Learnings from Managing Ecommerce

This is the final required post for the Managing Ecommerce course. However, I liked 

writing a blog so I’ll continue. I don’t consider myself tech savvy or having that natural 

tendency to keep up-to-date with technology, but I’m conscious of its increasingly huge 

importance and that was the main reason for taking this course. 


Doing research for this blog, allowed me to catch up on current trends such as Apple 

Pay, Shopify and Alibaba, and share it with that anonymous audience of 179 people 

that Internet allowed me to reach. After all, technology is not something you learn 

once; you need the curiosity to keep learning by yourself as it evolves. I 

developed that curiosity attending the classes and writing these posts.


Even though as future managers and entrepreneurs we will probably rely on experts to 

take care of the IT aspect of the business, it is extremely necessary to know the tools 

that are available and the basic functioning of them. This allows you–at the very 

least—to know what questions to ask. (I’ll put in italics some of the most important 

concepts I learned and if you’re still not familiar with them, you should definitely 

Google). 


Knowing the basics behind the “magic” of the Internet (client-server model, HTTP, 

TCP/IP, gateways); the use of some IT business tools (CRM, ERP, Open source 

software, Cloud computing, BI); and how to protect yourself against the risks involved 

with the dependence on technology (firewalls, BCP and DRP), gave me the high-level 

understanding on how to take better decisions about which tool to use.

Apple Pay: Your wallet. Without the wallet.

Apple Pay, Apple’s contactless payment technology launched one month ago—on October 20^th—allows iPhone 6, 6 Plus, and Apple Watch owners make payments using their devices’ NFC.[i] NFC is a short-range wireless communication that uses a smaller antenna than the wavelength of the carrier signal.[ii]

To pay, Apple Pay users just hold their iPhone near the contactless reader at the POS while placing their finger on Touch ID and a vibration and beep will confirm that the payment was successfully sent. To set up Apple Pay, users store their credit or debit cards on Passbook. They can add the card from the iTunes account by entering the security code, and additional cards by taking a picture or typing the number.

The main benefits Apple Pay offers are convenience and security, since you don’t have to expose your card and personal information and it won’t even be stored by the store nor by Apple. If the phone is lost, the user can deactivate it online.

Apple has partnered with Visa, MasterCard, and American Express and has signed deals with major banks such as Bank of America, Chase, Citi, and Wells Fargo, which are responsible for 83% of all credit card volume.[iii]  Because Apple Pay is based on already existing NFC technology it works in more than 220,000 locations that accept contactless payments.

The question arises: How long will it be until Apple’s competitors copy this system? Will this achieve a really high penetration, making the use of physical credit cards obsolete any time in the future?

---

[i] https://www.apple.com/iphone-6/apple-pay/

[ii] http://en.wikipedia.org/wiki/Near_field_communication

[iii] http://www.macrumors.com/roundup/apple-pay/

Shopify: Making ecommerce accessible for everyone

Shopify is a computer software provider that powers both online stores and retail point-of-sale systems. It is based in Ottawa and was founded in 2006 after the owners, Tobias Lütke, Daniel Weinand and Scott Lake developed the ecommerce platform for their own store and realized the market need for a user-friendly ecommerce platform. They provide their services to more than 120,000 store owners including General Electric, Amnesty International, CrossFit, Tesla Motors, and others. The company has received $122 million in Series A, B and C funding from well recognized venture capital firms.

Shopify is a good option for companies that want to start selling online but do not have the infrastructure needed to set up their own ecommerce website. They offer very convenient features to make the website creation process easy. This includes a collection of over 100 free ecommerce website templates with themes created by world-renown designers. Shopify’s Liquid templating language, as opposed to HTML, makes it easy to customize every aspect of the online store.

Store owners can start receiving orders from day one. They only need to choose a template and add their products. The company handles payments directly from Visa, Master Card, American Express and Paypal. Shipping rates can be set up in a number of different ways, including fixed-price, tiered, weight-based and location-based rates. Another very useful feature is Shopify Reports, which allows store owners get a better understanding of the month-to-month sales performance. Shopify makes ecommerce even more accessible for everyone, lowering entry barriers.

Staples.com is much bigger than what I thought!

It may look counterintuitive that Staples –an office supplies retailer- is the third largest online retailer with $10.4 billion online sales in 2013 (45% of total revenue)[i]. After all, office supplies doesn’t sound as the first thing to be bought online nor are the most expensive items. However, it was only last year that this retailer lost the second place among the biggest online retailers, being surpassed by the giant Apple. Staples’ products also include computers, cellphones, electronics, furniture and many others, which I thought could explain the outstanding company’s online revenue. However, office and school supplies account for the biggest percentage of total sales (45%).[ii]

In 2013 Staples announced a new type of smaller stores that engage visitors with interactive kiosks aimed at driving more sales to Staples.com. An important role in online sales is also played by Staples Rewards program, which offers customers 5% back in online/offline purchases as well as free shipping.[iii]

While the rise of ecommerce has been seen as a threat for many retailers, Staples seems like it has managed to successfully use this trend in its favor. Nevertheless, everything has a price (especially for store employees). In 2013, the company had 40 net store closures in North America and 40 downsizes and relocations. It also initiated a plan to close up to 225 stores by the end of 2015.[iv] This demonstrates a progressive migration from a brick and mortars business model to online. Will that be the fate of all the retail giants?

