Thursday, February 24, 2011

Challenges facing Internet startups

Based on the Taxi Magic presentation and the case for next week, what do you think are the key challenges facing Internet startups as compared to brick-and-mortar companies?

Obviously, brick-and-mortar companies encounter several obstacles that Internet startups do not, but here, we discuss the other way around: the key challenges that Internet startups face compared to brick-and-mortar companies:
1. Harder to build trust
When people open a brick-and-mortar company, customers come and feel more secure doing business with them because their presence is known to several parties: property manager/landlord, county/city tax department, distributors, and so on. From customers' perceptions, brick-and-mortar companies also tend to stay long-term since it takes time to move away with  furniture and goods/products. On the contrary, customers tend to be more suspicious when browsing a website because the website can disappear in an hour without leaving any traces and customers have no way to track down if they lose money, need to return, or simply contact the company. As an example, Tim Csontos said they initially asked customers to give credit card info and no single person was willing to do that. If it had happened at a brick-and-mortar store, the chances that customers accepted that request would have been higher. Similarly, among the feedback from MusicJuice was "I do not trust the website with my money." This trust issue can have domino effect: I don't trust it, then my families and friends don't trust it, either.
2. More competitors
Brick-and-mortar companies do have competitors but usually within a specific region, there are no or just a few competitors. In contrast, Internet startups usually encounter more competitors due to:
- Internet is borderless, so competitors can be all over the world. For MusicJuice based in Toronto: competitors Sellaband from Amsterdam and Slicethepie from Berkshire.
- Internet businesses can be easier to be copied. Brick-and-mortar companies usually involve customer services and harder to imitate. For internet startups, if their business models are good enough, giant companies can copy and with their brand names and huge resources, they can beat those startups.
3. Unable to reach customers
Brick-and-mortar companies usually target on local people, So, they usually pick a great location with high traffic or in a shopping mall, so they get more exposure to local people. They can drop leaflets at residential homes to invite them to visit. For Internet startups, they need to deploy different marketing strategies. Taxi Magic resorted to well-known "tech people" such as the co-founder of Twitter and a person in San Francisco who has more than 1 million followers on her blog. It also managed to get voted among the top choices on Apple apps. They also offered free text messages for taxi companies to reach customers. MusicJuice depends on Google AdSense.
4. Website
Since this is the place that customers visit and decide if they want to do transactions with the company, it must invest significantly in design, making the website attractive and at the same time easy to navigate and take actions. The website performance, reliability, and security are also crucial. With limited cash at the beginning, the website development cost almost all of its cash, with only $5,000 left. Since there are millions of websites, it's very hard to design one website that stands out and attracts many people, both the look and feel and the activities. That's why MusicJuice got the feedback of boring website with few activities.

Sunday, February 13, 2011

When Passion for Movies, Technology Collide

The article is from WSJ on Feb 10, 2011
Netflix definitely pushed several competitors out of business but in this article, Mr. Skorman, an Internet and retail entrepreneur, "believes rental stores with loyal followings in vibrant neighborhoods will survive.", citing that people still need "community element" that online can't offer.
Notice that there are at least two conditions for the brick-and-mortar model to survive: loyalists and vibrant neighborhoods. So, this model can work but only as highly specialized boutiques located in some crowded areas due to the two dramatic limitations that Chris Anderson pointed put in "The Long Tail".


What do you think is the best long-term strategy for Netflix, given the recent growth in popularity and competition in the market for online streaming content?

Netflix is a great example of adjusting its strategies based on the user feedback and changing environments, either internal or external. It started with a pricing model similar to the one used by traditional video stores: $4 per movie plus $2 shipping and handling charge and late fees. Customers voiced their frustrations and Netflix switched to no-late-fee subscription model. A great way to differentiate itself from brick-and-mortar competitors and bring more value to customers. Another example is moving from no direct relationships with major studios to direct revenue-sharing agreements with nearly all of them.
To sustain its position as a giant in the media industry, it needs to pursue a long-term strategy with several moves:
1. Continue the close watch of VOD developments and adjust the strategy accordingly. Partner with key IT players in this trend since as Sarandos explained "What we do is probably 70% science, 30% art." To live up with the three strengths: convenience, value, and selection, Netflix definitely needs to invests continuously in IT.
2. One primary limitation of VOD is content availability. Netflix can add more content to serve the "long tail" community by reaching out to more foreign major studios. As Chris Anderson pointed out in "The Long Tail", with this new economics, in which it matters not where customers are or how many of them are seeking a particular title but only that some of them exist, anywhere. With more diverse content, Netflix can both satisfy current subscribers and attract more new customers.
3. Add more "extras" on Netflix. 
When users select a title to watch instantly, Netflix offers services such as Order Foods and Drinks and Share with Friends. If the users select Order Food and Drink, Netflix can give recommendations based on their history, the statistics of others watching the same title, and the ratings. The idea is similar to movie recommendations. The users can choose to enter their inputs. To make this work, Netflix needs to partner with restaurants. Share with Friends is letting the users' friends know that the users are watching this movie now. The purpose is that their friends can pick that movie to watch, too and later on, they can discuss the movie.
When users select a movie for their queues, Netflix displays the list of their friends who have already watched it. This way, the users can have reviews from their friends, making the reviews more likely to be reliable and valuable. Netflix can partner with Facebook, Twitter, or other social media.
After users watch a movie, Netflix displays All About <the movie title>, for example All About Finding Nemo. It is basically a store where users can buy CDs, books, posters, toys, games, clothes, and anything related to that movie. 
The ultimate goal is to deliver more content instantly and conveniently, more relevant services, and greater viewing experience.  

