Category: future

Is Groupon the small business saviour?

Does the deal of the day change the way we do business?

Since Google’s rejected offer of $6 billion dollars to buy deal of the day website Groupon, there’s been a lot of discussion of just what Groupon and the hundreds of similar services mean to online commerce and small business.

Groupon’s CEO, Andrew Mason, even went as far as to declare his organisation the “saviour of small business” on the Charlie Rose show.

John Battelle, founder of The Industry Standard and co-founding editor of Wired, examines Groupon’s business model on his Searchblog and concludes it will be the small business platform for the mobile Internet just as Google are to the web and Yellow Pages were to the telephone.

The problem with these ideas is scale. If every small business had the capacity and wanted to be on Groupon, the service simply couldn’t cope and the model breaks down.

In my area there are, according to the Yellow Pages, 115 hairdressers in my district. Even if Groupon were able to geographically target me to my neighbourhood, they’d need a third of the year just to cover hair stylists which is tough luck for the lawn mowing services, plumbers, patisseries and other small businesses that may also want to advertise on Groupon.

Which takes us to customer motivation, when I’m looking for a haircut, hedge clipping, cleared drain or chocolate gateaux I’m not particular driven by finding a bargain – if I do that’s great – but it’s not my motivation to buy.

Groupon, and the other deal of the day sites, are driven by customers looking for discounts, and the key to business survival – particularly in retail – is not to depend on discounts to drive your business. So business models that rely on discount hungry customers, or cashflow desperate merchants, are always going to be limited.

Groupon is a great business and it may well turn out to be worth $6 billion or even $36 billion. The barriers to entry are not so low as anyone who thinks executing an idea like this is “easy” doesn’t understand the work involved in building a local sales team like those of Groupon or Yellow Pages.

It could well be that Google wanted to buy Groupon simply for that sales team. The failure of Google to properly execute on their terrific local search product has baffled me for some time and the only explanation I can put down to it is what Silicon Alley Insider’s Ron Burk attributes to Cash Cow Disease, where companies like Google and Microsoft find themselves paralysed by the rivers of cash flowing into their businesses.

Deal of the day sites have an important role to play for businesses looking at demand management or clearing inventory and Groupon is a good business just like Clipper Magazine or Shop-A-Dockets, but to claim they are going to be the next great revolution for small business is giving too much importance to these channels.

There’s no doubt though that small businesses will be the big winner when we get local search on the web right. When we get it right we’ll probably see the hyperlocalisation model for the media start to take off as well. So it could save two industries.

Groupon though is not the small business messiah we’re looking for.

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Deskilling a society

Is outsourcing destroying our supply of skilled workers?

The Economist looks at outsourcing in the legal profession and how various services are now being offered claiming to cut lawyers’ bills by up to 80%.

All of this is valid as legal costs have escalated to the point that governments and businesses are baulking at the sheer expense of lawyers’ services.

There is though another aspect to this issue; is this another step in de-skilling our society?

A key point in the article is “…plenty of legal jobs are routine. American law firms typically get fresh law graduates to do such grunt work…”. While that grunt was profitable – as The Economist points out law firms would “bill clients for it at steep rates” – it is also how young lawyers are trained.

The article observes that Thompson Reuters recently bought Pangea3, a legal outsourcing firm with most of its lawyers in Mumbai, while announcing it is looking to sell BarBri, a company that prepares US graduates for bar examinations, which leads to the conclusion that training young American lawyers is not a good business proposition as selling the services of cheaper Indian lawyers.

Neglecting the training of young workers has been a notable point of Western economies in the last 30 years and while we can argue that fewer lawyers may not be a bad thing for these societies, the problems of not training nurses, electricians, builders, computer programmers, call centre staff and Engineering workers is now becoming a problem as we’ve find the global competition for skilled workers is intensifying.

There’s no easy answer to this deskilling process as outsourcing and globalisation are a fact of life in the connected economy. But we need to be aware of this process so we can trim our national economic and education policies to suit the times.

It’s certainly clear that pumping out thousands of law students who’ve been promised lucrative careers checking commas in contracts for big corporations is a losing proposition, but what should we be training these folk for?

