Pinterest – The Ultimate Collection of Magazines

If you’re like me when it comes to buying magazines, you enjoy reading the articles, but it is the pictures that grab your attention and the object upon which you place most of your attention.  So what if you could take all of the images available to you from GQ to Vogue to Crate & Barrel and other apparel and home furnishings magazines, and place them all in one easy to access, organized space?  Now imagine that space is controlled with the single click of a mouse.  This is exactly the concept that is brought to life by Pinterest. 

With 29 Million unique users during the month of December 2012[1], Pinterest is the third most-visited social network after Facebook and Twitter[2].  Within the e-commerce sphere, however, sharing across Pinterest beats out Facebook with 41% of shares occurring through Pinterest, compared to 37% of shares through Facebook. 

To see how different social media sites influence various aspects of the web, click the here. 

Pinterest’s greatest value proposition, perhaps, arises in the type of content Pinterest users share with one another.  Whereas most e-commerce sites are dominated by electronics, which offer retailers very low profit margins, Pinterest is dominated by products like apparel and home furnishings, which can have margins of up to 50%.  “Across the web, the average sale resulting from a Pinterest user following an image back to its source and then buying the item is $180, according to research from e-commerce firm RichRelevance, compared with $80 for Facebook users and $70 for Twitter users[3].”   Monetizing the value added to these retailers appears to be the best opportunity for Pinterest to generate revenues. 

Assuming each of Pinterest’s 29 million users buy one product per year as the result of clicking through Pinterest, and Pinterest collects $2.00 on average for each one of these purchases, they would generate approximately $135M in revenue.  Pinterest has a highly fixed cost structure, with most of their expenses coming in the form of human capital (designers and programmers) and IT infrastructure.  Assuming Pinterest employs 200 designers and 50 developers at an average annual salary of $100,000, their personnel expenses account for $25M in annual cost.  IT infrastructure, which I estimated to be $10M based on the current size of the business as compared to my own company, accounts for the remaining cost.  Based on these figures, Pinterest has the ability to currently generate approximately $100M in annual profit, which equates to a 74% margin!

Pinterst’s high operating leverage (fixed costs) and rapid growth in acceptance and usage, combined with its ability to drive purchase decisions based on the organized manner in which the site displays high quality and profitable products, makes it in a prime candidate for a $1B plus valuation.  In fact, the time of this writing, various outlets are currently valuing Pinterest at ~$2.5B. 

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[1] http://news.cnet.com/8301-1023_3-57570416-93/pinterest-officially-pins-down-$200m-at-$2.5b-valuation/

[2] http://venturebeat.com/2013/08/12/pinterest-google-versus-facebook/

[3] http://www.fastcodesign.com/1670681/ben-silbermann-pinterest

Big Data – It Knows You Better Than You Know Yourself!

Have you ever really taken the time to consider how much of a “fingerprint” you leave on the Internet?  From Facebook posts and Tweets, to reading the Wall Street Journal and New York Times, and even further beyond to your every single web click being recorded, virtually everything you touch on the Internet leaves a virtual fingerprint.  Ever notice that Facebook ad that keeps popping up for rentals in that trendy new loft apartment building which just opened in town?  Think that ad appeared there by coincidence shortly after you were searching for apartments on Craigslist?  If you’ve taken the time to reflect upon these often over-looked events that pass instantaneously while you peruse the Internet, then you’ve thought about “Big Data.”

Whether you carry a Blackberry (who’s desperately trying to get someone to buy them at the moment) or an iPhone, your smart phone is now the most extensive means to which advertisers can look deep into your subconscious in order to deliver the most appropriate and effective ad content to your device.  Thought it was a coincidence that you were using Yelp and an advertisement pops up for the boutique you’re just about to pass?  Congratulations, you’re now carrying a GPS that knows which ad content to push to your phone based on your location.  Just like Kanye used to say….that sh*t cray! 

Of course, not everything is positive in the realm of big data and digital devices.  This topic is sure to cause about as much controversy in the near future as the NSA's "liberal" surveillance policy.  If advertisers can track how you're using your phone and identify the kinds of websites and content you're viewing, it's only a matter of time before other other more sensitive forms of data, such as financial and health records, become compromised.  Time to start monitoring your credit score with the same vigor advertising agencies portray while monitoring the use of your smart phone.  

Business Model Canvas - #1

For this assignment I decided on focus on the company where I work (Fiserv Investment Services) and our core business within IS - our APL trading and portfolio management platform.

Upon completion of the Business Model Canvas, several things about our business model became glaringly obvious to me.  In my analysis, I will address how several different aspects of the canvas drive our revenue stream and cost model. 

Revenue Stream & Cost Model

The lack of diversity in our revenue stream is a major concern that arises in the Canvas.  Approximately 97% ($122M) of revenue is generated through activities associated with trading and portfolio accounting.  Although this revenue stream exhibits some apparent strengths, such as its recurring nature and organic growth through increased client account volumes, it likely does not fully account for our entire value proposition, as significant value is created for clients by enabling them to interface with other investment managers through our robust trading network.  Scalability is also another major driver of client value, as our solution is able to handle large volumes of accounts spread across different product offerings without causing any delays in processing time or trading responsiveness.  Our ability to customize our solution and handle the requirements of three distinct client segments is also another point of strength, however, it comes at significant cost.

