The big news in online business last week was Amazon's unveiling of its Fire tablet. By now, you've doubtless read plenty of reviews of the product, comparisons with Apple's iPad, heard and seen countless pundits pontificate on the new entry.
Here's my take.
First, as I've always contended, and several pundits reinforced, Amazon will always trail Apple in this product space, by virtue of its entirely outsourcing the design and manufacture. For example, from what I've read, the Fire has no camera and lacks some connectivity options.
Second, the real and most important aspect of the Fire is its $200 price point. While it technically exploits a market segment which Apple doesn't care to currently address, it does begin to exert more downward pressure on pricing and margins in the product/market. In fact, the Wall Street Journal's report on the Fire alleged that Amazon is not only pricing to profit on the downloadable content, but that the $200 list price doesn't even cover the Fire's production costs.
Thus, as I told a friend over lunch last Friday, Amazon is embarking down a very dangerous road- using a sprawling, integrated business model including its entire online general store to subsidize the cost of its latest deliverable tablet. Sooner or later, some aspect of Amazon's business will probably begin to experience pricing problems as the transfer pricing and allocation of overheads begin to distort the prices and margins of products which effectively fund the Fire.
Mixed into that mess is Amazon's tying the Fire to an automatic Premium subscription. So various shipping and other discounts on content are included with the tablet, but it's unclear that buyers of the Fire actually want, prefer or will use much of that content. Or spend more money to buy or rent what isn't free with the Fire.
In contrast, Apple's business model seems simpler and cleaner.
As I also explained to my friend last Friday, this development is why Apple won't be in my equity portfolios forever. Eventually, one or more of three forces tend to drive equities from the buy list: investor expectations adjust to the firm's actual performance, resulting in the equity's price no longer rises so smartly; competitive forces attenuate the firm's revenue and profit growth, and/or; regulatory action puts a stop to the firm's previously-unstoppable growth.
I've seen a succession of former portfolio holdings fall victim to one or more of these forces over time: Kohls, Dell, Microsoft, Home Depot and Wal-Mart.
Now Apple and Amazon seem to be heading in that direction. Both have been recent portfolio members. But now their evolving struggle involving tablets and online-delivered content- music, video and books- is likely to limit margins and pricing power for both.
Thus, Amazon's Fire has accelerated the move of the tablets and their content toward commoditization. Good for consumers, not so great for investors in the providers of these services.
Interestingly, in his weekend Wall Street Journal column, Holman Jenkins, Jr. contended that the real reason for the demise of technology firms Microsoft and HP has been that their product lines are devoid of the social media content which Apple, Amazon, Google, and Facebook have so zealously and successfully pursued. Including, for the first three, developing special-application computers, a/k/a tablets and smartphones, which undercut general-purpose computers and emphasize media consumption.
Certainly, that's one view. But personal computers became commoditized some years ago- well before the rise of Facebook, social media and the general accessibility of media content via cheap, ubiquitous wireless connections.
Still, as I contended in today's companion post, competitive forces tend to affect every product/market, even if at different speeds.
Showing posts with label Amazon. Show all posts
Showing posts with label Amazon. Show all posts
Tuesday, October 04, 2011
Saturday, October 01, 2011
Economic Illiteracy & Technological Luddites
Back in late August, I wrote a post discussing my initial thoughts about Michael Lewis' The Big Short. I began the piece with a nod to online shopping and economic efficiency by writing,
"I went ahead and bought two of his subsequent books, Moneyball and The Big Short. Incidentally, in keeping with the times, I ordered both as nearly-virgin, used copies from Amazon resellers for no more than $10 each, including shipping. The latter arrived looking every bit like a brand new, unopened book."
Imagine my surprise when a reader contacted me yesterday and wrote, among much, much more verbiage, most of it economically illiterate and whiny, in two emails,
"But this this email doesn't concern that--it's about your recommendation to buy Lewis's book used for 6 bucks. As an author, that suggestion is appalling to me and displays a profound lack of knowledge of what it means to be a writer in America or how the publishing world works, and how the writer gets screwed if you follow that advice.
Most of us, especially literary novelists, need other jobs. We need people to buy our books new. It means survival. It means getting published again. I sold about 3,500 copies of my first novel. But it is estimated I have sold more than twice that many "used." Not only didn't I get a penny in royalties from those books, I didn't get credit when I went to sell my new novel. I happen to be in a rarefied position as a novelist with a great and sympathetic publisher. Had I chosen to try to go to a "big house" as many of the agents I spoke to urged me to do with my second book, the difference between selling 3,500 on a medium sized, if prestigious press vs. 7,000 is huge when asking for an advance. If I'd originally signed with a big house and sold three thousand copies, there's a good chance I wouldn't even have gotten a contract offer for a second book.
Of course, my primary aim is to have people read my work.
I've done scores of panels and readings over the years and I ask the audience to buy new books of living authors. Fine by me if you want to buy Gatsby used.
I work as a university professor teaching novel and short fiction to grads and undergrads-- 3/4 pay for full time schedule of teaching and I've been doing it for a decade. I edit a literary magazine for minimal pay because I love it. My choice.
When you buy a used book from a discount seller, I consider that piracy- you are getting my creation/work and I don't get a dime. Not my choice at all. I have done the work and I deserve to get paid for it. Those people making a living reselling books would have my respect and could resell all the books they want if they paid a rightful sum to the author. All I want is the 12- 15 % per cent of what they sell it for- what I'd get from a full price pb book. Unfortunately, there is no way to police this even if it were made legal.
By saving six bucks in paying a reseller you may think you're being smart and saving money (or as my mom would say "acting like a cheapskate.") That is short sighted and wrong headed. If you believe in the Social Darwinist concept of survival of the most amoral and selfish, with profit as the only consideration, then I understand your position and there is nothing to discuss."
A few passages from my replies to this teacher/editor/author were,
"What about all those people who now make a living recycling books people don't want and reselling them? And all those saved trees, heaven forbid, if you are a Greenie.
Sorry, but you sound like one of those people in Maine who used to wail about wanting the good old days of lush jobs making shoes so that Americans could pay twice as much for them, instead of realizing a higher standard of living from Asian-made footwear.
My advice is to rely less on printed material and figure out your pricing strategy for online copies.
I will continue, where appropriate, to remind people to buy excellent used copies, like new, for as little as $6, plus shipping.
Especially if they want the book, but loathe the author!
Totally understand your refusal to sign used books. Agree galleys are illegal.
Look, if you want to write, write. And accept that the market will pay you what your work is worth. Period. When someone like you begins to whine about 'art,' it usually means you want a subsidy to pursue you pet projects.
You missed you era- as a state-supported artist in the Soviet Union. I sense a kinship between you and that mindset.
I highlighted what I consider to be essential passages from the reader's and my emails in color (blue for him, red for me).
It's funny how some people want the laws of economics suspended for themselves. But not for others.
My reader assures me that his "primary aim is to have people read (his) work." But spends two emails griping that he can't get paid what he feels his work is worth.
Well, I'm a writer, too. I write this blog daily, and have done so since September 15, 2005. I've written almost 2,000 posts. Many are linked, reposted, cited, etc. on other media. I don't get a dime for most of it- just a measly $15 or so per month for a redistribution agreement which allows that distributor's customers to copy and use my (and other bloggers') content without copyright violation.
I write for several reasons. First, to anecdotally reinforce my proprietary research findings. Second, to maintain my strategy development and analytical capabilities. Third, to contribute my own insights to the general mix of business-oriented media. That I do so for free, of course, essentially aids in depressing the value of all such content.
