Hi Gloria – great overview of the rise and fall of a disruptor! Beepi seems to have struggled with the common “chicken and egg” problem of platforms: which side do you focus on first? Here, it sounds like Beepi focused on the seller side. This is especially apparent in their guaranteed sale (if the car doesn’t sell in 30 days, Beepi buys the car and continues to list it until sale).
But I see a big problem with that guarantee. Beepi’s operating model reminds me of edaixi (eWash), the pickup and dropoff dry cleaning service. In a similar way, Beepi has a model that is asset-light. It avoids one of the biggest fixed costs for used car companies: the large commercial real estate needed to showcase cars.
By offering a guarantee, Beepi runs the risk of incurring inventory holding costs. It also takes on inventory obsolescence risk, in that it bears the cost of not being able to sell the cars. But most damning is the impact of the guarantee on Beepi’s cash conversion cycle. With normal sales, Beepi doesn’t have to pay anything. But if it’s guarantee is triggered, Beepi has to pay the seller the full sales price of the car! This will really drain Beepi’s funds, and might slow Beepi’s ability to acquire new customers.
This is a great example of how digital innovators must consider the cash flow implications of giving away products for free to acquire customers (in this case, a free guarantee).
Thanks for the article Jesse! You raise an interesting question about whether Fender should be a high-quality GUITAR product company or MUSIC product company. I think a Fender would be better off focusing on the second for a variety of reasons.
The guitar gained in popularity mainly due to new amplification technology, which greatly expanded the expressive range and flexibility of guitars. Musicians of legacy orchestral instruments probably had similar reactions as Fender’s guitar purists, thinking that amplifying and distorting a guitar was an affront to the natural, acoustic sound of stringed instruments. Interestingly, instruments have long used analog modifications, such as a grand piano’s reverb or sustain pedals, or muted for brass instruments.
With the introduction of amps, Fender gave guitarists a new range of sounds that they could control live. Over time, Fender incorporated some amplification settings directly onto its guitars, and allowed musicians to customize pedals and dials on their guitars.
In the past 20 years, music has moved to the platforms that provide the most range of expression. Most people create, edit, mix and publish music on computers. DJs can take their music with them anywhere (on laptops or phones), and can flexibily and creatively alter their music during live performances.
Fender is smart to pursue education subscriptions, and to try and decrease new user churn/abandonment. But this is an exploitive strategy. I think their focus in guitars should be on keeping the guitar relevant with leading musicians and performers. If the guitar continues to slide in popularity compared to DJs and vocalists, then future aspiring musicians will never think to pick up a six string.
For this reason, I really like their Fender Mustang GT Series. This could be a great way for live guitarists to have even more flexibility in sound generation, which could revitalize the guitar in performances.
Personally, I think we’ll see the guitar continue to decline, as easier to use, flexible, expressive instruments that have 1000s of sounds at the musicians fingertips continue to gain in popularity. In an age of digital music, we don’t need acoustic instruments, whether they are stringed, wind, or percussive. While there will always be a small group of musicians who continue to learn historic instruments, Fender should be looking for a new instrument — a fender guitar/amp equivalent for the 21st century.
Hi Chris – Thanks for the great read on EA’s opportunities and struggles as a game developer!
I think you’re correct that microtransactions and DLC should be a major point of focus for EA, but that they shouldn’t overlap with the core package. I remember the big fuss over the Star Wars Battlefront II loot crates. Most videogames used staggered in-game leveling to reward players who invest the time to level-up or unlock special items. To the gamer, this is a form of value creation — they use their hard work and time invested to enhance their in-game experience through unlocked items or boosted stats. When EA launched Battlefront II, it essentially monetized this leveling-up process, letting players with high WTP skip the hours of farming and questing to achieve max stats and all the special weapons. To the gaming community, those players had paid for their special status, but hadn’t earned it. Gamers also revolted over the randomness of loot crates in Battlefront II. While randomly generated/dropped weapons have long been features of RPGs and Action Adventure games (e.g., Fallout, Skyrim), players saw the randomness of loot crates as a blatant attempt by EA to force players to pay up for them.
