I’ve found the recent trend of online retailers opening up offline retail stores very intriguing, given that in the past few years, there has been a lot buzz around ecommerce and about how online stores were going to reduce and eventually obliterate the need for brick & mortar stores.

In a bid to not be left behind, big box retailers such as Macys, Walmart and Target had made a significant investment in increasing their ecommerce presence and capabilities. However, just recently, it was announced that Amazon, the world’s biggest ecommerce retailer had opened up an Amazon brick & mortar store. Some other players that started online have also expanded into offline stores such as Warby Parker, BirchBox, BaubleBar in recent years.

This to me shows that there is no one simple answer to the question of online vs. offline stores. The question should thus be: should a business be an online only store or be an offline only store or be in both retail channels. And if the plan is to be an omni-channel retailer, should the business start online and then expand to offline or start offline and then expand to online? And are there specific product categories that each of these strategies works better for?

To answer this question, I analyzed the pros and cons of having an ecommerce only company. The major benefit of starting a business online first vs. offline is the low upfront cost associated with building an online store. Websites like shopify and squarespace make it easy and cheap to start selling items online. This gives one an opportunity to prove the concept and to prove the demand for the product before investing significantly in it. Online stores also provide a broader reach and more national or global exposure than offline stores given that anyone can access the website from anywhere in the world and potentially make purchases from it. Being able to carry a diverse and unlimited inventory of products is also a benefit of an online store as there are no physical space limitations. On the negative side, online stores tend to have high logistics costs and a high return %.

There are also a lot of benefits to shopping offline, which is why approximately ninety-two percent of all purchases in the U.S still happen offline. The benefits include being an avenue for people to touch, feel, and try the product before purchasing, having a personalized in-store experience such as great customer service which can lead to brand loyalty, legitimizing the business for those who don’t know or are not yet trusting of the company, building the brand look and feel through the physical design and experience in the store. A physical store in a great location also serves as a form of marketing, because it will attract new customers to the store. These benefits all translate to an increase in repeat customers, a lower rate of returns, and potentially more sales as its easier for someone to buy multiple items when they see them in person than online. The cons of this approach are the pro of online stores such the high startup and overhead costs, the limited reach of customers, limited physical space etc.

In addition to the aforementioned benefits of both models, other benefits to the hybrid model of retail includes providing an avenue for one to buy online and to return to the store, where they can in turn find something else that suits them, thus ensuring the sale is completed. From a logistical standpoint as well, being able to fulfill orders from the store closest to the consumer as well leads to reduce shipping costs and shortened delivery times, both of which are of value to the consumer.

Some product categories such as beauty products, home and office make more sense to start online because for beauty products, online allows one prove out the concept and demand for the products first, and home and office will result in high rental costs initially so starting online is a way of getting maximum value at a lower overhead cost. However, most other categories such as fashion, electronics, mobile, games, tablets, computer, collectibles can be profitable if started online, offline or if a hybrid model is employed. I think it comes down to the personal preferences of the entrepreneur, the amount of funding secured, how quickly they are looking to build a brand presence and to grow, how sure they are of the demand for their products, how important the in-person experience is for the brand and what it represents and finally what kind of store do they the capabilities to build and manage as the needs for the two types of stores are very different.

By: Oare Avbuluimen

 


read more

Customer reviews are one of the most valuable inputs for companies to shape their future. Why is it then that consumers give away such an important tool to companies but yet don’t get rewarded for it? Birchbox, is one of the first companies to revolutionize what valuing the customer really means.

They created a business model where everybody wins: cosmetic producers, customers, and of course, Birchbox. They built a subscription model where for $10 a month, customers get five personalized beauty samples. They give customers the option of reviewing those items, and if they do, they get 50% off their monthly subscription. Cosmetic producers win, as they are able to reach a homogenous population across the US, and get instant feedback on their first release of their beauty samples. Their best sellers get as much as 60,000 customer reviews for each product! Customers win, as they not only get a great service, but also get truly rewarded for their important feedback.

Why is it that customers should be #1 on every company, but yet, very few use this type of business models to connect to customers? Will this be the new revolution for online customer interaction?

There is an “untapped” opportunity in the online-retailers today, where companies could leverage this business model to get feedback on their prototypes or products.  In the startup world, one of the biggest challenges we have is finding a large network of customers that are willing to review your prototypes or early stage products.

Companies like Birchbox, give access to a large amount of customers that are willing to help companies test and tailor their products on their early releases. Birchbox started with cosmetics, but imagine if we had these networks for other consumer products. Large-scale food producers could find this model extremely useful. They would be able to reach a large population across the US, and even globally, and have consumers taste and review their products before they mass-produce them.

