Social media companies have always struggled with monetizing the big user base that they have. Especially Twitter, the social media platform that lets users send out 140-character messages, has been operating on investment money instead of profit. At the time of their IPO, Twitter was making $500 million dollars in revenue but did not make any profit.
Although Twitter is not profitable, it still had a valuation of $24.9 billion at the time of IPO. But, if there isn’t any profit, what is that valuation based on? The answer is innovation and the prospect of monetization. Many big companies have been outcompeted by startups that applied innovative business models. For instance, Blockbuster got replaced by Netflix and Barns & Noble got replaced by Amazon.
Social media are replacing our old ways of communicating. The reach and influence of Twitter has become enormous but profits are lacking behind. Still, Twitter is valued highly because investors predict that Twitter will find a way to monetize on their influential position in the social media world.
That moment of monetization might just be upon us now. Twitter is introducing their ‘’Buy Now’’ functionality. In September 2014, Twitter started testing a way to buy products directly from their site and app. Together with payment-startup Stripe, they have developed the Buy button. This button enables retailers to turn their Twitter account into a web shop. Consumers just add their credit card details to their account and click the Buy button whenever they see a product they like on Twitter. Of course, part of this revenue will go to Twitter.
Twitter is a great example of the value of the network effect. First, they created an enormous network of people relying on Twitter to stay up-to-date. Only after the massive user base was established does Twitter introduce ways to turn that network into large revenue.
The monetization will not end with the Buy button. Recently, a MKM Partners Internet analysist stated that Twitter can reach a $100 billion valuation if they find more ways to monetize and improve user experience. That statement alone made Twitter stocks rise significantly and Twitter will work hard to reach the ‘’unicorn status’’ that is a $100 billion valuation.
Although Twitter is finally monetizing, many still call Twitter and other startups overvalued. Do you think that Twitter is overvalued or not? Share your thoughts in the comments!
It´s not the first time that the German based company Aldi is tackling an industry with a low competitive price. This time it is the fast growing music streaming industry. What sounds like a curious sideline business could be a central element for changing the brand in the next years.
Two weeks ago Aldi launched on own music streaming platform in cooperation with Napster. For only 7.99€ per month, Aldi offers more than 34 million songs and audio books. At first it seems to be nonsensical to enter a highly competitive market in which already big competitors such as Spotify, Apple Music, Deezer or Ampya exist. And even that Aldi is cooperating with Napster has only limited benefits, as this brand is only partly known by the young target group.
However, Aldi has a good timing for this launch. The pioneer Spotify has demonstrated that music streaming in a performing and lucrative market. And Apple Music and Deezer are currently highly investing in advertisement and thereby keeping this topic continuously at customer awareness. This enables an opportunity for a low-cost provider.
Aldi has already proven in the past that they provide good multimedia products. In the hardware market they have a very fruitful cooperation with Medion, and in the mobile communication market AldiTalk is very successful as well. These two examples have shown that selling products or service at a low price but with high sales number can be profitable. Additionally, Aldi can use synergies and offer bundles, as mobile services as music streaming are closely connected. For example they can exclude the data volume for Aldi Life from the monthly data volume. Furthermore, they already have an existing customer (data) base. Therefore, the success prospects for Aldi Life are high and it is very likely that this discount strategy will be successful for music streaming as well.
This new tender is strengthening the retail competence within the field of digital and virtual products, a topic that is becoming more and more important in the future. Currently price and quality are the crucial factor which grocery story the customers favor. But, especially in the e-commerce these boarders are diminishing. Amazon Fresh is a good example: It is very likely that customers that had a good (service) experience are getting to know Amazon as a retailer much better then Aldi & Co.
For traditional retail companies the only counter strategy is the development of digital products and thereby getting contact to young customers who have high potential for their core business. And nevertheless, soon or later e-commerce is becoming a non-negligible topic for every stationary distributor.
Additional note: Aldi Life is currently not available in the Netherlands, but it is very likely that is will be available here so pay attention.
- Aldi Life (20159. Aldi Life. Available at: https://www.aldilife.de
- Campillo-Lundbeck. S. (2015). Warum sich der Discounter in der digitalen Welt so wohl fühlt. Horizont. Available at: http://www.horizont.net/marketing/kommentare/Aldi-life-Musik-Wo-die-Musik-bei-Aldi-wirklich-spielt-136540
- Kerksmann, C. (2015). Aldi wird zum Musik-Discounter. Handelsblatt. Available at: ewww.handelsblatt.com/unternehmen/it-medien/streamingdienst-gegen-spotify-und-apple-aldi-wird-zum-musik-discounter/12358744.html
- Vincent, P. (2015). Aldi teams with Napster to launch music streaming service. The Sydney Morning Herald. Available le at: http://www.smh.com.au/entertainment/music/aldi-teams-with-napster-to-launch-music-streaming-service-20150929-gjwwtp.html#ixzz3nV7aeukv Follow us: @smh on Twitter | sydneymorningherald on Facebook http://www.smh.com.au/entertainment/music/aldi-teams-with-napster-to-launch-music-streaming-service-20150929-gjwwtp.html
‘E-commerce is dead’. Such a bold comment comes from an article that writes about one company that is re-inventing retail, and earned more cash for its eighty-thousand customers than companies such as Walmart and Zappos on 2013’s Cyber Monday [A1] (VentureBeat, 2013).