I think you’re right about being intentional on what is your core product, and what are your add-on in-game purchases and DLC. Game developers have already found a good model for creating and capturing additional value from games: 3-6 months after a game’s release, the developer releases DLC for purchase in the form of new maps/quests/items. Many developers — including EA — have even packaged future DLC as discounted bundles, which can be purchased with the main game. But at the end of the day, you’re correct that the starting point is “developing and publishing quality, compelling games.” So long as EA continues to generate great new IP, it should do just fine.
Thanks for the fascinating post! After reading your findings, I’m reminded of some of the problems that General Electric (GE) encountered when it tried to coordinate the transition to the Industrial Internet. In that case, we saw GE struggle to standardize the processes of its different, silo-ed divisions. This remains a big obstacle to migrating GE — as one organization — to Predix.
I wonder if online platforms for smart cities would find a better opportunity in emerging markets, which are always looking to “leapfrog” infrastructure and technologies, and skip right to modernization? In these cases, the online platform might have an easier time promulgating one or several data classifications and organization. But one big obstacle will still be the willingness to share data. In many emerging markets, citizens are wary about relinquishing and/or consolidating data, for fear that it might be abused or stolen.
Wow Zach – I really liked reading your post! You raise an interesting question about how sports might (or must) evolve in the 21st century, when you noted that NBA fans have criticized the Rockets for being boring. Sports may improve as teams or players use data analytics to optimize in-game decisions. But it also might strip the creativity out of sports. From a BSSE perspective, this might change the “job” or “set of experiences” that fans hire the professional sports league for (changing basketball from a creative, versatile and stylistic game… to one that is driven more by pure statistics and precision).
I think your conclusion is spot on: As players and teams optimize for sports, then sports need to consider modifications to their game rules — to reintroduce challenge and uncertainty. Another option the NBA could consider is eliminating the +1 free point chance for a fouled 3-point shot. I imagine with this recent change, the number of 3+1 free throws have also increased. Using the Rockets’ logic, the most efficient possible shot on the court is a fouled 3-point shot, which has a chance to score 4 points on one possession!
What a fascinating story! I wonder if Microsoft, and many other profit-motivated companies, are missing the true root cause of Tay’s offensive and obscene tweets. The post author and many comments suggest that companies should be more diligent in examining implicit biases and assumptions, imposing constraints on algorithmic behavior, and integrating human judgment with machine learning. I agree with all of those suggestions, but I fear they would merely treat the symptoms and not the disease.
Policing parts of the internet, or censoring algorithmic behavior of chatbots like Tay, won’t stop the echo chambers of the internet. We studied a lot about platforms in this class, but we never stopped to consider that the internet is a platform with COUNTLESS sides. And sometimes the internet is used as a one-sided platform to connect people with evil intentions. Perhaps having chatbots like Tay might be a useful way for society (as it is represented online) to look at itself in the mirror. Perhaps by seeing all of Tay’s ugliness, we might be driven to understand WHY Tay’s algos created such output. Then maybe we would be motivated to start fixing that root problem?
Hi KZ – I imagine it’d be fairly easy to use speech recognition to allow for audio inputs. We saw with Aspiring Minds today that this is fairly simple to develop (provided you have a good method), and I imagine the inputs that Waze would need are fairly limited (hazard types). One challenge would be to have a fast enough input system so that Waze can properly ID where the hazard is located… it doesn’t help them much if the hazard is logged two minutes later, when the hazard could be as much as 2 or more miles behind the driver!
Hi u.know.it – One way Waze has responded to this risk is to proactively freeze any typing/inputs on the phone. An alert pops up that says typing is disabled for drivers… but then it gives you the option to select “passenger”, and after that unlocks the typing functions. I imagine most Wazers are guilty of selecting “passenger” when they start off driving…
Hi Rob – I think you’re correct that Waze Carpool seems like a second or third order goal, likely aimed at gathering more data. Another aim may be to examine what the WTP of consumers is to trade the convenience/flexibility of driving themselves for the cheaper carpooling alternative. Waze Carpool definitely looks closer to what I imagine ride sharing with an autonomous fleet might look like. It’ll be interesting to see what customer frictions Google encounters as it continues to roll out the program…
Another big area where large companies are trying to tap into crowd-sourcing is apparel.
