The Way We Live Now: SXSW reflections

15 Mar

I returned from (my first) SXSW this week. Despite the incredible diversity, the content of the panels had many convergence points;  eventually, one topic conjured up an alternative application of another theme.

Of course, there is a selection bias in what I chose to see, and likely another bias in the lens through which I interpreted it, but here are my takeaways:

1. Creativity is more important than ever. The costs of experimenting against ideation have gone down and the outlets for the learning and discourse that inspire creativity are more available than ever. What has become more challenging is investing the time to enable a big picture orientation.

Scott Cook, the founder of Intuit, talked about “slowing down to speed up”. Joi Ito and John Perry Barlow described using the “beginner’s mind” to look at opportunities, problems, and questions de novo. Mickey McManus described the big picture as a looming opportunity. That, as everyone becomes connected and data collection becomes scalable, the mountain of progress that we think we’ve been climbing has been only an incremental ascent. That we have a chance to harness every available brain to address an entirely new frontier.

2. The Innovator’s Dilemma is still real. It is incredibly challenging for incumbent companies to drive meaningful innovation that moves beyond the line extension. Doing so has implications for infrastructure, company architecture, and culture change. The process of how companies get disrupted is well-documented (Nate Silver referred to going after “super powerful lazy incumbents,” which is pretty good shorthand), but the thing that still seems to consistently surprise us is the tradeoffs that people are willing to accept in exchange for the disruptive innovation. For example, when Airbnb started out, people (including investors) didn’t think it would work: who would let strangers stay in their home? Once it did, it inspired both higher-end versions (e.g., One Fine Stay) and new companies serving other as peer-to-peer marketplaces in other categories (e.g., Zaarley, Zimride).

So, perhaps the challenge is not coming up with new ideas, but understanding why people would want things to be different from how we’ve assumed they should be. Large organizations have a tough time being creative because they homogenize; using a (very brief) audience applause exercise, Scott Cook showed how quickly we can fall in line with the behavior around us. Maybe we could address it by getting out of the “Tower” (as we call headquarters), taking on reverse mentors, and maintaining outside non-professional interests that lead us back to serendipity.

3. The arc of history is long. We are in an always-on world where we are assaulted by a near-constant stream of digital pings. Douglas Rushkoff called it Present Shock—the experience of living in a world that is “live, real-time, and always on.” The result of the deluge is that our collective experience is focused on individual points in time during which we’re never even fully present. He advised people to stop thinking of asynchronous streams (like emails, which don’t go stale that quickly, or can even get resolved without you if you give it a few hours) as things we need to respond to instantaneously, or of synchronous streams (like Twitter, or CSPAN) as things we can do anything but drown if we try to stay caught up.

He also said that the presentism of a world with constant status updates can make us lose the arc of narrative. That the advances in interpreting and visualizing data can sometimes make us miss context.

But as The New Serendipity panelists pointed out, while you lose memory and cognitive ability as you age, you get better at pattern recognition. And Anne Marie Slaughter talked to an audience of early adopters and Never-Betters about the likely prospect of 60-year career. It may be that, if you play it right, you may not ever “have it all,” but you may have seen the forest for the trees and found what matters.

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Direct-to-consumer fashion: Getting a toehold on a new brand

17 Sep

Beyond marketplaces and recommendation engines, there is an emerging cast of online retail companies that are producing private label direct-to-consumer brands from scratch for things you know you want, but don’t know where to (easily) find. In the process, they are circumventing existing retailers, creating new supply chains, and introducing new approaches to building a brand.

Online, even more than offline, gaining exposure and recognition for a new retailer is a critical early challenge. Because you can easily follow a link to make a purchase without taking too much note of the site you’re purchasing from (this exacerbated by blogs and Pinterest), a new site needs a clear and easy value proposition. I see this happening around three cases:

-       Categories – It is fairly easy to know where to look for an item that falls in a specific category; categories have been the basis for traditional department store taxonomy which has been replicated online on most commerce sites from Bloomingdales to Bluefly. However, in certain categories, existing brand loyalty is low, making room for new online brands. For example, every major apparel designer has licensed its brand to bed linens, but the difference between a Donna Karan and Kate Spade fitted sheet means very little. Once you’re in the linens category, how do you choose which brand to buy?

