Amazon and the limits of growth: The Red Queen effect confirmed

Headlines like this dominated the online and offline media last week: The recent takeover of Whole Foods for almost $ 14 billion by Amazon sent shock waves to observers and high street retailers.
Should we be surprised by the news? Personally I am not surprised at all; Diversification and continuous expansion is a strategy that Amazon consistently pursuits since the beginning of its times.

Is that right? In 2004 I published a research paper in the Management Decision titled: "Strategies for surviving the Internet meltdown: The case of two Internet incumbents" * Although this article won the title of the best paper award of the journal for that year it never became so popular with only 24 citations so far.
In this study I reviewed the strategic decisions made by Amazon and one more of the survivors of the dot.com disaster (E-Trade) at the beginning of the 21st Century, looking for clues why these Internet pioneers did not follow the fate of the thousands of dot.coms that went bankrupt after the 90's dot.com hype.
My study was focused on the major and minor strategic decisions made in the period 1997 - 2001. I classified these decisions according to the well- known Growth Matrix of Ansoff; this matrix identifies as most of us know, four types of growth strategies: Market Penetration, Market Development, Product Development and Diversification.
During the period in question Diversification was the main strategic approach for growth pursued by Amazon: Although Diversification is the most risky of the four options this strategy worked and not only helped Amazon survive the Internet debacle but also transformed Amazon from an online bookstore to an online (and increasingly traditional) retail giant that it is today. We must not forget that Whole Foods is not the first traditional retail venture of Amazon, they operate already a number of physical bookstores; interestingly books is the first product category that help Amazon to be launched as e-shop back in 1995.

As I mentioned, to me the expansion of Amazon to traditional retailing did not come as a surprise. In my 2004 article I came to the following conclusion when discussing the findings:

"An alternative strategic option for both Ž firms (i.e. Amazon and E-Trade) could be to concentrate on the present business domains and pursue further grow by expanding their physical activities rather than the virtual ones, at the cost of traditional players; such a strategy is likely to trigger reactions of traditional, physical Ž firms."

This conclusion was based on the findings that in the case of Amazon (and to a lesser degree of E-Trade) their strategy was looking to be inspired by the Red Queen Effect. My impression was that when Amazon will sell online whatever is possible to sell it might turn to the traditional retailing  in order to maintain its survival and growth.

The interesting thing about the emerging high-street presence of Amazon (and for sure more e-businesses will follow it) is that it can have many negative effects for established retailers but it could have also some positive ones: Is the expansion of e-tailers to the High Street a way to revitalize city centers suffering from shop closures and increasing difficulty to attract buyers in shopping centers?

Interesting issue to follow-up. One thing is sure, the distance between online and off-line becomes once more a bit smaller.

*Efthymios Constantinides, (2004) "Strategies for surviving the Internet meltdown: The case of two Internet incumbents", Management Decision, Vol. 42 Issue: 1, pp.89-107, https://doi.org/10.1108/00251740410510190

A short video lecture on using the Social Media as Marketing tools

Many marketers consider the Social Media as a headache rather as an opportunity; Social Media give much power to their customers, make traditional marketing communication less effective and it is not always clear what are the options of businesses as to using these as Marketing tools.

How could the Social Media be used as part of the marketing strategy? This is the topic of a short online lecture of mine that you can follow in this link.

Ten Years After the dot.com meltdown: A new Web milestone

You might remember that March 2000 was the month that the dot.com bubble busted sending the overvalued high tech stocks in a tailspin and launching the first major financial crisis of the millennium. After making headlines and capturing the imagination of the whole world the iconic names of the 90s like Webvan, Kozmo, Pets.com and Boo.com made once more headlines with their highly publicized demise. For many this was the end of the e-commerce experiment. Ten years after, despite a few hickups, the web seems to be more robust than ever.
Is 2010 going to be a milestone year in online marketing: According to an Outsell  just published study advertisers plan to spend more on digital and online marketing and advertising than on print. E-Marketing is getting the mainstram! I am not surprised, this was just a matter of time. For field marketers but also for Marketing  educators and researchers new opportunities and cllallenges ahead.

Bloggs have to disclose freebies

It is no secret that the best way to launch a product today is the persuade the New Influencers to write something about your product in their blog. Top blogs attract millions of visitors every day and are linked to thousand other blogs creating this way a tremendous communication effect about any product they mention. A recent decision of the US Federal Trade Commission attempting to increase the transparency of such product endorsement testimonials requires bloggers to mention explicitly in their site what they get in return: free products, money (what about paid vacations in Hawaii?). See also the news in the CNN
A good move (Maybe the European Commission should look to this issue also) although I do not expect to bring any important changes in the "blogsphere". Most high caliber blogs will comply (some do this already without having to) since their reputation and trustworthiness is largely based on openness and sincerity. It will be interesting though to see if there are any exceptions to the rule and if some blogs are not as independent as they claim to be.