---

[i] http://marketingland.com/apple-takes-2-position-internet-retailers-list-e-commerce-sales-leaders-82991

[ii] http://netonomy.net/2013/10/04/selling-office-supplies-online-an-ecommerce-market-report/

[iii] selling-office-supplies-online-an-ecommerce-market-report

[iv] http://www.marketwatch.com/story/fitch-withdraws-ratings-on-certain-utica-ny-municipal-bond-maturities-2013-03-06

The war for the scarce consumers' attention

Last week the digital marketing guru, Mitch Joel came as guest speaker in our E-commerce class. He was Chairman of the Board of Directors of the Canadian Marketing Association. Mitch has advised many important companies such as Walmart, Starbucks, Procter and Gamble and Unilever.

According to Mitch, now that companies are making extensive use of internet and social media to connect with consumers, many senior executives say they feel they’re “in hell”. Why? The fact is that every single stakeholder (brands, sub-brands, retailers) is asking their customers to connect with them in social media channels, so the competition for attention is fierce.  More importantly, not only companies have the power to reach millions of people through media channels, now anybody can do it.

To illustrate this, the Mitch gave the extraordinary example of Bethany Mota, a YouTube “personality” who has gained the attention of more than 7 million subscribers on YouTube and other few millions in other social media channels by talking about teenager’s banalities. The most interesting part is that all this success could permeate the digital stage and some companies actually used it in their favor. For example, Aeropostale asked Bethany to design a clothes line that was sold out short time after it was released.

This is a great example of the importance of trying to deeply understand the consumer in order to talk to them in a way and with a message that can create a connection, obtain their attention and ultimately, their purchases. 

Key differences between Alibaba and Amazon

While Alibaba is successfully entering the US, Amazon is making efforts to expand in the profitable Chinese ecommerce market.

Both companies are leaders in their home markets, offer a wide variety of products to be bought online and have a big customer base and top level data infrastructure. However there are some big differences between both companies:

-       Type of operation: Alibaba operates an “open marketplace” that connects buyers and sellers. It doesn’t sell anything directly nor have any warehouses. Amazon operates a “managed marketplace”, selling most of their products directly and owning distribution centers. It even manufactures some of the products. In consequence, Alibaba has much higher margins than Amazon (~40% vs. ~1%) but the latter has a better reputation in customer service because it controls most of its processes.

-       Competitive advantage: Alibaba’s competitive advantage in the Chinese market is given by its understanding of the Chinese consumer and its mastery of the “intricacies of Chinese regulations” and how to work with governments. Amazon’s competitive advantage in Western markets is given mainly mastering logistics and supply chain management. Both would have a hard time trying to acquire the needed capabilities in each other’s home markets.

-       Scale: In 2014 Alibaba has 24,000 employees while Amazon has 88,400 (almost 4 times more). In 2013 Alibaba’s revenue was $7.95 billion and Amazon’s was $7.95 billion -almost 10 times more. This is given in big part by their type of operation.    

Sources:

Forbes. http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

Business Insider. http://www.businessinsider.com/alibaba-vs-amazon-2014-8

Alibaba's worldwide IPO record

Doing some research for my last week’s post about Amazon, it was impossible to miss out the Chinese e-commerce giant that’s making news: Alibaba. Its recent IPO less than a month ago (Sep 19^th) became the biggest in the world. The fact that this record is held by an E-commerce company is another sign of the digital era that we’re living.

Initially raising $21.8 billion, Alibaba took over the record of the biggest U.S. IPO previously held by Visa ($17.9 billion). Shortly after, the company was able to sell more shares due to its over-allotment option, which allowed it to boost the total amount raised to $25 billion and break the worldwide IPO record previously held by Agricultural Bank of China ($24.3 billion).[i]

However, the stock price started declining very soon (remember what happened to Facebook's?). After achieving a closing price of $93.89 at its first day of trading[ii], it closed today at $88.85 per share. According to some experts this is a normal adjustment that can be due to sales from investors “who bought shares in the IPO and are now selling with a profit”.[iii] Below is the stock price performance since the IPO.

The challenge that this Chinese company presents to Amazon is eminent. However, even though this two companies can be seen as direct competitors they have some important differences in their business model. I’ll write about them next week.

---

[i] http://www.ft.com/cms/s/0/0f97cc70-4208-11e4-a7b3-00144feabdc0.html#axzz3GMZcKJkK

[ii] http://fortune.com/2014/09/22/alibaba-is-officially-the-biggest-ipo-ever-after-green-shoe-released/

[iii] http://www.bloomberg.com/news/2014-09-28/alibaba-slumps-in-first-week-as-short-sellers-enter-trade.html

The relationship between Amazon and their third-party sellers

I was impressed last week when my friend sent me a link to buy the bridesmaid dress for her wedding and it directed me to Amazon.com. I’ve bought electronics, books and costumes there, but bridesmaid dress!? I wouldn’t have imagined.

