A Look at Internet Centric Business Modeling…

…or Some Really New Ideas and Some Old Ideas Dressed Up as Really New Ideas…

…or How I Spent My 2009 Sabbatical

I.      Overview/Soapbox

What else…a disclaimer.

Summer 2009 was kind of slow and cold, which made for more of a reflective time than one of hectic productivity. My attention centered on the changing landscape of a nation as reflected through the fall of one small grocery store in a bad mix of timing, technology change and horrible economics. Of course, as things do with me, I found that this one small event turned into a much larger and further reaching range of thoughts about what opportunities might emerge from this difficult time.

I admit here, where you can decide right off the bat how much further you will indulge me with your reading, that I am neither an expert in the grocery retailing industry nor do I claim any particular expertise beyond years of leading successful marketing communications teams for sizable corporations. If I have any expertise in the areas I describe throughout the words that evolve during this blog posting, it has been acquired through 40 some odd years of observation, self education and the good fortune of having a large network of very intelligent folks who have, mostly through osmosis, managed to instill some small understanding of the business dynamic in me.

What I am about to recount to you are the observations and ideas for not just including the Internet in a business model but rather re-thinking a business model with the Internet at its center and used to resolve specific problems, not just for “Wiz Bang” purposes. This combined with a belief that a “re-connection” is long over due between Internet commerce and the brick and mortar “real world” that we all live in.

There are models that I have “stolen” ideas from and signal, to me at least, that others perhaps smarter than I are already making this reconnection happen with their businesses.  They also happen to be models that reinforce some of the other observations I will make as we proceed through this “business model makeover”. I am also taking lessons from “dot com” history and combining them with current trends (and woes) to shape what I think is a reasonable look at a successful future business model.

Why the multiple titles?

I, like many folks who have focused on copywriting for others but have seldom written anything in thier own voice, wanted to do something in detail and use whatever language, style and silly comment I wanted to. The “academic” title slash “silly” title approach just started out as a reminder that it was my deal and I should write it my way. Pay no attention to these titles other than to have a laugh if it suits you and to help you navigate through the chapters five, as that is my target length for this little ongoing rant.

I am counting this chapter as one of the five so that means your only four chapters away from ending this silly thing.

On to the soapbox part; Chapter 2.

II.      The Internet Centric Business Model/Why the World Must Change

Larger cities must shrink. Larger companies must shrink. Companies in general need to become more interdependent and regionalize logistics. A more distributed population, workforce and employer system needs to be created that provides for less population concentration and that tend to result in large, difficult to maintain and impossible to manage infrastructures. Industry and government need to work together to use all the available resources and provide for greater focus on effective management of the overall infrastructure, particularly the reach and availability of broadband data access.

The above is true regardless of country, nation, religion or other predefining description of the economy or culture. The “animal brain” that was the old Internet must give way to a more organized operating system so that this new matrix can be reconnected and directly interact with the real world.

For me this was what I saw as the overreaching problem, both economic and societal. We have made the world smaller via the Internet but we have been concentrating too much into too little space for much longer than the web has been around.

Now by space I am referring to just about every way you can over concentrate our human society. We cram too many people into too small a geography in every major metropolitan city in the world. We have too many industries with too few competitors in them and too many trying to serve national and international customers from too centralized and concentrated power centers. Workforces are either feast or famine in whole regions and when they don’t do well they tend to drag down the rest of the economy. Like dominoes they fall with rippling affect and take market after market, country after country down in their wake.

I say this with reluctance because I believe in free economies and capitalism in general. But I believe that in order for the world economy to stabilize permanently and for there to be any chance of a calmer and more productive world we need to change just about everything, including introducing ideas into the capitalist system that clearly could be viewed as “stolen” from a more socialist or even communist system models.

Communities need to evolve around the growth of local industry regardless of whether that is expressed as manufactured hard goods, the cultivation and marketing of farm goods, the creation of electronic content, the development of software, or the overall acquisition, storage and use of data. In other words cities must strive to begin anew with hand in hand efforts to cultivate more regionalized economies that are tied directly by the Internet to the world economy.

