Clearly one of the hotter social media sites right now is Pinterest. It's interesting, because my even keeled, accountant wife is actually in love with the site too. I asked her today to give me a tutorial and she got all excited and started showing me all the different options and how she keeps track of things.
The real question though, is this a viable business? I honestly think they will need to screw this up somehow for it not to be. Getting access to this demographic (women in their 20-40's) is a valuable segment. It helps them catalog their creative interests and provides an outlet for them to share their creative ideas. The real question is how to generate revenue off of this group without making them feel like they are being sold to. I think they will be able to do that by maintaining that focus of helping users to share and catalog their interests.
Facebook has done a great job starting to monetize their base. I am concerned though that users are getting ambivalent. I know personally, my group of friends gets bigger, I get more annoyed at those that make bizarre comments and I want to skinny down my usages and friends. That takes time, so I find myself using it less.
Saturday, August 24, 2013
week 6 - sorry, no interesting titles
To me, the most interesting read of the whole class was the the one on Googlenomics. Understanding the bidding process at Google seems to be the most important aspect of Google. As a securities analyst I watched the IPO giggling thinking that these guys were pushing the envelope. Don't get me wrong, I am not a huge fan of the IPO process, the banking industry and certain members of it's fraternity that seem to get away with and control most of the best deals. But, I also espoused at least to some degree that there was a level of them knowing what they are doing that made this a necessity. However, witnessing the debacle that was Facebook's IPO and then understanding that Google managed their own in their own way, you start to really have an appreciation for what it is they do.
I think the most interesting aspect and what makes it work is that there is a continuous bidding process. On top of that, you have the way in which the actual price is determined such that you pay a penny more than the bid lower than you. This is masterful. Having been stung in a dutch auction for a stock I can appreciate this method. We bid a price and initially were told we had been selected to sell our stock back to the company. GREAT!!! However, there was a mistake in the calculation and we didn't get to sell any of our stock. The stock went on a slide that ended down somewhere greater than 90 percent lower than we had thought we had agreed to sell our stock at. This was a frustrating experiment for our team that shed so much light on bidding processes, game theory etc... More recently we did much better buying stock in a company that was trading well below the upper end of their dutch auction range. All that to say, this topic is so interesting as a continuous bidding process would alleviate so much inefficiency in just about every market. As I mentioned last week I was bidding on a great property and waiting to hear what they bank would do. They have rejected both of our offers. I would be willing to go a little higher, but they don't seem to want to budge on their price. I have analyzed the property every which way I can, and I just don't think the bank has reasonable data on the market here. They are counting on value from property that may never be realized due to local laws. If there were more bidders, the bank would have better data to make a decision. Right now it's just me.
The most interesting part was that using the second bid and adding a penny actually drove up the offers. This makes sense because it takes fear out of the equation. The bottom line is you bid what you think and get a reasonable price. If you are high, your penalty is only one penny! Reducing that penalty literally changes the game!
Executive Summary for Pinterest
Value Proposition
Unlike all the other sites at the time, Pinterest was organized around images of things that interested you, not textual based comments like Facebook and Twitter. All of these other sites focused on connecting people and ideas, Pinterest focused on those ideas but as images.
Customer Relationships
There are really only two customers, users and advertisers of some sort. Right now, based on the yesterdays USA Today article Pinterest isn't really charging advertisers. However, the commentary about retailers providing data about products pinned and then allowing click through to their site to even buy the items leads me to the view that they will eventually need to and start charging for advertising.
http://www.usatoday.com/story/tech/columnist/talkingtech/2013/08/21/pinterest-building-audience-before-taking-ads/2678825/
Channels
The Channels I listed were direct and Indirect. Direct would be direct selling or advertising, but I could see a direct model where traffic might flow Pinterest to other sites and Pinterest might make money on click through.
Customer Segments
Segments I broke down to users (free and premium). Capping Pins or Pins per week, something like what LinkedIn would help drive a model that allows them to charge for premium users as well as still offer the site free and generate add revenue. Add revenue was my third segment and this is relatively straightforward. One thing I do believe that is important is not making the 46 million and growing users feel like they are being advertised too. I like the idea of retailers putting a certain level of background data out there that then allows them to have information on costs, dimensions, sizes, etc... This seems more like a value add than a hard sell. Finally, I have revenue share with customers as Pinterest users click through and purchase goods.