Online-only brands that are breaking into the market include Warby Parker (eyeglasses), Flint and Tinder (men’s underwear), and Everlane (t-shirts). To take advantage of low loyalty for incumbents to become the consumer’s brand of choice, however, these brands need a hook. Flint and Tinder briefs are made in America. Warby Parker eyeglasses and Everlane tees are lower-cost; in the case of Warby Parker, the company also gives a pair away for every one you buy.

-      Occasions – Retailers have tended to think more about what they’re selling than the occasion for which their customer is shopping, making browsing by occasion difficult. Some new online retail sites have taken an occasion-first orientation; instead of showcasing dresses or suits, they provide an expert answer to the question, “What should I wear to [insert occasion here]?” Essential to their ability to build expertise is the pairing of content with commerce to drive users to the brand and further influence purchasing. Content can provide consumers with answers to questions like, “What looks good right now?” and “How should I wear it?” If the retailer uses content credibly, it can earn a privileged position in advising consumers on shopping for that occasion.

Examples of occasion disruptors include Quincy (women’s work wear) and Rent the Runway (designer formalwear). (While Rent the Runway’s inventory currently consists of other designer brands, it wouldn’t be too big a stretch for the company to move into making its own line as well.)  Not surprisingly, both have excellent blogs and use social media to further support their expert credibility.

-       Lifestyle – Lifestyle is not a new approach. Urban Outfitters is a lifestyle apparel retailer. So is Brooklyn Industries. The advantage for online-only lifestyle brands is a customer acquisition one; where there are already engaged communities online, word can spread even more quickly. The spoils will go to the brands that can do it as a part of those existing communities, and with authenticity. Holstee is one example. The company started with t-shirts and wallets and expanded from there. Still, the Holstee Manifesto and its appeal to consumers is at least as important to the company image as its merchandise. (I’m not sure exactly who their target community is, but they likely ride bicycles.)

In all cases, supply chain disruption by selling directly to consumers can make the market price cheaper, but it doesn’t always have to. In some cases, consumers don’t have an intuitive benchmark for value, either because there isn’t a frequent enough purchasing cadence (I know roughly how much a quart of milk should cost, but I’ve only bought curtains once), or because there hasn’t been a clear explanation for value (the price range for a set of 300-thread count sheets on Amazon is between $24 and $165).

I think we will see many more of these companies– online-only brands that streamline supply chains and set up shop as retailers themselves, selling directly to consumers to address narrow gaps in the marketplace. I also think that, for some, these their early points of entry will be just the thin edge of the wedge, a way to kick-start growth on the way to becoming much bigger retailers that sell both private label and other brands. As they acquire (repeat) customers and grow, including by scaling new retail innovations (e.g., sending multiple sizes or styles for consumers to test at home), these new retail companies may be able to compete against the biggest of them.

A learning marketplace

30 Jul

There are some very interesting education experiments in progress. I have written about an opportunity in augmented education, post-graduate classes that provide tactical and responsive professional skill development. In higher education, companies like Coursera, Udacity, and EdX are taking on the much broader challenges of improving access, cost, and quality (and the holy grail of trying to address them all at once) of university courses. But what do we lose when classes are on a la carte offer? And where does the (blurry) line between education and learning fall anyway?

As new educational models gain traction, I think we will need a learning marketplace to make sense of the new channels for learning in the context of the new learning objectives (i.e., beyond degrees) that they open up. Specifically, we will need metrics to evaluate and compare the different types of classes on offer. We will also need a way to help people construct learning paths that make sense in addressing their individual objectives. And, eventually, we’ll need a more nuanced way to measure what people have learned, and more broadly, what they know.

For some time, higher education has been relatively one-size-fits-all: people enrolled at institutions that measured progress through prescriptive curricula (defined majors) and formulaic requirements (distribution of credit hours), and those institutions provided certification at structured milestones (tests, graduation).

