It is early [...]]]> The main story of retail over the last fifteen years has been the rise of ecommerce and the transfer of market share to pure online players like Amazon, Net-a-Porter, ASOS, Wiggle, and BlueNile. I think the most successful companies over the next ten years will have integrated online and offline strategies.

It is early to call exactly how an integrated online-physical offering will look, but the directional trend is becoming clear. The online players are starting to move offline. Net-a-Porter had a pop-up shop last summer, and is rumoured to be planning a permanent physical presence and now Amazon is rumoured to be have similar plans. Meanwhile, traditional retailers are integrating their offline and online strategies with in-store pick up and returns (Argos was first to do this in the UK) and by encouraging people to use the web to research products and check prices whilst in-store (take a look in Dixons next time you are in an airport).

It is easy to understand the moves by the physical retailers. They are making the obvious competitive responses to their pure online competitors, who are buy and large succeeding against both the offline and online offerings of traditional retailers. Pick-ups and returns to physical stores improve the customer experience and are a point of differentiation from their online competitors, and encouraging people to do research in-store is a recognition of what was already happening and helps get people to a purchase decision whilst they are still on premise.

The move by the online players into the physical world is more nascent, but is primarily being driven by branding. Having a physical presence lends solidity to a brand, particularly for less tech savvy sections of the population, and that is critical as online retailers look to expand their reach to all available customer segments. Techcrunch has a good analysis of the reasons why Amazon would open a physical store. This is the money quote:

The Kindle was Amazon incarnate, a way for Amazon to bring its online presence into the real world. A physical Kindle store – one that exists in a mall or popular area, even for a short period – is like the third coming. It’s basically a chance for Amazon to grab every else they have missed during the initial run up in Kindle popularity. We’re talking older folks, luddites, grumps, and folks who claim that “reading it in paper” is better. To have them walk up to a display of working Kindles, newly minted and displaying the latest Stephen King book, is the only way Amazon will convince them that going digital is the only way to go.

It will be interesting to see how this pans out. It could be that integrated online-offline strategies allow traditional retailers to regain some ground. They have been operating non-integrated online and offline businesses for some time and it will be easier for them to develop compelling integrated offerings than it will be for the pure online players to open up physical stores.

This quote from John Hagel has kept coming back to me since I saw this Tweet a month or so back. I posted it on my Tumblog at the time but I’m coming back to it today because it captures the essence of both the potential and peril of social media. Sharing [...]]]>

This quote from John Hagel has kept coming back to me since I saw this Tweet a month or so back. I posted it on my Tumblog at the time but I’m coming back to it today because it captures the essence of both the potential and peril of social media. Sharing gives you the chance to get lucky and serendipitously kickstart new learning and new relationships, but at the same time opens you up to ridicule. I think that many people’s concerns with privacy on social media are rooted in a fear of doing something wrong or looking stupid in a highly visible environment.

Hagel’s quote is brilliant because it makes plain that serendipity and vulnerability are two sides of the same coin. You can’t have one without the other.

Anyone who has started a blog will have felt both sides of this intensely. Writing the first posts is a nervous process, and the mind fills with questions like “Will anyone read it?”, “Will they be interested?” and  “Will my thoughts seem trite, or ridiculous?”. In short, starting a blog makes you feel vulnerable. However, when the first comments arrive, meaningful discussions occur and business relationships are formed you know you have got lucky. You have put yourself out there, taken a chance, and got a result.

The same logic applies at a smaller scale to using Twitter and Facebook for business purposes. It also applies to using those sites in your personal life, although in this situation the stakes can be higher, particularly for teenagers whose sense of identity and self-esteem is often highly linked to how they think other people perceive them. There was a Panorama documentary on BBC1 last night about cyber bullying which featured one particularly horrible story about an American girl who was reduced to a wreck by trolls who criticised a video she had posted and then really went to town when she posted an emotional response to their abuse. The vulnerabilities are very real, but at the same time there are very real benefits to be had from reaching for wider social relationships and making existing relationships deeper via more contact.

Businesses also have to deal with this tension. For many the vulnerability that comes with embracing social media is still the first thing they think of. They have all heard stories about brands damaging themselves with ill-advised Tweets or Facebook status updates, yet at the same time they want to get involved and expose themselves to serendipitous brand endorsements from happy customers.

Social media has its advantages and disadvantages but setting them against each other like this helps people to understand the trade-offs and make better decisions about the extent of their involvement. To my mind, the risks are real, but the potential benefits are greater. Moreover as the world changes at an ever faster rate it becomes harder and harder to plan exhaustively and increasing serendipity gets more important, and the upside from social media increases.

For those of you that [...]]]> Our portfolio company Conversocial has done a fantastic job recently raising their profile on a limited budget. Their marketing strategy has two related strands, firstly assume a position of thought leadership centred around the founder and CEO, Josh March, and secondly generate press coverage by intelligent use of data.