Key Partners
This is simple, you must keep the users pinning. If this tails off, there is no business. Second would be the advertisers, otherwise this isn't a business.
Key Resource
46 million users and growing. Again, this is nothing but an idea without the adoption that has been seen
Key Activities
Developing new and exciting ways for users to display their ideas.
Cost Structure
I used the Facebook model (rough) with cogs around 25%, then moved SG&A and R&D higher as they are trying to grow rapidly and don't have some of the scale benefit FB has. SG&A I modeled at 40% and R&D at 30%. This allows them about 5% operating margins and the ability to continue to invest to grow the business. The great part about Internet based businesses is the business scales very well.
Revenue model I did a build up on retail spending, premium users, and advertising of retailers. Because the model scales, you can maintain profitability at almost any level. This may be a gating factor for growth, but as of right now, the primary source of funding is raising money from venture funds. I think it's a great model and has the potential to be interesting. My wife has recently become an addict and is spending less time on Facebook because of it. She is also introducing my nine year old daughter to it and she loves it too.
Sunday, August 18, 2013
Business Model Canvas
Executive Summary of my business model canvas.
Value Proposition
The Value proposition is to offer above benchmark returns with below benchmark risk. This is what we strive for every day.
Customer Relationships
The institutional investment industry has really gone to a two tier model with consultants driving so much of the work. However, with key clients you have to go out and build those relationships regardless of the strength with the consultant.
Channels
Again, almost all money is placed via a third party search.
Customer Segments
I listed two segments for us as Small, Mid, and SMID and Large. These are how are teams are structured but for us, it's also a little different segment. There is more individual client money on the Large Cap side where as Small has very little individual money in the fund.
Key Partners
The big brokerage firms provide us research and trading and the technology providers enable our connectivity but also all of our data to do our analysis.
Key Activities
We research stocks and then we trade the ones we chose to buy. I should have included trading there as well.
Key Resources
The analysts and PM's in the firm drive the invest decisions and their collective knowledge and experience drive the performance.
From a cost and revenue side, it was a little different since we get paid monthly on assets under management. I just put in annual numbers to get a picture. Yes it a very profitable company as asset manages usually are. The biggest risk though is that one bad year and you could start losing clients. You have to keep doing the work!!!
update
So, right now I am waiting for the bank to respond to my offer. Interestingly, someone else decided they wanted to bid too. But not for the whole thing. They just want 2.5 acres. After a search of the property records on my counties website I agreed to let the agent present my second offer as if it were for 10 acres not 12. I was just going to sell the 2.5 anyway if they pushed me much higher on the price, and I don't have all the transaction costs, I can put less down on the property, and I don't have to deal with the subdivision process.
Before I was an investor I worked for large outsourcing firm and have heard all the Internet history. I have been on calls as IP network connections have been tested. But seriously, could I have done a third of what I did last week without the Internet? I still made a number of phone calls, and talked to a number of sources, but it was always an educated discussion versus just listening to them tell me what was needed.
Tick Tock, the bank is on the clock!!!
Before I was an investor I worked for large outsourcing firm and have heard all the Internet history. I have been on calls as IP network connections have been tested. But seriously, could I have done a third of what I did last week without the Internet? I still made a number of phone calls, and talked to a number of sources, but it was always an educated discussion versus just listening to them tell me what was needed.
Tick Tock, the bank is on the clock!!!
I wonder if the Numerati have figured out I am having a mid life crisis?
What a week. Last Friday I was checking the website remax.com to see if I could find a house with some property. I was so excited to see a property in the same school district we currently live in (same elementary school and everything) up for sale. It was even bank owned. I did some quick math and on a whim I decided to stop by Friday night.