There are endless possibilities to apply this business model into different industries, de-risking market adoption significantly. The constant interaction of customers and companies throughout the lifetime of the product or service is key to the success of any company. Customer reviews should be an integral part of companies’ day-to-day interaction with customers, and Birchbox has found a “sweet spot” to make this possible.

By: Maria Elena (Malena) Gonzalez Dabdoub


read more

9:25AM: Wake up to my phone’s notification that class starts in 5 minutes. Mildly panic.

9:26AM: Wash face and make myself look somewhat presentable (at least from the torso up).

9:30AM: Open laptop. Class starts. Still wear pajamas on the bottom.

It’s a university. 4-year accredited. 121 students in this year’s first-year class. Everyone lives in the same dorm. All classes have less than 20 people. No lecture, only classroom discussions. But here’s the real kick: all the classes are done online.

Welcome to Minerva Schools at KGI, with a bold mission to take down Harvard. Minerva was born in San Francisco, when a successful entrepreneur and former CEO of Snapfish Ben Nelson wanted to build a new kind of university that directly challenges what he views as a broken higher education system. Everything about the university is meticulously thought out. In the two years between Minerva’s founding and its admission of the first wave of students (that they lovingly call the “Founding Class”), Minerva questioned and restructured every aspect of an undergraduate education, from content (curriculum) to structure (lecture format) and admissions (SAT scores)*. But what may be most interesting is that all of their innovation is based on an online platform.

One might hear the word online platform and think, “MOOC (Massive Open Online Course).” Not quite. MOOCs are open to the public, largely imitating the form of a lecture and for the most part, one-way education where students are on the receiving end with the exception of “participating” through comments. Minerva is not open to the public (it has a stringent admissions process), and the classes are not one-sided (students are expected to fully participate in their classes).

Or an “online university” like the University of Phoenix. No again. Minerva simply has an online “platform” where students learn, but it has a dorm where every student lives in, co-curricular programs done outside the classroom (and outside of students’ laptop monitor) that incorporates the learnings from the classroom with offline visits and activities.

Then the real question is, why? They already seem to have a great curriculum and a great teaching model – why do they need an online platform? Wouldn’t discussions be more effective in an offline setting? Is this simply to lower the cost of education?

Let’s first take a deeper look at the platform. Minerva’s patented online program named the “Active Learning Forum” works like this. Students log in when class starts; professors also log in (from their respective homes that don’t have to be in San Francisco). All students’ faces are placed on the top of the screen, and whoever is speaking at the moment has the full stage (aka the middle of the screen; see image below). Professors guide the discussion, often cold-calling on people who haven’t spoken as many times in the class and asking students to back their opinions based on the poll they just took on the platform (see image below).

1) poll

To the “non-believers,” it may seem that while Minerva’s methodology looks very engaging (even resembling the HBS classrooms and the case-method), the online platform is more of a nuisance than a merit. To this concern, Minerva is adamant that their platform is not only practical but also necessary. For one, the tools help professors achieve high quality discussions. Professors can see who has spoken and who hasn’t on the screen, which marks those who haven’t spoken much as red and others as green (see image below). The system warns the professor when he speaks for more than 5 minutes – gently reminding him or her that the class is for discussion, not lecture. The polls show students’ responses in real time, facilitating discussions. Small group sessions can be broken out within the system, and 2-3 people are matched with a googledoc they can collaborate on the platform (no need for switching seats and shuffling about in the classroom). Another point is that the tool records everything, which allows the professor to give detailed feedback on students’ participation, fostering students’ development. Last but not least, the online platform allows students to have an international experience throughout college. Because all classes are done online, students go abroad every semester after their first year. For example, their sophomore fall, they go to Berlin where everyone lives together but still takes classes online. They get to still enjoy the high level of education that they have signed up for (which, some may argue that study abroad programs don’t provide) while experiencing a different culture.

2) green red

The students seem to think that the system works. They talk about how extraordinary the education has been, something that they have never experienced before. They actually say that, because the professor can see everyone’s faces facing the screen at all times, the online platform makes them be even more focused in class.

Reflecting this sentiment, Minerva accepted 220 students out of almost 11,000 applicants in their mere second year. It received almost $100 million in funding. Minerva certainly seems to be on a good trajectory in many measures. But there is something still foreign and discomforting about the concept of an online platform as an effective tool for heightening student engagement in class. Is it really the online platform that is effective and core to the success of Minerva? Perhaps the structure of the class with a tight discussions format keeps them on the feet enough to counter the effects of getting bored of staring at a monitor. Is a lower tuition partly due to having no lecture halls, gyms, or sports teams necessarily good? Who loses in this more “efficient” system? Who wins? Is their platform really a necessity or a practicality?

