Week 6 - Executive Summary of Pinterest Business Model Canvas

Pinterest’s only major source of funding today seems to be Venture Capital although they are experimenting with ‘Promoted Pins’ by tying up with select companies like Gap, Kraft, Target and ABC Family¹. In this canvas, I have used 2015 as the target year for Pinterest’s revenue forcast. I have assumed that in year 2015, venture funding may reduce to $300 million. This estimate is based on various reports of venture investments in 2013².

Promoted Pins are going to be the only other source of major revenue for Pinterest in 2015. Think of them as targeted ads that are similar to other Pins but are paid by advertisers. In order to derive the revenue for Promoted Pins, I used the following consumer segments divided by age:

§ America’s Generation X totaling 51 million. 19% of them use Pinterest at least once a month.^{3 & 4}

§  America’s Generation Y totaling 80 million. 27% of them use Pinterest at least once a month. ^{3 & 4}

§  America’s Baby Boomers totaling 78 million. 12% of them use Pinterest at least once a month. ^{3 & 4}

I ignored Seniors and Generation Z as they are not major segments for Pinterest. Based on my canvas, these three segments are projected to contribute $50 million in revenues in 2015. The costs for Pinterest are mainly hardware, development and maintenance which amount to $10 million annually. This provides Pinterest at least $40 million in project profit in 2015 ignoring the $300 million in potential venture funding.

References:

1 Pinterest launches its way to make money

2 Pinterest raises $225 million as valuation jumps to $3.8 billion

3 80 amazing Pinterest statistics

4 Marketing To Gen X, Y, Boomers And Seniors

Week 5 - Big Data's impact on businesses

Big Data is nothing new although it has gained popularity recently. A bank teller may offer you new services based on the transactions and balance in your account. At a casino, staff are trained to provide complementary drinks to high rollers. Big data has gained popularity recently because of several factors:

• Cost to capture, store and process data has come down
• Cloud computing has become popular concentrating data in large warehouses.
• Data mining tools like SAS and IBM's IPSS allow a business to find actionable results from the data
• The Long Tail effect means that consumers are demanding customized products and services
• Increasing competition and e-commerce is driving the need targeted advertising using big-data

I think Big Data will gain popularity in certain B2C areas like e-commerce, retail and services. Businesses like mine (I work at a casino gaming technology company) have high barriers to entry. We are a B2B business. I don't see Big Data coming to our world anytime soon. For several years now, we have been offering a Business Intelligence product for our clients that helps them analyze data from a casino's slot accounting system. But the data sources are limited, it is in no way 'big'. 

Now, let's look at some of the practical drawbacks of using Big Data:

• Actionable patterns are hard to find
• It is expensive to target specific customers. Although email promotions and rewards memberships have made it easier.
• There are privacy concerns related to the kind of data you collect and store.
• By the time you react to the data and offer a promotion, it may be too late (customer might have finished making his purchase). This can be automated but challenges remain.

In conclusion, I think e-commerce and B2C companies will make investments in Big Data. The B2B world (outside e-commerce) might not take the big plunge anytime soon.

Week 4 - Modeling Your Business

I work for a Digital Signage product. My company sells this product to casino operators world-wide. Casino operators use this product to show advertising and promote amenities via digital bill-boards across their casino property.

Below is a model for this business (click to enlarge).

The key value proposition of our product is that it offers a powerful and easy way for casinos to reach out to its patrons. The Key Activities are to develop the software product, support and service customers. Most of the revenue is from software and maintenance. Hardware revenue is good, but comes at a cost as we buy from vendors and resell hardware.

After using this canvas, I realized that the potential market opportunity is huge. We have tapped only a very small percentage of this market. The reason for this is our reliance on direct selling. If we can use channel sales, we can significantly increase our reach especially in overseas markets where our sales presence is very limited. Under 'Customer Relationships' I discovered that 'Trade-shows and events' are a significant way to reach out to potential customers especially in overseas markets. We do not participate in several trade-shows that are important places where our potential customers shop for digital signage products.

The results chart on the canvas shows a potential revenue of $40 million assuming a market size of 5000 potential casinos wold-wide and 5% of that market. This is a useful tool to show value of my product to senior management and get their buy in for expansion plans.

Week 4 - Creative models are taking businesses online

What can you not sell online? This is a difficult question to answer. Increasingly companies are using technology and creative business models to take commerce to the web. The Warby Parker and Dollar Shave Club are great examples. The former is selling designer prescription glasses and the later razor blades.

After reading all the articles and examples, I can postulate that there are some common threads in order to be able to successfully sell online:

• Be interesting and innovative
• A website that offers an intuitive and hassle free shopping experience
• Offer value or unique customized products
• Improve consumer confidence (through free returns)

For example, Amazon satisfies 3 of the above conditions (except perhaps the first one). Warby Parker and Dollar Shave club offer all of the above. For companies that are just starting, it is important to be unique, interesting and innovative. 

Week 4 - Internet Business Models

It was interesting to learn about the different Internet business models. A brief summary of the 5 patters of business models:

1. Unbundling business models for 3 types of organizations: Customer relationship, Product Innovation and Infrastructure
2. The Long Tail
3. Multi-sided platform model
4. Free, Freemium and Open Source Freemium
5. Bait and Hook 
6. Open business model

My impressions are that in the digital world, Free business models will increase in popularity. Most of the Internet is already free: email, social sites, photo sharing, cloud storage, office services, .. the list goes on. Most of what is paid today (like advanced photo editing, video editing, ...) may become free in sometime. The proliferation of multiple devices is driving the need for people to store and work in the cloud. The days of standalone applications (like MS Word and PhotoShop) may be limited. Microsoft and Adobe have recognized this and are building collaboration tools for these products that add some benefits of competing cloud products. The prices of these products are coming down each day. 

Free is also eroding into Microsoft's Operating System revenues. Microsoft has declared that it is going to offer its Windows Phone Operating System for free on devices with a small screen size (9" or less). This is to compete with Android which works on a Free business model. 

Week 3 - The death of Marketing Segmentation

I read the article on 'The Death of Segmenation' by IBM's CEO Ginni Rometty. Internet and big data are going to change the way marketers have traditionally targeted their customers. Some of the key take-aways:

• CMOs will spend more on technology than CIOs by 2017
• Big Data is going to make customers want individual attention and they get tailor made offers and services from competitors
• The three Vs of big data are Volume, Velocity and Veracity. Companies must use tools and processes to respond accurately and quickly to the vast amount of data generated by business intelligence tools.

My impressions about the article

Traditionally marketing uses segmentation to target groups of customers. Mass-media still accounts for a large percentage of media consumption, so I don't think traditional segmentation will go away. But customized and individually tailored products and offerings help increase the accuracy and effectiveness of targeting customers. This may be more for customer service and one-on-one interactions than for advertising.

Week 3 - The purple cow

The Ted talk by Seth Godin on 'How to Get Your Ideas Spread' was very interesting. He talks about being 'remarkable' to attract attention. He refers to how passers-by stop to look at a cow that is purple but no-one will take notice of a cow that is of just an ordinary color.

Essentially, businesses tend to focus on the 'Early and Late Majority' as they form the bulk of the users.

But Seth talks about how focusing on the 'Early Adopters' can really get your product to take-off. Companies should not 'market to the massess' but to a select group of interested users who are willing to experiment with you product. But to do that, your product must have a 'remarkable' or a uniquely differentiable quality.