WOW!!! What a property! And what a dump! The previous owners didn't believe in cleaning or caring for anything, EVER!!! I don't think the property had been cleaned since they moved in in 2007. I don't think they ever took care of the landscaping either. I asked the guy who was pumping out the pond... I mean pool... what was up with the property. He said he was just there doing some work to clean out the pool. No kidding, the pump was a dead give away! Anyway, he told me it was as big of a mess inside as it was outside. During our conversation, I found out he was a Realtor and would be more than happy to help me. I went home and did some quick research. Saturday I was back at the property looking with my wife and kids and Sunday with my contractor (aka brother-in-law). I did some research online and new what type of discount most foreclosures were going for. I therefore took that number and knocked off another 27% (don't judge, you should have seen the house!!!!). So, we waited. On Monday they countered. They pretty much told us to go pound sand.
Well, now I really took to the Internet. I reviewed more data on housing and was able to find an index for the exact zip code of the property. This allowed me to substantiate the price declines. I then found what the pumps for the pool would cost to replace online. Then I went and researched tractors to cut the grass. I would be going from a third of an acre lot to a 12.5 acre property. I had to know my cost to maintain it. I checked some pricing on line for landscapers and did the calculation on how long it would take to cut the property with a zero turn. Then I started thinking about all the landscaping and went and priced out a 1 series John Deere compact utility tractor (complete with front loader, backhoe, and post differ!) Back to remax.com as my wife side we hadn't looked at anything else. Ok honey, I found another property let's go see it. I have spent more time this week than I can even count researching the requirements to operate and pay for this property. I forgot to mention all the time on bankrate.com and talking to my buddy the mortgage broker. Add that to the searches on autotrader for pick-up trucks and Porsche's, I but the Numerati think I have multiple personalities!!!
WOW!!! What a property! And what a dump! The previous owners didn't believe in cleaning or caring for anything, EVER!!! I don't think the property had been cleaned since they moved in in 2007. I don't think they ever took care of the landscaping either. I asked the guy who was pumping out the pond... I mean pool... what was up with the property. He said he was just there doing some work to clean out the pool. No kidding, the pump was a dead give away! Anyway, he told me it was as big of a mess inside as it was outside. During our conversation, I found out he was a Realtor and would be more than happy to help me. I went home and did some quick research. Saturday I was back at the property looking with my wife and kids and Sunday with my contractor (aka brother-in-law). I did some research online and new what type of discount most foreclosures were going for. I therefore took that number and knocked off another 27% (don't judge, you should have seen the house!!!!). So, we waited. On Monday they countered. They pretty much told us to go pound sand.
Well, now I really took to the Internet. I reviewed more data on housing and was able to find an index for the exact zip code of the property. This allowed me to substantiate the price declines. I then found what the pumps for the pool would cost to replace online. Then I went and researched tractors to cut the grass. I would be going from a third of an acre lot to a 12.5 acre property. I had to know my cost to maintain it. I checked some pricing on line for landscapers and did the calculation on how long it would take to cut the property with a zero turn. Then I started thinking about all the landscaping and went and priced out a 1 series John Deere compact utility tractor (complete with front loader, backhoe, and post differ!) Back to remax.com as my wife side we hadn't looked at anything else. Ok honey, I found another property let's go see it. I have spent more time this week than I can even count researching the requirements to operate and pay for this property. I forgot to mention all the time on bankrate.com and talking to my buddy the mortgage broker. Add that to the searches on autotrader for pick-up trucks and Porsche's, I but the Numerati think I have multiple personalities!!!
Sunday, August 11, 2013
Warby
The Warby Parker articles were very interesting. I think there is a common problem when we look at "Internet Based" companies. Style is great, but it's personal. What looks good in a picture may not look right on you. When I was in middle school I saw a picture in a book at the place I went to get my hair cut. I decided I wanted it. My mom didn't try and talk me out of it, but did inform me that it would require me getting a perm. I thought, "that guy looks good with it, why won't I"? I looked like an IDIOT!!!! What was right for the 45 year old man in the picture looked remarkably stupid on my 13 year old head. Luckily I was captain of the football team or it could have gotten uglier than it already was. After the second person said, mam, what can I get for you while at a restaurant, I walked in and had them cut it REAL close to the skin. It's probably the closest I have ever had a hair cut and the happiest I have ever been to get my hair cut. Great lesson mom!