In this context, the currency of higher education has been reputation; this has been the best indication of how effective learning institutions are at educating. Reputation has, in turn, often corresponded to selectivity. Many of the US News criteria get at how good the admitted students are (e.g., acceptance rate, SAT percentiles, 6-year graduation rate) more accurately than the effectiveness of the classes they’ll take. This has remained a reasonable proxy because, upon graduation, the graduates continue achieving at more of less the same levels as they always have.

But reputation represents the whole experience—the interaction with peers, the extracurricular opportunities, the grassy quads. If you are taking a few online courses offered by Stanford instead, what do you lose? And in any case, if the defining feature of massive open online courses is that anyone can take any class, selectivity goes away as a metric.

So what are some practical substitutes for reputation in determining the effectiveness of new learning opportunities, particularly those related to augmented education and professional learning? A few concept/elements come to mind:

Job placement – If you take a class or series of classes and then get a (better) job as a result (i.e., because an employer is sufficiently confident that you know the things that you should know), that’s pretty good evidence that you’ve learned something. One school that has used job placement as a measure of quality is Western Governors University, an online non-profit university started in the late 90s based on the principle of competency-based education: your progress is measured not in credit hours, but Competency Units based on assessments that are administered along the way.  The school emphasizes job placement and shuts down programs when employer demand dwindles. General Assembly is also pursuing placement opportunities for students that complete their certificate programs.

Ratings and reviews - Ratings and reviews already work for restaurants, shopping, and various service providers. Many MBA programs aggregate and publish data from course and professor evaluations to help other students make selection decisions; scores are used to set up a marketplace where highest-ranked courses cost the most bidding points.

In addition to indicating overall quality (instructor expertise, teaching ability, pedagogical approach), peer reviews could be the best available measure of relevance in areas going through rapid change; student feedback could suggest that the context of the topic has changed even before the instructors themselves become aware of it. And the profile of the reviewer is also useful data: Was the class most useful to practitioners or managers? Experts? People with non-technical backgrounds?

Portfolios –Student output and application is one of the best ways to demonstrate what’s been learned as well as to expose student talent. Do those completing a particular course produce intellectual property that is intelligent, creative, analytical, etc.? Sites like Behance and dribbble are emerging to serve as public portfolios for creative disciplines, and Quora and personal blogs showcase other kinds of personal aptitude. Especially as more and more interviews are asking for examples of work upfront (but let’s please not call them applijects), what’s the way to standardize and showcase work product in such a way that others can form conclusions?

Then, what about determining what to learn? Beyond satisfying curiosity, how do we understand what we don’t yet know?

Jeff Jarvis has offered up one of the most compelling views of how the function of a school (or, more broadly, provider of education) might evolve. He suggests that educating may become about “prescribing and agreeing to students’ desired outcomes,” with the school curating, creating, and recommending tools to address the gaps.

This framework makes a lot of sense in the context of augmented education; increasingly, no two professional paths will develop in exactly the same way so we have to set our own curricula. What if the learning marketplace, then, provided not only a means of assessing quality, but also a way to plot out what we need to learn and how best to do it?

Curation – The marketplace should surface and organize the best resources to gain knowledge by topic or function or discipline. It will have to address questions of scope: Do conferences count as resources? Slideshare decks? TED talks?

Recommendation – The marketplace should provide suggestions as individuals start to define their learning paths.  If a person starts building a curriculum to shore up on social media, she should also get recommendations for resources about, say, content strategies, as well as some sense for the profiles of other people who have considered or used various resources.

Tracking – Finally, the marketplace should keep some record of the learning investments people have made, a sort of digital transcript of the knowledge they should be accountable to. It may have to determine how to validate what people report, or even provide some translation or evaluation across sources.

Current experiments in education are starting to prove out whether education can be provided in non-traditional formats and by non-traditional instructors. If successful, there will be new opportunities to make learning effective as modular, self-directed, and practical pursuits.

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Augmented education and why it will change the way we think about career training

17 Apr

“You can’t learn in school what the world is going to do next year.” – Henry Ford (via @usefularts)

As Union Square Ventures’ Albert Wenger has written, the internet has been an amazing platform for distributed teaching and learning – both online and through facilitating connections offline – for topics ranging from instructional DIY, algebra, and coding. An emerging cast of players is honing in on knowledge building and skill development for the professional/career domain.