An interesting example of this is Converse (a subsidiary of Nike). http://www.converse.com/Custom-Shoes Converse allows anyone to customize their shoe with a simple promise: “1. Make it yours, 2. We build it, 3. We ship it for free”. After selecting your base shoe (low, high, slip), you can customize 13 different attributes of the shoe, including the stiching, laces, tongue label, and even by adding custom text and patterns. “Chucks By You” pop-ups have also been gaining traction at traditional retail channels (https://www.houstoniamag.com/slideshows/2017/12/12/custom-converse-galleria-pop-up).
But this raises a big question for CPG and apparel crowd-sourcers: How can you achieve efficient manufacturing and economies of scale if you’re opening yourself up to a greater range of products? Manufacturers will either need to be able to charge premium pricing, or they will need to achieve greater LTV from customers who are able to customize their favorite brands. Otherwise, I doubt it warrants the added costs of unpredictable inputs and more complicated production processes.
I had a similar reaction to your article. What is the “Rotten Tomatoes Effect” on movie critics? I could see how group-think can creep into movie criticism as a result of Rotten Tomatoes. For example, some critics may try to avoid going against the trend and recommending a rotten film, or criticizing a fresh film, since it might impact their credibility or reputation. Also, Rotten Tomatoes might distort reviews for movies with politically or socially sensitive messages, for fear of backlash from special interest groups (it’s easy to sort reviews on RT by “fresh” or “rotten”. In the end, I wonder if we’re heading towards a polarized fresh/rotten movie world.
I also check Rotten Tomatoes before I go to any movie. And I’ve been dissuaded from going to a movie due to a rotten rating (I’ll wait for it to be released on the long-haul plane flights). But for me, I avoid prose reviews of movies prior to watching. Reading them before watching seems to impact my experience of the movie… it’s almost like a non-plot spoiler.
Hi Sean – Great article! I think Google’s challenges with YouTube Red shows how Google broke some of the “Ten Commandments of a Successful Freemium App”, which is discussed in the Pandora Radio BSSE case (see http://gigaom.com/2009/09/01/how-freemium-can-work-for-your-startup), and is an interesting article.
YouTube started as a completely free service, and stayed that way for a long time. Google supported the costs of supplying the vast amounts of costs to consumers through ads. However, one of the “10 commandments” is to “[m]ake sure what you started offering for free remains free.” YouTube Red seeks to take back what was once free (viewing without ads). I’ve also noticed that recently YouTube seems to be showing a lot more ads than they originally did.
YouTube is also struggling to “[f]ocus deeply on one single domain.” Now that streaming is ubiquitous and relatively cheap to offer, YouTube is losing market share to niche players, like TV/Movie streamers (Netflix, Hulu, HBO), video game streams (Twitch) and social media streams (Snap, Instagram, FB).
Our BSSE professor commented today that Google only knows how to do one thing really well: Sell ads. They’ve since failed to invent a business model that doesn’t ultimately funnel back to its ad selling model. I don’t think YouTube Red will be successful, and I wouldn’t be surprised if YouTube’s profitability from ad revenues has already peaked.
Interesting question Zach! While AV creators may want to incorporate navigation software into their vehicles that manage for traffic and congestion, there is still the chicken and egg problem that navigation platforms faced. What comes first? You won’t have traffic/congestion information unless you have a lot of customers providing that info (passively and actively). And customers won’t provide that info if they don’t get any value. This is why I think the network effects Waze has already captured are a good defense to AV SW — at least initially.
Then again, on the traffic/congestion part, some innovative players might seek new solutions that are untethered from vehicles to help navigation apps. For example, I believe Verizon is looking at installing smart sensors into asphalt to develop actionable traffic information.