Seriously though, I go to Brooks Brothers, get measured, and wait for sales. I buy them shirts on sale and rarely go into the store. This strategy of show rooming will be vital. As we look at Best Buy struggling with becoming the showroom for Amazon and other Internet retailers you wonder what the right balance is between the virtual and brick and mortar? I would not want to run a REIT that focuses on retail space right now. As we see this show rooming continue, real estate will be less and less valuable. It's a very interesting problem. As far as Warby Parker is concerned, they have addressed the issue of not being able to touch, feel, and try on the product by shipping five options. They have taken the next step to open some show rooms. The Internet is great, and maybe one day it will work to virtually try product on, but right now we still need the bricks, just less of them.
Where I think there is almost more value is in a company like Hointer (I think of value in risk/reward). Everyone is trying to move to the Internet, but Hointer has figured out a way to make the shopping experience unique through technology. These types of businesses excite me. They are disruptive, but in a way that is more evolutionary vs revolutionary. I would love to spend some more time understanding businesses like this.
Seriously though, I go to Brooks Brothers, get measured, and wait for sales. I buy them shirts on sale and rarely go into the store. This strategy of show rooming will be vital. As we look at Best Buy struggling with becoming the showroom for Amazon and other Internet retailers you wonder what the right balance is between the virtual and brick and mortar? I would not want to run a REIT that focuses on retail space right now. As we see this show rooming continue, real estate will be less and less valuable. It's a very interesting problem. As far as Warby Parker is concerned, they have addressed the issue of not being able to touch, feel, and try on the product by shipping five options. They have taken the next step to open some show rooms. The Internet is great, and maybe one day it will work to virtually try product on, but right now we still need the bricks, just less of them.
Where I think there is almost more value is in a company like Hointer (I think of value in risk/reward). Everyone is trying to move to the Internet, but Hointer has figured out a way to make the shopping experience unique through technology. These types of businesses excite me. They are disruptive, but in a way that is more evolutionary vs revolutionary. I would love to spend some more time understanding businesses like this.
Interesting...
So as I mentioned in my previous post, I spent the week with 500 teens at a camp. It was an interesting week as far as social media was concerned. The kids tweeted, vined, snap chatted, instagram, and even facebooked a bit. What was bizarre to me was the lack of care regarding what they put on there. As we went through the week we learned more and more about the bizarre and inappropriate things the kids had posted in the past. I really don't think these kids get the impact that these things can have on them in the future. All the stupid things that I did, are stupid things I did. The stupid things these kids do get posted online and they create their own web persona. I wish they would listen, but it's quite intriguing about how little they care.
I have always tried to simplify the different Internet business models down to something like disruptive, purely online based, and something that was my hybrid based. These were very broad generalities, but I usually stack things in piles vs filing them and I like my "buckets" of stuff. It was interesting reading all the different nuances of Internet models. It's honestly so unique it becomes difficult to keep up with all of them. Because of that, the Business Model Generation text and the different patterns was intriguing to me. Talking about the five different patterns. Open business models and free are interesting to me. Free is not really free, it's about creating demand in an inexpensive low cost way. Then, you use that demand to sell product. The open model is interesting, but I have real issue with these models being sold as altruistic. The bottom line is Linux wouldn't have taken off without HPQ, IBM, and RHT getting behind the business. You can't have mission critical systems using software that is not in some way standardized and supported. The Long Tail was talked about in my last post, and though I don't like Netflix there is significant value in understanding what the Internet can do for you here.
The multi-sided Platform is interesting though. What used to be a sleepy business managing fleets is turning into a multi-sided platform with companies like FLT and WEX providing spending cards to fleets, but getting paid by the merchants. In addition they create value to the fleet managers by providing them all kind of management reports online. They are very interesting businesses growing rapidly with multiples expanding dramatically.
I have always tried to simplify the different Internet business models down to something like disruptive, purely online based, and something that was my hybrid based. These were very broad generalities, but I usually stack things in piles vs filing them and I like my "buckets" of stuff. It was interesting reading all the different nuances of Internet models. It's honestly so unique it becomes difficult to keep up with all of them. Because of that, the Business Model Generation text and the different patterns was intriguing to me. Talking about the five different patterns. Open business models and free are interesting to me. Free is not really free, it's about creating demand in an inexpensive low cost way. Then, you use that demand to sell product. The open model is interesting, but I have real issue with these models being sold as altruistic. The bottom line is Linux wouldn't have taken off without HPQ, IBM, and RHT getting behind the business. You can't have mission critical systems using software that is not in some way standardized and supported. The Long Tail was talked about in my last post, and though I don't like Netflix there is significant value in understanding what the Internet can do for you here.