One could perhaps say that version 1.0 of online learning was ushered in by players, like University of Phoenix, that operated under the constructs of accredited degree-conferring education (this, a digital version of mail order degrees). Then version 2.0 is really about “augmented education” – its target audience has typically already completed a tour (or several) in a traditional program, and coursework generally does not earn credits that are recognized by traditional colleges and universities (although some v2.0 players are promising job placement which is an even more powerful currency).

As often happens when an industry is disrupted, many of the augmented education providers have started from scratch. These upstarts are true start-ups, building faculty, guiding principles, and reputational currency from the ground-up rather than luring people away from ivory towers. Instruction ranges from one-off classes, like those offered by General Assembly or Skillshare, to curriculum-based models spanning a multi-week term, such as GA’s certification programs. Classes can have traditional expert-instructors, or function as self-directed organisms. For example, students in a Hacker School batch get together full time for three months, but skill development is driven by co-location and collaborative problem solving instead of didactic learning.

Here are three reasons I think augmented education is here to stay, particularly in changing how we think about career training:

1/ In-career professionals need training that is responsive to changing professions:

In some respects, it does not make sense that we go to school for several (usually consecutive) years and then never again. Many professions such as law and medicine require a number of continuing education credits, even if they are often fulfilled in ways that don’t create meaningful impact on their practices. (Incidentally, this approach may be indicative of the reason they are also called “practices” in the first place.) Still, the prevailing idea about work is that a person learns everything she needs to know on the job. But as many industries such as media or financial services are in the midst of existential change, there is an unmet need for educational “top-offs” to address both tactical topics as well as fundamental re-orientation on how to do business.

This is sometimes addressed by employers; for example, Hearst’s magazines group recently convened an all-hands meeting to share best practices for using Pinterest. Starting in 2007, NPR ran a comprehensive multimedia training, covering topics like writing for the web and creating digital products, for its national editorial employees. Much more often, however, employers don’t provide systematic training to support employee innovation. Furthermore, it is often challenging for an incumbent to develop the right syllabus; you don’t know what you don’t know. Organizationally, HR is often the function responsible for training, but they don’t have the operational lens to make informed recommendations. Managers could make the calls, but what you are doing today is not always a good indicator of what you need to know tomorrow. I believe that the training agenda would benefit from multiple perspectives that can assemble a bigger picture across the organization, together with external context in understanding what is outside the organization, and even industry.

2/ Traditional academic institutions are not engineered to provide rapid prototype lesson plans for responsive skills training:

The rapid pace of change has made it difficult for traditional academic organizations to keep pace. Knowledge has moved into uncharted territory: Hackers pick up hacks from other hackers. Blogging has become a way to rapidly share what one learns. Encyclopedia Britannica has given way to the wiki.

This environment has two implications for developing responsive training top-offs in a timely manner. Teachers must start to develop lessons plans as rapid prototypes that they can update and correct as things change. Additionally, in creating the shortest-line distance between practitioner and student to hasten new lessons and updates, it helps if the teacher is a practitioner.

Colleges and universities are not currently engineered to breeze through course and curricula approval processes. Case studies that introduce real-world application, while well-researched, often still take months to write. By creating networks of experts, entities like General Assembly and SkillShare can introduce classes by practicing experts almost as soon as there is demand for them. And practitioners that are nailing innovation are getting into the education game. For example, the Guardian is introducing its own program for journalism training.

3/ Professionals need tools for DIY career management:

More and more, we are being expected to manage our own professional development. We are less likely to spend our working lives at a single company, or even in a single career so we will interview for jobs many times. We are less likely to know what our career ladders will even look like which makes all the more important choices about which jobs to take. And here’s the rub, as Peter Cappelli’s pointed out in a WSJ article:  to get a job, you have to have that job already even if the role is within the company you already work for, so we need a way to develop new skills, even while operating in another role.