Just over three years ago, my posts concerning GE and Jeff Immelt's mismanagement of the firm were noticed and read by the staff of Fox News' Bill O'Reilly's The Factor program. I subsequently appeared on an episode to discuss that situation. Such is the occasional influence of even a free blog like mine. I have about 50 readers who follow via RSS feeds and, depending upon the week, between 60 and 100 average daily visitors. Substantially more when I write a popular column which is found by readers searching on the topic.
The truth is, the combination of digital and online technology makes all content- video, text, audio- expensive and difficult to publish without losing control or accepting that copies may be resold with no more revenue accruing to the content creator.
I'll bet my whining reader thinks it's wrong and illegal for the buyer of a living artist's painting to resell it and keep all the money from that sale.
Here are my thoughts on the reader's arguments.
First, one's creative published work is worth what others will pay. Period. Not what you wish they would pay, or think they should pay in some other, ideal parallel universe.
Used books have been around, bought and sold, for hundreds of years. Moving it online to Amazon makes it far more efficient. And efficiency does matter. That's what economics does- finds efficient means of production of desired goods and services with fewer resources. In this case, the cost of finding and acquiring used books is much lower than in pre-Amazon times. And fewer trees are cut, energy used to acquire a used book.
Knowing this, an author has a choice regarding pricing. It is simply ludicrous for my reader to demand an ongoing royalty from each sale of a specific copy of his book. I suppose the only way to emulate that is to sell only to lending libraries, and at prices which capture the multiple-usage nature of that channel.
Or publish his works in the same manner as music services which only rent out the use of songs for a defined period of time. If rent isn't paid, the song's usage license expires. Same with downloadable video which expires after a specific time period has elapsed.
So my reader has choices. He just seems not to like them. Yet he chooses to continue to write and attempt to publish.
Second, he's a little late to the game in terms of even bothering with publishers. I recently read a Wall Street Journal piece which focused on an Amazon top ten-selling book which was self-published. There are now choices for how to electronically self-publish and distribute one's literary product. With the continuing demise of bookstore chains, it's debatable for how long conventional publishers will matter all that much to the average non-textbook author.
I had this very discussion with a friend who is a recently-retired English teacher. His wife is becoming an Amazon reseller in order to recycle my friend's extensive collection of used books. He agreed that self-publishing is the more sensible option for most individual authors of creative writing.
Third, whenever you read or hear someone complain about being treated unfairly when they freely enter the market to sell their labors, you should suspect their logic and/or motives. What we have in the case of the reader who emailed me is, I believe, the struggling/wounded artist who simply thinks that because he is an artist, he deserves the value he places on his work. That society should arrange things so he receives that.
Thus my remark about his missing his calling as a writer during the height of the Soviet era. Assuming he'd have accepted everything else about that era's Soviet system.
And, by the way, as an example of his lack of clear thinking, just because an author is dead does not mean my reader should condone buying that author's work as used. His position, to be consistent, should be that nobody should ever buy a used copy of any book not in the public domain if a single new, unpurchased copy exists somewhere. After all, the rights to royalties of such books are owned by someone, even if the author is dead.
I don't resent being told I'm a "cheapskate" for buying excellent, like-new used books. It's no different than buying something on eBay, at a consignment shop or estate sale. Or a house!
Recycling previously-owned goods is as old as humanity and trading. It's basic, sensible human economic behavior. To now rail against buying used books from Amazon, but not decry the purchase of any used item ever, is to be a technological Luddite. Which I believe my reader is.
I don't buy used clothing or cars. Everyone has their particular behavior process with respect to how they value various aspects of various goods. To me, a like-new copy of a book is well worth purchasing at a fraction of the list retail price. And I'll do it whenever possible.
It's just good economics. It effectively improves my standard of living.
If my reader doesn't like the fact that I, and, evidently, tens of thousands of other Americans put no psychic value, for which we will pay, on only buying unused, new books, well, I don't care.
It's not short-sighted. Most authors write because they want to write. They know, or can estimate, the economic value of their work beforehand. None to my knowledge expect to earn money from the resale of their used works.
"I went ahead and bought two of his subsequent books, Moneyball and The Big Short. Incidentally, in keeping with the times, I ordered both as nearly-virgin, used copies from Amazon resellers for no more than $10 each, including shipping. The latter arrived looking every bit like a brand new, unopened book."
Imagine my surprise when a reader contacted me yesterday and wrote, among much, much more verbiage, most of it economically illiterate and whiny, in two emails,
"But this this email doesn't concern that--it's about your recommendation to buy Lewis's book used for 6 bucks. As an author, that suggestion is appalling to me and displays a profound lack of knowledge of what it means to be a writer in America or how the publishing world works, and how the writer gets screwed if you follow that advice.
Most of us, especially literary novelists, need other jobs. We need people to buy our books new. It means survival. It means getting published again. I sold about 3,500 copies of my first novel. But it is estimated I have sold more than twice that many "used." Not only didn't I get a penny in royalties from those books, I didn't get credit when I went to sell my new novel. I happen to be in a rarefied position as a novelist with a great and sympathetic publisher. Had I chosen to try to go to a "big house" as many of the agents I spoke to urged me to do with my second book, the difference between selling 3,500 on a medium sized, if prestigious press vs. 7,000 is huge when asking for an advance. If I'd originally signed with a big house and sold three thousand copies, there's a good chance I wouldn't even have gotten a contract offer for a second book.
Of course, my primary aim is to have people read my work.
I've done scores of panels and readings over the years and I ask the audience to buy new books of living authors. Fine by me if you want to buy Gatsby used.
I work as a university professor teaching novel and short fiction to grads and undergrads-- 3/4 pay for full time schedule of teaching and I've been doing it for a decade. I edit a literary magazine for minimal pay because I love it. My choice.
When you buy a used book from a discount seller, I consider that piracy- you are getting my creation/work and I don't get a dime. Not my choice at all. I have done the work and I deserve to get paid for it. Those people making a living reselling books would have my respect and could resell all the books they want if they paid a rightful sum to the author. All I want is the 12- 15 % per cent of what they sell it for- what I'd get from a full price pb book. Unfortunately, there is no way to police this even if it were made legal.
By saving six bucks in paying a reseller you may think you're being smart and saving money (or as my mom would say "acting like a cheapskate.") That is short sighted and wrong headed. If you believe in the Social Darwinist concept of survival of the most amoral and selfish, with profit as the only consideration, then I understand your position and there is nothing to discuss."
A few passages from my replies to this teacher/editor/author were,
"What about all those people who now make a living recycling books people don't want and reselling them? And all those saved trees, heaven forbid, if you are a Greenie.
Sorry, but you sound like one of those people in Maine who used to wail about wanting the good old days of lush jobs making shoes so that Americans could pay twice as much for them, instead of realizing a higher standard of living from Asian-made footwear.
My advice is to rely less on printed material and figure out your pricing strategy for online copies.
I will continue, where appropriate, to remind people to buy excellent used copies, like new, for as little as $6, plus shipping.
Especially if they want the book, but loathe the author!
Totally understand your refusal to sign used books. Agree galleys are illegal.
Look, if you want to write, write. And accept that the market will pay you what your work is worth. Period. When someone like you begins to whine about 'art,' it usually means you want a subsidy to pursue you pet projects.
You missed you era- as a state-supported artist in the Soviet Union. I sense a kinship between you and that mindset.
I highlighted what I consider to be essential passages from the reader's and my emails in color (blue for him, red for me).
It's funny how some people want the laws of economics suspended for themselves. But not for others.
My reader assures me that his "primary aim is to have people read (his) work." But spends two emails griping that he can't get paid what he feels his work is worth.
