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.

Week 3 - How a business can avoid negative publicity

I learnt important lessons on safeguarding your brand by listening to the 'Information Liquidity' video. Some of the lessons learnt include:

• Appoint a social-media team or person in your company. Constant outreach and monitoring are important.
• Use tools like Radian6 or NetVibes to constantly search for information about your company from a number of sources on the Internet. These tools can alert you to negative publicity about your products.
• Publish guidelines to your employees on posting company related information in social media.
• Use meta-tags on social media to search for information about your company.
• Take immediate and timely action to reach out to dissatisfied customers and correct the problem.
• Reach out to community leaders and influential bloggers to improve your brand outreach and reputation.

Week 3 - Chris Anderson's Long Tail

The podcast of 'The Long Tail' by Gil Frisbie and Frank Acito of Indiana University was very interesting and it led me to explore more about the phenomenon online. This article by Chris Anderson explains the phenomenon in brief.

Essentially, the distribution of sales by volume looks something like this:

The red portion of the graph shows the most popular products by volume. The yellow portion (Long tail) contains the not-so popular products. With the advent of ecommerce and Internet, the Tail is rising and getting fatter. The reason for this is two-fold. The first is that Internet provides increased variety of goods. The second factor is the consumers are demanding increasingly unique and customized products as they become savvy shoppers online.

This phenomenon of the Long Tail is going to work in favor of e-retailers.

98% Rule

The 98% rule states that 98% of your revenue comes from the Long Tail. Traditional rule is the 80-20 rule where 80% of your revenue is derived from the 'Head' rather than the 'Tail' of the graph above. After the advent of the Internet, the tail has become so long and fat that your major revenue source is the tail.

Lessons for businesses

1. Your major revenue source is still the 'Head' but you must pay attention the the 'Long Tail' as it will become increasingly important for driving revenue.
2. Customer satisfaction is driven by the 'Long Tail'. If customers find the unique product they are looking for in the 'Tail' on your website, it is more likely that they will buy the regular 'Head' products from your site also.
3. Social Media works against the Long Tail by concentrating traffic to the most popular items in the 'Head'. Advertising works in the same manner.

Week2 - An Entrepreneur's toolkit

The article 'Build your start-up without building code' introduced me to a great variety of tools that I can use not just to launch a new venture but also to do well at my current job. I am listing out some of the tools here along with a few of my own.

• Code Academy - Learn or teach coding
• Balsamiq - Great for UI mock ups
• SnapzPro - Screen capture for web casts and training videos. Costs just $69
• iMovie - Video editing
• Weebly, Wix (free!!) - website building tools for businesses
• Qualtrics - Free online surveys (250 free surveys)
• 99designs, Crowdspring and Launcrock for design sourcing 
• Kickstarter and AngelList for venture funding

I spent a lot of time learning about these companies and their business models from their website. Each one is pretty interesting. Thank you for introducing me to these tools!

I am adding a few productivity enhancing tools to the list that any team of professionals can benefit from. All of these tools are cross-platform:

• GoogleDocs and GoogleDrive. Dropbox
• Evernote for sharing notes with teams and across devices
• Prezi for great presentations

Week 2 - A paradigm change in business models

Crowd-sourcing 

The phenomenon of crowd-sourcing is very interesting. If you have a great team of motivated people working together for a common cause, you can achieve wonders. The internet through crowd-sourcing does just that. Distances, time-zones and national boundaries are no longer relevant. Crowd-sourcing is going to disrupt a lot of businesses. Some examples spring to mind:

• Wikipedia 
• Education sites like Khan Academy, Coursera and Codeacademy
• Amazon Vine program
• Communispace 
• CrowdSpring for design sourcing
• Kickstarter for venture funding

Internet is bringing together masses of people who are interested and passionate about specific topics. It is accelerating globalization. After the services revolution, companies must plan for the crowd-sourcing revolution.

How businesses can benefit from crowd-sourcing

For a company, it makes sense to embrace and make use of crowd-sourcing rather than hoping that it will not disrupt their business. Described below are ways a company can exploit crowd-sourcing.

Crowd-source within your own organization

If you are a medium to large organization in a relatively specialized field, this option can work great for you. You can pool together your employees to generate ideas and reward them. For example, my company Bally Technologies caters to the specialized market of casino games and systems. Bally has about 2000 engineers world-wide. Our company posts an innovation challenge on its intranet portal and asks employees to contribute. Employees can comment on other's ideas or post their own. The top 3 ideas get a cash award. 

Crowd-source to a trusted and small user group

The Amazon Vine program is an excellent example where a group of customers who have posted helpful reviews are given discounted products in exchange for their expert reviews. Another example is Communispace a company which brings together expert user group of 200-300 people to provide great feedback on a product or service. For example, Communispace brought together executives from British Airways and a group of frequent business travellers to launch 'Beds in Business' which improved revenues significantly. Kelley Connect Week and Agile consulting projects are also a great example of crowd-sourcing. The businesses benefit from ideas and students learn from the business.

Crowd-source to the world

This model works best for idea generation that thrives on contributions from a large group of people. Threadless.com listed in the the article 'The Dawn of Human Networks' is a great example. iStockPhoto is another example.