Shopify is a full-service e-commerce solution provider. The company support over 100.000 retailers, ranging from General Electric to CrossFit and Tesla Motors to GitHub. On Shopify, you can create an online store in an instant, without any developing expertise. (Wired, 2013).
Shopify receives fierce competition from all sorts of companies, ranging from point of sale companies to inventory management businesses, hot start-ups such as Square and PayPal and big names such as Magento and Google.
The underlying reason why it receives so much competition, is that the company’s vision is to have merchant’s sell anything, anywhere and anytime. So basically they compete with all sorts of e-commerce companies imaginable.
Chief Platform Harley Finkelstein explains that his software company offers the ultimate solution to retailers: a central dashboard from where you manage your online- and mobile sales, revenue streams, social commerce, inventory and financial data. No matter how you sell your stuff, or what channel you use – it all flows back to one unified online environment.
Besides this vision of integrated e-commerce software, the reason this company is becoming more and more popular is the fact they provide all advanced tools normally enhanced by large online retailers, to any retailer imaginable – a small local retailer or just you as an individual.
It will be interesting to see how Shopify develops as a high-quality, all-round service company for online stores. Does anyone of you have an online store? If so, have you considered using Shopify to run your webshop? Let us know in the comments.
[E1] Cyber Monday is a marketing term coined by marketing agencies to stimulate online sales on the first Monday after Thanksgiving.
Koetsier, J (2013, December 18). Forget ecommerce: Shopify wants to transform all retail, everywhere, everywhen, everyhow. Retrieved September 22, 2014, from http://venturebeat.com/2013/12/18/forget-ecommerce-shopify-wants-to-transform-all-retail-everywhere-everywhen-everyhow/
Maly, T (2013, April 4). Shopify Simplifies E-Commerce to Boost Crowdfunding Graduates. Retrieved September 22, 2014, from http://www.wired.com/2013/04/after-kickstarter-shopify-looks-to-scoop-up-crowdfunding-graduates/
Alibaba, the Asian retailing giant, went public today. The company raised a staggering 21.8 billion dollars and is now worth more than Amazon. The business-to-business wholesaler from Hangzhou has grown from a modest idea from a high school teacher to one of the five largest Internet companies in the world. How did the company manage to ever grow this big?
The first strategic success factor is the fact that Alibaba, in contrast to Amazon, doesn’t own any inventory. The online marketplace takes care of the selling of items, not the products themselves. This way, the company has no inventory risk neither any investment in costly warehouses. Neither does Alibaba have its own delivery trucks; it simply controls a whole network of delivery companies. This way the company manages to stay flexible, while growing fast.
Another factor is the integration of Alibaba in all areas of e-commerce. It has become a huge network of related businesses that handle complementary products and services. The businesses’ activities in transactions, sales, delivery, cloud computing and advertising serve each other as well. But it doesn’t stop there. The company has recently developed it’s own mobile operating system, offers trade financing to vendors and rumour has it they start offering consumer loans anytime soon. Whereas most Western online retailers have a clear focus and just one or two touch points with their customers, the Asian retailer appears to mingle into the (digital) lives of its customers as much as possible.
As the company has hit the stock market just now, it will be interesting to see where this move takes the company next. It surely made the owner, Jack Ma, a whole lot wealthier. You can buy stocks for around 93 dollar. Will you join Alibaba’s adventure into the Western world? And would you consider buying from the retail giant?
Del Rey, J. (2014, September 19). Alibaba Now Public As It Raises 21 Billion In Biggest Tech IPO. Retrieved September 19, 2014, from http://recode.net/2014/09/19/alibaba-will-ring-the-bell-at-nyse-this-morning-to-a-historic-ipo/
Wohlsen, M. (2014, September 19). Chinese Giant Alibaba Is Ready to Become the Next Google. Retrieved September 19, 2014, from http://www.wired.com/2014/09/chinese-giant-alibaba-ready-become-next-google/
This spring, I attended a workshop hosted by a very inspiring person: Jarno Vanhatapio, founder of Nelly.com, the largest online fashion retailer in the Nordics. This is his story:
Back in 2003, Jarno Vanhatapio was getting tired of his job as a construction worker in Norway. For three years, he had dreamed of putting up his own business. He had some experience as an organizer of school discos and knew basic html programming, but other than that, he had no experience of importing, e-commerce or business (and he was not that interested in fashion, either).