Well, I'm a writer, too. I write this blog daily, and have done so since September 15, 2005. I've written almost 2,000 posts. Many are linked, reposted, cited, etc. on other media. I don't get a dime for most of it- just a measly $15 or so per month for a redistribution agreement which allows that distributor's customers to copy and use my (and other bloggers') content without copyright violation.
I write for several reasons. First, to anecdotally reinforce my proprietary research findings. Second, to maintain my strategy development and analytical capabilities. Third, to contribute my own insights to the general mix of business-oriented media. That I do so for free, of course, essentially aids in depressing the value of all such content.
Just over three years ago, my posts concerning GE and Jeff Immelt's mismanagement of the firm were noticed and read by the staff of Fox News' Bill O'Reilly's The Factor program. I subsequently appeared on an episode to discuss that situation. Such is the occasional influence of even a free blog like mine. I have about 50 readers who follow via RSS feeds and, depending upon the week, between 60 and 100 average daily visitors. Substantially more when I write a popular column which is found by readers searching on the topic.
The truth is, the combination of digital and online technology makes all content- video, text, audio- expensive and difficult to publish without losing control or accepting that copies may be resold with no more revenue accruing to the content creator.
I'll bet my whining reader thinks it's wrong and illegal for the buyer of a living artist's painting to resell it and keep all the money from that sale.
Here are my thoughts on the reader's arguments.
First, one's creative published work is worth what others will pay. Period. Not what you wish they would pay, or think they should pay in some other, ideal parallel universe.
Used books have been around, bought and sold, for hundreds of years. Moving it online to Amazon makes it far more efficient. And efficiency does matter. That's what economics does- finds efficient means of production of desired goods and services with fewer resources. In this case, the cost of finding and acquiring used books is much lower than in pre-Amazon times. And fewer trees are cut, energy used to acquire a used book.
Knowing this, an author has a choice regarding pricing. It is simply ludicrous for my reader to demand an ongoing royalty from each sale of a specific copy of his book. I suppose the only way to emulate that is to sell only to lending libraries, and at prices which capture the multiple-usage nature of that channel.
Or publish his works in the same manner as music services which only rent out the use of songs for a defined period of time. If rent isn't paid, the song's usage license expires. Same with downloadable video which expires after a specific time period has elapsed.
So my reader has choices. He just seems not to like them. Yet he chooses to continue to write and attempt to publish.
Second, he's a little late to the game in terms of even bothering with publishers. I recently read a Wall Street Journal piece which focused on an Amazon top ten-selling book which was self-published. There are now choices for how to electronically self-publish and distribute one's literary product. With the continuing demise of bookstore chains, it's debatable for how long conventional publishers will matter all that much to the average non-textbook author.
I had this very discussion with a friend who is a recently-retired English teacher. His wife is becoming an Amazon reseller in order to recycle my friend's extensive collection of used books. He agreed that self-publishing is the more sensible option for most individual authors of creative writing.
Third, whenever you read or hear someone complain about being treated unfairly when they freely enter the market to sell their labors, you should suspect their logic and/or motives. What we have in the case of the reader who emailed me is, I believe, the struggling/wounded artist who simply thinks that because he is an artist, he deserves the value he places on his work. That society should arrange things so he receives that.
Thus my remark about his missing his calling as a writer during the height of the Soviet era. Assuming he'd have accepted everything else about that era's Soviet system.
And, by the way, as an example of his lack of clear thinking, just because an author is dead does not mean my reader should condone buying that author's work as used. His position, to be consistent, should be that nobody should ever buy a used copy of any book not in the public domain if a single new, unpurchased copy exists somewhere. After all, the rights to royalties of such books are owned by someone, even if the author is dead.
I don't resent being told I'm a "cheapskate" for buying excellent, like-new used books. It's no different than buying something on eBay, at a consignment shop or estate sale. Or a house!
Recycling previously-owned goods is as old as humanity and trading. It's basic, sensible human economic behavior. To now rail against buying used books from Amazon, but not decry the purchase of any used item ever, is to be a technological Luddite. Which I believe my reader is.
I don't buy used clothing or cars. Everyone has their particular behavior process with respect to how they value various aspects of various goods. To me, a like-new copy of a book is well worth purchasing at a fraction of the list retail price. And I'll do it whenever possible.
It's just good economics. It effectively improves my standard of living.
If my reader doesn't like the fact that I, and, evidently, tens of thousands of other Americans put no psychic value, for which we will pay, on only buying unused, new books, well, I don't care.
It's not short-sighted. Most authors write because they want to write. They know, or can estimate, the economic value of their work beforehand. None to my knowledge expect to earn money from the resale of their used works.
Monday, June 13, 2011
Update On Bricks vs. Clicks 2011 Style
Last week I found myself in a discussion with another member of my fitness club after I finished my morning's mile swim. We had apparently spoken before, perhaps last summer, so he felt sufficiently uninhibited to inquire about my use of a heart rate monitor.
We had a lengthy conversation about training regimens, diet, the protein reduction to cut fat, and related topics.
He asked me several times which current model of Polar HRM I would recommend, and I reiterated what I last recall seeing as their lowest-level product with calorie burn estimation capabilities, noting that his local Sports Authority was sure to have them.
Being older than me, he astonished me by dismissively snorting,
'Oh, forget that. I'll just find it on Amazon and buy it there.'
Pretty interesting. He clearly already uses Amazon as his go-to general store, but doesn't believe he's paying much for the privilege.
On one hand, that's good for Amazon. On the other, though, the online retailing giant is one of those Schumpeterian forces that prospers by slitting the economic throat and gutting the profit model of existing 'bricks' retailers.
Growth has been and remains the key for Amazon. It took some time for the company to get its model right and profitable. Since then, it's latched onto some key growth categories- ebooks, DVD rentals, and, now cloud computing.
But a bit over ten years on from the first great internet binge, it's clear that online shopping has taken hold in a lasting manner. Thus, for many product categories, finally answering the 'clicks vs. bricks' argument decidedly in favor of the former.
We had a lengthy conversation about training regimens, diet, the protein reduction to cut fat, and related topics.
He asked me several times which current model of Polar HRM I would recommend, and I reiterated what I last recall seeing as their lowest-level product with calorie burn estimation capabilities, noting that his local Sports Authority was sure to have them.
Being older than me, he astonished me by dismissively snorting,
'Oh, forget that. I'll just find it on Amazon and buy it there.'
Pretty interesting. He clearly already uses Amazon as his go-to general store, but doesn't believe he's paying much for the privilege.
On one hand, that's good for Amazon. On the other, though, the online retailing giant is one of those Schumpeterian forces that prospers by slitting the economic throat and gutting the profit model of existing 'bricks' retailers.
Growth has been and remains the key for Amazon. It took some time for the company to get its model right and profitable. Since then, it's latched onto some key growth categories- ebooks, DVD rentals, and, now cloud computing.
But a bit over ten years on from the first great internet binge, it's clear that online shopping has taken hold in a lasting manner. Thus, for many product categories, finally answering the 'clicks vs. bricks' argument decidedly in favor of the former.
Friday, April 01, 2011
EBay's Belated Challenge To Amazon
I read with some small interest that EBay bought GSI Commerce earlier this week. The title of one Wall Street Journal piece on the acquisition was entitled EBay Buys Allies For Amazon War.
If only. Didn't that ship sail years ago?
As I noted on a recent Groupon post, EBay has a particular market segment. It's good if you find what you are looking for, but it's not a good place to simply buy what you may need, because there's no guarantee that you'll find it.
Granted, Amazon's book selling facility has lots of used book merchants to fill demand, but, beyond that, I can't personally vouch for product availability across a wide spectrum.
