Casa del Libro: Microsoft or Solaris?

 

Planeta, the largest editorial group in Spain, launched the online venture ‘casadellibro.com’  in 2001, mainly motivated by the Internet frenzy and growth expectations of the moment. The obvious reality of the market at the beginning of 2002 forced the management to face a huge downsizing and cost reduction. The main problem was to decide whether they should look for a new and inexpensive technological platform or stick to the initial one, with high maintenance costs. What seemed to be a simple decision about which platform to use became a decision about the future of the firm, confronting financial, technological or cultural factors among others.

What they had…

Sun machines/4 servers/2 CPUs each/Solaris (Unix) operating system/Oracle 8i (database manager running in cluster)/Vignette 5.6 (content manager to support e-commerce)/Excalibur v5.3 (search engine).

For higher availability, a firewall and a load balancer were also included.

What they were planning to get…

Microsoft Windows NT/HP servers/SQL Server (database)/Microsoft Commerce Server 2000 (e-commerce manager).

The development and maintenance costs would be substantially lower in this case.

In today’s IT business environment, the most important criteria to use when comparing the two operating systems/IT platforms  are:

• Hardware support: With the cost of hardware continually falling, an operating system must take the best advantage of the leading hardware from a wide range of suppliers and take advantage of compatible hardware enhancements that are offered by third-party companies.
• Internet services: The way that a company deploys and manages its Internet presence affects how customers and clients perceive the company. Access times, availability, and the ability to easily deploy and build feature-rich sites are all critical components of a company’s Internet presence. The operating system should provide a comprehensive foundation for Internet-enabled services.
• Reliability: Companies on the Internet, must be available 24 hours a day, seven days a week. To support this, the operating system must provide maximum reliability and availability through both software-level services and hardware support.
• Manageability: With servers distributed over multiple networks and locations, administrators need tools that enable them to centrally manage their servers and provide comprehensive management and support services to their users.
• Development and deployment: Reducing the time to market for applications and services is vital. Having a coherent environment where applications can be easily developed and deployed with a minimum of effort is as important as the reliability of the target platform.

In the given scenario, Planeta’s short-term goal was to reduce cost and get their balance sheets in shape. The old system had higher installation cost (which would be a partially sunk-cost if the system was done away with). It had a very high maintenance cost. The licensing costs depended on the packaging (that is, the applications deployed) and were on the higher side. The scalability was fairly high.

The new system would have lower installation costs. The maintenance cost was very low. Licencing could be obtained and renewed in groups of software/hardware. Scalability, however, would be lower, considering the Microsoft technology of the time. This rollout seemed to be more in line with the long-term operational (and hence, financial) goals of casadellibro.com. The scalability issue could be handled by augmenting the services with additional servers without changing the basic architecture.

Transaction volumes would not be as high as that of a bank, so reliability would be, but not a major, factor in this case. Microsoft Technologies would be able to handle it. Upgrading is a part-and-parcel of IT-businesses. Hence, the new system would be more relevant in terms of ease of deployment, backward-compatibility and licensing.

Casadellibro.com should have embraced the Microsoft technology considering the above criteria.

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Tesco : Knowing the Customer Better

Tesco, the UK-based supermarket giant embraced the online option quite aggressively. Was is the right time for this information systems incorporation into the existing customer relationship architecture of Tesco? A similar program of WebVan, an online retailing system had failed to survive the acid-test.

The answer is not quite obvious. Considering the value proposition to the customer and the customer relationship management (CRM) boost to the company brought in by the internet based technology were strikingly different.

For Tesco, the transaction-tracking system would mean a better identification and relation to the initiator, that is, the customer. Data of the items purchased, the frequency of purchase, the timing/season of purchase, the overall spending of a single customer per month would be invaluable for inventory management and for meeting customer demand smoothly. The database would identify the customer through login ids and classify him into whatever category the company had defined….based on parameters like age, sex, address and so on. Marketing Intelligence could then crunch these data and inform the customer about products they were more likely to buy, based on their previous purchases. This would lead to a smarter sales forecast and easier shelf-space allocation.