With annual expenses of approximately $76.7M, APL has a very healthy profit margin of ~39% ($49.6M).  The biggest strength of cost model arises in the increased operating leverage that is achieved due to our proportion of fixed costs (91% fixed).  The $6.6M of variable cost exists as a result of per account fee charges paid to data provides  such as IDC and S&P.  If revenue should decline, however, our operating model does not enable us to adjust quickly in order to reduce fixed expenses in proportion to any decline in revenue.  Because we provide personal assistance and a customized solution to every client, our key resources are our people and their technical knowledge of our platform.  We have several channels that touch the customer, including sales and marketing, client services and customer operations.  Further investigation is warranted to determine if any synergies exist between these functional areas and if we should re-design our current operating model in order to drive efficiencies and opportunities for cost savings.  

The Future of Brick-and-Mortar Stores: Showroom Only?

As e-commerce, social media, search engines and customer data mining using complex algorithms become more developed – remember, many of these online tools are less than 10 years old – one cannot help but wonder what the future holds for the fate of brick and mortar retailers.  Will anyone be purchasing products in a physical store ten years from now, or will we simply visit a “showroom” to experience the product before we decide to buy it?  There are a number of online retailers who may be in the process of destroying the traditional retail model and creating a new paradigm:

Bonobos: Men can visit their tiny brick-and-mortar store locations to check out the brands latest looks and try on clothes, but must make the purchases online and have them shipped to their home or office

Hointer: At Hointer, which now has 3 pilot stores open in the West, shoppers download the Hointer app to their smart phone.  Shoppers walk through the physical showroom and browse merchandise which is on full display and hangs from suspended racks.  If the shopper likes they item, they scan the bar code and are able to select the appropriate size on their phone.  Once all selections have been made, shoppers select the “Try On” button on the app and are directed to a fitting room where all of their selections are waiting for them.  If they do not like an item, they simple drop it into a return bin in the fitting room and item is removed from their shopping cart.  This model has the most potential to revolutionize the retail industry, which on average generates profit margins of 3-5%, by reducing costs associated with inventory, re-stocking, stock-outs, employee labor while simultaneously erasing many of the negatives associated with shopping (digging through piles of jeans for the correct size, unkempt fitting rooms, having to carry merchandise around the store as you shop and waiting in long check-out lines). 

Alice.com: Of all the products a consumer is least likely to buy online, household items probably appear somewhere near the top of the list simply because many of us purchase them in brick-and-mortar stores only when we need them.  Alice.com may change this attitude as they offer household products from 185+ manufacturers and enable the customer to buy directly from the manufacturer itself (think of them as the Kayak.com of household items).  This concept is further explained in this clip. 

Warby Parker: Warby Parker prides itself on being the “Netflix” of sophisticated, affordable eye wear.  Customers can pick up to 5 pairs of frames which are shipped to their house at no cost.  After you try on the frames you return them while placing an online order for any frames that you want to buy.  Warby Parker has now opened “showrooms” in various urban locations so clientele can touch and try on frames in the store.  

The Power of the Blogosphere and Impact of Groupthink

The most prevalent lesson I’ve learned this week is how rapidly information is now disseminated and digested as a result of the continued adoption and use of social media.  If you look at the acceptance of Twitter over the last 3 years, it is only continuing to grow.  With 2 Million active users (defined as those who follow 8+ people) and growing, Twitter is only going to continue to spread the delivery and receipt of information to mass quantities of people.  When you combine a tool like Twitter with other social media tools such as Youtube or Vine, you really have the ability to make something to go viral, and sometimes for the negative.  This past week a Youtube video of Philadelphia Eagles’ Wide Receiver Riley Cooper was posted in which he uses a racial slur.  Within a few days of the posting, the video has gone viral and all major sports and news publications in the country have picked up on the story.  Cooper’s reputation, his relationship with his teammates, friends, and almost everyone he’s come across in his life has changed in practically the blink of an eye.  I’m not even going to begin to defend his actions because they are vile and offensive, but this entire situation displays how none of us are safe from having a bad moment public moment with the presence of 6.5 Billion mobile phones world-wide.  Someone is almost assured to be watching and recording and can change your life in an instant with a single post to the internet.  This situation, of course, spans far beyond us as individuals and is something that all companies must take into account.  When you think about how much damage has been done to the Philadelphia Eagles brand as a result of this incident, one can only expect that more and more organizations will be forced to train their employees on being sensitive to the existence of social media. 

This entire concept is further evidenced by James Surowiecki’s lecture on the power and danger of online crowds.  In his lecture Surowiecki discuss the impact of the 2005 Tsunami and poses three questions about the blogosphere:

1.  What does it tell us about our ideas about what motivate people to do things?

2.   Do blogs have possibility of accessing a collective intelligence?

3.  What are the potential problems with blogs?

The first two questions touch on the positive aspects of the blogosphere.  People are primarily motivated not by monetary rewards, but their ability to have a voice and to work together in an open source model in which they have an ability to tell their story.  This leads to the premise of “Wisdom of Crowds” which essentially theorizes that under the right conditions, the collective intelligence of the crowd is incredibly powerful.  Unfortunately, there is a significant downside to this collection of people within a network, which is displayed in the whole Riley Cooper fiasco.  Once you become a part of a network, the network has a tendency to shape your views and interactions with those who are members of the same network.  As a result, independent thought is often lost as the network tends to drive attention to things the network values.  In the Cooper case we see human nature as work as people continue to “pile on” without formulating their own independent thoughts to think about what has actually transpired.