Strategy

We’ve moved from big data to big A!

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So what does the A Stand for?

The companies that are thriving are the ones that get a lot of users and data – but what sets them apart is their Algorithm. Companies such as Google and Amazon use their algorithm to personally tailor the site or offer for every user. This makes them far more effective than companies that display the same site regardless of the data and (often uncurated) knowledge they have of their customers.

Amazon is the most effective at this – constantly looking at what you’re shopping for and displaying the most relevant products. They are also scouring the net to make sure they are providing the most competitive pricing.

Facebook, Instagram, Google are all strong and improve their algorithm all the time. Never resting to ensure they can get even the smallest incremental benefit by improving their algorithm.

Clearly it is easy to think about online companies when we talk about tailoring the offer or product. But this approach is just as relevant for all companies – creating dynamic segmentation to ensure you are always tailoring your offering or taking a service or product to customers with similar characteristics.

This isn’t new – it’s just with AI/Cognitive techniques and huge amounts of data – it can be done far more effectively and tailored to a target audience of one.

Not all new age companies are good at it – but that’s a story for another day.

When the business model doesn’t ring true – it often isn’t

 

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Last week I wrote about the need to monetise.  An innovation is only valuable if you can monetise …. generally that means creating a business model that gets more than eyeballs or customer visits and makes money.

From a customer point of view, convenience is great. Nothing better than have an Uber turn up to your door or a meal delivered by a courier booked through a site such as Menulog.  But I have looked at a lot of the services that ‘deliver’ to your door and thought “how do they make money?” People are expensive and that last mile of delivery is not cheap.

Obviously I’m not the only one that has thought this and we are seeing an increasing number of startups that set up with a key component being ‘the last mile of delivery to the customer’ go out of business or forced to change their model.

Even Amazon has been addressing the cost of delivery by introducing Prime as a service cost/subscription and looking at buying physical stores as a way of reducing distribution costs.

Below is an article from Fortune by Kia Kokalitcheva talking about “The Great Business Model Correction continues”.

Earlier this week, Munchery, one of San Francisco’s many meal delivery startups, finally began to serve lunch in addition to its dinner service— but it’s expanding conservatively. While other so-called “on-demand” food delivery services let customers order food on a whim and deliver it as soon as it’s ready, Munchery customers will have to pre-order lunches the night before, at the latest. What’s more, the company is only making lunch available to office workers whose employers have signed up to regularly order through Munchery, and each day it will deliver the meals all at once—all in the name of efficient operations and predictability.

In other words: Munchery wants to minimize any losses on its new endeavor, unlike competitors that ferry burritos, salads, and everything in between to individual customers.

Thanks to Uber’s success, we’ve seen an explosion of startups over the last several years that let consumers order anything from a ride to groceries to flowers by merely tapping an app.

But these business models have proven much more challenging than they seem. Several have closed shop, and many of the remaining ones are now making significant adjustments in the search of more sustainable businesses—and hopefully, someday, profitability.

With investor appetite for these startups seemingly declining, according to data published in July by CB Insights, it’s no surprise that many are looking for an exit from the venture capitalist subsidy-driven growth that was once popular.

The only remaining question is whether the startups can do it without hiking the price of their services and alienating customers who are not young, Silicon Valley dwellers with a lot of disposable income.

 

At some stage you have to be able to monetise

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Currently, there are a lot of rumours in the market about who is going to buy twitter. names such as Salesforce, Alphabet and Disney are the most frequently mentioned.

Personally I am a massive fan of twitter as I find it a quick and easy source of articles and knowledge – it is probably the social site that I use the most.

While twitter has a great reach, the problem is that a viable commercial model has never been established. And while readership volume is seen as important, in the end it is only valuable if you can monetise the user base.

To me it is a valuable lesson in the development of any start-up or even creating the digital channel of an incumbent. People often fall in love with the concept or the technology and don’t spend enough time really understanding the commercial model – what customers are willing to pay for, how much are they willing to pay or is it monetisable through some other medium such as subscription or advertising.

Sounds simple doesn’t it?

But there has been an enormous amount of money spent without really spending the thinking and analysis time up front to answer the ultimate question.

Where is the value in your organisation? 

  
IBM has just spent $2.6bn buying Truven Health – a big investment and one that is all about the acquisition of data (and customers). 

Increasingly organisations are seeing that the real value in an organisation is in the data assets – with the ability to use analytics to get rich insights from large data sets. The smart organisations are using analytics and big data to truly understand customer behaviour, value levers for an industry and value points in the supply chain (amongst many other things) to put themselves in an advantaged position. 

So the things that we have for so long called ‘intangible’ – such as data, customer contacts and relationships – have become the most tangible in determining value. 