From what I read about GSI, EBay seems to be committing the old sin of buying something to which it adds little or no value with its own business. Take a look at the nearby five year price chart for EBay and the S&P500 Index. EBay has been stalled for the past five years, unable to out-perform the index. So why is it now going to ignite shareholder value by buying a business it isn't actually already in? Especially when it's paying a 51% premium for the privilege?
Will the amateurs who make a living selling chachkas and other assorted items actually process orders and ship via GSI? Well, wouldn't that mean they'd have to send all their merchandise there? It's simply not the same model.
Meanwhile, here's a picture of the same five years, with Amazon added. EBay and Amazon aren't remotely in the same performance league. So there's the added problem for EBay of taking on a more successful, well-capitalized competitor.
Put another way, this isn't like Apple or Google is coming into a new product space. EBay has had problems for years, including the over-priced Skype acquisition. I reread my posts under the "EBay" label, and they weren't good omens for EBay's success with this acquisition.
I would bet it's another case of a CEO and his senior management hanging on for dear life to high-paying jobs at a has-been company. Well, hanging on by using shareholder equity to overpay for an acquisition that isn't going to change the true owners' fortunes very much at all.
Post Script: Here's a very interesting blog post that my reader and commenter, Henrietta, sent me regarding Meg Whitman's early blunders, both pre- and while at EBay. Worth following the link.
If only. Didn't that ship sail years ago?
As I noted on a recent Groupon post, EBay has a particular market segment. It's good if you find what you are looking for, but it's not a good place to simply buy what you may need, because there's no guarantee that you'll find it.
Granted, Amazon's book selling facility has lots of used book merchants to fill demand, but, beyond that, I can't personally vouch for product availability across a wide spectrum.
From what I read about GSI, EBay seems to be committing the old sin of buying something to which it adds little or no value with its own business. Take a look at the nearby five year price chart for EBay and the S&P500 Index. EBay has been stalled for the past five years, unable to out-perform the index. So why is it now going to ignite shareholder value by buying a business it isn't actually already in? Especially when it's paying a 51% premium for the privilege?
Will the amateurs who make a living selling chachkas and other assorted items actually process orders and ship via GSI? Well, wouldn't that mean they'd have to send all their merchandise there? It's simply not the same model.
Meanwhile, here's a picture of the same five years, with Amazon added. EBay and Amazon aren't remotely in the same performance league. So there's the added problem for EBay of taking on a more successful, well-capitalized competitor.Put another way, this isn't like Apple or Google is coming into a new product space. EBay has had problems for years, including the over-priced Skype acquisition. I reread my posts under the "EBay" label, and they weren't good omens for EBay's success with this acquisition.
I would bet it's another case of a CEO and his senior management hanging on for dear life to high-paying jobs at a has-been company. Well, hanging on by using shareholder equity to overpay for an acquisition that isn't going to change the true owners' fortunes very much at all.
Post Script: Here's a very interesting blog post that my reader and commenter, Henrietta, sent me regarding Meg Whitman's early blunders, both pre- and while at EBay. Worth following the link.
Friday, February 25, 2011
Amazon Enters Subscription Video On Demand To Challenge Netflix
"For example, HBO, according to Faber, has recently lost more than one million subscribers to Netflix's instant video content viewing. With so many titles available to stream to computers and/or download to DVRs, HBO's value as a separate paid service is dimming.
Netflix is reputed to be responsible for as much as 25% of web traffic during prime hours, as vast amounts of video content is viewed via streaming.
I'm guessing that, if Netflix were part of the S&P500, It would have made appearances in my equity portfolios by now."
Earlier this week, Amazon announced a subscription service for video on demand for its best customers.
This is not surprising. I find that successful firms which earn consistently superior total returns for a certain periods tend to fail to do so anymore for one or more of three reasons: competitive reactions, inability to continue to surprise investors, or regulatory reactions.
In Netflix's case, it's the first. Amazon has seen the effects of Netflix on Blockbuster, HBO, and probably Amazon's own business of selling DVDs. After arranging the logistics of offering a similar service to their best customers, Amazon is now moving to limit Netflix' inroads into its business.
It's a natural response to a very successful business model. Just like we see competing tablet products coming forth to compete with the iPad.
I'll watch with interest to see if Amazon can actually dent Netflix' volumes, profits and stock price. Chances are, it can. Plus there are some critics of Netflix' accounting, including CNBC contributor Herb Greenberg. The details escape me, but he disagrees with the firm's capitalizing some expenses. If their growth rate falters due to Amazon's moves, and profits are squeezed, then we might see an even faster decline due to an inability to continue whatever aggressive accounting practices are in place.
Friday, January 07, 2011
Regarding Amazon & Growth
This morning's Wall Street Journal's Heard On The Street column is a cautionary note regarding Amazon. Martin Peers warns that Amazon's slipping DVD sales will undermine its stock price performance. The article is filled with all sorts of micro-analysis of media consumption and data on Apple's video downloads.
Like other analysts observing Apple, about which I wrote as an investment in this recent post, I believe Peers is underestimating Amazon.
Back when the online retailer was a profitless favorite of investors, my equity selection process avoided it. As the first price chart for Amazon, Apple and the S&P500 Index, going back to 1998 illustrates, I didn't miss much. Amazon pancaked in the tech bubble crash, then began a much more measured, sustained growth, along with Apple.
However, at present, every equity portfolio selected by my process which is active contains Amazon. It's actually more prevalent than Apple, and outperforming the S&P in every active portfolio in my strategy.
Like other analysts observing Apple, about which I wrote as an investment in this recent post, I believe Peers is underestimating Amazon.
Back when the online retailer was a profitless favorite of investors, my equity selection process avoided it. As the first price chart for Amazon, Apple and the S&P500 Index, going back to 1998 illustrates, I didn't miss much. Amazon pancaked in the tech bubble crash, then began a much more measured, sustained growth, along with Apple.However, at present, every equity portfolio selected by my process which is active contains Amazon. It's actually more prevalent than Apple, and outperforming the S&P in every active portfolio in my strategy.
The second chart focuses on the last five years of performance for the three entities. Amazon and Apple share a very close performance path, both handsomely outpacing the index.
While Peers cites DVD sales growth as the reason to doubt Amazon's continued outperformance, I prefer to see the company's equity in the context of the broader market. While, as I mentioned, my process did not find Amazon acceptable in prior years, lately, it has become one of the most consistent performers in the S&P.
Peers writes,
"But Amazon looks to have lost the music battle......Given Amazon's success elsewhere, losing in video may only reduce its red-hot growth rate by a few percentage points. But given its sky-high valuation, that isn't something investors could ignore."
I guess that's one way to view Amazon.
Here's another. In recent years, the firm's growth rate is the 14th best in the S&P 500, while it's P/E ratio is 19th best. Taken together, the firm's valuation for its growth rate is quite reasonable. Much as Dell's was in 1998, when I owned it, contrary to the advice of most Dell-watchers. As I mentioned in the prior linked post, Dell went on to be one of the S&P's top ten total return performers that year.
As I also noted in the linked post, analysts who get totally focused on the internal mechanics of the companies they follow tend to lose, if they ever had it, perspective on the companies' performances among the broader market.
In this case, Amazon's general management of its businesses has sustained its performance for years. I would suspect that it's going to take a lot more than being an also-ran in just one particular product segment for Amazon's outperformance to end imminently.
Friday, July 30, 2010
....And Amazon Has Its Own Problems
In today's prior post, I excoriated Barnes & Noble for not being able to deliver on its business model's implicit promise of having books in stock.