Assets from infrastructure items like unused or underutilized warehouse space, manufacturing facilities abandoned or with an option to repurpose, office and industrial parks that are not well populated, and any other facilities or silenced equipment that could be cataloged, turned into searchable data and delivered as part of the resources for creating new businesses.

In turn these assets themselves can, and should be, evaluated as to what they need to further drive business occupation and use. In general this will be about broadband access; as in many cases these facilities, when located in smaller and/or rural locations, lack affordable access to high bandwidth services. By offering the analysis as motivation to deploy to specific facilities more affordable broadband these locations improves their chance of being matched with a business venture that will improve the overall economic and employment conditions in smaller towns and communities.

Increasingly fair cost (notice I am not saying “low” or “cheap”) and high value will be what business and consumers alike will be seeking. Helping existing businesses to adapt and find ways provide fairly priced, higher value products and services are absolutely critical to moving Michigan (where this case study is derived from) and the entire US economy back into the “thriving” category.

Most of what needs to happen is about the more inefficient and wasteful habits companies have developed over time. Most of this is how willing we are to ship steps in a process all over the country and world without any regard for sound, efficient logistics. Now that we also need to be concerned about the energy those wasteful shipping steps consume, whether concerned for cost or for the health of the planet certainly makes no difference anymore, shipping here and there for no good reason is just stupid.

Now that it is totally clear that the “reset button” has been pushed there is no time like now to begin a meaningful metamorphosis of our business models to ones that adapt to the new market economics and are built to ride its ever rising tide. The ugly side of this reset for some is that the return to anything like the inflated booms of the last two plus decades is both unlikely and should not be welcome.

We just plain over did it. And yes I am stating the obvious. In fact for this whole tome so far I really feel I may be stating what is obvious to anyone paying attention.

III.      The Grocery Web Business Model/What You Do While You Watch a Business Die

The Small Town Grocery

I have recently taken a look at a large grocery wholesaler and in particular the brand of grocery stores that once held a monopoly on my small town. As one of these stores is in my little town it is a model I can see in action and have for many, many years.

A few years ago Meijer’s™ (a larger chain of stores similar to Walmart™) moved in across the street and the store has struggled ever since to keep its doors open. In fact all of the stores owned by this brand struggled so much so that the chain itself, a privately held business, was sold to their grocery supplier, a generic product labeler and wholesaler, of many years.

What is interesting to me about this particular store is that in its case it has a liquor license and the larger “super store” does not. As such some local business continues to be driven there by the sale of spirits but not all of the liquor buyers are also converted into grocery shoppers and in fact only a small portion do in fact shop the rest of the store.

As a grocery competitor they cannot compete without a significant differentiator that would cause buyers to pass on grocery shopping at the super store. Unable to keep up the kind of diverse inventory and level of service personnel, without sufficient cash flow from to overall grocery business to support any effort to compete “head to head”, leaves them with shrinking customers, personnel and the ability to maintain services. This of course makes them less competitive and continued service shrinking will only result in the store closing eventually as its customer base shrinks away.

Old Idea, New Twists

Now let’s introduce an old idea with some new twists.

There are still a number of “online groceries” but most are mail order style home delivery types of businesses and have no real physical presence at all in the “real world”.

I have always been intrigued by the idea of the online grocery shopping experience but can never get passed a few aspects that would get me to use one and use it regularly. My primary one is the lack of ability to pick your own fresh produce, meat, and other grocery items that I like to pick out myself rather than receiving seemingly “source unknown” packaged meats or other perishables. Produce also does not always ship to the home well and waiting for your groceries to arrive via shipment seems less gratifying than just shooting over to the store and shopping.

Convenience alone won’t drive business to an online grocery; even savings alone can’t do it. But combine the online service with a physical location designed to accommodate the purchase of wine, beer and spirits, fresh produce, meat and other more perishable items as well as providing for the rest of a shopping order to be picked up and paid for (if it wasn’t paid online already). This would mean a very different sort of store layout but would require a significantly smaller frontend footprint and fewer overall staffing requirements.

