Month: January 2004

Two eCommerce Opposites

Washington Post looks at the two contrasting approaches taken by eBay and Amazon:

EBay raised its prices this month for the fourth year in a row, while Amazon renewed its pledge to keep cutting prices even if it means lower profits. The contrast reflects how much more power the highly profitable eBay wields than Amazon.com, which reported its first-ever annual profit this week. Their business models differ, too, since eBay owns no inventory and its prices are commissions charged to sellers. But their diverging strategies also suggest a difference in attitude that may bode well for Amazon and ill for eBay.

Starting next week, an item selling for $150 on eBay will cost a seller $7.15 in fees, or about 5 percent of the sales price. And that doesn’t count payment processing fees eBay collects from many sellers through PayPal, its payment subsidiary. You have to wonder how long eBay can sock it to sellers in the form of annual price increases before small sellers start fleeing to rivals such as Yahoo and Amazon.

It’s interesting to watch eBay and Amazon marching toward some middle ground in retailing after each started in opposite corners. For years, eBay was home to small merchants who sold mostly used goods at auction prices. It has since added loads of big retailers who sell new merchandise, some at fixed prices. At the same time, Amazon started as a direct seller of new books and subsequently invited other merchants to sell both used and new merchandise on its site. Amazon collects commissions on those third-party sales, just like eBay does, which yields higher profits for Amazon in part because it doesn’t have to buy those goods.

Gateway to buy eMachines

A few years ago, eMachines was given up for dead. It was revived by Wayne Inouye. Now, the fairytale turnaround (a rarity in the Dell-dominated PC industry) has attracted an embattled Gateway, which is buying eMachines for USD 266 million in stock and cash.

News.com: “The companies’ combined PC businesses would constitute the third-largest PC manufacturer in the United States, Gateway said, and rank it eighth in the world. By making a bid for eMachines, Gateway is hoping to combine the best of two worlds, creating a much larger PC business and giving itself additional sales channels for consumer electronics, such as its Gateway televisions, both inside and outside the United States. The move could allow Gateway to double its annual PC volume from about 2 million to about 4 million units and position itself as a very strong No. 3 to Hewlett-Packard and Dell, Ted Waitt, Gateway’s CEO said.”

The secret behind eMachines’ success: “eMachines has been one of the fastest-growing PC companies in the United States. Last quarter it posted a higher unit shipment growth rate than any of the other top manufacturers in the United States. It grew unit shipments almost 21 percent year over year to 498,000 units, which moved it back into the top five manufacturers in the U.S. market, according to IDC. eMachines also operates with a unique business model, designed to help keep its costs low. It only builds enough PCs to satisfy orders from retailers. It also aims to sell all of those PCs by the end of each quarter. Meanwhile, it does not accept returns or provide price protection to retailers against future price drops, two measures that could also cut into profits.”

Another News.com report gives the background to the acquisition from eMachines’ viewpoint:

In late 2001, the company’s shareholders agreed to its acquisition by one of the company’s directors in a buyout that took eMachines private in a deal worth about $161 million.

Rather than fade into oblivion, like so many other PC makers of the previous 20 years, eMachines found itself at the start of a turnaround. The company was able to boost its share of the U.S. PC market from 2.1 percent in the first quarter of 2002 to 3.4 percent by the end of last year, rising from ninth to fourth in terms of market share, based on units sold. During the same period, Gateway’s share of the U.S. market dipped from nearly 6 percent to just below eMachines’, also at about 3.4 percent, for the last quarter of 2003, according to IDC.

Despite its success, eMachines faced challenges for the future, some of which led it into Gateway’s arms. One of the most pressing issues was where to get the money needed to continue the company’s expansion into notebook computers and overseas markets.

“Clearly, eMachines had been struggling with how to bring capital into the company,” IDC analyst Roger Kay said. “They had even talked about going public.”

Although the company was profitable, analysts doubt that eMachines was making much money, likely posting margins of just 2 percent or 3 percent. “They had to work really hard to make $20 million or $30 million (a year),” said Stephen Baker, an analyst at the NPD Group. “That’s hard work.”

