Am I missing something?

I just came across this item from WSJ online: Best Buy Founder Gets Green Light to Pursue Buyout. I’ve long been a Best Buy customer — it is typically my go-to store for need-it-right-now purchases of not-too-exotic electronics items. Lately, the firm has been having financial trouble, consistent with the now-familiar story of bricks-and-mortar succumbing to online competition.

What’s interesting is that Richard Schulze (the original founder of 46 years ago) is considering buying back the company as part of a turnaround effort. This is interesting because, as a strategy scholar, I cannot help but wonder what, exactly, he thinks he can do to return the firm to health that couldn’t be done without him. According to this article, his plan is: cut prices to be competitive with online retailers like Amazon.com, improve the customer experience, and avoid cost reductions. Am I missing something or does this sound akin to making up for negative margins with increased volume?

Stay tuned.


Twittering Strategy Profs

For those of you who also follow twitter, LDRLB, an “online think tank that shares insights from research on leadership, innovation, and strategy” has just posted a list of Top Professors on Twitter. The categories are Leadership, Innovation, and Strategy (15 profs in each category). Good lists — all good folks with thoughtful views on the world of strategy. Nice to see a number of StrategyProfs bloggers listed.


Geeenius!

How to Write a Malcolm Gladwell Book. Would most recently graduated MBAs get the joke?


Good analysis: Exactly How Screwed Is PayPal? (Hint: Very) http://t.co/CUD17vYU

via http://twitter.com/mdryall


The anti-platform?

There is now a large stream of scholarly literature on “platforms” – loosely, third-party services designed to bring transacting parties together. Amazon.com and eBay are obvious examples. Broadly interpreted, so are services like online dating sites (see the work by Hanna Halaburda and colleagues).

With this in mind, I came across the following article: Ghostery: A Web tracking blocker that actually helps the ad industry | VentureBeat. Ghostery is an app offered by the advertising technology company Evidon. The app is used by privacy-conscious web surfers to block web tracking services. When a new tracker attempts to install a tracking cookie on a browser sporting Ghostery, the tracker is blocked and Ghostery sends the tracker information back to Evidon to be added to the company's database of web trackers, which improves the quality of the app.

The interesting twist in the business model is that Evidon then turns around and licenses its tracker database to the very ad networks its app is designed to block. In fact, says Evidon CEO Scott Meyer, “When a new web tracker comes on the scene, they often want to be listed in Ghostery. It’s proof that they’ve arrived and have influence.”

So, what do we call a service that helps side A avoid side B while helping side B pursue side A? Seems as if this phenomenon should have its own, suitably clever-yet-scholarly term.

 


Uber innovation: say goodbye to bricks and mortar taxi service

My colleague Josh Gans recently turned me on to UBER, a smartphone-based taxi service. I used it for the first time yesterday to get to the Toronto Airport. I’ll be surprised if this technology doesn’t eventually kill the taxi business as we know it. 

From the user’s perspective, you simply download an app and sign up for the service online. When you want a cab, you open the app. It shows you all the Uber vehicles around you on a google map. It tells you how many minutes it will take for one to get to you (in my case 8). You hit a button and, if you are so inclined, you can watch your car approaching on the map. A few minutes later, viola!, you receive a message telling you your cab has arrived. Our car was a spotless black limo-style sedan. The transaction is handled through your account with them via your credit card. No money changes hands with the driver (tip is included) and a detailed receipt is immediately emailed to you (great for expense reports). The cost in our case was identical to the standard fare + tip.

As far as I’m concerned, the experience dominated that of the status quo by a significant margin. It got me to thinking about the business model. As an investor, I would always be wary of any business 3 computer science grads from MIT could replicate in a basement. I can’t imagine there is anything in the Uber technology that creates a meaningful entry barrier. Moreover, unlike a Facebook type business, there don’t seem to be any network externalities working to the advantage of the first-mover. 

On the other hand, there are non-technology features of the business that are central to its success and, perhaps, not so easy to replicate. The most obvious is setting up a base of independent drivers. I was chatting with our driver and learned that substantial resources are devoted to vetting drivers and, once they are on board, regularly checking up on them to make sure the standard of service (car cleanliness and so on) remain high. That requires some infrastructure and know-how. 

Then, there are the reputation effects. Strong reputation is going to be a substantial benefit on the supply side – i.e., recruiting and maintaining good drivers. Plus, for the first time, a supplier of taxi services can build up not just a national but international retail brand. That’s a big deal. Apparently, Uber does not have to contend with local medallion laws — the cars are not marked and cannot be hailed from the street. This will help them a lot in expanding their business.

Still, the service only works for people with smartphones — a big limit to growth, at least for now. Also, it is hard to imagine that one or two competitors won’t take a run at them, especially if (as I suspect) this business really takes off. When that happens, who is going to appropriate the value? What is scarce in this situation? There appears to be no shortage of taxi drivers, though being able to find and maintain top-quality ones should confer some advantage. Also, my intuition is that the market will support two or three such businesses, not tens or hundreds. So, oligopoly prices under constrained capacity, at least for the high-end, high-quality version of the service, are likely to obtain.

Yet, the arrival of competition will surely send some additional value the consumer’s way in the form of lower prices. And this is not exactly a high-margin business to begin with. Therefore, at some point in the future, expect to see an established Uber lobbying local governments to regulate its segment of the business — waxing poetic on why it is in the public’s interest for cities to issue them some form of competition-inhibiting, medallion-like licenses of their own.


Higher Ed Tuition Bubble Update

This is sobering: The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.: “The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.”

(HT: Instapundit)


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