So in the case of my little local store, with its valuable liquor license, removing the need for dry good and other shelf items to be in the physical front end of the store means the space utilized for storing these shelf items can be utilized more efficiently.

No need for special service counters for over the counter medicines or tobacco products that can’t be on open shelves, no need for a frozen section, for the most part even packaged dairy products and other types of cold case items would not need to be in the physical frontend of the store.

A deli/meat and fish counter, room for fresh produce, some wines and spirits (most liquor and beer would be other items generally purchased online and picked up, immediately reducing liquor theft which I understand is a big problem in many of these stores) and perhaps some impulse items scattered around the now smaller store footprint.

Check out would be a matter of adding anything you selected fresh to your already package order and paying only for items that were not paid for online. Packing orders could start immediately after receiving the online order and pickup could be designated as 30 minutes to one hour out in order to help control customer flow. Kiosks that allow for additional ordering of items you may have forgotten will also need to be available.

Now reducing many of the overhead issues and bringing as much of the customer experience as possible online should allow for greater flexibility in product pricing, incentives for buying generic (this is especially true of this organization as they are more a generic provider and wholesale operation who has taken on stores in order to keep their distribution channels open) become possible with the ability to provide side by side comparisons of contents and customer reviews of product quality as it relates to a brand vs. generic product.

Even brand names could be sold at more aggressive pricing if all other cost containment efforts made possible by this hybrid online/brick and mortar approach are fully realized. It all could ad up to a very nice value proposition for the store and one that their competition would be slow to adopt if they adopted it at all. This is the primary marketing differentiator and if aimed at the right target audiences could be worked marketing wise in an effort to appeal to that audience’s need for more time, less dollars spent on groceries and desire for a less stressful shopping experience.

It would not displace the bigger stores as they will still carry items beyond grocery and not all folks are looking to avoid the “traditional” shopping experience. It would however create a new customer base which arguably will grow over time not shrink in an environment that is highly flexible and easily can adapt to changing customer needs.

This particular chain continues to have a few “video rental” stores open but they have suffered from bigger chains with larger selections and more aggressive pricing. In this “online” scheme they could reinvigorate that portion of the business by also adding the video rental inventory online and provide for pickup/drop-off at the same location (I might suggest a return by mail option as with Netflix or even a partnership with an entity like Netflix with private branding for the store and Netflix distribution system as the engine) as the brick and mortar outlet and/or some additional home delivery options that could be developed if a need arises.

As the example above reflects these are dramatic changes to a business model. They do not accept that the current model works and insists that the old model has to be scrapped to make way for an engine that drives the business forward and allows for customer and revenue growth.

I expect that if I were to walk in and propose this to the organization that I have used in this example they would run me out on a rail, more than likely tarred and feathered!

They would be wrong to of course and without looking at their books I can certainly understand how this will be a daunting shot at something that cannot be guaranteed 100% to work. However I believe that in the case of this particular business it is the way to not only start to grow their business again but could easily be a model that they could spread beyond their current footprint or offered to companies in a similar pickle as a turn key model and provide for a new revenue source to add to their cash flow.

As much as this speaks to the integration of the web into the model it also serves, and this was another aspect to why I felt it was really worth expanding my thinking on, to attack head-on one of any retail operations greatest problems, shrinkage and loss through theft.

This is the simplest aspect to communicate and why it is last in this section. In the store layout model described above theft could be reduced almost entirely and at very least limited to only those items available in the now reduced store front end. The rest becomes a cake walk thanks to it becoming a more data driven warehouse type of fulfillment operation. This obviously provides an environment where even employee theft is far more controllable.

Here is the Web 3.0 Part

Now that we have solved some major problems and probably saved the business dollars already let’s start the sticky stuff.