More inputs from Fortune and WSJ.

Linksys Story

Inc crowns Janie and Victor Tsao who co-founded Linksys as Entrepreneurs of the Year. Cisco acquired Linksys for USD 500 million last year. Here’s how they began:

Like not a few business owners before them, the Tsaos heard the entrepreneurial clock ticking: They were determined to be independent before they reached the age of 40. Victor was 37 and Janie was 35 when they decided to put to use their familiarity with Taiwan (where they’d met at Tamkang University). They were both working in information technology–Janie at Carter Hawley Hale and Victor at Taco Bell–and with Victor a step higher on the corporate ladder they decided that he would continue to punch the clock while Janie launched the business, a consultancy they named DEW International. The new company mated American technology vendors like Northgate Computer with Taiwanese manufacturers that could make their wares cheaply.

Soon, one of those manufacturers brought them an idea. At the time, the cables used to connect printers and PCs could extend only 15 feet before the data began to degrade. To solve this, the manufacturer invented a setup that used telephone wire to extend the reach to 100 feet. This company needed someone to market the thing in the U.S. “With companies like that,” says Victor, “actual English was not their strength.” The manufacturer came up with products that connected multiple PCs to multiple printers, and the Tsaos renamed their company Linksys. Victor quit his job in 1991, and within two years Linksys had moved twice, eventually to a 2,000-square-foot office, and each month was selling 8,000 Multishares, as those units were called, through tech catalogs like Black Box. In these early years, the Tsaos invested $7,000 in Linksys, the only capital the company required until it tapped a bank loan for the one and only time, in 2001. (They paid that loan off in less than six months.)

Linksys slowly expanded from printer-to-PC connectors to PC-to-PC Ethernet hubs, cards, and cords, gear that let small businesses and nerdy households connect computers so that they could share data. It was a niche market, and with 1994 revenue of $6.5 million the company was far from a behemoth. But slow growth was the only way the Tsaos could expand without taking on debt or investors. While Victor managed operations and finances as CEO, Janie handled sales in her job as vice president of business development. As Mike Wagner, the company’s director of marketing, puts it, “Janie brings the money in, Victor keeps everyone from spending it.”

Fast and frugal – that sums up Linksys.

Blogs and Business

Computerworld writes about how blogs are making their way into business:

Using blogs, companies can easily and quickly communicate information such as project updates, research, and product and industry news both inside and outside the business. Security issues are the same as with any Internet-based application.

Even though blogging technology has the potential to become important to their companies, most CIOs haven’t paid much attention to blogging, and it’s not one of the tools they’re considering to solve their myriad IT problems, according to John Patrick, president of Attitude LLC in Ridgefield, Conn., and former vice president of Internet technology at IBM.

“I believe it is important to the CIO and the enterprise, because blogging introduces a new way to create, share and leverage knowledge in the enterprise,” Patrick says.

“You can do things like start one weblog for each project and have it run its course,” says Anil Dash, vice president of business development at Six Apart. “As the project continues along, everybody can do status updates and be able to link to every other relevant resource, whether it’s on the Web or in a Word document or in a proprietary company database. So for internal use, you have a lot of flexibility, and it respects the firewalls and the other boundaries you’ve already put in place.”

Michael Masnick, president of Techdirt Inc. in Foster City, Calif., says that while most corporations have knowledge management tools and corporate portals to organize internal data, they don’t have an effective way to deal with external information. A blog allows users to integrate internal and external information.

Enterprise blogs provide companies with easy-to-use tools to manage external information, which is extremely critical because it affects relationships with customers, partners and investors, as well as internal decision-makers.

“Having an enterprise blog provides a strategic advantage over the competition and helps companies gain market share and respond faster to their rapidly changing business environments,” Masnick says.

Desktop Decisions

SearchWin2000.com has a 3-part series “to look at issues that enterprises must consider when deciding which desktop system is right for them.”