As I promised the B&N help desk staffer, I went to Amazon to complete my birthday gift purchase when I returned home that afternoon.
Even there, however, I was met with confusion and, frankly, gross misrepresentation.
I found the book easily enough. And, for once, was actually grateful for the one-day shipping option. Costly though it was (more than the value of the book), I selected it, then proceeded to the payment screen.
Imagine my surprise when the concluding screen informed me that I'd been charged for one-day shipping, but the expected delivery date was six days later!
I next went to a very useful feature on the website, where I was able to type in a phone number and be called instantly by an Amazon help desk employee.
After a heated exchange following the third unique personal identification question, the staffer went offline briefly, then returned to explain the seemingly-contradictory information on shipping of the gift.
She contended that the fulfillment vendor on this book wouldn't have it in stock until five days from now, at which time it would be shipped in one day.
I was, to say the least, not at all happy about this. I told her bluntly that this was grossly and deliberately misleading.
To, on one hand, charge me a huge premium for 'one-day shipping,' and contend that is what it is, then, on the other hand, inform me this means 'one day after the book is in stock,' is just wrong.
What customer orders and pays a premium for next-business day shipping, thinking it means anything else but just that- next day?
Given the option on Amazon's website, I modified the order and replaced the premium shipping with standard delivery. Why double the order's price for no benefit?
I was frankly very surprised at Amazon's obvious attempt to bait and switch on shipping charges. There wasn't any specific warning on the out-of-stock condition when I chose the premium shipping option. Instead, I had to dig further and spend about ten more minutes on help screens and the telephone to arrive at the truth.
However, as the accompanying five-year price chart for Amazon and the S&P500Index indicates, the company has been nicely outperforming the latter for most of the past five years. It's even made the short list of my strategy's equity portfolio recently.
The borderline-fraudulent delivery option pricing/performance is a minor problem, when compared to Barnes & Noble's more glaring issues.
Still, Amazon's recent price cuts on its Kindle give one pause. I wrote in that recent post,
"You have to wonder, with Amazon having so much less control over its Kindle development than Apple does over the iPad, if that difference will have ramifications for its content sales in the years to come.
One thing is sure. The Kindle is in a direct fight with the Nook and other e-reader-only devices, while Apple's iPad floats above them, offering a different set of features which clearly differentiates it and commands the typical premium Apple price."
After my Barnes & Noble experience, I drove to my nearby fitness club to work out. Ironically, as I was moving between weight lifting stations, I heard/saw an interview by the hapless CNBC anchor, Maria Bartiromo, she of the annoying speech impediment, with a senior exec from Amazon.
Maria was tossing softball questions to the Amazon VP who was showing off the company's latest version of the Kindle, priced at an all-time low.
With the company's recent revenue miss only a week ago, and the resulting swoon in the equity's price, you'd think Bartiromo would be well-positioned to grill the VP about the seeming weakness in Amazon's strategy. It is quite obvious, by now, that the company is cutting price on the Kindle to maintain share, while charging less for ebooks (than physical ones), which are forecast by Jeff Bezos to become more than 50% of the retailer's book sales by next year. The recent revenue miss suggests Amazon's margins are being squeezed and its investments in the Kindle will be yielding less than in the past.
A competent business media interviewer would have used these pieces of information to create a much more interesting and potentially revealing interview than the one Bartiromo held with the Amazon senior executive.
But just because Bartiromo failed, typically, to highlight Amazon's problems, doesn't mean they don't exist.
It seems both physical and electronic book retailing have become overly challenging for the vendors engaged in both endeavors.
As I promised the B&N help desk staffer, I went to Amazon to complete my birthday gift purchase when I returned home that afternoon.
Even there, however, I was met with confusion and, frankly, gross misrepresentation.
I found the book easily enough. And, for once, was actually grateful for the one-day shipping option. Costly though it was (more than the value of the book), I selected it, then proceeded to the payment screen.
Imagine my surprise when the concluding screen informed me that I'd been charged for one-day shipping, but the expected delivery date was six days later!
I next went to a very useful feature on the website, where I was able to type in a phone number and be called instantly by an Amazon help desk employee.
After a heated exchange following the third unique personal identification question, the staffer went offline briefly, then returned to explain the seemingly-contradictory information on shipping of the gift.
She contended that the fulfillment vendor on this book wouldn't have it in stock until five days from now, at which time it would be shipped in one day.
I was, to say the least, not at all happy about this. I told her bluntly that this was grossly and deliberately misleading.
To, on one hand, charge me a huge premium for 'one-day shipping,' and contend that is what it is, then, on the other hand, inform me this means 'one day after the book is in stock,' is just wrong.
What customer orders and pays a premium for next-business day shipping, thinking it means anything else but just that- next day?
Given the option on Amazon's website, I modified the order and replaced the premium shipping with standard delivery. Why double the order's price for no benefit?
I was frankly very surprised at Amazon's obvious attempt to bait and switch on shipping charges. There wasn't any specific warning on the out-of-stock condition when I chose the premium shipping option. Instead, I had to dig further and spend about ten more minutes on help screens and the telephone to arrive at the truth.However, as the accompanying five-year price chart for Amazon and the S&P500Index indicates, the company has been nicely outperforming the latter for most of the past five years. It's even made the short list of my strategy's equity portfolio recently.
The borderline-fraudulent delivery option pricing/performance is a minor problem, when compared to Barnes & Noble's more glaring issues.
Still, Amazon's recent price cuts on its Kindle give one pause. I wrote in that recent post,
"You have to wonder, with Amazon having so much less control over its Kindle development than Apple does over the iPad, if that difference will have ramifications for its content sales in the years to come.
One thing is sure. The Kindle is in a direct fight with the Nook and other e-reader-only devices, while Apple's iPad floats above them, offering a different set of features which clearly differentiates it and commands the typical premium Apple price."
After my Barnes & Noble experience, I drove to my nearby fitness club to work out. Ironically, as I was moving between weight lifting stations, I heard/saw an interview by the hapless CNBC anchor, Maria Bartiromo, she of the annoying speech impediment, with a senior exec from Amazon.
Maria was tossing softball questions to the Amazon VP who was showing off the company's latest version of the Kindle, priced at an all-time low.
With the company's recent revenue miss only a week ago, and the resulting swoon in the equity's price, you'd think Bartiromo would be well-positioned to grill the VP about the seeming weakness in Amazon's strategy. It is quite obvious, by now, that the company is cutting price on the Kindle to maintain share, while charging less for ebooks (than physical ones), which are forecast by Jeff Bezos to become more than 50% of the retailer's book sales by next year. The recent revenue miss suggests Amazon's margins are being squeezed and its investments in the Kindle will be yielding less than in the past.
A competent business media interviewer would have used these pieces of information to create a much more interesting and potentially revealing interview than the one Bartiromo held with the Amazon senior executive.
But just because Bartiromo failed, typically, to highlight Amazon's problems, doesn't mean they don't exist.
It seems both physical and electronic book retailing have become overly challenging for the vendors engaged in both endeavors.
Thursday, June 24, 2010
The iPad's Success Affects Amazon's Kindle
"I don't think there's any question that the iPad will be significant in its category. Some claim that, at least initially, it will also increase volume of ebook sales at Amazon. Perhaps so. But I continue to believe it will marginalize the Kindle, relative to its prior market position."
How much more marginal can Kindle get, than to have to cut its price from $259 to $189, as it did earlier this week?
The e-reader functionality is quickly moving toward a razor-razor blade sort of dynamic. Much more quickly, one suspects, than Amazon expected.