The source of this discomfort and pushback may be the fact that we ourselves are a product of those traditional education institutions. What is Minerva’s model implying about the level of education at existing institutions like Harvard or HBS? This hints at a real challenge for Minerva as a disruptor – convincing the population who have believed and lived in the legitimacy and prestige of the existing institution system.

If anything, Minerva found a niche that the first wave of “online platforms” lacked – human interaction that flows in both directions. It presents to us an option that only utilizes a technological platform in order to connect people rather than using it to replace people. In a world that is increasingly valuing algorithms as an answer to everything (e.g., dating), it can be a refreshing example that implies what needs to be there for the success of a tech-based platform – human aspect.

* Minerva abolished the lecture format and does not require/consider SAT scores for admissions

By: Seong Min Lee

 


read more

In recent years, there’s been an increased amount of scrutiny on online gambling and in particular, online poker. The states of Nevada, Delaware and earlier this week, New Jersey have approved and launched online gaming markets.

POLITICAL CONTEXT
There has been increased scrutiny from government players with Republican politician, Joe Barton advocating the roll out of nationwide law that will help regulate and legalize online gaming. Barton had introduced a bill in the US Congress that would help create a licensing system for online poker companies. Whilst, this was welcomed by many, it was also simultaneously opposed by many and this can be seen by the fact that the bill was introduced in July and has not made any progress in the last 4 months. Making things illegal can increase the price of the illegal activities – there have been instances in the past where the prohibition of marijuana or the prohibition of texting & driving, went on to increase the occurrence of the prohibited activity post the passage of the law. Pro-online gamers have supported a controlled and closely monitored legalized online poker world. Whilst this is easier said than done, the golden question is whether the government can help the online poker companies to take baby steps in the near future?

ECONOMIC AND ETHICAL CONTEXT
Whilst we are still recovering from an economic recession, arguments can be made to support banning online poker – gambling can easily become an addiction and cause serious mental and economic harm. Having access to online poker via the internet can provide easy access to the wrong individuals which can only exacerbate the current economic condition. But one can argue that similar addictions currently already exist in the form of the lottery, cigarettes, alcohol, drugs etc. Furthermore, the underground gambling market without access to casinos can potentially operate in an open monitored environment and hence enable the government to collect taxes on winnings while enforcing necessary regulations to protect consumers. There are ways to curb abuse of IP addresses, credit cards, age of players etc. by monitoring patterns of play among many other sophisticated security measures. However, is this enough to give parents the comfort that underage children will not have easy access to online poker?

 

COMPETITION
The best form of innovation eliminates wastage in the system and removes inefficiencies. We have seen e-commerce disrupt the traditional brick and mortar retail model benefiting consumers tremendously. E-retailers are able to pass down costs savings from zero physical store rent to consumers in the form of lower prices, better selection of products and quicker & convenient service. This very concept can be applied to online poker — the casino business is a high fixed cost business which runs continuously regardless of the occupancy rate or utilization level. By providing consumers with the ability to play poker online, consumers are able to save money on travel and hotel charges and casino companies can save on rent and other fixed/variable costs. It’s a win-win for both sides of the network. Also, legalization of online poker will be a breath of fresh air for dynamic and entrepreneurial companies such as Zynga, thereby enabling and supporting innovation in the gaming industry.


read more

Relaunching America: Innovation, Entrepreneurship, and Disruption

A group of co-founders shut themselves in a sweltering, dimly lit room and were determined not to see the light of day until they had released their new system to the world. The beta system was currently in the market and users were anxious to see their new release. They had spent the entire summer scripting their platform, arguing over precise features to include, and deliberating over the future implications of this version. They were close to a release date, and failure was not an option. The room was in Philadelphia, Pennsylvania, and the year was 1787.

This story may have conjured visions of the Steves, Jobs and Wozniak, toiling in a Los Altos bedroom, Paul Allen and Bill Gates’ scripting marathons in Harvard’s Aiken Lab, or Zuckerberg’s hacking and face mashing in Kirkland House. However, this story refers to a different collection of founders – now we call them the Founding Fathers. The users were the citizens of newly independent United States of America. The beta release – also known as Articles of Confederation – had become insufficient to meet users’ needs. Now the stakes were high. More than their financial futures and reputations were on the line. Their very lives, and the lives of 3 million citizens hung in the balance. They weren’t just innovating a product or service, they were innovating a system of representative governance.