Now that you are driving folks to an online store you begin to take advantage of the social networking, product comparison, ad and special offer generation (based on end-user shopping data), perhaps games, perhaps a “shop smart” club etc. etc.

At the heart of this the collection, storage and application of shopping data gathered at the customer’s level. Implementation of as many “one to one” online ad, game, and special offer user experiences give further opportunity to fine tune that data.

Understanding what they currently buy, particularly if you wish to drive more generic product sales or more of a particular brand name than another, allows you to:

• Opportunities to do side by side comparisons of products a customer regularly buys.
• Show a testimonial from a neighbor or someone in the same town professing the strengths of the product being pushed.
• Make a special offer to first time buyers (why should such a fine marketing approach be wasted on a PC or a new flat screen TV…why not on a box of generic elbow macaroni or a particular brand of sliced cheese!!!) so that they are motivated to potentially switch their loyalty to either your generic offering or the brand you are pushing.

Facebook’s compelling social game “Farm Town” could give way to the online store’s version “Shop Till You Drop” with customers getting special coupons for certain events in the game (again of course tailored to reinforce a behavior that is of value to revenue generation, customer retention, growth etc.) that will further drive or maintain involvement…maybe even commitment; to the online store brand.

Needs! [From here on folks we are into the more uncharted ground and the content below with be edited further and added to as the list below indicates.]

To properly present this idea and aid in understanding the broad impact that this either major makeover or start up business model several things need to be developed.

• A rough layout or architectural drawing of a re-conceptualized physical store front-end
• A rough layout or architectural drawing of the warehouse, staging and packing area
• A rough layout or architectural drawing or the outside and parking of a hypothetical location
• An electronic mockup of a potential store interface and various depictions of key data driven activities as described above.
• Potentially we could get investors to fund the development of the whole code, building specs, possible liquor licenses for sale and locations etc. and go out and sell it nationally or internationally as a turn-key business solution

IV.      The Regional Distribution Model/Why Big is No Longer Good and Big Communities Exist Just to Prove Big Won’t Last

Part of what drives the “IShopLocal.com” idea is the same thing that makes Netflix.com so darn convenient…the regional distribution system. Warehousing inventory close to customers to minimize shipping time and guarantee on-time delivery for orders placed on the Internet. I am sure that is not their mission statement but it is as close to a stab at an academic description for the real value of where they store the videos you rent and how they get them to you.

It’s too bad that long term, and after they finally put out a truly theft proof algorithm for digital media or give up on the idea of controlling its distribution completely (I could go either way really), even Netflix hasn’t gotten it completely right and will need to alter their model eventually. Fact is I see it as an “evolve or die” future for most of entertainment (or antiquated content development communities, as I like to call them) industry. That future is likely to also mean enclaves of creative’s developing content for consumption but perhaps no real “star system” anymore.

Instead I think that Godin is right that a more tribal way of expressing the monetization of creative works will evolve with creative folks, artists if you will, “stars” if you must, having more reasonable incomes and, although I think there will and always must be some form of class system, the strata of that they occupy will not be as far away from the rest of us as it is now.

I guess I have digressed this far I may as well continue just a little further and state that in my opinion the death of the entire entertainment, music, video, TV, book, game development etcetera, etcetera, etcetera, is immanent and it is about damn time. Once again too much money, power and well power have been concentrated into too narrow a corridor. But that is not the real problem. For particularly the record, movie and television industries it’s their long history of entangled relationships and just plain too many people who have a piece of every single pie. These industries are driving others, like the telecom, cable and satellite companies who must buy packages of channels that no one really wants to watch with tons of programs that no one ever watches, to not keep up with a public that knows full well that they should be able to just pick and pay for what they want to watch when they want to watch it.

My point is that all of these models no longer can work and all must be scraped. They will need to die as new “content” distribution models are developed and the public becomes used to their new freedom.

[I will be going into the whole vision for the “new disposable entertainment” industry in future posts.]

V.      Summary/Why Should You Give a Crap

This is where I will stop for this portion. More as I continue my research and evaluation.