Tuesday, February 8, 2011


What do you think is the best way for Yelp to monetize the reviews and content they’ve generated, going forward? How scared should Yelp be of Google Hotpot and what should they do to maintain/grow their position?

Yelp should be very concerned with not only Google Hotpot but also other websites such as Yahoo! Local and CitySearch. With many competitors around, Yelp risks being just another review website with not much differentiation. Also, popular websites such as Facebook and Twitter can expand their businesses to include services that are similar or even better than Yelp. Furthermore, these potential competitors have the advantage of well-established names and the network of friends, who users trust much more than several strangers on Yelp.

The first option is charging users for accessing the website. Yelp can charge differently to different groups of users and even give free access to some special groups such as Elite Squad, seniors, or military families. They can also use freemium models. However, due to little switching costs, this will drive away several users, who will likely join competitors’ website. Consequently, in the long term, Yelp is losing market share and can lose ground altogether unless it finds some ways to leverage its website to differentiate itself and bring more values to users.  This may mean to turn this website into a high-end place for quality and trusted reviews by hiring “review experts” or giving more incentives to great reviewers. This option is very hard to implement unless it has very creative, innovative and dedicated technical team. This solution may also work only in the short-term since more and more companies offer free access with similar or even better services.

The second option is to invest more money and effort in the sales team, making them greater in number and more aggressive and creative in reaching out businesses for more advertising money. Different from the first option, this one does not guarantee that the time and money invested for the sales team will be made up and the sales team can even bring in more money. Another uncertainty is that no matter how smart and dedicated the sales team is, they cannot persuade businesses to sponsor if Yelp does not create more incentives for those businesses.

The third option is to partner with other applications such as Facebook, Twitter, and Microsoft Bing. This way, Yelp will get more exposure and build its brand name, thus getting more recognition and users. Business will be more likely to spend advertising money on Yelp. Yelp is already listed as a partner site on Facebook. However, it is hard to get the buy-in from other applications since they themselves can expand their services to include reviews like Yelp. Even though they agree to partner, there can be conflicts of interests or different business strategies that Yelp must depend, compromise or sacrifice. 

The fourth option is to sell the business to whoever is interested. This is probably the easiest way, no longer worries about ways to get more revenues and be competitive. Then, Yelp just gets one-time money and the price offered may be far below what Yelp perceives. This may be a recommendation given Yelp services and the popular business model of free access from several websites. Also, social websites such as Facebook have more advantages since reviews or requests are among circles of friends, who we trust more than strangers on Yelp.

The fifth option is to reach out further, to countries with fewer competitions such as in developing countries, where there are no or few websites exclusive for reviews with the extensive interface and services in compared with Yelp. Yelp can have its website to be translated into local languages and hire local people to do the job. Since Yelp already has the website, it just needs to translate into different languages, so the cost of this translation is insignificant compared with what it had invested in the website. Yelp may use some models similar to “franchise” so it can reduce risks. This option definitely poses some risks. Doing business in a foreign country, especially with different language and culture, requires the management to be very adaptive and Yelp likely to be dependent on the local people to manage and operate.

Among these options, the third and fifth look much better given the harsh competition and this globalization trend. For the best solution, Yelp should implement both of them.

Sunday, February 6, 2011

Some interesting contrasts between Webvan and Yelp

Of course, Webvan and Yelp cases share some similarities, but there are many interesting contrasts partly due to their different industries, both grocery and last-mile delivery industries for Webvan and information goods industry for Yelp. First, during the first few years, Webvan tried to launch its services in several big cities while Yelp just focused on establishing its presence in San Francisco. Second, Webvan spent over $100 million upfront on distribution centers whereas Yelp needed very small infrastructure investments. Third, Webvan needed a complicated supply chain management since it’s in both grocery and last-mile delivery industries. Meanwhile, Yelp was in information goods industry and dedicated to its web content. Finally, Webvan’s direct source of revenues was users and could have made profits if the number of users was big enough. In contrast, Yelp already had a great community of users but could not find ways to monetize this.