Perhaps, in time, an e-reader will be priced and marketed like a cell phone, with an upgrade included if you buy some sort of volume purchase contract from the vendor's site.
Of course, the gorilla in the room that isn't just an e-reader, the iPad, will continue to affect the lesser-functioned competitive offerings. And as I have written in a prior post, the fact that Apple controls the design and manufacture of the iPad gives it a tremendous advantage.Over the past five years, as the nearby price chart for Apple, Amazon and the S&P500 Index displays, Apple has outperformed Amazon.
Currently, both firms are in my equity portfolio. They are two of the very few S&P500 firms which have consistently outperformed in the past years. As well as Amazon has done, it pales in comparison to Apple.
The two firms are structurally very different. Apple is essentially a producer of a family of specialized digital applications devices and associated content and advertising systems. Amazon is an online general merchandiser, book and music seller, and vendor of cloud computer.
Still, whether it's due to growth rates or business mix, Apple has been viewed for some time as more valuable than Amazon. You have to wonder, with Amazon having so much less control over its Kindle development than Apple does over the iPad, if that difference will have ramifications for its content sales in the years to come.
One thing is sure. The Kindle is in a direct fight with the Nook and other e-reader-only devices, while Apple's iPad floats above them, offering a different set of features which clearly differentiates it and commands the typical premium Apple price.
Wednesday, January 27, 2010
Apple Joins The eReader Business
Today's much-heralded announcement of the Apple tablet brings Apple into even broader competition with Amazon.
Several weeks ago, I discussed this impending event with a business colleague who has had involvement with other companies entering the electronic book reader business. In a few short years, the niche most recently pioneered by Amazon's Kindle is getting rather crowded.
For example, Barnes & Noble debuted a reader, as has Sony. Now Apple brings its prowess to the category.A glance at the two nearby price charts for Amazon, Apple & the S&P500 Index for the past 5 years, and then for the companies since Apple's inception, tells an interesting story.
Over the past five years, Amazon's and Apple's equity price moves have been surprisingly coherent. While both suffered somewhat through the last year's market troubles, both delivered performance significantly above that of the S&P. The pattern of the price moves almost leads one 
to conclude that Amazon now behaves in a quasi-technology issue manner.
to conclude that Amazon now behaves in a quasi-technology issue manner.Looking at the same three series from the mid-1980s, it's rather shocking to see that, in a much shorter timeframe, Amazon has created more return for its shareholders than has Apple. And, again, looking over the longer term, the recent nearly-identical patterns of the two firms' equities moves is stunning. If I'm not mistaken, Amazon began performing like Apple around the time of the Kindle's introduction.
This morning's Wall Street Journal features articles focusing on Apple's battle with Amazon over pricing of titles and relationships with publishers, as well as, on the technology front, its continuing march into new product areas.
If I were handicapping this race, I'd have to bet on Apple. For several reasons.
First, by controlling the entire business system, including in-house product design, as a software and hardware producer, Apple has more natural advantages over the long term. My colleague and I discussed how likely it will be for Apple to release, in future versions, an iPhone-like tablet, where the phone application becomes a freebie.
Second, Apple cut its teeth on this business model with the iPod, which has consistently outperformed MP3 players. At a stroke, Apple can neutralize Amazon's history with publishers, simply through its contracts for epublication on the tablet.
Third, Apple has a much more visceral brand loyalty than does Amazon. In a product space becoming crowded with entries, the vaunted Apple brand, distribution system, and customer service are all advantages which will bring share to the tablet. By comparison, Amazon is simply a place where you buy books online. And maybe some music, if you don't use an iPod. Perhaps rent or buy videos, as well.
I just don't think Amazon has built strong enough brand identity for what is coming in this product/market space to withstand Apple's assault on the ereader category.
Finally, if Apple only competes on a par with Amazon, it's already won. For Amazon, it's a defensive game of mitigating share loss. Perhaps the tablet will expand the overall market, but with its expected higher price, probably not share that was going to Amazon. For Apple, any sales of tablets and content through its online site are net additions.
The momentum and nature of the competitive situation would seem to favor Apple- again.
Tuesday, October 20, 2009
Amazon's Kindle's Coming Competition
Yesterday I wrote a post concerning the coming, unanticipated and unintended consequences of high volumes of high-bandwidth multi-media wireless communications applications.
Along the same lines, the colleague with whom I discussed that topic has led me through the logic behind another coming unanticipated consequence of a recent technological development.
Amazon's Kindle ereader is on its second or third version by now. And other entities are hot on their heels with competing products. It's clearly another opportunity for an iPod and iTunes sort of system competition.
My colleague then observed that, now, about the least-used and simplest of iPhone applications is voice communication. The screen, fonts, and apps on the iPhone are all superior to other multi-media phones and communications appliances. In fact, it appears that Steve Jobs' relentless focus on special fonts for his products is bearing fruit on the current generation of small, hard-to-read screens.
But my colleague noted that, soon, all Apple has to do is put the iPhone on steroids and produce it as a tablet-sized reader.
When that arrives, Amazon's Kindle is toast. It will be a one-app device in a new, multi-app world.
How attractive will a Kindle be in a world in which an iPhone and its competitors, with rich communications applications, including voice, text, video store and messaging, cameras, all contain ereader apps, too?
My colleague showed me how reasonably clear the type and presentation of a current iPhone are. Apparently, the Kindle still has clarity issues. It's weak on actual readability, but alone, for now, in providing electronic access to material.
That is probably going to change in a few years.
Jeff Bezos might well be enjoying the halcyon years of his firm's ereader right now. Because once Apple arrives with a competitive product, I don't think Amazon's core skills will allow it to keep pace with the dominant US consumer technology firm.
Along the same lines, the colleague with whom I discussed that topic has led me through the logic behind another coming unanticipated consequence of a recent technological development.
Amazon's Kindle ereader is on its second or third version by now. And other entities are hot on their heels with competing products. It's clearly another opportunity for an iPod and iTunes sort of system competition.
My colleague then observed that, now, about the least-used and simplest of iPhone applications is voice communication. The screen, fonts, and apps on the iPhone are all superior to other multi-media phones and communications appliances. In fact, it appears that Steve Jobs' relentless focus on special fonts for his products is bearing fruit on the current generation of small, hard-to-read screens.
But my colleague noted that, soon, all Apple has to do is put the iPhone on steroids and produce it as a tablet-sized reader.
When that arrives, Amazon's Kindle is toast. It will be a one-app device in a new, multi-app world.
How attractive will a Kindle be in a world in which an iPhone and its competitors, with rich communications applications, including voice, text, video store and messaging, cameras, all contain ereader apps, too?
My colleague showed me how reasonably clear the type and presentation of a current iPhone are. Apparently, the Kindle still has clarity issues. It's weak on actual readability, but alone, for now, in providing electronic access to material.
That is probably going to change in a few years.
Jeff Bezos might well be enjoying the halcyon years of his firm's ereader right now. Because once Apple arrives with a competitive product, I don't think Amazon's core skills will allow it to keep pace with the dominant US consumer technology firm.
Monday, July 27, 2009
Barnes & Noble Enters The Electronic Reader Business
Last Tuesday's Wall Street Journal reported on Barnes & Noble's entry into the electronic book market. In a direct challenge to Amazon and its Kindle e-reader, the bookstore chain is seeking to extend its business into providing e-books across a range of readers. And, the Journal report states, probably enter the e-reader market, as well, with its own proprietary device, to be developed by Plastic Logic.
I find this very exciting.
Up to now, Amazon has had a lock on this market, although nobody knows just how lucrative it has been. Whatever that profitability level has been, watch it shrink.