For the customer, the incorporation of the new interface would provide an option to shop online at the comfort of his home. The system would remember previous shopping lists. It would inform them about new offers/discounts on products that they would want to buy. The order placed online and paid for (through credit card/debit card) would then be delivered to them at a minimal delivery cost.

A few questions crop up immediately. What was the Internet penetration in the market served by Tesco? Even if  the customer has access to the Internet, would he be willing to use the service as an alternative to roaming around the retail store and dumping stuff into his basket? How easy would it be for a customer to order for perishable items, like fruit and vegetable, milk and meat? To answer one has to challenge the thinking process of a customer, which is often that he expects the most stale item to arrive at his doorstep. He would think of the store as taking advantage of his absence. Would a customer be willing to submit his personal details to the retailer website during his first login?

There were a few risks to be considered by Tesco before they went on with the implementation of online retailing. For a retailer giant like Tesco it was easy to spend on it without a rigourous analysis. Nevertheless, the sales did increase and the online shopping trend contributed around 3% of sales for Tesco. Given the volumes, this was a healthy investment. In fact, they are now ready for any change in customer behaviour, based on the shift from shopping physically to clicking into a purchase online.

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Social Content Websites: Menéame/Digg/Reddit

 

Menéame.net, one of the most popular websites in Spain is a social content tool promoted by its own users, very much like Digg or Reddit in the US. Users register in the site to submit stories they read elsewhere and judge as interesting, and those stories are promoted to the front page if they achieve enough popularity according to the number of votes they receive from the users’ community.

Most people use the page as a sort of early warning site for news, to keep track of events, etc., either accessing the page on the web or through their feed readers or limit their activity mostly to browsing. Avid users devote part of their time to submit news, vote them or comment on them, thus becoming well known in the site by their nicknames.

However, the truly surprising part about Menéame.net was its user statistics. Since its development in December 2005, a month that finished with half a million page views, it had been growing aggressively until it reached more than twenty million page views in June. The popularity level of Menéame.net had taken every single Internet user by surprise, particularly those who had a personal or corporate page. To be “meneado” any specific day meant to have huge increases in your traffic, in percentages that, for instance, a personal blog, could mean to multiply your page views tenfold. In the Spanish blogosphere there were lots of reports of the so called “Menéame effect”, and the authors of the page were among the first surprised.

Martin Varsavsky, the US educated Argentine who is a serial entrepreneur in the Hispanic world, has heavily invested in the project. Spanish Internet startups were at their nascent stage during the investment. Despite its huge initial growth, the revenue generation is below expectations at the moment. The big question is whether it feasible to turn Menéame.net into an economically sounding project? Under what assumptions?

A business development manager for these websites should keep in mind some typical social effects of such community driven sites:

1. Social content sites like Menéame.net become popular very quickly as it offers a means for otherwise unknown people to make themselves heard. It offers a way to find out to what extent an individual’s activity is liked or rejected by the Internet community.
2. The inherent nature of Internet businesses is to make money by clicks. The more people visit them, the higher is the site’s reachability to the masses. As the Internet community becomes more dependent on these sites, they can generate revenue by online advertising. The advertising, from the view point of the investing company, will be successful only if the advertised product reaches to a targeted mass. For example, the advertisement for a soap can be placed right beside an interesting story about soaps.
3. A significant population will never come to terms with what others consider as ‘likable’ stories or information. The popularity is heavily dependent on regional content. Although, online advertising penetration is more traceable than any other media, it keeps away some specific advertisers who deliver niche products. For example, a drug for treating a specific type of skin disease may not be successful in using community content sites as an advertising medium. The popularity of a related article will never reach a threshold level to make it to the frontpage of these sites.
4. If efforts are put on creating a database of intentions of the customer, where one can track the pages visited by the customer before and after visiting the page in question, it would culminate in a knowledge asset that can have valuable implications for online marketing. In fact, there are two ways of arriving at a page. One is purposefully looking for it and the other is just by curious accident. This depends on the attitude of the individual as well. For example, one would never like to go to such a social content site which provides two or three links to relevant and current affairs news sources and the rest is personal junk, like, “Photos of my new dog”, “How mom killed the cockroach under her bed”. Just because of the huge mixture of irrelevant information, one would never like to go to these sites and would rather prefer to visit blahblah.com which is the website of a prominent news media. Until and unless someone has a specific interest in visiting the site itself or has ample time to spend on mindlessly searching the Internet, depending on these sources of information can never define relevance, the way one needs it.