This couldn’t be possible without the third-party merchants who sell their products on Amazon. In those relationships the website earn fixed fees, revenue share fees, per-unit activity fees, or some combination thereof. Therefore, the amount of compensation that Amazon receives sometimes is partially dependent on the volume of the other company’s sales. If he offering is not successful it impacts Amazon negatively.

One of the programs offered to sellers is Fulfilment By Amazon (FBA). With it they can store their products in Amazon’s fulfillment centers, and they pick, pack, ship, and provide customer service for these products. Benefiting from one the best logistics systems in the world sounds like a great deal for sellers! That’s why the number of them who’re using the service grew more than 65% in 2012-2013.

Besides being a source of revenue for Amazon, sellers also increase the company’s risks. It may be subject to product liability claims if people or property are harmed by products they and sellers do not have sufficient protection from such claims. Amazon could also be liable for fraudulent or unlawful activities of sellers. In any case, it’s worth the risk.

Source: Amazon.com, Inc., Annual Report 2013.

Brief takeaways of an excellent article from Entrepreneur.com

A couple of weeks ago, Pano (my E-commerce prof), shared with us an article called “5 Ecommerce Mistakes to Avoid: A Newbie’s Guide”. I wish I had read that before a started to sell online some merchandise from my dad’s ex business –with not so much success-. Here are the main takeaways:

-          “Everyone that starts a business has big dreams, ambitions and excitement”.

-          In the same page of Croll’s “Don’t sell what you can make, make what you can sell”, Lin –an author quoted in the article-, says “do your homework beforehand and make sure you’re selling something people will buy”. You can start by looking for products similar to yours that are sold online.

-          Don’t forget to make use of social media. It’ll help you to communicate with your customers and understand what they want.

-          Don’t try to appeal everyone by offering too many different types of products. It’s better to find a niche market, preferable a category not seen anywhere else.

-          Avoid unsold inventory by getting a sense of the demand of your products. Search for them in different marketplaces to see home many are being sold.

-         As any entrepreneur you’ll have a big “To do list”. Since it’s impossible to so everything at the same time, prioritize the tasks that will help you keep customers and have a healthy business

A couple of challenges of being an entrepreneur in the 21st century

Unfortunately I had to miss this week’s guest speaker in my Managing E-commerce class, but this allows me, in turn, to do what I said last week: write a bit about some of the takeaways from Alistair Croll’s presentation.

He stressed the need for entrepreneurs to produce what they can sell instead of selling what they can produce. This implies to launch a product, track the public’s reception, analyse the data, if the results are positive go on with it, and if they aren’t move on to develop another product and so on. This raised my question: What about the costs of launching a product? It sounds very expensive to do that over and over again just to “try”. The speaker’s answer made clear that I was thinking of a traditional way of product launching, which implied costly field surveys, manufacturing the product and distributing it. What he meant was to “virtually” launch the product, using tools such as Kickstarter, online ad campaigns to probe public’s reception, and other tools that entrepreneurs didn’t have before, but currently technology’s making possible.

Another concept that Croll pointed out is the increasingly shorter company’s life spam compared to a few decades ago. Indeed companies become obsolete much faster than before. Therefore, they should invest around 70% in developing their current business, 20% in innovating with a connected one, and 10% in a disruptive one (Ex. Car2Go). This sounded like cannibalization for me, but actually if you don’t come up with something new, your competitor will.

To put you in context

Indeed the main reason for starting this blog is as a requirement of a new marketing course I’m taking this semester as part of my MBA at McGill University, called Managing E-commerce. But I thought that it’d actually be a great opportunity to join those 6.7 million people who publish blogs on blogging websites[i]. A huge number right? That’s just another sign of the reason why I picked that course: Online is the new way and everybody knows it.

The idea is to share concepts covered in our class. However, since this is going to be my first and maybe only blog (at least until I finish my time consuming MBA while working at the same time), I decided to add a personal touch to it and take this first entry as an introductory one (and I hope the professor Pano Xinos -who’s teaching the course and will be evaluating the content- finds that ok!).

Last class we had an outstanding guest speaker. His name’s Alistair Croll. He has been involved in the online/technology world since 1993, has been part of 16 companies/initiatives (according to his LinkedIn page), and in 2013 wrote a book along with Ben Yoskovitz called Lean Analytics (which I plan to buy ASAP).

I don’t have more space to explain some of the main takeaways of his presentation (these blog entries have a limit of 250 words) so I will do it next week.

---

[i] The Nielsen Company, “Buzz in the blogosphere: Millions more bloggers and blog readers”, http://www.nielsen.com/us/en/insights/news/2012/buzz-in-the-blogosphere-millions-more-bloggers-and-blog-readers.html. 09/17/14