Part 1: Desktop Linux looks for a Windows equalizer: Manageability features that are being created for Linux could be a catalyst for convincing enterprise customers that the Linux desktop is ready for the mainstream.

Part 2: Windows feeling open source draft: Manageability features that are being created for Linux could be a catalyst for convincing enterprise customers that the Linux desktop is ready for the mainstream.

Part 3: Longhorn may bridge the thin, fat client worlds: If all goes as planned, Microsoft’s Longhorn will offer a compromise for those mired in the debate over thin versus fat clients.

Manufacturing in China

Strategy+Business writes:

China currently accounts for more than half of the emerging-market electronics production and 8 percent of the total global production. In the future, it will take a commanding lead in key value chain elements; for example, it will account for more than half of all final assembly activity by 2005. Higher-margin activity, such as design and engineering, will move there as well, but not as rapidly as production will.

Several factors explain Chinas attraction. First, it has made electronics a priority, and it is sweetening the pot with highly subsidized financing. In some cases, to draw multinational investment, the government even provides facilities and equipment. As a result, electronics production in China is expected to surpass Western Europes production, reaching $80 billion in 2005. Chinas growing base of talent and experience is also a lure; some Chinese who study engineering and other disciplines in the United States are now returning to China to provide leadership.

In addition, a cluster effect is taking hold: As the electronics industry in China matures, foreign manufacturers can find suppliers nearby, which makes manufacturing more efficient. The traditional fears of developed-country manufacturers operating there that China is too far from the markets to which they are selling, that their products are too high-tech to be produced in a developing country, that the transportation infrastructure isnt good enough, and that the necessary parts for manufacturing arent available are slowly disappearing.

Multinational electronics producers are also interested in China because they want to penetrate its huge market, now the worlds largest market for cell phones and color televisions, and the second largest for personal computers, after the United States.

Developing World Companies and Innovation

HBS Working Knowledge looks at learnings from companies in the emerging markets, and “how three businesses in developing countries overcome a lack of resources to succeed.” The companies: CEMEX (Cementos Mexicanos), the Mexican cement giant; Natura, a leader in Brazil’s cosmetics arena; and China’s Haier, which sells appliances in one of the world’s most demanding markets.

Know your customers’ mindsetsintimately: Employees of China’s Haier, for example, discovered through visiting rural customers that they frequently used their washing machines not only to launder clothes but also to clean vegetables. By making a few minor modifications to the washers they manufactured, Haier was able to market the machines as versatile enough to wash both clothing and vegetables, and rapidly became the market leader in rural areas of its home country.

Innovate aroundrather than throughthe technology: Consider the challenge of delivering ready-mix concrete. Contractors often change their orders at the last minute, but CEMEX found that, on average, it took three hours between the time when a change order was received and when the order could be delivered. To decrease turnaround time in its Mexican market, CEMEX equipped most of its fleet of concrete mixing trucks with global positioning satellite (GPS) locators, allowing dispatchers to arrange deliveries within a twenty-minute window, versus the three hours CEMEX’s competitors require. This systemwhich did not emerge from a central R&D lab but rather from CEMEX’s internal innovation efforts, as described belowhas allowed CEMEX to increase its market share, charge a premium to time-conscious contractors, and reduce costs resulting from unused concrete.

Scour the globe for good ideas: Recognizing that the company could never compete on technical innovation with global competitors such as Procter & Gamble, Este Lauder, and Shiseidoall of which spend hundreds of millions of dollars on R&D every yearNatura’s executives have developed close connections with universities in France and the United States, and license technology from universities and research centers around the world. Says Philippe Pommez, Natura’s R&D director, “The hard part is not finding the new technology; it is knowing what you are looking for. This is where our conceptualization of new products and new lines that serve local needs becomes indispensable.”

Microsoft and its Battles

The Economist looks at Microsoft’s showdown with the European Commission over its Windows Media Player (WMP):

The crux of the matter is, can Microsoft lawfully integrate other pieces of software into Windows? This was also, of course, at the heart of the American action. In that case it was the web browser, rather than the media player, that was under consideration, and Microsoft was found guilty of illegally exploiting its monopoly by tying its web browser to Windows.