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What the Internet doesn’t know about us

Can the web know all about us? Should we care?

In October 2010 Newsweek’s Jessica Bennett asked the the team behind the Internet service Reputation Defender to find all they could about her.

The results were startling, within half an hour they had found her US social security number and a few more hours digging revealed her address, hometown as well as many other private details.

But ultimately the picture of Jessica’s life was wrong. The team made mistakes about her personal habits, sexual orientation and the time she spends online.

The fact the profile was incorrect shows how difficult it is for computers, or people, to understand an individual based on a series of data points.

Most of us understand that making a generalisation based on single data point – say race, gender, appearance or sexual orientation – is usually incorrect, but when we add more data points things become even more difficult.

Once we get more than one data point, we have to start weighting them. Would Jessica eating at McDonalds twice a week outweigh her exercising every morning in the eyes of an insurance company assessing her risk?

That problem could be called the Google effect where a formula, known as an algorithm, becomes so complex that it becomes bogged down under the weight of its own assumptions as we saw with Tony Russo’s gaming of the search engine’s ranking system.

All of us as are steadily revealing more about ourselves onto the web, whether we know it or not. Every time we like something on Facebook, subscribe to a newsletter or make a comment on a blog post, we are giving a little something about us away on the publicly accessible Internet.

Over time, anyone can build a picture of us. However it may turn out that nobody will want to know about the detailed, complex and multi dimensional portrait each of our lives would be.

As information about all of us becomes more available, we may enter a modern version of the Mutually Assured Destruction doctrine of the Cold War as each of us find that everyone around us has enough information to bring our careers, relationships and status crashing down.

But equally we hold equally damaging data about all our peers as well and to bring anybody down based on this information we have would be to invite the wrath of many others who know about our intimate details.

We may even find that because all of us, being human, have some damaging traits and history that employers, insurers and governments only care when you start hiding them. Today we see this with security vetting procedures which are more concerned about what we hide rather than the specifics of our foibles and indiscretions.

The assumption of those security agencies is that a self admitted gambler, alcoholic or philanderer is a manageable risk while those hiding such secrets from their families and employers are the genuine threat to an organisation.

So we come back to a society where a tacit agreement exists between us all that this dangerous power is only used when someone has acted illegally or hypocritically.

Perhaps that is the future we are heading for, where the Internet knows all but we simply choose not to access it. Which assumes it’s all correct anyway.

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Other peoples’ platforms

The risks in the privately owned web range from obscure terms of service to arbitrary payment problems. This is why you need to control as much of your business’ online presence as possible.

“We have successfully established an online business, but we have run into problems with Ebay (indefinite suspension – unfairly I might add)” wrote Ralph*, an old client.

“We are pretty desperate, as this is now our sole business and we are now without an income.”

The Privately Owned Web

Ralph’s problem is typical of thousands of businesses that rely on one Internet service. Some months back we looked at “Nipplegate”, the story of a Sydney jeweller who had her Facebook page closed down because of her anatomically correct dolls.

All of these services are privately owned with their own terms and conditions along with their own corporate objectives. If you choose to use their product, you have to follow their rules – just like a shopping mall management can order you off their premises because they don’t like the colour of your socks.

The most glaring example of this is Wikileaks where Amazon, Paypal, Mastercard and Visa all threw the whistleblower site off their services for allegedly breaching their terms of services in various obscure ways.

The Terms of Service Trap

A business’ Terms of Service usually feature clauses wide enough to catch even the most honest and diligent business, this is by design as it gives management the excuse to throw anyone who makes their lives difficult, which is exactly what has happened with Wikileaks.

While Ralph’s problem is nothing like the scale of Julian Assange’s, all of these stories illustrate the dangers of relying on one service for your livelihood. Should that service change the way it operates, then any business that relies on that could be broke in hours, as many businesses that rely on Google search results have found.

Most of the Internet is not a public space, almost all of it is privately run along similar lines to that shopping mall or a walled estate.