For those of you that don’t know Conversocial is a cloud based service used by brands and retailers to manage and engage with their customers on social media. Customer service is the most important use case. The video below explains what they do in more detail (it’s short).

The key to being seen as a thought leader is having a clear and simple view on where the industry is going and communicating that as frequently as possible and via as many different mediums as possible. Whilst the core message should remain constant it is important to keep the communications interesting by varying the stories through which messages are communicated. You want the most important industry observers and your biggest fans to hang on your every utterance and that means doing more than just repeating the same words time and time again.

In Conversocial’s case they published a series of white papers and case studies, maintain an active blog, and are active on Twitter and Facebook. The core message to their customers is that consumers are using Facebook and Twitter to make customer service requests and that failing to respond and manage them properly can rapidly lead to dissatisfaction and loss of brand equity. Managing those customers properly requires good software, and Conversocial provides the best available (or course).

They keep things interesting by continually focusing on different aspects of social customer service. E.g. their last blog post was Happy Community Manager Appreciation Day! which discussed the importance of having a community manager (i.e. doing social customer service right), the one before was Needles in Haystacks: Trying to Identify Social Customer Service Issues Without the Right Tools which discussed the difference between social customer service and traditional customer service (and why you need a different tool for social) and the one before was an embed of an interview where Josh talks about examples of social customer service done well and about what many companies are still doing wrong and how it is hurting them.

When it comes to having a data led approach to PR Conversocial is fortunate on two counts, firstly in that the activities of companies and brands on Twitter and Facebook is in the public domain, and secondly in that the press is interested in printing stories about companies engaging in social media. The approach is simple – to analyse the activity of household names on Twitter and Facebook and report the conclusions to the press. They have so far released three reports that have provocative titles and are full of soundbites about household brands. For example the press jumped on data published in Who’s ignoring their customers? A survey of US retailers (registration required) which showed that US food retailer Safeway, which is widely regarded as a very traditional business, is much more responsive on Facebook than Wal-Mart and Kmart.

Conversocial had good success with their first two papers, however some publications said they were interested in the stories but didn’t run with them for fear that Conversocial might have biased the results. The research for the third paper was outsourced to a Professor at New York University and got picked up more widely – including in the Financial Times. Coverage in the quality press can be featured in sales and marketing materials and does a lot for the credibility of B2B companies.

As a result of all this activity monthly visits to the Conversocial website are up 150% since July. The traffic is just about all organic (there is very little PPC) so the increase can all be attributed to the activity described above. The visits are converting into customers better as well, and whilst that is mostly down to improvements in the on-site experience the education and branding work described above will have had an impact.

As well as building brand and driving traffic to the website thought leadership and data driven PR are helpful in building customer relationships over time. The tactical value of having a good reason other than sales to get back in touch with customers shouldn’t be under-estimated.

Other companies with naturally PR-able elements would do well to emulate this strategy, as many have, of course, done before. For me, the standout example of a company that did this well and got through to a $750m exit was mobile ad network Admob (a DFJ investment). Their monthly reports on the state of the mobile advertising industry became the de facto industry stats. This strategy works for all companies that are interesting enough to be written about, but it is particularly powerful for companies like Conversocial and Admob that are pioneering in their markets and need to educate their customers as well as generate publicity. Those of you who have read Geoffrey Moore’s Crossing the Chasm will be familiar with the importance of educating potential customers when markets are in their early stages.

So far, with two caveats that I will return to, [...]]]> Since the beginning of the year I have been running an experiment to see if I can consume all my print media digitally. That means only buying Kindle books and getting my morning news fix exclusively on one of my tablets or my phone.

So far, with two caveats that I will return to, it has been going well.

Since around October I have been buying all new books in Kindle format and I love that I can read on my Kindle device at home and then open up the Kindle app on my phone and have it automatically take me to the last page I read. Before buying everything on Kindle I would generally have two books on the go at once, one at home and one in the office. Now I can read one book at a time without having to bring it around with me. I also like that when I have ten minutes to kill and don’t feel like doing email my book is always there to dive into. I’m playing less Angry Birds now

So no dead tree books is ok.

Turning to news, for some time now I’ve got all my tech and Chelsea football news via Taptu’s Android and iPad apps. Our Associate Scott Sage has curated a tech news feed and a VC blogs feed on Taptu and I check those first thing every morning, along with Taptu’s own Chelsea feed. If you see me tweeting out news early in the morning it is usually from the Taptu app. (Disclosure: Taptu is one of our portfolio companies.)

So the only major change I needed at the start of the year was to find an alternative to buying a physical copy of the Financial Times in the mornings. I looked at various online financial publications hoping to find an RSS feed or two that would give me the same blend of macro-economic news and analysis, reporting on quoted tech companies, and UK politics, but couldn’t find anything. I ended up installing the FT app on my phone and subscribing to their mobile service. At £39 per month it is quite expensive, and a little more than I think I was spending on the physical newspaper, but I’ve been using it for a month now and I think I’m getting reasonable value from it. A key requirement for me was that I could read the paper whilst I was on the Underground with no network connection and the FT app works brilliantly for that. If you leave the app running on your phone you can set it to automatically download all new content every morning whilst you are at home and the phone is on wifi. Access to all articles is then very fast, even when you are offline. My only gripe is that the scrolling on my Samsung Galaxy Nexus is a jerky (anyone from the FT reading this??)