Public Crowdsourcing Portals (PCP*): Harnessing the collective (or rather the individual) intelligence

You are a big or small company and you are confronted with problems like the following: You look for a method of specifically binding DNA, you need urgently a new method for hair root removal or you are desperate to find how to sample leaf tissue**! You do not have the expertise in-house so what do you do? You try to find another company having the solution and make a deal about royalties to use their technology (something that can be quite costly)or you find and hire someone who can find a solution for you, right?

Wrong! You can get tens or hundreds of solutions and choose the best by placing a challenge in the crouwdsourcing site INNOCENTIVE; this will cost you between $ 5.000 to maybe $ 100.000 that is the fee you decide to pay to the one who will find the best solution for you.
Does this work? Just go to the Innocentive site and look for yourself.

This form of crowdsourcing becomes very popular in a fast pace. Next to proprietary crowdsourcing focused on customer creativity an increasing number of Public Crowdsourcing Portals like Innocentive match the supply and demand for very specific technical or non-technical knowledge. Some more examples of this new type of Social Media (I will update my Social Media Strategies model with this new Web 2.0 application soon) are Yet2Come, Innovation Exchange and the Dutch Battle of Concepts targeting creative students that I mentioned in an earlier post.

Is this development good or bad news for professionals? I think both depending how you look to it. I have the idea that this will be soon an issue of more general concern soon. Let's wait and see. *Do not look for this term in Wikipedia, this is a term I thought of it just now!
**All these are real problems of real companies

Study: Social Media as marketing strategy pays off

One of the standard reviewer comments whenever I submitted a paper about Social Media Marketing is the lack of data backing the claim that Social Media Marketing positively helps the marketing strategy and therefore is necessary for strategists to include these media into their marketing toolbox. The reviewers are in principle right, there are no academic studies yet providing any ROI measurements of Social Media strategies or other similar data.
Yet there are some interesting very recent publications from the practitioners’ quarters; the co-author of the Groundswell Charlene Li released a new report she wrote in co-operation with Wetpaint titled "ENGAGEMENTdb“ making the point that Social Media pays off. The study looked at how the 100 most valuable brands — as identified by the 2008 BusinessWeek/Interbrand Best Global Brands classification — engaged in 11 different online social media applications. The interesting thing is that the study next to measuring the "breath" and "depth" of the engagement of these brands across the different online social media channels has also found a connection between high social media engagement and an average revenue increase of about 18% over the last year versus an average revenue decrease of 6% of the least socially engaged companies. Time for us academics to look to the issue in more depth and breath.

Tweets for treats

A new usage for Twitter, not a bad idea! From CNN

A Wiki of Social Marketing Examples

A very extensive database of businesses involved in social media marketing. The list is not complete but new stuff is added every day since it is Wiki-based. Useful for information but also for researchers

How Social is your Brand? II

In my post of 23 March I mentioned the Virtue - 100 Top Social Brands Index. As you possibly remember the nr 1 social brand (i.e. the brand most mentioned in Social Media) is iPhone followed by CNN and Apple.
In the site of Vitrue you can now find a very useful gadget measuring and comparing the "socialness" of brands. Interestingly the name of the American President Obama seems to be more popular in social media than even iPhone.

A Social Media Marketing case: Ford

Social Media as agent of change? A very intersting case about FORD and social media in the Blog of LaSandra Brill.

Twitter Update

Following my two previous posts I decided to keep a close look to developments around the Twitter fad. Events in the field tend to support my theory that Twitter will finally survive but as a commercial tool rather than an interpersonal social network as it was originally launched. I see more and more businesses, TV hosts, actors, news networks and other commercial parties using it as a personalized mass medium!!
In the mean time a new marketing function emerges: The TWINTER. Pizza Hut will hire them soon: According to BizReport "Responsibilities will include sharing company insights and experiences via social media such as Twitter, Facebook, blogs and YouTube plus working on PR programs. Twinterns will also be expected to attend ad shoots, marketing meetings and other corporate events while keeping an eye out for quirky content to share with fans."

I am very interested how this form of "interactive" marketing will develop, in any case I find it much more interesting than the storm of tweets from friends and "friends" on their daily activities. I think most Twitter users will be soon tired from it.

