relate to their audience in a “more fun and no pressure way”.  This makes sense. Emojis are a powerful form of promotion because they enable and empower self-expression, and allows brands to enter customers’ lives while being organic and non-disruptive.

For example: Taco Bell created their taco emoji. Mentos created emojis faces on Mentos candies. Ikea created “emotictions” including  furniture, pets, and Swedish meatballs. Old Navy created a website that analyze your top used emoji, then gives you vacation suggestions. You can order pizza by tweeting a pizza emoji through Domino’s. WWF lets you donate to their cause based on how many of their emojis you use. Foot locker created a “Shoemoji” for every shoe style they have… The list goes on…

With the emergence of this new wave of communication methods such as Vine and Snapchat, we see the way of communicating rapidly changing and evolving. We have moved from voice, to text, to pictures and still emojis, and more recently, to animated emojis and videos. In this wave of rapid change lie significant business opportunities, especially for companies that benefit from brand awareness and network effects. Companies who can truly enter consumer’s everyday communication while being organic, authentic, and non-disruptive in making money will find themselves a very powerful competitive advantage.

By: Mark Feng


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When Jet.com launched in June of this year the company was hyped as bringing the wholesale membership club model (think Costco) online, but just three months later the company has done away with its annual membership fee, the cornerstone of its business model. Was this major, and rapid, shift the right move?

Original Membership Model

The original Jet.com model mirrored the Costco model, offering consumers discounted prices on everyday household goods, as well as electronics and higher ticket items, for an annual $50 membership fee. Unlike Costco, however, Jet.com would not profit at all from the products sold, earning its profit almost solely from membership fees. Whenever Jet.com finds inefficiencies and is able to reduce costs, it promises to pass on 100% of the savings to consumers. Consumers can also save by shopping in ways that reduce costs for Jet and its retailers – for instance, by waiving free returns and paying with a debit card or preferred credit cards. In addition, Jet has created a unique algorithm that generates “Smart Cart” savings; as users add more products to their carts, they make their orders more efficient and thus less costly to fulfill, and the resultant savings are passed to the consumer. Aggregating these cost reductions, Jet promised savings of 10%-15% versus competitors (including Amazon).

 Challenges Facing Membership Model

To entice users to try out the site, Jet gave away free three and six month memberships and reported strong initial results (sales of $20 million in September, which beat expectations, and a 23% repeat buyer rate in the first six weeks). The critical question was whether Jet could convert its free users to paid subscribers and garner new paid users. Jet estimated it would need 15 million paid users and $20 billion in gross sales to begin turning a profit. This is undoubtedly a major challenge. The average e-commerce customer is acclimated towards current e-commerce models which offer access (free of charge) to a large selection of products at discount prices. Paying a membership fee represents a big change to this norm; consumers have to anticipate savings rather than realizing it immediately. As a result, a membership fee represents a formidable barrier to acquiring users.

Beyond this challenge, Jet has to contend with the fact that many e-commerce consumers value more than just savings. Amazon, for instance, has many loyal users (myself included) who gladly pay a $100 annual fee for Amazon Prime to get access to free two day shipping and other benefits, and who value Amazon’s enormous product selection, countless product reviews (which Jet doesn’t offer), and unparalleled customer service. Amazon also offers a variety of ways to secure additional discounts, including Subscribe & Save, Add-on Items, and Amazon Moms, which makes Jet’s deals materially less attractive.

Jet did have a compelling approach to addressing these hurdles:

  1. Jet guaranteed that members would save more than the cost of the $50 membership fee, which mitigates the “risk” of shelling out the membership fee prior to achieving savings. As a side note, I do question the legitimacy of Jet’s calculation of “savings”. Is the comparable price truly the best price alternative to Jet? 
  2. Jet made its value proposition as obvious to users as possible. Namely, they listed Amazon’s comparable cost in the listing for every product.
  3. Jet’s business model has another key component aimed at retaining customers and engendering loyalty: Jet’s affiliate program, JetAnywhere. Mirroring the ebates business model, Jet features retailers on its site who pay Jet when shoppers click through and make purchases on the retailers’ sites. Jet takes 20% of the merchant commission to cover costs and passes on 80% of the commission to shoppers in the form of JetCash which can be used to make purchases on Jet.com. As with product sales, the affiliate program isn’t meant to be a profit center. Rather, it adds value to Jet’s core offering by attracting users and it promotes loyalty by incentivizing users to acquire and spend JetCash. While ebates has a leg up on Jet in that it pays cash, Jet could entice users by passing back more of the merchant commissions than ebates and similar programs, which typically pass back 50-70% to consumers.