The notion of going “back to school” has always been associated with improving one’s career prospects. In addition to gaining new content knowledge, attending classes helps a person share best practices, network and meet others, explore and establish interests, and experiment with autonomy. As we recover from the uncertainty of a recession where many of the rules were changed, self-investment seems like a fairer-weather risk mitigation strategy.

Augmented education is playing out in some very exciting experiments. I have listed several big questions in how it will play out below that I’ll try to address in my next post.

(a) What is the right model? What type of institution will be best equipped to provide teaching in this space?

(b) Who should pay?

(c) How will users assess quality (and impact)?

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Oh, How Pinteresting!

10 Apr

If you haven’t heard of Pinterest, you are likely not a woman, or in consumer media, or possibly even a young person. The startup has become the latest darling of the tech press and put Twitter and Facebook on notice with its robust user growth and referral traffic metrics.

Pinterest is an invite-only social site (though membership is about as exclusive as Gilt Groupe’s—you just need to know someone who will send you an invitation) that allows “pinners” to save images from across the web into a personal collection of “boards” that are labeled with self-selected themes or categories. The startup’s recent mania has already spawned a number of copycat sites, including for men (Gentlemint, Manteresting), weddings(1) (lover.ly, tailored.co), and dating (theComplete.me) that seem to confirm the interest in visual discovery versus search, and easy-to-scan grid interfaces versus of reverse chronological streams.

Pinners can add new images(2) to their Pinterest boards by uploading saved images, or, more commonly, by grabbing images using a bookmarklet downloaded to their browser. In the latter case, Pinterest scrapes all the images from source URL and presents them on a page superimposed on the site. The pinner can select the image of interest and then select (or create) a board to pin to. The source URL is retained as a link on the newly pinned image.

Bookmarklets are not new. Technically-speaking, scraping a website involves temporarily saving the HTML (the code that makes up web pages) and then using expressions to match for the important pieces of data. Pinterest is not the only place where this is happening—Polyvore’s clippers, Instapaper’s Read Later button, and Fashiolista’s love button all work in roughly the same way—but it has some pretty big implications. (Not to mention complications. Pinterest has also gotten some heat for copyright infringement but has been trying to mitigate it responsibly.)

In effect, scraping allows web users to disaggregate content from its source and then organize and repurpose it using in their own shorthand (e.g., in board titles and with comments).

With disaggregation, content creators lose control of editorial context. Polyvore, a style-centric site where users make collages combining scraped images, disrupted the (high) fashion world by letting people pair pictures of Balenciaga with H&M. But with recontextualization, content creators also gained access to new information about how different people consume content differently and on different occasions. For example, Polyvore used to compile a Zeitgeist list that became a reference point for Vogue and WWD. The site has recently added more robust data analytics including a stock-ticker like set of “style analytics” on brands and source sites and a monthly Polyvore Intelligence Report.

What is next for Pinterest and visual sites like it(3)? What are some ways they could build out product and—dare I say—revenue model?

There are several early use cases that offer insights into potential opportunities:

Everything we pin appeals to us on some level. There are pinboards that are purely inspirational (or largely aspirational). But people also pin lots of things they might want to buy, under the right set of circumstances. Founder Ben Silbermann has said that he “wanted to create a service that’s a bit timeless,” contrasting it with the ephemeral tweet. But many pin boards expire, even if they have a longer half life – weddings happen, kitchens get renovated – so somewhere between archiving and obsolescence there is a commerce opportunity. Or maybe two.

Universal wish list – We use Pinterest to organize appealing images. What if Pinterest could serve our pins back to us – populated with the same glossy pictures that attracted us in the first place – based on assumptions about who we are and why we’re pinning? What if, as spring break approached, we could get a customized link to flight prices of previously pinned travel destinations along with previously pinned beach reads? The XO Group media company (parent of The Knot for weddings, The Nest for home decor, and The Bump for expecting mothers) has built a pretty good local lead generation business by understand the behaviors and timelines associated with the life experiences they create content for. To send consumers an inventory of products when we’re likely to buy them, Pinterest would have to systematically understand user intent. This might involve product changes for more standardized comment fields, or maybe access to the metadata associated with the original image source. Perhaps APIs could allow retail and brand partners to do some of the heavy lifting.