Social Media Marketing becomes mainstream?

This seems to be the case, at least according to a recent report called Social Media Marketing Industry Report authored by Michael Stelzner. Interesting findings underlining the need to take the Web 2.0 seriously.

Social Media Marketing: Optimistic sounds from the field

The Aberdeen Group conducted a study focused on the ROI of Social Media Marketing. The study identified three key performance criteria ( Return on Marketing Investment -ROMI- , Likelihood to Recommend and Customer Acquisition); after surveying 275 organizations using Social Media as marketing tools they identified three categories of businesses based on their maturity as users of Social Media as marketing tools. The study (sponsored by Visible Technologies, OpenText, ScoutLabs and Zuberance) is available on line.

A short summary: in the category of Best-in-Class performers (top 20% of aggregate performance scorers) in the past 12 months
> 95% improved the likelihood of customers recommending their products or services
>87% improved their ROMI
>95% improved their customer acquisition rate

The study found significant differences between this group and the other two categories: The Industry Average and the Laggards.
No doubt that such findings are impressive and without doubt will further raise the interest in Social Media marketing. The study seems to support the view that marketers must look to the Social Media much more seriously. Let's hope that we will soon see some more studies of this short also from the academic quarters.

How Social is your Brand?

It is no secret that people talk about brands online as much as they talk about everything else. How much people talk about a brand online can be indicative of interest of the public about it but also indicative that things are going wrong. (Remember the Dell exploding battery some years ago). If we accept that "Every publicity is good publicity" then it is interesting for (online) marketers to know how popular their brand is in blogs, online forums, communities and video sharing sites. This is certainly one way of using Social Media as marketing tools, the approach I call Passive (i.e. listening to the market voice) in my Web 2.0 marketing tools model.

For those interested about the top Social Brands there is the Virtue 100-Top Social Brands index. The top ten brands according to the index are:
1.iPhone 2.CNN 3.Apple 4.Disney 5.Xbox 6.Starbucks 7.iPod 8.MTV 9.Sony 10.Dell. The rest in the Virtue site.

The index is a useful tool constructed on the base of a sound methodology. It would be interesting of course any one of my colleagues attempts to measure the relationship between the usage level of the Social Media by the brand sponsors and the ranking of a brand. What is interesting also is that in the top 10 list three of the brands are media brands and that Apple dominates the list with 3 of its brands.
What the index does not say is whether the online buzz about brands is positive or negative. Maybe we have to wait a bit longer for that.

p.s. In the technology blog BLORGE I recently read a story about an exploding iPhone! Hopefully an isolated incident and not the reason of the Social Media popularity of the brand.

To Twit(ter) or Not To Twit(ter)

It is for some time now that I wanted to write about Twitter, the latest upshot of the Social Media and current web fad that spreads like wild fire among Millennials. If you wonder what Millennials are (and also want to have some fun) have a look also to this Video.
For those who do not know yet what Twitter is: It is a combination of online community, instant messaging (messages called Tweets of up to 140 characters) and blog (micro blog) allowing people to inform their network what are they doing every moment of the day and occasionally spread news (like the Mumbai attack, the landing of the American Airlines jet in the Hudson river and the crash landing of the Turkish Airlines jetliner in Amsterdam) faster than the traditional mass media and even faster than YouTube!!
I have a Twitter account for some time already but I have not activated yet, I opened the account out of professional curiosity. After a first look to it I was not sure what value would add this application to my already digitally overloaded life and decided to wait until I knew more about it.
I know now something more about it and I can share it with you to help you make up your mind if you haven't done it yet. Participating in a seminar a few weeks ago (80% of participants belonging to the Millennials segment) I noticed that many people came with their notebooks and of course the first thing that crossed my mind was that they wanted to make notes and maybe look to their email from time to time. I know how a Twitter session looks like so I quickly spotted two guys that I could look to their screens having a Twitter screen on that was constantly updated with the twits of their friends ( the guys were busy with at least 3-4 more things online at the same time but this is normal with multi-tasking people). If my sample ( two out of two = 100% ) was representative then practically everyone with a notebook in the room was doing the same. I really wondered if these guys heard a word of what was said in the seminar but this is another story; I could not help wondering if it is normal that I found the whole thing a bit of nonsense.
The answer to my question came after looking to a recent interview of the Twitter CEO Charlie Rose who declared that in "five years normal people will also use Twitter". This was a big relief, the normal people do not use it yet!! This interview was followed by the news that the Eric Schmidt the CEO of Google, referred to Twitter as " A Poor Man's email system" (despite the fact that Google has also a Twitter account!!). Maybe a reaction to accusations that Google is out because it is too slow! According to some circles Google can find things on line a few hours after they happen and not the moment they happen! What a shame!