Pivot to New Model

Apparently CEO Marc Lero decided that despite these efforts, Jet wasn’t going to be able to break down the barrier to consumers that a membership model presents. Jet gave up on the membership model just as the first wave of free memberships expired, before it even tested whether free users would convert to paid. The new model is more akin to traditional e-commerce; Jet will raise prices (supposedly keeping them 5-6% cheaper than competitors, vs. 10-15% in the subscription model) and make a small margin on sales. Jet believes the model remains differentiated, as it still incorporates Jet’s proprietary Smart Cart program, where customers save more with larger orders sizes.

In defense of this pivot, Jet claims it was not driven by a belief that they couldn’t acquire paid members. Rather, Jet has observed that shoppers love the Smart Cart feature and believes they will choose Jet.com for the Smart Cart savings, even without big up-front discounts. Secondly, Jet says they didn’t want to be perceived as a discount site, which prevented some premium retailers from signing up. Jet believes that without the membership fee, it can attract retailers who don’t sell on Amazon and other competitors.  These assertions raise questions though. Why wouldn’t Jet at least wait to test their original model unless they really didn’t believe they could get paid users and wanted to avoid reporting disappointing results? Also, if they don’t want to be perceived as a discount site, why did they brand themselves as the Costco of the internet? Even with the business model change, Jet is inherently a discount site, competing on price.

Will it Work?

Jet clearly believes its new model stands a better chance of success. While Jet certainly has eliminated a massive barrier to accessing shoppers, it now may be facing an even bigger barrier: a lack of differentiation. The subscription model drove home the idea that Jet was the online version of Costco. In adopting a new business model, Jet is rebranding and repositioning itself, abandoning the Costco of the internet pitch. If I were a stakeholder, I would be very concerned that Jet is now just another online marketplace. Jet does offer some differentiated value with Smart Cart and JetAnywhere, but without the membership structure, Jet is competing even more directly with Amazon and others on price, and its prices no longer look significantly better than those of competitors (in fact, Jet no longer puts Amazon prices in its listings, likely because it doesn’t look so good).

Additionally, and perhaps most importantly, the subscription model engendered loyalty. While acquiring paid users would have been very difficult, once Jet had users, at least those users would want to get the most out of their membership. Jet would always be top of mind to a paying subscriber and they would have gone to Jet first. That won’t be the case anymore. More users will price compare across e-commerce sites and choose Jet for the cheapest items only, whereas under the subscription model shoppers may have bought from Jet even when prices weren’t the cheapest. Jet was already fighting an uphill battle, but this new model makes its prospect even less bright. Jet already has revised down its 2016 sales projections from $3 billion to $2.3.

Despite the aforementioned challenges, maybe Jet will pull through. It’s certainly positioned nicely, having raised over $200 million before it even launched (setting the record for funding raised in year one for an e-commerce startup) and dedicating a whopping $100m to marketing in the first year. Many clearly believe in the new business model; it was just announced that Fidelity is leading a $500 million round of funding valuing the company at $1 billion pre-money. Still, I wouldn’t bet on them, especially now that they’ve abandoned their differentiated, albeit challenging, membership model. Once the hype around Jet subsides, it’s not hard to imagine Jet.com getting lost among the many other e-commerce players aggressively vying for discount-seeking online shoppers.