Catalog for one – We also use Pinterest for discovery. What if we could assume that Pinterest boards represented categories of perennial interest even if individual pins grow stale? What if, say, I had created a board (or subscribed to a board) for little black dresses, Great American Novels, and useful kitchen tools, and Pinterest periodically sent me a customized, niche “catalog” of things (that I could purchase!) for each of these categories. If it served as a magazine-like discovery tool, I would even be okay viewing glossy-looking ads alongside the wares.

Or, the catalog might be pull rather than push; once I set up a board with a relevant album cover and populated it by pinning a few representative images of things I like, Pinterest could make the board dynamic (as it currently does with its homepage). It would slot in an inventory of additional images governed by a discovery algorithm and a Pandora-like tool that learns my preferences.

Marketing to one/ personalized branding – Marketers have also flocked to Pinterest to represent their brand. In some cases, the images chosen for their boards create a brand halo that can be more expansive and multi-dimensional than the product itself. For example, GE, whose household association most likely represents consumer appliances, has a board devoted to “badass machines” as well as a “That’s Genius!” board with quotes from founder Thomas Edison.

While many major brands may still be a bit gun shy in light of copyright implications, marketing consultants recommend using Pinterest to help incorporate your brand into your customer base’s everyday lifestyle. Marketers commonly segment customers by lifestyle, say in airing Subway commercials about $5  Footlongs to appeal to college students looking for cheap (delicious) calories vs. commercials starring Jared Fogel for adults interested in healthy fast food options. If Pinterest analyzed user activity data, brands could use information about different lifestyles to create unique boards for individual micro-segments (or even individual users). Pinterest’s data opportunity could be in helping marketers appeal to customers by feeding images into streams that maximize relevance. And these images shouldn’t be of cans of Pepsi; rather, the images in aggregate could suggest the Pepsi lifestyle that appeals to you most.

Notes:

1 In addition to repinning which accounts for 80% of all pins on Pinterest

2 That’s like a “Netflix for movies”

3 I’ve used Pinterest as the primary case study throughout this blog, but the opportunities may be applicable to others in the space such as Fancy, Svpply, and others.

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Old school revivals: the SubCom explosion

17 Feb

There is a class of hot, newly-funded startups that will deliver an assortment of (often unspecified) products on a recurring basis. Called “subscription commerce” among other things, the category includes companies like Birchbox, a monthly subscription of 4-5 premium beauty samples, Craft Coffee which ships artisanal coffee each month, and Citrus Lane, a monthly care package for new parents. This post by Sean Percival  has assembled a pretty thorough list of some of the subcom providers out there.

As I suggested here, it is not a new business model, and there is something almost quaint about mail-order care packages when all of our other subscriptions are going digital. Can recent history provide some explanation for the phenomenon, and can some analysis of the drivers provide a sense for what might be ahead?

The original Wine of the Month Club bills itself as “the oldest sustained mail order wine club in the world”. It was started in 1972, first as a way to deliver two hand-selected wines—one white and one red—to patrons of the founder’s Monrovia, CA wine shop. They scaled the service, began shipping through UPS, and, twenty-five years later, had grown to 15,000 members.

A lot has changed in the last thirty years. It has become far easier, cheaper, and more useful to build a “subscription commerce” business. Here are some of the drivers:

Lower costs of customer acquisition – In its earliest days, the Wine of the Month Club grew business by visiting county fairs and advertising in print; really scaling the customer base would have been very costly. Email helped lower acquisition costs and made it easier to reach potential customers. Soon after email became mainstream, companies like Daily Candy built a following through email marketing and sharing. Founder Dany Levy explains that email’s forwarding button acted as a built-in marketing tool. Today, the interactive experience and social sharing enabled by web 2.0 has allowed new products and platforms to spread even cheaper and faster. Birchbox has a blog on Tumblr and produces content for a YouTube channel. It also has hundreds of video “hauls” uploaded by users, over 17,000 Twitter followers, and more than 2,500 Pinterest followers. As investor Nancy Peretsman explained at a recent women’s conference, even if you think you’ve seen a business model before, a customer acquisition model “built off social is a totally different story.”