The multi-sided Platform is interesting though. What used to be a sleepy business managing fleets is turning into a multi-sided platform with companies like FLT and WEX providing spending cards to fleets, but getting paid by the merchants. In addition they create value to the fleet managers by providing them all kind of management reports online. They are very interesting businesses growing rapidly with multiples expanding dramatically.
Saturday, August 10, 2013
What a week, and man am I behind
So, I spent the week with 500 teenagers at a camp on the Delaware River on the Pennsylvania Side. I saw tweeting, facebooking, snap chatting, Instagramming, vining, etc... I think I have determined what drives the constant innovation. As each platform becomes more known, more parents go and start joining that platform. Why, because they want to check in and see what their kids are doing? Well, you get busted on Facebook, you switch to Twitter, then you get busted there you go to Instagram. Finally, when you say screw it, I don't want to get caught doing anything, but I still wanna have some fun!!! So then you join snap chat and think you have the whole thing figured out... Then someone screen captures your stupid video clip. Oh well, looks like you can't escape technology. More to come!
Sunday, August 4, 2013
So, the Long Tail is why Netflix sucks!!!
Sorry, but it really does! I don't have time to watch an entire group of TV shows. I don't like searching for so so movies from 1984. Occasionally I will pop it up and find something I like. Tonight we watched the Lorax with the kids, it was good. It's probably the fourth time we have seen it. I didn't have to pay for it (other than my subscription I pay every month that I have forgotten about), it was relatively enjoyable. But to be honest, till tonight I didn't get it. I rationalized that parents kept it for their kids to watch cartoons. Or maybe people like really bad movies from the '80's and '90's. But, really what it boils down to is that it's cheap enough to not be a bill you are going to force out of your budget, the movies can be had for cheap enough, and the scale is large enough that they can generate a profit. And with the download service, they don't even have to send out the DVD or store it.
When I worked in the technology industry 11 years ago, I really got behind the Internet and it's disruptive effect on business. I kid you not, when I worked at a large IT firm, I recommended we start what would have been a similar business to freecreditreport.com. The problem was though that this wasn't what we did. We processed credit applications for banks. That was our model. We didn't capitalize on the disruption. I left there and went to work for an investment firm. There we had a gag order when it came to talking with reporters. One PM broke that and said some pretty stupid things to a reporter. He got fired faster than he could have yelled, "greed is good"!!! (He was a Gordon Gekko wannabe). The article was seen on the Internet by someone who got upset and he was gone. This strategy is basically sticking your head in the sand and acting like nothing is going on around you. Even if you are an early adopter, experiences can skew your view of how to use new technology. Situations like the Comcast service technician and the AOL call center rep mentioned in one of the readings can have a significant effect on organizations.
I think the thing that is so intriguing about the Internet is the change to business models. A family member wrote a book based on her experiences. She self published it, and has sold a couple thousand copies. While that is by no means a commercial success, the "Long Tail" reading and recording describe a business model that one is open to these small runs, but also has the potential to generate earnings down the road. This disruptive nature is interesting. But it isn't for every business. I think the thing to think about though is how an you harness the power of the Internet in your business. For example, though I don't talk about my current position extensively on LinkedIn, I have a significant amount of information about me and almost 750 connections. Me building my network there can only help in the long run. Even for the organization I currently work for.
The exciting thing I think I read about this time was the IBM VP talking about removing segmentation. As you think about this concept, it has a lot of exciting opportunities. For example, last January a number of retail customers really began complaining about show rooming and the effect Amazon and Ebay was having. At the same time, I covered a software company that focused on retail supply chains from warehouse to the shelf. They had issues in the March Qtr last year because customers quit buying software as they had to rethink this exact problem. How do we manage the data to work to keep customers in the store. The concept they gave was as your customer was standing in front of say a TV at Best Buy, if they went out to the Internet to check the price, you might flash a coupon or send them one to their phone. My first thought was I would leave the store and start to look to see who was watching me everywhere I went. The point is though, you can't market anymore to generations, male, female, working not. Everyone has their own desires and those that can put their message on point to that person has the potential to make a fortune. There is risk of course, but there is much opportunity if you can find that right balance.