Jarno thought long about his options, and finally decided to start selling underwear through a web site, which he dubbed Nelly.com. The rationale was simple: a small underwear parcel would fit in the mailbox, making delivery easier. He found cheap underwear suppliers in China, and started running the business from his small studio, which was soon crammed up with cardboard boxes containing bikinis and boxers.
When Christmas was approaching, Jarno saw his sales starting to grow exponentially. After that, it never really stopped. Running the business was a constant struggle to keep up to demand, to have enough products in stock and to convince suppliers that they would eventually get paid.
After three years, the company had a turnover of around 20 million Swedish krona (approx. 2.5 million EUR) and had become the largest online underwear retailer in the Nordics. The difficulties with the supply chain were however putting a big burden on Jarno’s nerves, and when the large Swedish media group MTG made an offer to buy 90% the company, Jarno couldn’t refuse.
After securing the supply chain and getting new financial backing, Nelly.com could start expanding its business even more. Today, Nelly.com has 11 million monthly page views, 850 different clothes brands and a yearly turnover of 816 million SEK (approx. 100 million EUR).
The story shows how new, emerging technologies have made it possible to succeed for anyone with a fairly good idea, and more importantly, the will to implement it.
Here are some of the observations on e-commerce Jarno Vanhatapio wanted to share with his listeners:
- Co-creation is great. Modern technology and social networking makes it a cheap and efficient marketing tool. For example, you can put up a design on your Facebook page, and simply ask people if it should be produced or not. It is also easy to let people submit their own designs.
- The business is going to consolidate. Only a few big actors will be able to serve the variety-seeking mass markets, having both the logistical capabilities to handle high inventory turnover, and the analytical expertise to make the most out of big data.
- Payment and ordering processes are getting easier. You won’t be asked to type in your credit card details over and over again. Also, companies will be able to evaluate whether you are creditworthy or not.
- Classical advertising is slowly dying. As of today, 25% of Nelly’s traffic comes from fashion bloggers/affiliates. An advice he gives to fashion retailers in particular to have at least 50% of your marketing and sales department working with social media.
At ShoppingToday, an e-commerce event about the latest trends in online retail, online travel and finance, various interesting insights were given to offline and online retailers.
First, Cor Molenaar, Professor of eMarketing at Erasmus University, discussed the importance of disruption and emphasized that retailers should not fall behind on the latest trends. According to Professor Molenaar, the future of online retailing will be in mobile websites (not in apps!) and therefore all retailers should create a mobile website as soon as possible. In addition, he explained how physical shops will become important again as online retailers are now starting to work together with local shops to provide one-hour delivery (eg eBay Now). Consequently, he urged online retailers to start thinking about ways to improve their delivery times, potentially by integrating their physical stores with their websites.
Second, PriceWaterhouseCoopers discussed future trends and technologies. According to PWC, five key trends can be identified:
- Big Data and Analytics: Gathering and analyzing customer data and providing the customer with interesting offers at the purchase decision
- Internet of Things: Being connected 24/7 by means of a smartphone
- Digital Payment: eg Google Wallet and eBay’s Paypal
- Digitalization of the shopping experience: Currently we are still talking about multi-channel shopping, while retailers should offer the customer a ‘one-channel experience’, in which offline and online channels become fully integrated
- Digitalization of products and services: How music, movies and books have become digitalized, many more categories will follow
Last, Edwin de Jong, 21-year old founder of Fietsuniek.nl, Omafiets.nl and Bakfietsweb.nl, elaborated on his success story. Indeed, quite remarkably, nearly three years after having founded his business, Edwin already holds over 1% of the bicycle market. His business model is focused around drop shipping. Drop shipping is a supply chain management technique in which retailers deliver goods from the manufacturer directly to the customer. Thus, the retailer does not own inventory. It took Edwin three years to successfully set up this technique.
His key insights:
- Founders should not be too emotionally involved with their business. Indeed, Edwin explained that he did not have any affection for bikes nor for webshops. Yet, he saw an opportunity within the bicycle market and consequently acted upon this opportunity
- It is worth investing in a domain name. Domain names can be quite expensive, but one has to make a tradeoff between paying a high cost-per-click (CPC) in Google Adwords, and investing in a domain name. (Omafiets.nl apparently cost over 50.000 euros, while the CPC for ‘fiets’ is 1 euro)
- Startups should advertise effectively. For his webshops, Edwin uses affiliation, Marktplaats.nl (the Dutch eBay), Google Adwords and makes sure that potential customers can find him on Google (SEO).
My personal key insights from ShoppingToday
- Big Data is the future
- If you want to start up your business, just do it!