Ralph and Julian Assange have shown us the limitations and risks of the privately operated web. As citizens and business owners we have to understand these corporations’ objectives are not always the same as ours and make judgements on how we live with the risk of finding ourselves in breach of a Term of Service in our business or personal lives.

We’re still in relatively early days of the net and all of us are still learning. One lesson is clear though, we can’t allow our livelihoods to be held hostage by a small number of big technology companies. Make sure you have alternatives to your online channels.

*Ralph is not his real name

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Rescuing retail

A Sydney butcher shows how the retail industry answers the challenge of industry change

The retail news is bad – consumer spending is dropping and the remaining customers are going online, eBay is taunting the big retailers who in turn are threatening to set up Chinese based online stores.

Are things really that bad for the bricks and mortar retailer? Are the suburban malls and high street stores doomed?

Maybe not.

In New York on the weekend Vic’s Meats, a butcher in Sydney’s Eastern Suburbs, won the retail prize at the Interior Design magazine’s Best Of Year awards for their Victor Churchill retail outlet.

Vic’s Meats show how retailers can succeed in a sector going through fundamental changes.

The last forty years have been tough for butchers as many of the traditional operators went to the wall as the sector struggled with supermarkets selling cheaper pre-packaged cuts and changing hygiene standards.

Butchers who moved up the value chain and focused on delivering high quality product survived. That same process is now happening in a similar way in other retail sectors as more efficient, convenient and cheaper providers change their markets.

At the moment we’re seeing two contradictory trends, a move to commoditised, global markets driven mainly on price and niche markets based around convenience, locality and service. The struggle right now is for established players like Myer, Harvey Norman and local retailers to understand where they fit in this system.

Vic’s Meats have figured out where they sit in their market and their lessons are valuable for other business owners figuring where their place is in this new retail world.

You have to be online

Even if you have no intention to sell online or overseas, your customers are still looking for you online.

It’s absolutely essential, regardless of what you do, to have a basic web presence. Even existing customers are looking up your details on the web when they forget your phone number and if you aren’t there, they may find your competitor’s.

We’ve covered previously what the basics of an online presence are. Make sure you have a Google Places account, Facebook page and a basic web site so people can find you.

You have to be telling your story

Whether you have the best meat, the freshest doughnuts or the fastest lawn mowing service in town then you need to be loud and you need to proud ­– let the world know about it.

Your website needs to say why customers should trust you and why it’s worth spending more with you than with the cheaper guy in the next suburb or continent.

One particular bugbear are bland and anonymous “about us” pages on many business websites which tell nothing about the business or the people behind it.

Your About Us page should tell the journey of why you were driven to become the best butcher, doughnut seller or lawn mower in your district. Leave the robotic mission statements to the big corporations and celebrate your competitive strengths.

You won’t win on price

The online channels don’t have the cost structures of bricks and mortar stores and that’s nothing new as small retailers have had to compete with the big chains’ economies of scale for years.

So don’t bother. Sell your story, your quality, your passion and your knowledge.

Be a resource

Engage with your local market. If there are changes, issues or events that affect your neighbourhood or market, update your site to reflect this and use social media like Twitter updates and Facebook pages to put the message out.

Vic’s Meats does that well with an informative website, recipes, cooking classes and an iPhone application. All of this builds the story that they are the experts and the people you should go to if you want the right cut of meat.

This is where Harvey Norman and Myers are failing. Many have of us have stood for half an hour waiting in Myer store to get service from an overworked assistant or have been given poor advice by a badly trained, commission driven teenager in a Harvey Norman store.

Gerry Harvey and Bernie Brookes have blown the advantages that Harvey Norman and Myer had over the online players and instead cruised on their respective models of offering interest free purchase plans or perpetual discounting.

Those tactics gave them nearly ten years breathing space while the online retail industry learned their lessons from the dot com bust. That both businesses are now reduced to making empty threats in the hope of scaring the government into wasting millions on a pointless change to customs regulations is an instructive lesson in itself.

An irony in all of this is that major chains such as Harvey Norman and Myer were part of earlier waves of change which put established retailers out of business. We should give particular thought about those butchers who fell under the market might of Bernie Brookes’ old employer, Woolworths.