Trying to stay objective I would warn those jumping into the Twitter train of the danger of addiction. What I saw in that seminar points only to something like this.
On the other hand one should think very seriously whether his or her life on a 24 hours basis is so important and interesting that everyone should know about it. It sounds like some kind of exhibitionism (although the devoted twitters will say that it is a form of communication) that we see more and more entering our life and found normal by many.
As to the commercial value of this application as a marketing tool I can imagine that it could spread very quickly news and advertisement although the users do not seem to be interested for such things. Yet many companies are already opening Twitter accounts like last year when everyone was talking about the unlimited commercial potential of Second Life (that proved to be hot air for the biggest part).
One matter of concern should be what the effect of Twitter addiction can be on working peoples' productivity. It would be interesting to see a study about such effects. As to the highly praised speed of Twitter to spread news very quickly I wonder what is the problem if you hear about the breaking news 10 minutes later in the TV or radio?

Finally what will be the future of Twitter? Is it another fad or it is here to stay? One thing I have learned the last years is that making predictions for such things can be quite tricky although my predictions about SecondLife on June last year seem to be correct. I have the feeling that the public that stormed SL last year is the same one loading the web with tweets now so I expect something similar to happen again. When they will have enough of it they will swarm around something else and the Twitter will disappear from the headlines.

p.s. 1 Interestingly one of the ministers of the Dutch cabinet is twitting, he irritated the prime minister sometime ago when he published a photo from a cabinet meeting online.
p.s. 2 I will keep tracking Twitter and inform you of developments

New Marketing and a new generation of Marketers

While this use to be quite an exception until 2 years ago more and more often I supervise BA and MSc graduation assignments of Business Administration Students in our faculty related to the role of the New Media (and recently increasingly of the Social Media / Web 2.0). More and more business realize that marketing is changing and this is reflected in assignments they offer to marketing students. The development is very positive indicating that businesses begin to take the Internet and E-Marketing seriously. One example of such a MSc graduation thesis was the one written by my student Rene Borggreve (left in the photo with me in the middle and my colleague Dr. Mehmet Aydin right in the lobby of Harvard Business School in Boston during the faculty study trip to the US in 2005) who recently graduated on a thesis dealing with the subject of using Web 2.0 as marketing tool in launching a product of a big multinational (where Rene already works). It was en excellent piece of work that made me proud for the quality of students our faculty delivers. Rene and an increasing number of his colleagues represent a new generation of marketers that understand the role of the New Media as part of the marketing strategy and will shape the way marketing is applied in practice.

Crowdsourcing: utilize the customer's creativity

Taping the Customer Creativity (also known as Crowdsourcing) is one of the elements of my model outlining the main ways that marketers can engage the Social Media as Marketing tools.

Many examples of such initiatives are already known to those who follow what happens in the Social Media space. Most applications ( RedisignMe, Dell, Nokia, Samsung, TomTom, HP, Talpa, Google Android KLM, Starbucks, P&G, Robeco, threadless, LEGO, SAP, Kodak and many others) are focused on utilizing the customer wisdom in order to innovate. Another way to utilize the customer creativity is to ask customers to design advertisements for you or even commercials. A pioneer in this area is Current where amateur videos that appear on TV win money. Here in Holland we have also some interesting examples. A few months ago Nespresso tested two commercials as to the viewers' opinions before one of them appeared on TV (Source: MarketingFacts.nl)

Another nice example of using customer creativity is the Battle of Concepts , a Dutch (at least till this moment) platform allowing companies to organize competitions (mostly among creative business students) for solving real business problems. The site is getting very popular among students who can win up to 5.000 Euro but also among lecturers who can find there real case studies for their students! (I think to try this next year). Last but not least a new site called Creatad offers creative amateurs the possibility to make money by designing advertisements (printed or videos). I wonder if the American Marketing Association will be obliged to come soon with a new Marketing Definition taking into consideration the interactive nature of Marketing today as well as the way the New Marketing is creating value for the customer who becomes slowly marketer himself!