Faster shipping for cheaper – Today, FedEx and UPS ship 25 million packages daily. UPS operates the country’s 9th largest airline fleet. Both companies have made huge technology investments to improve efficiency in everything from logistics to tracking to automation. Yet FedEx Ground didn’t introduce home delivery until 2000. Competitive pressures and technology advances have made shipping packages faster and cheaper, making shipping reasonable for products with lower price tags.

The dizzying variety of the long tail – Since the rise of internet retailers like Amazon and eBay, people can access virtually everything that has ever been commercialized. An article that was published in the Sloan Management Review does a really great job of explaining why. The internet has lowered the costs to get products from buyers to sellers. On the “supply side”, Amazon can sell millions of product SKUs instead of the thousands carried by its brick-and-mortar competitors because it can stock, store, and display products more cheaply. On the “demand side”, consumers with “one in a million tastes” have a better time of learning about and accessing products they want because of things like search and recommendation engines, reviews, and more niche media outlets. Technology has also made it cheaper to commercialize new products, for example print-on-demand in the publishing world. Now, with so many options available to consumers, there is a useful role for an “expert” voice to help introduce and recommend great products, especially since we touch and feel fewer of them before purchase.

But do these shifts justify every new home subscription business? Or is it just a hot business model with a ton of copycat varieties?

My theory is that there are two important functions that subscription commerce businesses serve: sampling and curation. The companies that address these functions effectively will have some staying power, but there will likely also be many flashes-in-the-pan.

Sampling works very well for some crowded categories where trial can inspire long-term devotees. For example, I know many women who are committed to a moisturizer (I am among them), or who have worn the same fragrance for the past ten years. Cosmetics sampling makes sense because something you try will either win you over or won’t, but hits can create product and even brand loyalty for many repurchases to come. Beauty product marketers will be willing to throw their wares into the Birchbox mix for that chance. On the other hand, gourmet food may not be best served by a subscription business model. Foodies may be loyal to a certain ice cream pint or always have an indispensible spice on hand, but they also value variety in eating. I’m not sure how many samples will make the conversion to a full-size purchase and then, how many times. Within food subscription commerce, I like the idea of Healthy Surprise, a monthly box of gluten-free snacks because people adhering to gluten-free diets are probably always on the lookout for new snacks to stock the pantry.

Curation works when crowding in a category makes it difficult to tell great products from lousy ones. Wine is a good example (and has been for a long time): I have a favorite weeknight wine, but to fill my wine rack—especially if I’m buying a pricier bottle—I want to make sure it’s good. Personal taste plays in to some degree but, in certain product categories, it is more important to be able to sort through the “dizzying variety” by way of experienced recommendation. Furthermore, the curation must be real, and it helps to understand why the curator has some sort of authority on the topic (which is why content is so helpful to subscription commerce).

There are a number of other subscription services that serve other functions. Convenience is an important one but it’s not always very defensible. Take sock subscription packages: a Google search turns up sockrush, monthlysocks, and mysockservice. (I think that BabbaCo and KiwiCrate, startups that ship monthly boxes with activities and crafts for kids, also address the convenience function. There is an important curation step in developing and selecting the activities, but the resulting how-to and guidelines could be distributed as digital content; the value of having the content delivered to customers’ homes is having the glue and paint that comes along with it.)

There are a number of great subscription businesses out there and, if the last few months are any indication, I think there are a lot more to come. Yet, in SubCom, as in design, form should follow function.

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Old school revivals: Daily deal sites

4 Feb

I’m writing here about daily deal sites like Groupon and Living Social and a possible explanation for why the business model took off in the last few years instead of say, 5 or 10 years ago (maybe after seeing Priceline broker and sell off deals). See more about why I think this question is interesting here.

Early “kill the corner store” mentality – The earliest days of the Internet focused on transforming offline retail; e-commerce was going to be everything that bricks and mortar could not be. Companies like Amazon, Half.com, and Pets.com were going to move inventory out of our local communities to efficient effect, and Webvan and Urban Fetch were going to free us from having to go to our local store. The best and brightest entrepreneurs, along with the savviest investors were imagining the web’s transformative potential as an antidote to local.

