My interpretation is that this is just a content creation house in the new medium of advertising. I cannot think of this as a real platform with network effects.
Like there will are numerous ad agencies in each medium, I see this company a first-mover in a low barrier-to-entry market. I wonder how the company can sustain competitive advantage in future.
Great post and great discussions so far!
I have an idea that everyone will like – the HBX capability today offers a great avenue for alumni engagement for HBS! On the brink of becoming an HBS alum today, I know I will miss being in class with my RC section as well as EC classmates in future. It will be great if HBS has a way to bring us together, with our beloved professors (Karim, of course), without having us to travel to Boston on the same date. This will also allow alumni in the same industry to discuss cases together. Many alumni are surely willing to pay hundreds of $ for such classes (remember, no traveling costs involved).
In addition, why not offer a few guest seats in the virtual discussion as well? I know friends in China and elsewhere more than happy to pay $100+ to listen in our discussions. Now without the restraint of classroom, we can have 50 guests in a 50-student discussions.
Great post Alice!
I am wondering whether GoPro’s brand identity is hindering its entry to the VR mass market. As Alice mentioned, GoPro is “focused on helping people capture and share their lives. They manufacture action cameras, suitable for extreme sports and travel”. In order to fulfill this mission, its cameras are portable, shock and water resistant, and easy to mount and operate.
When we look at VR, it has many potential uses, and many companies are trying early applications to find product-market fit. Typically, the VR applications involve mounting multiple cameras on a stationary stand. Strapping eight cameras onto an athlete or stuntman to reproduce that VR experience is not a realistic early-stage application for now. To go after the mass market, GoPro need to rethink its brand and the applications its going after. Products optimized for the old usage scenarios will not help it win in the new ones.
Thanks Meili! This case reminds me of the CarMax case, where imperfect information in the market caused great transactional costs. While CarMax trained car valuation teams, OpenDoor trained computers to evaluate houses – a much more complex asset.
I’m thinking in the long wrong, say OpenDoor’s model has significant market share, its data input will be feeding on its own output, and create a circular reference, where human price-setters have less influence. Would this still work?
I’m sure it’s not a immediate concern or OpenDoor. But it can be more relevant to other data-driven pricing tools.
Cool Felix! It’s a tremendous feat to have cleaned up healthcare data sufficiently such that it is useful for analytics.
I wonder how shifting in the data sets over time would affect the validity of historical data. For example, due to factors like Affordable Care Act, medical practices are now incentivized to cut costs. For those that cut costs and prices effectively, historical data might be less reflective.
Interesting story! I looked on the website and still did not figure out what kind of data is used for the mysterious machine learning. Is there any information on this? I do believe in the power of machine learning, but if data input is opaque, I would be more critical of the validity and sustainability of the solution.
Great case Tomo!
Though this is a negative story, I do see the Japanese society taking good quality information seriously.
The issue of DeNA has been perpetuated by Baidu’s “Zhidao” platform at a much greater extent, where writers are paid virtual currencies. As a result, there was a lot more low-quality content on Baidu Zhidao such that readers do not trust them any more. Now the more trustworthy site is Zhihu, which is similar to Quora. The profile of the writer is attached to the article, providing authenticity and credibility.
Great post Ravneet! The idea definitely seems great, but as with all good ideas, they count only if they can be executed. I wonder how successful is the company right now? I am really curious to see how they tackle the (very critical) problems you mentioned.
Really cool post! I didn’t know I was being crowdsourced for this! It’s a great idea because the crowd is actually forced to do this little favor for the platform.
I wonder if they will run out of old books some day? Unless they find an alternative volume of valuable, machine-unreadable texts, the value behind this method will run out as well.
Hi Cassie, thanks for the post!
I just came back from a class taught by Michael Porter on John Deere’s Internet of Things platform. The case described it is difficult for the company to drive adoption. Most farmer users generally use the Automatic Guidance features (70% adoption), and 10-15% use the Variable-rate Application Technology to save on fertilizer and pesticide uses. It looks like the customers are not easily sold on the data analytics features, and John Deere need to significantly improve customer service to encourage adoption.
Thanks for the great story Megan! It will be interesting to see how the dating platforms evolve as they start monetizing. Starting to charge money often changed the competition dramatically, as multihoming is relatively easy in this app world. I found this article indicating growing challenge faced by the business.
Interesting story Jack. Thanks!
In the BAV course I also read about the firm started posting negative growth for the first time in 2013. The case centered on its three-year strategic planning process and downstream acquisition strategy. It appears that they had also been overpaying for many acquisitions over the years. In any case, I think the root problem is that the global progress in IT had made the value of their platform way less distinctive than before.