Sources:

 https://hbr.org/2015/07/the-problems-with-jet-coms-pricing-model

 http://recode.net/2015/10/07/jet-com-overhauls-business-model-kills-50-membership-fee-to-broaden-appeal/

 http://blogs.wsj.com/digits/2015/10/20/investors-strike-back-on-silicon-valley-valuations/

 http://www.business2community.com/strategy/jet-com-will-fail-01349120#clPEH7vrHGlXH8XF.97

 http://www.adweek.com/news/technology/industry-players-disagree-whether-jetcoms-business-strategy-sustainable-166031

 http://recode.net/2015/07/21/jet-com-will-launch-with-amazon-prices-front-and-center/

 http://www.forbes.com/sites/ryanmac/2015/10/07/with-no-more-membership-fees-how-will-amazon-challenger-jet-com-make-money/

 https://medium.com/@marclore/jet-for-all-e18eb8dd04e3

 http://mashable.com/2015/07/26/jet-amazon/#.DYln9Gybgql

 http://www.businessinsider.com/jet-changes-business-model-2015-10

 http://fortune.com/2015/11/04/jet-fundraising-fidelity/

By: Jacquelin Sibears


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Who is Honest?

The Honest Company (www.honest.com) was cofounded in 2012 by Jessica Alba and sells eco-friendly lifestyle and cleaning products including baby diapers, wipes, bath and body care products, and non-toxic cleaning products. It’s annual revenue is tracking to exceed $150 million in 2014, three times the revenue of 2013. Investors love Honest and have pumped $122 million into the company to date, with the most recent $70 million Series C in August 2014. Now, it is preparing for an IPO. Honest is the epitome of fast-track, sustainable startup success in Silicon Valley. It’s success is built upon a very deliberate marketing and branding strategy.

eCommerce Success = Design + Targeted Marketing

With so many startups popping up nowadays, it is more important than ever to stand out. One can do this by bringing in design early on and making it part of the core of a product, not simply an add-on. Honest entered a tough market. Launching a new, branded company in a crowded category is one thing, but launching an online, subscription-based brand in a crowded category is entirely another.  Successful e-commerce startups in today’s tech and consumer-savvy world, like Honest, exhibit a crucial similar characteristic: design is tied to targeted marketing and they are mutually reinforcing.

Let’s take a look at their email marketing strategy. All of Honest’s emails have colorful, dynamic images. This increases the ‘open rate’ for their emails by over 20%.

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Their email marketing campaign is also triggered by consumer browsing and purchase behavior. I signed up to receive Honest emails as two different people: H and Patti. As H, I spent 20 minutes only browsing through the website. After 2 days, I received an email inviting me to follow Honest on every social media channel. So I did, flipping through launch pics on instagram and watching Jessica Alba’s interviews on facebook.  After 3 days, I received another email offering a free trial of either baby products or personal care essentials. This targeted, proactive marketing strategy increases the conversion rate for Honest by 3x.

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As Patti, I placed several items in my shopping basket but never completed the purchase. The marketing campaign that ensued was frighteningly effective. After 1 day, I received an email saying I ‘honestly’ forgot something in my shopping cart. After 2 weeks, I received an email with a 35% discount off the entire purchase and 3 days to use the promo code. When I still didn’t make a purchase, I received another email in 7 days giving me 40% off. By this discount, I actually made my first purchase because it was all too tempting. Honest’s lapsed marketing campaign for abandoned cart consumers is one of their most effective, increasing conversion rate by 6x.

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Sure, all e-commerce startups can adopt this targeted email marketing strategy, but that is not enough to build a sustainable business model in today’s world (assuming you don’t want your business to be based on one-off sales hits or flash sales).  A strong web platform is undoubtedly important, with targeted and personalized emailing which encourages trial and prevents opt-out. However, this platform must be reinforced by an appealing and intuitive UX in order to brand-build.  With Honest, Jessica Alba’s celebrity appeal makes deploying its social-media strategy and getting followers easier. For the rest of us considering starting an e-commerce company, it’ll be more important than ever to budget for and lay out the groundwork for a comprehensive, personalized marketing strategy before starting.

Sources:

  1. Interview with Sloan MBA ‘15 who interned at The Honest Company in marketing.
  2. Honest emails

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