Short of a break-up, however, there is no effective antidote to tying. Forcing Microsoft to produce a Europe-specific version of Windows without WMP (or any other specific features) would, in effect, impose an inferior product on European consumers. It is difficult to argue that this would be in their interests. And it would, in any case, probably result in a grey market as the full version of Windows was imported from elsewhere. There are also problems with the must-carry approach: which other media players would be included? Presumably those with the greatest market share. But that would itself be anti-competitive, since it would entrench the positions of the existing players. Furthermore, WMP would still be ubiquitous.

…and the forthcoming battle with Google:

Google’s power makes it just the sort of company that Microsoft typically tries to squash. At the World Economic Forum in Davos last week, Mr Gates admitted that Google’s search technology was way better than Microsoft’s, and identified internet search as a key focus for his company. Microsoft already offers searches through MSN, its web portal. But until this week it had yet to play its trump card: exploiting its dominance of the web-browser and operating-system markets to extend the reach of its search service. That changed on January 26th when it launched a toolbar plug-in for its Internet Explorer browser, enabling instant searches (via MSN) from any web page. It is an imitation of Google’s toolbar, which has helped to contribute to the search engine’s success: on a computer screen, as with real estate, location is everything.

Initially, the MSN toolbar is a free optional download, as Microsoft’s web browser and media player once were. The next step, inevitably, will be to integrate such search functions into Windows, on the grounds that it constitutes a core technology that should be part of the operating system. In his keynote speech at last November’s Comdex show in Las Vegas, Mr Gates demonstrated a prototype technology called Stuff I’ve Seen which does just that. It allows computer users to search for context-specific words in e-mails and in recently visited web pages, as well as in documents on their computers.

In other words, Microsoft is preparing to use its dominance in web-browser and operating-system software to promote itself in yet another separate marketsearch engines this timeat the expense of competitors. Is that tying? It is entirely possible that, in a few years, the same arguments heard in the American and European cases will again be raging, unresolved. Microsoft will insist that it has done nothing wrong, as competitors cry foul and wizened regulators launch further investigations.

The Economist’s conclusion: “This newspaper has long argued, and still believes, that a break-up of Microsoft is the only remedy that would have any impact on its conduct, by removing its key weapon, Windows. At the moment that seems out of the question. How else might Microsoft be stopped from illegally exploiting its monopoly? By the long-awaited rise of open-source software such as Linux, maybe, though that seems unlikely. Perhaps the company will eventually conclude that the costs, in bad publicity and constant legal battles, of maintaining its monopoly exceed the benefits, and choose to divest or open up Windows itself. But that also seems implausible when there are large monopoly rents to be had. Some day a break-up of this too-mighty firm will again have to be considered.”

I think the third major battle Microsoft faces is in the emerging markets – and there it has to contend with piracy, non-consumption and Linux. Long-term, this is going to be the hardest battle, because the emerging markets are computing’s next markets with a billion users waiting. The winner(s) will need to provide whole solutions at affordable price-points.

TECH TALK: Rethinking Search: The Next Indian Search Engine (Part 2)

Continuing with the attributes of the Next Indian Search Engine (NISE):

Leverage RSS: For a glimpse into what Search can become, take a look at Feedster. Even as it focuses on narrow content vertical (RSS feeds), it also provides results as an RSS feed which can be subscribed in news aggregators. This means that the incrementally new content which matches the search strings can be delivered on an ongoing basis to users.

Websites Ping-back: It should be possible to websites which want to be included in the search results to alert NISE via a ping service whenever the site is updated. This alerts the search engine to get the new information.

User Customisation: Users should be able to personalise the way they do search via a mapping of the language available think of these as macros. This will also serve as a lock-in: the more familiar users get with the usage of NISE, the greater will be the barrier to switching.