I went to Sephora stores a few times (SURPRISE?? Well I went with my girlfriend). While she enjoys the customer experience, I was marveling at Sephora’s amazing operating model. Yes I tried Sephora Virtual Artist, too! But it didn’t suit me…
Now lets discuss physical stores.
Firstly, I think they might be cheaper in future as other shops close down, and rental prices drop. Usually, the store in a mall that draws the most traffic often gets discounts on rental, while their neighboring stores pay extra for the “benefits” of the traffic.
Secondly, offline experiences still offer values that online experiences lacked so far. As online sales became more prevalent, the gap becomes more prominent. Think why Apple runs expensive, high-traffic retails stores that operate at a loss? Both Sephora and Apple Stores understood their value of offering hands-on product trials and personal consultation services. Neither Sephora consultants nor Apple geniuses get commissions on sales, but they were incentivized to help customers find the right items in the stores, and were praised or rewarded on delivering good services. Furthermore, while most cosmetics brands struggle to maintain customer touch at reasonable costs, Sephora pools all their problems together, and solve them with one Brick and Mortar solution.
In conclusion, going digital is not the solution to all problems. What digital cannot solve, becomes the opportunity for non-digital.
This makes me think that while autonomous driving cars will replace passenger cars, it will leave a significant niche market for fun-to-drive cars. An self-driving Ferrari will never work…
Is Starbucks simply lucky?
I ask this because apparently their products have not been seriously challenged by digital services, like non-F&B retail, taxi hailing, and hotel booking were. Simply speaking, Starbucks sells coffee and other drinks, as well as the environment where people can stick around for a dozen purposes. An e-coffee or e-seating place were not invented, and Google maps did not undercut the value of coffee. They had no threat from the digital economy, anyway. Please correct me if you can, but I can’t get my head around this.
Meanwhile, I do agree they did a good job with the app augmenting their current products.
Great post Alex!
I just wrote about Taobao driving eBay out of China by offering NINE YEARS of free service, while eBay tried to charge users from day one. How does my story compare to your music-delivery story? Here’s my attempted analyses.
I learned that for industries with strong network effects, early investment in user capture until reaching market dominance does pay off eventually. This happens to online marketplace, where numerous sellers and buyers congregate to a platform, and find switching difficult. Pandora, on the other hand, has a weak network effect. Adding a few more listeners bring very little benefit to the existing listener. It is also relatively easy to switch or even multi-home on two platforms at once. This renders it impossible for Pandora to capture the majority of the market simply by offering free services.
Agreed. Amazon’s strengths in the US – logistics, customer data, and early mover advantage, all became irrelevant in China. The market for e-commerce platform has already tipped. There may be niches markets for new entrants, but without substantial existing presence in China, a foreign player can hardly capture such opportunities.
Great questions on why Taobao won, and why Taobao didn’t come abroad. I ran out of space to explain the former question…
Firstly, eBay integrated EachPay into a world-wide platform. Though arguably good for the long run, it made eBay China inflexible and unable to adapt to local conditions. Taobao, on the otherhand, functioned like a well-funded start-up. This alone made a huge difference.
Secondly, eBay charged users like it did outside China, but Taobao pledged free service for five years since 2003, and extended this pledge repeatedly, way after eBay exited the market. While eBay dismissed Taobao’s approach, calling it “not a business model”, it did steered users away from eBay, which did not offer anything superior to justify its cost. This move also pre-empted Taobao’s competitors who are less well-funded, and gained it tremendous user base. In 2012, it opened TMall, a premium service as part of Taobao, for branded sellers. Sellers of branded products pay to gain official recognition on TMall, starting the era of monetization. Taobao has recognised value of the network effect and invested for nine years to “cultivate the market”.
Thirdly, as mentioned in the main text, the payment escrow system competition greatly in the game. Paypal, under the wing of eBay, tried to enter China to replicate its business, through joint venture with “An Fu Tong”, a local escrow service. They encountered issues like regulatory hurdles, partly because of the international payment service it was trying to do, and confusing UI, due to switching between An Fu Tong and Paypal websites during payment. Taobao created Alipay that is dedicated to and well-integrated with Taobao.
Regarding why Taobao did not come abroad, my answer is they are doing so more gradually. Many of Taobao’s success factors are mainly based in China: dominance of alipay, incredibly abundant and densely-populated seller and buyer communities, and strong integration with delivery network. These resources do not give Taobao an edge against Amazon and Paypal in their home turf. Recently Taobao did start services abroad, first targeting neighboring countries frequented by Chinese travelers, through streamlining international shipping logistics, and setting up Alipay in shops frequented by Chinese customers. Noting that the world is much more than just China and the US, I bet when Alibaba’s service is gaining momentum in the US, chances are it has already taken over the rest of the world.