Business Case of Casa del Libro

Introduction

Casadellibro is leading online book retail store in Spain since 1995. Owners of the company decided to revamp the product and turn the company around in 2001. They already bought new expensive IT equipment, but before putting it live, economic crisis hit the world reducing revenue prospects. As a result of market turmoil, new Casadellibro management has to decide whether to continue in implementation of already purchased solution and bear higher than appropriate development and maintenance costs than appropriate given current market conditions or purchase cheaper solution based on Microsoft technologies.

Assumptions

• Casadellibro is on line store that operates in the mode 24/7 and any outages would negatively influence customer perception. Hence, the application could be considered being mission critical. Drawing from this fact Casadellibro needs at least two set of servers (application, database, and web server). One set as a main production servers able to maintain high load of daily operations and second set for a fail over in case of both failure and regular maintenance.
• Additionally, all data have to be backed up regularly.

Decision Criteria

As Casadellibro already purchased hardware and software, this already invested amount represents sunk costs, hence should not be considered in the decision.

Decision Criteria

• Purchase cost of new hardware and licenses of Microsoft solution
• For both solutions is necessary to compare
• Implementation costs
• Maintenance costs
• Which SLAs can I agree on with vendors of both hardware and software. How quickly can I receive support in case of failure?
• Scalability in terms of possibility to increase processing power in case of need
• Future functions expandability. Will Microsoft standard solution limit choices of customization?

Recommended Solution

As 2001 is the time of the case, irrespective of the choice I would also consider option of renting the hardware equipment rather than purchasing it. Moreover, the equipment could be placed in the outsourced data center so that Casadellibro would not have to worry about choosing the proper bandwidth as it would be scalable. Also, outsourced data center would provide backup power plan in case of power failures, necessity for mission critical systems which could become very expensive to realize in house.

Hence, my decision would be to deploy cheaper Microsoft solution to the rented HP server, which would be placed in a outsourced data centre. By doing that I would reap benefits having cheap solution now, when the demand and excepted load is lower and later I could scale up the solution taking advantage of falling hardware prices in the future.

What could be done today?

Best option at today's IT market would be to transfer the whole application to the cloud and pay per computing power usage and bandwidth usage. By doing that Casadellibro would not have to worry about customer traffic and load projections as the application would have been completely scalable. Additionally, the cloud computing services provider would be able to assure higher availability of the application at lower costs than Casadellibro's IT department.

Tesco as Pioneer in the Customer Intelligence

Retail stores chain Tesco suddenly overtake its grand rival Sainsbury in 1996, which was result of successful deployment of customer loyalty card called “Clubcard”. Clubcard is a sophisticated version of previous loyalty program used in the UK already from 1958 called the “Green Shield Stamp”. Green Shield Stamps concept was based on collecting stamps for purchases and then exchanging the stamps for goods at the Green Shield catalogue. Before 1995, both Tesco and Sainsbury were part of the Green Shield scheme. In fact, the Clubcard and Green Shield Stamps fulfill the same purpose of stimulating purchases and incentivizing customers to return to the shop. Then, why the Clubcard made such a difference to Tesco market position?

Before answering the question, let’s see some facts behind the Clubcard. The new loyalty program cost Tesco £300 million over the first three years, which represented about 4.5% of Tesco profits. Despite of that Tesco gained back the initial investment in just seven months. In the first six months after Clubcard introduction, Tesco increased its market share in retail grocery by 3%. Six years after Clubcard launch, the scheme attracted 20 million customers, 10 of which were regular shoppers.

The main difference between the Clubcard and Green Shield Stamps lies in the fact that Clubcards are personal. For every Clubcard owner, Tesco knows her name, surname, address, and if she has children. Additionally, if the card owner presents the card at the purchase, information about all purchased products will be saved in the customer database. Customer receives in exchange “Clubcard points” that can be later used for shopping in Tesco or participating in Clubcard deals.

Tesco gets extensive amount of data about its customers, which is handled by NCR Teradata Datawarehouse, into deep insight into customer behavior. This insight allowed Tesco to adjust its discounting policy, send personalized offers to customers, and shape its product categories. Additionally, Tesco is a pioneer in internet retailing as it realized first on-line sale of groceries already in 1984 using videotext. Also, it operates its homes shopping service from 1996 and Tesco.com platform from 2000. Both Tesco’s brick & mortar and internet operations are powered by the Clubcard. Hence, Tesco can track customer behavior across all retail channels.

In conclusion, I believe that Tesco generates substantial competitive advantage by being pioneer in the use of new technologies. As being pioneer, Tesco might not do everything right for the first time, but the benefits of learning are tremendous. Therefore, Tesco will stay at the top for some while.

Should companies adjust their processes to ERP or other way around?