When I worked in the technology industry 11 years ago, I really got behind the Internet and it's disruptive effect on business. I kid you not, when I worked at a large IT firm, I recommended we start what would have been a similar business to freecreditreport.com. The problem was though that this wasn't what we did. We processed credit applications for banks. That was our model. We didn't capitalize on the disruption. I left there and went to work for an investment firm. There we had a gag order when it came to talking with reporters. One PM broke that and said some pretty stupid things to a reporter. He got fired faster than he could have yelled, "greed is good"!!! (He was a Gordon Gekko wannabe). The article was seen on the Internet by someone who got upset and he was gone. This strategy is basically sticking your head in the sand and acting like nothing is going on around you. Even if you are an early adopter, experiences can skew your view of how to use new technology. Situations like the Comcast service technician and the AOL call center rep mentioned in one of the readings can have a significant effect on organizations.
I think the thing that is so intriguing about the Internet is the change to business models. A family member wrote a book based on her experiences. She self published it, and has sold a couple thousand copies. While that is by no means a commercial success, the "Long Tail" reading and recording describe a business model that one is open to these small runs, but also has the potential to generate earnings down the road. This disruptive nature is interesting. But it isn't for every business. I think the thing to think about though is how an you harness the power of the Internet in your business. For example, though I don't talk about my current position extensively on LinkedIn, I have a significant amount of information about me and almost 750 connections. Me building my network there can only help in the long run. Even for the organization I currently work for.
The exciting thing I think I read about this time was the IBM VP talking about removing segmentation. As you think about this concept, it has a lot of exciting opportunities. For example, last January a number of retail customers really began complaining about show rooming and the effect Amazon and Ebay was having. At the same time, I covered a software company that focused on retail supply chains from warehouse to the shelf. They had issues in the March Qtr last year because customers quit buying software as they had to rethink this exact problem. How do we manage the data to work to keep customers in the store. The concept they gave was as your customer was standing in front of say a TV at Best Buy, if they went out to the Internet to check the price, you might flash a coupon or send them one to their phone. My first thought was I would leave the store and start to look to see who was watching me everywhere I went. The point is though, you can't market anymore to generations, male, female, working not. Everyone has their own desires and those that can put their message on point to that person has the potential to make a fortune. There is risk of course, but there is much opportunity if you can find that right balance.
Saturday, August 3, 2013
What do I want to get done this week?
Honestly, my goal is just to keep my head above water this week. I am gone next week and will have very limited access to the Internet. So, I am trying to get ahead as well as deal with earnings season. Earnings season for an investor is like drinking through a fire hose. It can be intense. My goal is to read and listen to all the required readings for week three. In addition, I would like to at least skim or listen to a couple of the other readings/recordings/videos, we'll see.
It was interesting this week to be sitting at work and looking at a company that I had done some work on but decided not to invest. The company was Garmin. What struck me as add was Twitter posts were running through my news feeds at work. Garmin was tweeting their earnings call and Factset had picked it up as news and was running through my feed. So, looks like I am going to be doing Garmin for me Twitter assignment due tomorrow. Very interesting.
I have read some of the IBM reading on moving from segmenting customers into groups but now moving forward with a segment of one. This is very interesting to me and used to own a company that was in many ways trying to capitalize on that. I will expand on this in a later post.
It was interesting this week to be sitting at work and looking at a company that I had done some work on but decided not to invest. The company was Garmin. What struck me as add was Twitter posts were running through my news feeds at work. Garmin was tweeting their earnings call and Factset had picked it up as news and was running through my feed. So, looks like I am going to be doing Garmin for me Twitter assignment due tomorrow. Very interesting.
I have read some of the IBM reading on moving from segmenting customers into groups but now moving forward with a segment of one. This is very interesting to me and used to own a company that was in many ways trying to capitalize on that. I will expand on this in a later post.
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