So, the focus for NISE should be on building a search platform which can be customised and extended for users, and which thinks of not just the web browser but also the mobile devices as the primary target access method. Here is a 5-step action plan to operationalise NISE within 60-90 days:

1. Define the Search Language: The first word is the specifier of the domain (eg. films, PIN, people, company, train, flight, stock). The focus should be on identifying those domains which are likely to have the greatest user interest. The inspiration for this search language should come from the Unix shell. Asking users to specify what they are searching for by entering an extra word can actually be quite useful in narrowing the search and providing more specific results.

2. Source the Content: This may require partnerships with specific information providers. XML can be used to get the content from these sites if the search request is from a cellphone, or the result can be shown directly on the content providers website. For example, train 2345up can take the user to a page on the Indian Railways site which shows the status of the train, or can return text (microcontent) which shows the brief details of where the train is currently as compared to its schedule.

3. Solicit User Participation: NISE should be built for and by the users. So, getting feedback from them is very important. This can be done by leveraging collaboration ideas via Wikis and group blogs. Providing an OPML platform to leverage expertise that users have in identifying the best sites in verticals is another idea.

4. Leverage the Publish-Subscribe Web: It is very important to look at the future, emerging technologies. RSS is one of them. So, building RSS support from day one is very important. Getting sites (publishers) to provide information on site updates right at the start can be very helpful.

5. Launch and Improvise: NISE will be work in progress for sometime this is because it is going to evolve based on feedback. What is really being down in the early development is to build a platform that can be the foundation for future ideas.

NISE has the potential to make the Internet a utility in the lives of Indians even as the always-on access infrastructure and low-cost access devices become available. Indian users and Indian advertisers need NISE. Search is hot once again and it can be the trick that provides just the fillip the Indian information space needs.

Continue reading TECH TALK: Rethinking Search: The Next Indian Search Engine (Part 2)

50 Book Challenge

[via McGee] David Harris writes about the 50 book challenge: “The idea is to read 50 books in a year and, in some versions, blog about them.”

Interesting. I was thinking a few days ago that I needed to set up a discipline of reading something different and educating myself via a few books for 1-1.5 hours a day. I identified a few areas in which I need to learn more and starting books (and guides):

– Psychology: Influence by Cialdini
– Economics and Finance: Samuelson and Raghuram Rajan
– Marketing: Kotler
– History: Jared Diamond and David Landes
– Management: Magretta’s What Management Is

Its almost like doing a semester of learning in school…in this one has to pick the right teachers. Maybe I should take up the challenge…

In case you decide to do so too, David has some suggestions:

1) Don’t read to hit the target: Reading just to hit a target is silly. However, reading to hit a target is a very useful excuse to have when your life is busy, you generally want to get through some decent reading, but the rest of life is dragging you away. In other words, in the absence of good time management, the 50 book challenge could be a worthwhile approach.

2) No filler: This is a really a corollary to rule 1. There shouldn’t be any books on the list that are merely there to increase your count. You should want to read the books, independently of the challenge existing.

3) Re-reads can count (sometimes): Re-reading a book doesn’t count if it is done to add something to your count quickly. However, there are plenty of books that are worth re-reading and they should count. Roughly speaking, it should count if a) you haven’t read it for a long time, b) you can’t remember much about it, or c) it’s a book that you get more out of on each re-reading.

4) No genre domination: The list should be somewhat diverse. Of course, the rules shouldn’t prescribe or proscribe particular books but it seems sensible that you shouldn’t be able to fill your list with trashy sci-fi or fantasy. Good sci-fi or fantasy belongs on the list but you won’t find 50 good titles anyway.

5) No planning: You shouldn’t plan the list beforehand. You can have some general guidelines that satisfy your personal desires but there should be enough flexibility to read new releases, or to cover a new interest, or follow up on something inspired by a title you just read.

6) Ignore the rules: You should not pay attention to any of the rules. After all, this is really about reading for enjoyment, so read whatever the hell you want. Keeping a list can be useful if you have a terrible memory (like me) or you just want to share your reading experience – but it shouldn’t be about the list.