So the no dead tree news is working ok too.

I said there are a couple of caveats/exceptions. The first is that I bought a physical book about stretching this week. I want to be able to refer to it whilst I exercise and I think the physical format is still much better for this. I don’t expect more than one or two of the thirty odd books I read each year will need to be physical though. The second caveat is that I was given a physical copy of The man who mistook his wife for a hat for Xmas, which I’ve read. And, finally, there are two books I haven’t bought solely because they aren’t available on Kindle. One is Abundance, which I hope will come out on Kindle soon, and the other was a productivity book my brother recommended which I probably won’t ever read now. I have plenty of books stacked up to read though, and neither of these are ‘can’t miss’ titles.

I list out these caveats and exceptions in full to illustrate that there has been very little downside to living without physical print media. Moreover, I expect the downsides there have been to get less over time. Stretching text books will move to tablet format, include videos, and be better for it, and increasingly all titles will be available on Kindle.

Facebook is widely expected to make a preliminary filing for their IPO today. Bloomberg reports that they have chosen Morgan Stanley as their lead banker and plan to raise $5bn.

At this point it is clear that Facebook is worth a lot of money. The company has 800m+ users who love the service [...]]]>

Facebook is widely expected to make a preliminary filing for their IPO today. Bloomberg reports that they have chosen Morgan Stanley as their lead banker and plan to raise $5bn.

At this point it is clear that Facebook is worth a lot of money. The company has 800m+ users who love the service and made a $1.5bn operating profit in 2011 on revenues of $3.8bn (according to Business Insider). Moreover, the company is still growing fast. For these reasons the IPO is expected to price in the $80-100bn range.

For context, Google’s valuation is currently $189bn on 2011 revenues of $37.9bn and operating profit of $11.7bn. If Facebook makes it out in the $80-100bn range then it will be roughly 5x more highly valued than Google on a multiples basis.

The question for investors is ‘are they worth the premium?’

The bull case makes the following arguments:

• Powerful network effects are at play in Facebook’s business. Social networks only make sense if your friends are there and even if there was an equivalent service it is very hard to imagine groups of people co-ordinating themselves to take their content and leave en-masse.
• The apps and games platform is a formidable engine for growth. Facebook has fostered an enormous community of developers who as a buy product of building their own companies drive revenues for Facebook and improve the experience for Facebook’s users.
• Facebook Connect – we are only seeing the beginning of this now, but the virtuous circle created between Facebook and their Connect partners is extremely powerful. All parties will benefit from the data created and shared via this mechanism.
• Ad targeting – Facebook’s has a huge and growing ad inventory, the richest data on users any company has ever possessed, and a very effective ad buying system. As an engine for growth and profits it has the potential to rival Google’s Adwords.
• There is still a lot they can do to improve – the refrain within Facebook is “we are only 1% done” and it is easy to see how they could extend their reach into new products and markets. An ad system that runs on third party sites which use Facebook Connect is one of the more obvious opportunities – equivalent to Google’s Adsense.
• Facebook has a strong management team with a great track record of execution and innovation.

However, there are significant downside risks. Facebook could fade, as AOL and Yahoo did before it. Both those companies had positions that at the time seemed to match Facebook’s current dominance but were blindsided by changes to the way the internet works. AOL didn’t see the change away from walled gardens and Yahoo failed to adapt to the rise in importance of search and social. It is likely that the next ten years will see changes at least as radical as these and Facebook will have to remain fleet of foot if it is too justify its valuation.

As we sit here today the most obvious change that could damage Facebook is the shift to mobile. Facebook is a native web experience and works much better on a full screen. The other major risk from a competitive perspective is that social media activity fragments again. Before Facebook became dominant our collective social activity was spread across a number of services and that situation could arise again if disparate services like Twitter, Instagram, Pinterest and Tumblr continue to grow.

A risk to Facebook’s valuation (rather than to their business) is that growth tops out. I am persuaded by the argument that in the developed world social media is getting close to full penetration, and that future growth will have to come not from increasing the number of people and time spent on Facebook, but rather from better monetising their existing assets. Transitioning from one growth model to another can be hard.

I’m skilled in valuing companies in the $1-100m rather than the $80-100bn range but my gut is that Facebook’s assets are really strong and the team is strong enough to navigate around their weaknesses, at least for the next couple of years. Google IPOd in 2004 when their operating profit was $640m. By 2006 they had grown that figure to $3.5bn, and if Facebook can match anything like Google’s run a $100bn valuation is around 15-20x their two-year-forward operating profit, which is not outrageous.

I am sure we will learn much more about their revenue and profit expectations over the next couple of weeks. It will be interesting to see how the debate pans out.