But I think you’re absolutely correct about the hazard spotting functions of Waze… AV tech should capture a lot of this value creation by moving the hazard avoidance task from the driver to the AV SW.
Thanks for that info! I wonder if there is a BSSE element to Google keeping Waze separate (e.g., “leverage my business model” vs. “reinvent my business model”)?
Back in 2015, Google reorganized into its current holding company structure (“Alphabet”). According to Business Insider, as of 2015 Google had acquired over 180 companies, and this was their view towards the challenges of integration: “Acquisitions succeed or fail based on integration, particularly when we are trying to do something tricky, like making sure the team stays autonomous — syncing to get the advantage of Google’s resources and yet being kept separate. That’s a complicated process…”
This sounds like the approach Google is taking to Waze. Waze has the benefit of syncing with Google Maps resources, which helps feed Waze with better info, but Google is keeping Waze as a separate group so Waze is not hindered by integration challenges (which can slow innovation or dissuade start-ups from pursuing disruptive business models).
Thanks Taka. I’ve used Waze many times in Philippines — it’s ESSENTIAL for quickly navigating Manila congestion!
I think you’re correct that Google Maps captures value in a different way from Waze, but I think it’s more due to the separate functionality of the apps. As pointed out in class on Thursday, Waze was one of the first free turn-by-turn navigation apps on the market. Prior to that time, consumers had to pay for navigation. Waze was able to build market share (and thereby network effects) by being quickly adopted as the best free turn-by-turn navigation app. On the other hand, Google Maps seems to be focused on non-navigation searching. If I’m traveling on foot, or if I’m generally researching a certain area, I’ll always use Google Maps. On the other hand, if I’m seeking to drive from point A-to-B-to-C (etc.), I’ll always use Waze.
This reinforces a concept from our platform module: platforms in established two-sided markets usually can successfully compete by developing a niche focus. On the other hand, it’s hard to defend a one-size-fits-all platform after the two-sided market has been established.
Hi Nandx. On your second question, I’m not as concerned about Google maps, in that Waze is a subsidiary of Google and thus data from both apps likely feed one another, rather than compete against each other.
On your first question, here’s a reddit on the topic. Some comments note that police need to be aware/vigilant regardless of the situation, and others liken Waze to radar detectors. Some police even try to thwart Wazers by logging into the app and, when reported via other Wazers, report themselves “not there”!
According to the Mercury News (as reported by The Washington Post), Waze has responded to police concerns with the following statement: “These relationships keep citizens safe, promote faster emergency response and help alleviate traffic congestion . . . .
Police partners support Waze and its features, including reports of police presence, because most users tend to drive more carefully when they believe law enforcement is nearby.” https://www.washingtonpost.com/news/morning-mix/wp/2015/01/27/why-some-cops-hate-waze-the-app-highway-drivers-love/?utm_term=.fb12f8d647c5
Thanks for the feedback! And great question on how Waze initially built users — that’s definitely the big “chicken and egg” problem of crowd-sourcing.
Waze started in Israel in 2006, as a crowd sourcing project (“FreeMap Israel”) to create a free digital map of Israel in Hebrew. The founder of that project, Ehud Shabtai, then began to develop the project as an app and, with the help of VC funding, was able to recruit employees and alpha drivers to begin building out maps and app services. After piloting and refining their app in Israel, in 2009 Waze launched in California (https://blog.waze.com/2009/05).
It looks like Waze also used prizes as incentives to attract new app users. In its “Waze across America” campaign, they offered new myTouch 3G Android phones and iPhone 3Gs to new users who downloaded Waze, sent a Waze road report, and kept Waze active until they arrived at their destination. Waze gave out 100 phones per state (https://blog.waze.com/2009/07).
Great article on 3PLs and the LTL industry! 3PLs have been disrupting the trucking industry since the 1990s, and currently control about 25% of the LTL market. The 3PL landscape has experienced massive consolidation over the past decade, with huge players like C.H. Robinson gobbling up market share, and incumbent national fleets like UPS and FedEx buying 3PL providers.