The Internet as University marketing tool

While the use of information and communication technology (ICT) as education strategy is a hot item receiving a lot of attention it seems that ICT as education marketing strategy receives a very low priority. This is my conclusion from many visits to university or in general educational web sites. The web sites of most universities are notoriously bad and structured around contexts and philosophies of the previous decade. With few exceptions most sites are targeting the internal rather than the external publics and often score very low in usability.
While I haven't found much research evidence of this I suspect that educational institutions are missing opportunities in the market place because of poor design of their web sites and bad visitor experience. In an article published in EDUCAUSE Quarterly Meredith Weiss comes to a similar conclusion. Weiss seems to agree with this thesis suggesting a number of approaches that could turn the educational web sites into sources of value. To my pleasure the author is suggesting, among other approaches, the methodology described in my 4S Web Marketing Mix model as a basis for designing of educational web sites.
In the age of the Social Media and customer empowerment educational institutions should seriously think about learning to use the new media effectively, adjusting their marketing to the requirements of today's student. Ignoring the Internet as marketing tool is a very serious strategic mistake.

Customer Generated Content: not a buzzword anymore

In my previous post I referred to the importance of the fact that the Internet has become the nr. 2 information channel. An interesting detail well known to those following the effects of the Social Media / Web 2.0 is that the bulk of the online information published on line is not corporate information but customer generated one. Even more interesting is that this peer-to-peer content is becoming a main influencer of customer behavior. Some research findings:

> 59% of Internet users consider customer reviews to be more reliable than those from experts. Bizrate survey (2007):
> 62% of the US consumers read consumer-generated online reviews and 98% of them find these reviews reliable enough and
> 80% of these consumers say that reading these reviews has affected their buying intentions. Deloitte Touche, USA, 2008
> 85% of consumers will recommend a company with which they have a trusted relationship (Carlson Marketing).

A recent study of Nielsen Online reveals that the percentage of consumers reading customer generated reviews keeps growing: Nielsen announced that 81% of the online holiday shoppers have read product or retailer related reviews during the last holiday season. An amazing 20% increase from the figure above!
Other interesting findings of the study:
> 25% of US consumers spend over $ 500 online during the last holiday season.
> 33% of consumers visiting retailers sites wanted to compare prices between retailers before they visit their shop while 28% of the consumers wanted to see if the product was in stock in the shop
> 62 % of the consumers who bought from a particular web site have purchased from the same shop in the past
Such studies reveal every day new information as to the role of the web as a commercial platform. This information is a real treasure for those interested in optimizing their online presence. Businesses have no excuse any more to ignore the impact of the Internet on the behavior of their customers. The sooner they start looking more carefully to this data the better.

The Web: Nr. 2 News Information Channel

What many of us though inevitable seems to happen already. After becoming the nr. 2 retail distribution channel the Internet reaches a new milestone of its history by becoming the nr. 2 information channel. According to the results of a survey published by Pew Research Center for the People & the Press on 23 December the Internet has already overtaken the newspapers as news information source in the USA. Of course the Pew survey is limited in the US but I would not be surprised if the same thing is already happening in some of the EU countries (and possibly more countries in the world). The survey has looked to the position of the different media as sources of information of national and international news.

While I feel glad with this development I would like to identify two issues requiring some thought.
First of all I want to warn about the overestimation of this development by raising a red flag when it comes to the quality of all information posted online. On this point I share some of the caution of Andrew Keen and others about the fact that much of the online news content is provided by anonymous and sometimes dubious sources that play journalist without being one and more importantly without being accountable to anyone for what they publish online. During the recent riots in the city I was born, Athens in Greece, I read several ‘eyewitness accounts’ that for all intents and purposes were lies and also came across much nonsense labeled as ‘opinions’ indicating that some of my countrymen might need urgently psychiatric help or even detention that will prevent them from committing serious crimes. This of course is happening in many similar situations or conflicts; the global and uncensored Internet offers to everyone a forum and the issue of the Internet censorship remains a hot and controversial topic.
The second remark has to do with the “business” part of the story. Next to the importance of this development as indicator of changing human behavior with regard to media consumption the fact that the web has become the second most popular news channel should persuade the last of the doubters about the swift in the media world in general. While the internet as news provider is by now the nr 2 source it has been long ago the nr.1 source when it comes to business-, personal- and product information.
What I keep saying to my MBA students but also to business people when I have the opportunity is that it is now high time to look once and for good to their company’s online presence in the knowledge that for their customers the web site is the first and often most important criterion of customer quality perception about their firm and products (anyone who doubts about this should ask himself or herself if this is the case or not on personal level). After 15 years of Internet one would say that this is a non-issue by now, that CEOs have now understood the importance of that “Web Thing”. Have they indeed understood it? I am afraid most of them haven’t