The Founding Fathers followed a proven tech startup model of learning from others’ mistakes, refining the best ideas of early adopters, and creating something familiar, yet completely new and disruptive. Think Google, iPhone, Tesla, etc. The early product launched by the French, Romans, and Greeks provided excellent user testing and case studies, while thought leaders like Montesquieu and Locke provided some key insight for experimentation.

However, just like any high-performing startup, over time this governing system has experienced growing pains. The user base has grown approximately 10,000% since that hot Philadelphian summer, while user satisfaction toward elected representatives – particularly Members of Congress – has remained remarkably low. The executive leadership and board of directors have been able to increase the opportunities for user participation incrementally over the past two centuries; however, as technology has dramatically improved over the past two decades and the ability to send communication has increased exponentially, the elected official’s ability to absorb, respond, and leverage these tools has remained relatively static.

Technology’s rapid development, and Congress’ slow adaptation, has crippled a system that is predicated on the idea of citizen engagement. Thomas Jefferson’s maxim that “eternal vigilance is the price of liberty” illustrates the power of network effects that bolsters online startups. Ultimately, the system functions more effectively as more users join the process.

According to a recent Congressional Management Foundation survey, over one-third of congressional staffers feel their office spends too little time on online communications. At the same time, 64 percent of senior staff believes Facebook is “a somewhat or very important tool for understanding constituents’ views and opinions.” The number is 42 percent for Twitter. Congressional offices seem to understand the importance of using new technologies, but they are unwilling or simply unable to maximize the potential of these innovative technologies. This story becomes even more concerning when looking into the future.

The United States is witnessing a growing disconnect between elected officials and its next generation of citizens. As the number of social technologies continues to grow, the connection between Members of Congress and younger constituents continues to shrink. The 2012 Institute of Politics Survey of Young Americans’ Attitudes toward Politics and Public Service found that “young people of all ages, races and political persuasions care deeply about their community and their country… [However] young people continue to lose faith in the institutions and the leaders elected to govern our country and shape their future. And now, through this project, we have learned that potentially millions of young people will stay home on November 6, not participate in the election — choosing instead other paths of civic engagement, or nothing at all.” These young Americans are living their lives online through technology, and effective engagement depends on the ability to connect in this new digital world. They care about their country and they want to be involved if their elected officials can learn to speak their language.

This year I founded Connected Congress and held a bipartisan tech series for Members of Congress and senior staff on the Hill. The goal was to help Members understand not only what technology is available, but also how they can use technology more effectively. (http://ConnectedCongress.org) With over 20 speakers from Google, Facebook, Twitter, think tanks, House, and Senate, I realized perhaps the future is not so bleak. Not all Members of Congress are opposed to adapting technological advances into their offices. In fact, digital staff, administrators, and a handful of tech-minded Members are trying to influence behavior in the institution.

In a recent interview, Congressman Darrell Issa, Chair of the House Oversight Committee, described this “technology-centered approach” as “disruptive to the government bureaucracy and many in Congress because it demands experimentation, data-driven analysis and actually listening to our users — the American people — about how to make government work better for them. That’s why social media and innovation are so central to my work: we in Congress do not have all the answers, but we can have a relentless drive to adapt technology to let taxpayers re-engage with government on their own terms.”

Now it’s our turn. My goal is to channel some of the innovation our system was founded on over two centuries ago to disrupt this market of representative and participatory democracy.

More Reading

Congress’ Wicked Problem. Lorelei Kelly, New America Foundation
http://oti.newamerica.net/publications/policy/congress_wicked_problem

Can Congress Work Like A Tech Startup?
http://www.techdirt.com/articles/20120509/03041418839/can-congress-work-like-tech-startup.shtml

Does Anyone in Congress Get Technology? Joshua Lamel
http://www.huffingtonpost.com/joshua-lamel/does-anyone-in-congress-get-technology_b_1465743.html

‘Virtual Congress’ Would Weaken Deliberative Process – Rep. David Dreier (R-Calif.)
http://www.congresslink.org/print_expert_virtualcongress.htm

Congressional Management Foundation
http://www.congressfoundation.org/projects

Congressional Management Foundation: Communicating with Congress Project
http://www.congressfoundation.org/projects/communicating-with-congress

Dawn of a revolution (Bill Gates at Harvard)
http://news.harvard.edu/gazette/story/2013/09/dawn-of-a-revolution/

Connected Congress series highlights struggle of digital staffers. Colby Hochmuth
http://fedscoop.com/connected-congress-series-highlights-struggle-of-digital-staffers/

Connected Congress: Tech for Members
http://ConnectedCongress.org

Harvard University Institute of Politics (IOP) Public Opinion Project Survey
http://www.iop.harvard.edu/survey

 


read more