Changing outlets for local marketing and reach – In the meantime, the evolution of the Internet eroded some of the traditional outlets that local businesses used. Craigslist gutted the classified business, which had been a comfortable and predictable cash cow for local newspapers. (Nieman Lab says that newspapers had feared such a day of reckoning long before Craigslist in a really interesting piece on Access Atlanta) That downward trend, coupled with the rise in online news and information consumption was responsible for the shuttering of many local newspapers, Penny Savers, and coupon books.

Corner store comes online – In early versions of e-commerce, “hard goods” most successfully made the transition online. Things like books, music, electronics, and toys migrated online because they had standardized SKUs and easy-to-describe attributes, leaving more experiential retail like clothing boutiques, service-oriented retail such as restaurants, convenience, and the long list of Group’s providers in the form of spas, tooth whitening clinics, and hair removal centers largely intact.

Meanwhile, new web destinations helped to bring local businesses online, with each platform improving the merchant’s ability to engage with the consumer closer to his or her point of local “transaction”: services like Google Maps allowed for focused search that reflected consumer intent (e.g., “sushi 10011”), Yelp! provided ratings and reviews to inform the transaction, and OpenTable enabled the transaction itself (or at least commitment for a future transaction). Each of these services improved upon the likelihood that the marketing investment would yield a sale.

Daily deals sites just enabled the final jump for local offline business to engage in e-commerce while taking a share of the spoils.

If the rise of daily deals can be explained by this sort of web evolution, then what’s next? Some form of local bricks and mortar is here to stay; it is hard to imagine that point-of-service providers like restaurants and spas will go away, and some native online companies like Warby Parker are setting up the new crop of catalog showrooms (Service Merchandise, anyone?). Even Amazon is allegedly thinking about getting into the retail game.

While small businesses have less marketing weight to throw around than national brands, they have always understood the need for targeted exposure. Every small business has to cycle through the stages of customer discovery, trial, and loyalty, and typically many times over. New digital services, including smartphone apps, may provide small businesses with the platforms to manage individual customers through these stages.

Discovery – Traditionally, local businesses leveraged channels like newspaper advertisements, billboards, and sponsorships to help get the word out to potential customers. Today, person-to-person social local apps like Foodspotting and Snapette that link discovery to particular locations can aid in the discovery process. Recommendation engines like Brom.ly and Schemer that suggest things to do based on your interests may provide another opportunity for sponsored listings.

Trial – Discounts have tended to be the gold standard for inducing trial. Local businesses distributed coupons for dollars off or special services via geographically-defined coupon books and circulars. Redemption was likely never tracked, but even if it was, it could only get down to circulation-level (“I saw it in the Penny Saver”) or, at best, address-level specificity. Groupon Now! and its pull vs. push approach (consumers have to look through limited-time deals in the local area for one that appeals to them instead of selecting ones from the email newsletter) has not launched with the fanfare Groupon had hoped. But maybe there will be an opportunity for services that allow consumer to declare intent, say to “advance check-in” for happy hour with three other people for later that afternoon, or solicit “RFDs” (requests for deals?) from local service providers a la OpenChime that push sweeten a deal for the right kind of new customer. There is also the whole universe of non-discount inducements. Could a business offer specialized experiences for subsets of potential customers, for example?

Trust and loyalty – Traditional paper punchcards remain a very elegant solution to rewarding loyalty. They are easy, cheap, and really work as incentives. However, the barriers are still somewhat high for consumers. Eating the same thing once a week is an honor I personally bestow on only our local sushi place and, even then, getting to ten punches can be very difficult. Local networks of “earn” and “burn” partners where loyalty benefits are distributed network-wide could lower those barriers a bit. Startups such as Womply and Belly (staffed, not surprisingly, by former LivingSocial and Groupon execs, respectively) are looking at this in some very interesting ways, and Foursquare contends that providing tools like dashboards to local businesses will be their revenue model fix.

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