However, I disagree that multi-homing is an issue with 3PLs. The main value proposition that 3PLs provide their shipping customers is that 3PLs replace internal logistics management with outsourced logistics management. Most 3PLs will sell their services through a Transportation Management Software package that their clients install. These TMS systems are an interface through which customers can customize their outbound freight decisions based on factors like time of delivery, quality of service, and accessorials like freeze-protection or HAZMAT. Also, 3PLs usually lock in customers for multi-year contracts, which are rebid/renegotiated every 2-3 years. Thus once a TMS is installed with a client, it is very hard to multi-home with other 3PLs or LTL carriers.
Hi Shiv – Thanks for the great read! You suggest that digitization and mobile price discovery gives farmers more information, which enables them to decide which mandi to travel to and at what price to sell. However, I wonder if the best digital solution could SKIP the step of traveling to the mandis in the first place?
As farmers become more digitally connected with their wholesale customers, it might be faster and cheaper to have the digital solution enable customized meet points for exchanging product. For example, a farmer might be willing to accept a price discount if the wholesaler picks up the produce from the farmer’s farm. Or farmers might require more of a premium based on the distance they need to travel. Also, the timing of payment might give farmers more certainty of a sale BEFORE they embark on their trip (e.g., if a farmer is advanced a deposit prior to leaving, they will be more comfortable traveling long distances before exchanging product).
I think an important lesson for digital platforms in this space is to constantly innovate, and not be trapped by the existing RPPs of the mandis. Because the best solution for Indian farmers may be far from the legacy marketplaces…
That’s an interesting question about profitability. My guess is that Twitch is not very profitable, and may be losing money. We saw in the simulation that the race to gain and secure network effects sometimes requires companies to forego profits now for market power later.
Also a great point on bundling with Prime. “Twitch Prime” membership is already bundled for free for Amazon Prime members, and offers the following premium items: free in-game loot every month plus exclusives and surprises (“characters, vehicles, skins, virtual currency and boosts, free games”), and ad-free viewing plus a free channel subscription every 30 days (“support your favorite streamer, plus get exclusive emotes, more chat colors, and crown yourself with the chat badge of royalty”). https://twitch.amazon.com/prime?ref_=sm_tw_tup_ntp_t_all
Hi Ting – Our recent talks in the Platform Module made me think back to your post about Mobike. I thought it would be interesting to apply some of the platform frameworks to bike sharing.
First, I would say that bike sharing has HIGH network effects. The more customers who sign up, then assuming the bike sharing has capacity (especially government approval), then they will add more bikes and bike stations to the system. Also, the Learning Effects from the data generation will help bike sharing maximize their bike utilization. For example, Citibike in NYC will often send a truck with dozens of bikes to certain stations shortly before peak times… sometimes more than 4x the number of bike slots at the station! An attendant will wait there with the bikes as they are snatched up by commuters during the peak times. This is just one example of how bike sharing can use data to maximize the utilization of its bikes, which also means maximizing satisfied customers.
Second, I would say that bike sharing has LOW multi-homing. Most bike shares have daily, weekly, or subscription pricing. The daily/weekly pricing is targeted towards tourists in the cities, and has a premium price. The subscription price is more cost-effective, and is aimed at residents. While tourists may seek out the best bargain, it’s unlikely that multiple bike share players will last long in this system. As we saw with the simulation, companies with high network effects and low multi-homing tend to crowd out other players. Thus I think the chance to enter a market as a bike sharing company is a very attractive opportunity!
Thanks for the post Taka! I was surprised to see a ride-hailing company like Grab try to move into the payment area. But even if Grab can gain traction in mobile payments, I’m not sure they will be able to defend their position when global financial players like Ant Financial compete in SEA.