The challenge for organisations is to ensure that they are capturing and curating the data and intangible assets that sit within their systems and processes and then using the analytical tools to extract the value. 

See below a link to an article in Fortune on the IBM acquisition. 

Why IBM Is Dropping $2.6 Billion on Truven Health

 

Innovation leads to growth for all?

IMG_0135Taxi companies have been up in arms about the disruption to their business from Uber. Earlier this week, Deloitte Access Economics published a report that showed that Uber had grown the market in Australia by 61% (see below). We have seen similar impacts when Virgin and Jetstar were introduced in the domestic airline market. Often a market will have latent demand and so a lower priced disrupter will create growth way beyond what is expected.

So while it is understandable for the incumbents to be concerned about their business, more time should be focused on how the they will differentiate themselves from the disruptor.  In the taxi industry, the effort seems to be on trying to create a regulatory block, rather than developing a winning proposition against Uber.

I have been asking taxi drivers (booked through Uber) where their business comes from. At the moment, 1/3 is flagged, 1/3 called through the taxi cooperative and 1/3 through Uber. This is anecdotal but seems to support the Deloitte Access Economics research.

“Ride-sharing company Uber is generating annual benefits to Australian consumers worth more than $80 million a year, according to analysis by Deloitte Access Economics. Deloitte’s report, Economic effects of ride sharing in Australia, commissioned by Uber, showed uberX, the standard ride-sharing service offered by Uber, had grown the market for commuting to a specific destination via a third-party driver by 61 per cent as consumers switched from driving their own car, using public transport, walking, or were simply enticed to travel. Uber operates an app that connects drivers to users, processes fare payments and identifies drivers who are given a rating by consumers. Deloitte found the service was delivering an annual benefit of $81 million. Less than half, or $31.5 million, of the benefit was the result of cheaper prices, while $49.6 million was derived from a “consumer surplus”, or the amount consumers would have paid above the price charged for the service.”

What platform will you create?

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Go Pro and Twitter are looking at Livestreaming through Periscope as a way of driving greater growth. The article below from Katie Roof in TechCrunch highlights the story.

For me the interesting thing is that even disrupters need to continually evolve – to move from a single product into a platform that allows ‘buyers’ and sellers’ to interact on an ongoing basis.

Platform businesses are the powerful new form of business that will often bring a number of parties together to interact. Uber and AirBnb are just two examples of how powerful a platform can be if you can get many to interact with many.

Most major organisations are looking to develop platforms – BMW through the interactivity of their in car systems with the internet, Nike with the tapping into running apps, Pharma companies building a platform around health and medical advice and food companies with recipes and advice.

What platform will your business need to create to survive?

“Action camera maker GoPro is integrating with Periscope, the livestreaming app from Twitter. Owners of the GoPro HERO4 cameras will be able to broadcast their adventures directly to Periscope. As soon as the GoPro is paired to an iPhone, it will recognize the Periscope app and let users record and share their surroundings with a live audience. (The GoPro will still be able to record the videos for later viewings).

The cameras, which are popular with surfers and skiers, also enabled broadcasting on Periscope-competitor Meerkat last year. And GoPro has a product called the HEROCast, a wireless transmitter geared towards professional broadcasters.  

Twitter recently announced that it is integrating Periscope into user’s Twitter feeds. It’s unclear how many of Periscope’s 10 million accounts are active, but the company claims that more than 40 years of video is watched on Periscope each day. Livestreaming has become a hit with teens, as apps like YouNow continue to gain traction. YouTube and Facebook have also introduced livestreaming, in an effort to capture this growing audience.

Both Twitter and GoPro are at a crossroads and the companies are hoping that capitalizing on the livestreaming space will attract some new fans.”

Tesla’s biggest disruption is unlikely to be in the car industry 

  We’ve all heard about Tesla and the potential disruption to the car industry.  Tesla will certainly have an impact however all the major manufacturers are moving rapidly to develop electric vehicles and Apple and Google are really gearing up in the vehicle space as they see it as a platform play. 

I doubt whether Tesla will eventually become a major player on its own in the global motor vehicle industry – but time will tell. 

However, where I believe Tesla may become a major player is the energy industry – with their home battery technology. 

If I was an executive of an energy utility, I would be very concerned by the advent of home batteries, such as the Tesla Powerwall ( see link below to Mashable article). The home battery makes Solar a real option for households and small businesses, particularly in places like Australia. It means that a lot of households can disconnect themselves from the grid or become a net supplier rather than a net consumer. 

Often, an innovation or invention’s greatest impact is not in an industry which it was first designed for – I think that is very likely in Tesla’s case  

http://mashable.com/2016/01/28/first-tesla-powerwall/#cvYDGGmvZgq1