Credit Barnes & Noble, too, with not waiting around to be cannibalized by a potentially growing market in electronic readers and content.The nearby, Yahoo-sourced price chart of Barnes & Noble and the S&P500 Index shows that the bookseller has held its own with the market over the past five years, but dipped lower during the turmoil of the past 18 months.
If you think about it, there's little about Amazon's book and e-reader business that B&N can't duplicate. It has a well-known brand, and its website ought to be able to hold its own, as well.
If this boils down to a battle of pricing and features of e-readers, Amazon could be in a lot of trouble. In fact, per classic marketing theory, Amazon could actually end up paying a price for being the 'first mover' in this new publishing area.
Often, early entrants into a new field eventually suffer by becoming the target of later, better-focused and technologically-superior competing products.
Given that neither Amazon, nor B&N are doing in-house development of e-readers, it could well come down to the delivery of content. On that basis, too, B&N should be able to remain competitive.
I wonder if Jeff Bezos is worried. My guess is he should be. Not because B&N could become the market share leader in e-readers and e-books, but because it could slow Amazon's own growth, dragging the online merchant back to parity among other competitors in this new publishing area.
Wednesday, April 30, 2008
A Refreshing View of Customer Service
Friday's Wall Street Journal carried an interesting review of the book "The Best Service is No Service," by Bill Price and David Jaffe. The book was reviewed by David A. Price.
I really loved this part of the review. It was very eye-opening, if not completely surprising. I can personally attest to receiving many post-sales or customer service event emails which, by their design, obscure the real issue and will serve no useful purpose, in my opinion, in helping the companies' managements truly understand what went wrong, if it was properly addressed, and how 'satisfied' I now am.
Think about that second italicized paragraph. Only managements which have virtually zero identification with the long term healthy growth of their companies could behave this way. Rather than consider how to use the customer contact to their companies' benefits, these managers look for ways to simply make the contacts go away or appear minimal.
Instead of these inept approaches to customer service, the authors draw on the experiences of one of them, Mr. Price, at Amazon, to suggest at least one better approach,
"The authors contrast these crude metrics with Amazon.com's focus on "CPX" – contacts per order, contacts per unit shipped, contacts per transaction and contacts per customer. In other words: Don't just ask how long it took to help the customer, ask how often the customer needed help and why. The goal is to avoid creating a need for a customer to contact the company in the first place."
I found this hint of the book's meatier parts very encouraging. These sound like great ideas for describing what is actually occurring in the post-sale information-gathering and expectation-management phase of the sale. The authors further describe some Amazon practices,
"In contrast with writers who offer platitudes so general as to be nearly useless ("Listen to the customer!"), Messrs. Price and Jaffe lay out specific recommendations. Among these: Hold weekly operations meetings to go over CPX scores. At Amazon.com, Mr. Price recounts of his tenure there, chief executive Jeff Bezos would often show up and join in the discussion. Teams would then work between meetings to zero in on "root causes" and solve problems. The authors also recommend charging the costs of customer support back to the product teams that created the need for it; make them feel the pain."
These, too, sound very useful. Especially fully-costing customer service back to the product group which engendered the need for the costs. The fact that Bezos would attend and participate in these meetings tells you that he felt, and wanted to communicate, how vital it was to fully understand and make use of customer service events. Not just to minimize them, but to understand what they told Amazon's managers about the actual provision of the initial products, and how to address whatever was going on that caused the need for the post-sales service activity.
I found this to be a thoroughly refreshing approach to customer service that harks back to the original marketing philosophy of creating long term customer value and company profitability. Rather than try to simply minimize the effects of product policies by reducing the cost of customer service, it just makes so much more sense to use the function as the information-rich opportunity it is to provide necessary feedback to a company's operating groups on how their efforts are ultimately perceived by their customers.
Being academically trained in marketing, I was interested in what the authors had to add on this important topic. After-sale experience by the customer is, of course, critically important for a number of reasons- rebuy probabilities and word-of-mouth advertising, to name just two.
Mr. Price begins his review by stating,
"In theory, we should be living in a golden age of customer support. Blogs and Web sites make it easier than ever for consumers to reward good service and punish bad. Companies, for their part, can avail themselves of sophisticated customer-service technology and, thanks to the rise of Indian call centers, less-expensive workers.
But reality hasn't seemed to follow theory. When calling an 800 number, we expect to find ourselves in voice-response hell. We dutifully follow instructions to key in a 10-digit policy number – only to be asked by the customer-service rep for the same darn number. Waiting on hold for 25 minutes? Well, that's what speakerphones are for. A simple email query languishes for days. When it comes to service, entire industries – cable-television operators, cellphone companies, airlines, health insurers – are regarded with the disdain once reserved for used-car dealers."
So true. Already we see that the authors correctly observe that many US companies use automation to cut the costs of customer service, as if it were some unwanted, but necessary function, like garbage removal. Thus, opportunities to use technology to wring more precious customer information from these contacts, as well as leave customers with a positive feeling toward the company and its brands, is irretrievably lost.
Price further reports that the authors define customer service narrowly and pragmatically,
"They consider customer service in its narrow sense of customer assistance – taking orders, answering help-desk questions, resolving complaints, handling billing inquiries. Mr. Price (the author, not the reviewer) is a former senior customer-service executive at Amazon.com, the company from which the book draws many of its most compelling positive examples."
The authors report how most businesses actually perceive and track the function,
Messrs. Price and Jaffe note that three-quarters of chief executives in an Accenture study believed that their firms provided "above average" service. Yet almost 60% of those same firms' customers were upset with their most recent service experience. Senior executives at most companies, the authors believe, are simply in the dark. "The standard across most service operations is to report and track how quickly things were done," they write, "not how well they were done or how often, or why they needed to be done at all.
Thus typical measures like "pickup within three rings" or "email response within 24 hours" hide more about customer service than they reveal. And the measuring is easily gamed. At one company where managers imposed a target "average handle time" (call time) of 12 minutes, phone calls miraculously shortened to just under 12 minutes: As the 12-minute mark approached, agents simply said whatever it took to get the caller off the phone. The call center at another company hit on the idea of reducing the number of phone lines so that excess callers simply got a busy signal – and went unmeasured."I really loved this part of the review. It was very eye-opening, if not completely surprising. I can personally attest to receiving many post-sales or customer service event emails which, by their design, obscure the real issue and will serve no useful purpose, in my opinion, in helping the companies' managements truly understand what went wrong, if it was properly addressed, and how 'satisfied' I now am.
Think about that second italicized paragraph. Only managements which have virtually zero identification with the long term healthy growth of their companies could behave this way. Rather than consider how to use the customer contact to their companies' benefits, these managers look for ways to simply make the contacts go away or appear minimal.
Instead of these inept approaches to customer service, the authors draw on the experiences of one of them, Mr. Price, at Amazon, to suggest at least one better approach,
"The authors contrast these crude metrics with Amazon.com's focus on "CPX" – contacts per order, contacts per unit shipped, contacts per transaction and contacts per customer. In other words: Don't just ask how long it took to help the customer, ask how often the customer needed help and why. The goal is to avoid creating a need for a customer to contact the company in the first place."
I found this hint of the book's meatier parts very encouraging. These sound like great ideas for describing what is actually occurring in the post-sale information-gathering and expectation-management phase of the sale. The authors further describe some Amazon practices,
"In contrast with writers who offer platitudes so general as to be nearly useless ("Listen to the customer!"), Messrs. Price and Jaffe lay out specific recommendations. Among these: Hold weekly operations meetings to go over CPX scores. At Amazon.com, Mr. Price recounts of his tenure there, chief executive Jeff Bezos would often show up and join in the discussion. Teams would then work between meetings to zero in on "root causes" and solve problems. The authors also recommend charging the costs of customer support back to the product teams that created the need for it; make them feel the pain."