In Qihoo, we saw how product structure can help determine the success of a company, but can also determine the defensibility of its products. Qihoo used its 360 Safeguard as a natural springboard into software management, PC browser, then search. I don’t see the same strength of product connection between ride-hailing and mobile payments. These products don’t seem like complements, and I imagine a strong player in either product category would be able to take share from Grab. Qihoo also benefited from 360 Safeguard having very low multi-homing, which helped Qihoo secure almost 100% of the market. As we saw in Fasten, there is high multi-homing tendencies with ride-hailing. Having mobile payments when you’re in the restaurant doesn’t prevent you from using a different ride-hail when you’re outside the restaurant.
Time will tell, but I don’t think Grab will be successful with its entry into mobile payments.
Hi SAG – You’re absolutely right! The U.S. Census Bureau actually does make microdata available, but restricts data use to research purposes, and only makes the data available at Federal Statistical Research Data Centers (RDCs). There are 29 RDCs across the U.S., and most are accessed for research by universities, non-profits and other government agencies. In addition to census microdata, researchers also can access data from the Bureau of Labor Statistics and the National Center for Health Statistics at RDCs.
Hi Zach – Great article! After reading about MLB’s success in developing a fairly glitch-free, scaled streaming service, I wonder if this positions MLB better than any other major professional sports team against the surging popularity of esports? Spectator esports has exploded in popularity over the past few years, with millions tuning in to live-streaming sites like Twitch.tv to watch a wide range of video game players — from world-class warriors to fumbling amateur personalities — play their favorite video games. In fact, two former Apple executives just launched a competing live-streaming service called Caffeine:
MLB has done a great job so far, but I think they need to go further. For example, one way MLB could insulate itself against spectator esports is to figure out a way to keep fans tuned in during the offseason. I feel a big lure of baseball is nostalgia, so maybe MLB could digitize historic games, going back decades. If fans could tune in during the winter to watch Hank Aaron, Mickey Mantle, or Jackie Robinson, this might retain and attract fans away from the rising lure of esports?
Hi Zach – You’re totally right about the intense politicization of the census! Part of the problem is that, since the census information is used to distribute $600 billion federal funds each year, it asks for politically-sensitive information, such as race and gender. And there is intense debate every decade about what questions should or shouldn’t answer.
On Michelle Bachmann… she clearly forgot that Congress gets to enact laws! While the Constitution does merely say that an enumeration has to happen every 10 years, 13 U.S.C. § 5 gives the Secretary of Commerce the authority to “prepare questionnaires” and “determine the inquiries, and the number, form, and subdivisions thereof, for the statistics, surveys, and censuses” (by the way, Michelle Bachmann conveniently left out that the census provision of the Constitution also excluded Indians and counted “other persons” (i.e., slaves) as 3/5 a person).
Hi DF – the social security system is not comprehensive. While U.S. citizens have a SSN, only non-citizens who are authorized to work in the U.S. are able to get a SSN. While SSN basically serve as a national ID, my suggestion is to develop a national ID card and registry system, which would be limited to very basic information — I think only recording name, date of birth, current and past addresses, passport #, and SSN, would be sufficient. For people who are concerned about privacy, you only have to look at recent hacks such as Experian (2017 – 143 million people) and OPM (2015 – 21.5 million people), where SSNs and other personal info was stolen. And I agree it’s true that operational changes in government are hard to effect, but that doesn’t mean government should stubbornly persist in the status quo without trying to make things better.
Great points Sean. Government statistics is the perfect place for private-public partnerships. However, I think there are two big obstacles. First and obviously are the privacy concerns: what are the risks of giving Alphabet, Facebook, Amazon, SAP, etc., access to government resources and private citizen information? But in reality these companies already have a trove of information on most U.S. residents.
Instead, I believe the bigger obstacle is the territorial nature of federal agencies. For example, you mention the Bureau of Labor Statistics. Why do we have separate data collection/analysis functions at a range of federal agencies? While I’m sure the Department of Defense and the DOJ have access to information from most federal agencies, several agencies operate their own internal registries (e.g., IRS, Census Bureau, Social Security Administration, Post Office). Consolidation into one agency would prevent a lot of value destruction in the federal government.