Hence, using external services like Google Adsense will be helpful for effective advertising. These will not only use cost-per-click or cost-per-transaction business models for the investing companies, but also require lesser investment, which removes to a great extent, the entry barriers to online advertising.

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L’Oreal Vichy Cosmetics: Blog or Not to Blog?

    L’Oreal Vichy France

 

Heeding to the 2005 data on the multitude of corporations (45% of top 1000 North American companies) using official blogs, it was natural for L’Oreal Vishy to include blogging as a part of their marketing mix to promote their anti-aging products. For this they sought the outsourced services of Euro RSCG 4D, a newbie in advertising. Vishy wanted to get closer to the customer at the point-of-sale, which was, in many cases, the Internet. The fake profile of Claire, a lady concerned about aging affecting her self-confidence and performance, which was put on the blog, was immediately condemned by the Internet community.

It is worth mentioning that there are no written rules (there are disclaimers though!) dictating what one can do or refrain from in his blog. As long as it is a personal blog with limited popularity (measurable by click-rates), the ethical quality of text can be compromised. But when it represents an organisation, which is quite evident in the L’Oreal Vishy case (filtering of positive comments, careful design of speech), the real blogger should act responsibly. The company tried to transfer directly the virtues of traditional media to a much more interactive world of Internet dynamism, thus blotting out the transparency, individual testimony and free interactions, the three most desirable characteristics of any blog (http://redcouch.typepad.com/weblog/2005/06/case_study_the_.html). This questioned the very purpose of the blog (and bloggers’ rights?).

On 20^th May 2005, following the apologetic comment by Delphine, product manager of Vichy’s French subsidiary, the blog was transformed into a common arena for people interested in skin-care to express their opinions or grievances on products. Vishy customers as well as prospects could comment on not only Vishy but also compare its competitors and substitutes. The decision to continue the blog was not only bold but also appropriate. No tool for mass communication can provide such interactivity. The company benefited from the feedback given by customers or prospects to consider product improvements and gauge the success of customer satisfaction. Remember that sales revenues might not always subjectively express satisfaction quotients.

The blog in its new avatar reincarnated itself as a tool for implementing a co-creational business model for product development. But the question still remains whether the company listened to what the customer had to say. L’Oreal dedicated a team of skilled personnel from different functions within the company to counter the 24×7 nature of the blog. When a company makes such a decision, the benefits can be manifold:

• Improvement of brand loyalty through transparency
• Permeation of a feeling of involvement in product-development within the customer-base
• Attraction of prospects who appreciate the company’s efforts to spread awareness through Frequently Asked Questions (FAQs) on skin-care, or those pertaining to a specific product
• Cost benefit from marketing (blogging is cheaper and simpler compared to traditional methods of publishing) is greater, when it overshadows the operational costs (including the implicit cost of time) of the monitoring team answering the concerns raised.

Hence, this is an an exemplary case of crisis management, studied across top b-schools in the world.

Quick Gyana: The L’Oreal Vishy Blog no longer exists, try clicking on www.journaldemapeau.fr  and they redirect you to http://www.vichyconsult.fr.

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