These, too, sound very useful. Especially fully-costing customer service back to the product group which engendered the need for the costs. The fact that Bezos would attend and participate in these meetings tells you that he felt, and wanted to communicate, how vital it was to fully understand and make use of customer service events. Not just to minimize them, but to understand what they told Amazon's managers about the actual provision of the initial products, and how to address whatever was going on that caused the need for the post-sales service activity.
I found this to be a thoroughly refreshing approach to customer service that harks back to the original marketing philosophy of creating long term customer value and company profitability. Rather than try to simply minimize the effects of product policies by reducing the cost of customer service, it just makes so much more sense to use the function as the information-rich opportunity it is to provide necessary feedback to a company's operating groups on how their efforts are ultimately perceived by their customers.
Tuesday, May 29, 2007
Amazon's Music Store vs. iTunes
The Wall Street Journal reported recently on Amazon's entry into online music purchasing for digital players. Apparently, their major innovation is selling DRM-free tunes.
As the article noted, however,
"...it is unclear whether typical consumers even think about the kind of problems the Amazon service is trying to address. That's because Apple's tightly integrated iTunes Store and iPod so thoroughly dominate their respective markets that most people may not even be aware that there are restrictions on what they can do with their downloads."
If I recall correctly, Steve Jobs' recent memo arguing for the cessation of DRM systems cited a surprisingly low percentage of iPod capacity being filled by iTunes Store purchases. Most of the capacity, he contends, is ripped by users from their own collections of CDs, and stored onto an iPod.
If so, this suggests that Amazon is targeting an extremely small 'problem,' indeed. And, by being so late to the game, it's essentially paying up to enter a commoditizing market. There are several other MP3-compatible online music selling or renting services, so premium pricing would not seem to be possible.
This new initiative by Amazon causes me to wonder if this is the best they can do for growth now. Looking at the nearby Yahoo-sourced price chart, it's clear that Amazon has been essentially in neutral for nearly four years. It has outperformed the S&P500 for the period, but largely all in 2003. Since then, it's drifted lower, then slowly picked up again in the last year.However, it doesn't seem to demonstrate the sort of investor confidence, by driving its price steadily higher, that one associates with a profitably growing, technology- or retail-oriented company. I'm guessing that this new digital music sales effort won't do much to change this picture.
Wednesday, February 07, 2007
More Video Content Deals
Today's Wall Street Journal carried two stories concerning new media arrangements to distribute video content.
Comcast and Facebook are forming an alliance to allow videos created on Facebook to air on Comcast, prospectively on a television channel. According to the Journal article,
"....numerous links will be established between the social-networking site and Ziddio, a new Web site dedicated to "user generated content" that Comcast is developing. The best videos created by Facebook users as selected by a panel of judges will end up on Comcast's video-on-demand service and possibly on a new show that Facebook and Comcast hope will be aired by a television network."
As I recall, this summer Comcast was reported to have a fairly large staff ready to spend significant money to acquire video content for distribution from Comcast's own sites. I wrote a post about it, here. In that piece, I republished a quote from Comcast's CEO, Steve Burke, stating that he wants Comcast to be the megaportal on the net.
Frankly, this Facebook-Ziddio-Comcast deal underwhelms me. Facxebook seems to be one of those teen-twentysomething social-networking sites. It's not MySpace. Having some sort of filtering where themed video entries are judged, then packaged up for viewing, sounds a world different than just logging onto YouTube, opening an account, and uploading your video.
If this is Comcast's video content plan's best idea, I think they have trouble ahead. AppleTV is already going to threaten their television carriage revenue stream over time.
Then there's this little article from today's Journal, which will probably add to Comcast's coming difficulties. TiVo and Amazon are teaming up to offer content from the former on the latter's devices. So quiet was Amazon's Unbox service's debut that this article was the first I'd heard of it.
Apparently, Amazon allows users of its Unbox service to buy or rent, then download, video content from CBS and Paramount Pictures, a unit of Viacom, plus other sources.
TiVo, in order to attempt to reposition itself with value-added service, away from digital-on-demand cable TV, recently introduced new features that allow users to download content from the Internet, for viewing on a television.
As I look at these two articles, I see a confirmation of my sense that video content distribution is spreading with each passing month, and nobody will likely have a lock on exclusivity. The Amazon-TiVo alliance, coupled with the imminent AppleTV release, seems to put more long-term pressure on the viability of cable operator's television-service-based revenue stream. In time, ATT, Verizon, Comcast, et.al, may be fighting over the 'double-play,' rather than the 'triple-play.'
Which comes back to my suspicion that, as investments, telecommunications and cable operators are long term risks if one desires consistently superior total returns. Both groups are faced with owning and managing expensive infrastructure, probably mispriced, and both hope that video content distribution will bail them out. However, as more and more content disintermediates to the internet, then hops back to the television screen, thanks to an emerging class of server-like accessories which wirelessly download from the home personal computer, I suspect those hopes will be dashed.
Comcast and Facebook are forming an alliance to allow videos created on Facebook to air on Comcast, prospectively on a television channel. According to the Journal article,
"....numerous links will be established between the social-networking site and Ziddio, a new Web site dedicated to "user generated content" that Comcast is developing. The best videos created by Facebook users as selected by a panel of judges will end up on Comcast's video-on-demand service and possibly on a new show that Facebook and Comcast hope will be aired by a television network."
As I recall, this summer Comcast was reported to have a fairly large staff ready to spend significant money to acquire video content for distribution from Comcast's own sites. I wrote a post about it, here. In that piece, I republished a quote from Comcast's CEO, Steve Burke, stating that he wants Comcast to be the megaportal on the net.
Frankly, this Facebook-Ziddio-Comcast deal underwhelms me. Facxebook seems to be one of those teen-twentysomething social-networking sites. It's not MySpace. Having some sort of filtering where themed video entries are judged, then packaged up for viewing, sounds a world different than just logging onto YouTube, opening an account, and uploading your video.
If this is Comcast's video content plan's best idea, I think they have trouble ahead. AppleTV is already going to threaten their television carriage revenue stream over time.
Then there's this little article from today's Journal, which will probably add to Comcast's coming difficulties. TiVo and Amazon are teaming up to offer content from the former on the latter's devices. So quiet was Amazon's Unbox service's debut that this article was the first I'd heard of it.
Apparently, Amazon allows users of its Unbox service to buy or rent, then download, video content from CBS and Paramount Pictures, a unit of Viacom, plus other sources.
TiVo, in order to attempt to reposition itself with value-added service, away from digital-on-demand cable TV, recently introduced new features that allow users to download content from the Internet, for viewing on a television.
As I look at these two articles, I see a confirmation of my sense that video content distribution is spreading with each passing month, and nobody will likely have a lock on exclusivity. The Amazon-TiVo alliance, coupled with the imminent AppleTV release, seems to put more long-term pressure on the viability of cable operator's television-service-based revenue stream. In time, ATT, Verizon, Comcast, et.al, may be fighting over the 'double-play,' rather than the 'triple-play.'
Which comes back to my suspicion that, as investments, telecommunications and cable operators are long term risks if one desires consistently superior total returns. Both groups are faced with owning and managing expensive infrastructure, probably mispriced, and both hope that video content distribution will bail them out. However, as more and more content disintermediates to the internet, then hops back to the television screen, thanks to an emerging class of server-like accessories which wirelessly download from the home personal computer, I suspect those hopes will be dashed.
Subscribe to:
Posts (Atom)