Those businesses died because they couldn’t see, or deal with, the rise of the big category killers like Harvey Norman, Officeworks and Bunnings or with the longer term trends like that of shoppers moving from high streets to suburban shopping malls.

The jury is out on how many local retailers ­– both big and small– will go to the wall as online shopping gains acceptance, though it’s probably not a good idea to put a bet on those who sit on the sidelines and whinge that the “gummint orta do summint”.

Do you want to be one of the successes? If so, learn from Vic’s Meats and the other Best of Year award winners and sharpen up what you’re doing both online and in your store.

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ABC Nightlife: 2 December 2010

Windows celebrates 25 years while the web turns 20, where do we go next?

Microsoft Windows has celebrated its 25th birthday and the web turns 20 this month. Join Tony Delroy and Paul Wallbank to discuss where Windows has been and where computers are going over the next two decades.

If you missed the program, a recording is available on the Nightlife website.

Join us on your local ABC radio station or listen online at www.abc.net.au/nightlife.

If you’d like to join the conversation with your questions or comments phone 1300 800 222 within Australia or +61 2 8333 1000 from outside Australia.

You can SMS Nightlife’s talkback on 19922702 or twitter @paulwallbank using the #abcnightlife hashtag

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Where next for the consumer society?

Have we reached the limits of consumerism?

Anand Giridharadas in his NY Times article on A Yearning for the Soul in Two Nations describes how he believes some in India and China are seeking alternatives to the affluence models of the developed world. He says;

“In this view, there is too much mimicry of Western models, regardless of their fit. There is too much attention to money, and not enough on culture and values. Journalists, Mr. Ji said, don’t ask him what he thinks or how China might be changed; they concentrate on his Forbes rich-list ranking.”

But is this really a Western value, or the result of a half-Century of consumerism?

Up until the Second World War, most Western societies operated just like the “traditional” societies of Asia where extended family and the community looked after their old and sick with it being quite normal for four generations to be living in one small house.

Post World War II, the advent of the nuclear family and increased material wealth allowed us to dispatch Nana to the nursing home, where we’d expect the state to pay for her dotage. This allowed debt laden working age families to get on with working two jobs to bring up two kids in a five bedroom house on the outskirts of town where we could retreat away from the surrounding community into the soft comforts of mass entertainment.

Has that model of the consumer society reached it’s limits?

In the West, the last two decades have been focused on ever elaborate mechanisms to put consumers, government and societies into greater debt in order to sell more plasma televisions, bigger cars and empty bedrooms in oversized McMansions. In turn government borrowed more to sustain the illusion that this material wealth could be enjoyed throughout retirement.

The Global Financial Crisis was the undoing of this as the mechanism to continually fund debt and bankers profits stretched to its limits and finally broke. Today, we have the bankers being bailed out by governments which in turn have to be bailed out by supra-national organisations like the IMF or European Union.

While Anand’s right in pointing out that some Indians and Chinese are questioning the Western style rush for consumer driven growth, it would be wrong to assume that nobody in Europe, North America or Australasia questioned this as well.

In the west, these voices were drowned by the obvious attractions of having a ice cream maker and espresso machine in every kitchen but they were there nevertheless. Today they are being heard.

We in the developed nations have reached the maximum point of the consumer society – we have enough plasma TVs in our households and many of us have reached the limits of how fare we can commute in a day. We were able to sustain this for a while after we passed the point we could afford it as cheap credit became easier to obtain but even that is now exhausted.

So we’re looking at a period where consumer spending is not going to drive the world’s developed economies the way it has for the past few decades.

In some respects this will mean a nominal reduction in our standard of living as we won’t be able to buy that third car, fifth iPad or go on overseas holiday every year and it will mean some industries based on the extremes of consumer spending will shrink.

But overall it may not be a bad thing as it will force us into spending more time with our local communities and families with our incomes and debts being tempered to more sustainable levels. We’ll invest in sustainable and important matters like our health and environment rather than speculate on overleveraged assets.

This will be great challenge to businesses and industries built around servicing every increasing consumer demands and many won’t cope with the change. Are we, and our governments, prepared for this change?

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