Enterprise resource planning (ERP) systems attempt to integrate several data sources and processes of an organization into a unified system.

There was a big hype around ERP system in the business community around the world in the 1990s. ERP systems have been seen as an ultimate weapon against disintegrate unclear processes. They promised to lift company to the next level of information and process maturity and at the same time reduce inventories, lead times, and overhead costs. Additionally, they carried with themselves industry specific “best practice” process models, which were previously highly valued and guarded possession of the consulting companies.

Yes, implementation of ERP system had its drawbacks too. Among others, following are frequently mentioned:

· Large ERP systems are very expensive both in terms of license fees and implementation costs (According to Panorama Consulting, Average costs of ERP implementation are $6.2 mil. Also, license fees have sometimes character of a tax as they represent percentage of sales volume, number of employees, etc.)

· Implementation of ERP system is risky (according to Robbins-Gioia survey in 2001, 51% of ERP implementation were considered unsuccessful)

· Implementation of ERP takes more time than you think (according to Panorama Consulting, average project duration is 18.4 months and in 57% cases the project takes longer than expected)

· Companies fail to adjust its processes to the ERP system and therefore unable to capture the benefits

Let’s look a bit deeper into last point of adjusting the processes. Is it good that ERP comes with pre-defined processes? The answer is yes and no or it depends (choose, which one you like).

Firstly, the pre-defined rules & processes can help you if the company should comply with various international standards like ISO:9001, IFRS, Basel II, etc. as the system already has it all. Moreover, the company will get regular updates should the international standards change. Secondly, in case of building a company from scratch, using pre-defined processes in the ERP system, allows for rapid company build up without lengthy process design. Thirdly, ERP implementation project cost and duration is significantly reduces if pre-defined processes are used.

However, using any kind of “best practices”, pre-defined processes etc. makes your company look alike any other companies in the industry. Then, what if your competitive advantage is in distinctive operational process? In theoretical example that all companies would be using ERP system with the same processes, their operational models would be identical and only differentiating factor would be product itself and marketing. In reality it is not yet the case, but both consulting companies with benchmarking and GAP analysis tools and ERP system integrators contributed to standardization of within and among industries. No wonder, that many consulting companies teamed up with ERP system integrators often forming joint ventures.

In summary, ERP system implementation brings tremendous benefits in integrating the whole company’s data into one system. Following pre-defined processes, which come with the ERP package, helped many companies to strengthen internal discipline, increase informational quality, and make better decisions. Despite that ERP system is not for every company and not to be applied to every functional area. Stand alone software packages for areas like CRM (Customer Relationship Management) are still far better than CRM modules included in the ERP system. Additionally, if your company has a distinctive operational model, which is part of its competitive advantage, it might be sensible thinking about custom developed software or flexible standard package that allows to follow company’s process instead of changing it.

Dell Hell

Now when you screw your customers, your customers can fight back and publish and organize. (Jeff Jarvis)

Jeff Jervis is a blogger, journalist, and university professor. Jeff wrote an insightful book “What would Google Do?” and regularly writes at his blog “Buzzmachine” about new media in the information age. In June 2005, Jeff decided to buy a notebook, which comes with a home repair service in order stop worrying about technology and focus on writing. The notebook was from the pioneer of direct sales over the Internet Dell. It broke on the very first day Jeff received it. Jeff thought that such things can happen and contacted Dell’s customer service. Unfortunately, technician, who came to his home, could not repair the notebook on the spot as the home repair service advertised. Moreover, Dell could not fix the notebook even in its repair centre. Also, Jeff’s repeated interaction with Dell’s customer service did not get him closer neither to the solution nor did make him happy.

Jeff decided to write about his experience at the blog. First reaction was hoarding comments from other unsatisfied Dell’s customers at his blog. When he wrote an open letter to Michael Dell, Jeff got cited at on line version of prestigious business journals like BusinessWeek and Financial Times. Eventually, Dell’s shares significantly dropped at the top of the negative publicity verge.

What is most surprising that Dell’s reaction to Jeff’s blogging was close to zero. Dell was sitting quietly watching as the situation unfolded. At one point, Dell even closed its general customer forum as if it was the only platform, where their unhappy customers could speak up. But, what should have Dell done? Here are some general advices.

1. Actively seek for customer complaints at the internet. Analyze them differentiating between isolated incidents and systemic problems.

2. If the forum allows company intervention, professionally answer on comment at the forums especially those negative ones e.g. by referring to own company technical support forums.

3. Act on complaints. Customer complaints represent best opportunity to turn complaining customers into active company promoters by providing excellent customer service.

4. Set up a company blog, ideally run by members of Dell’s management, where Dell could comment on recent development in a lighter manner than in official PR announcements. It would give Dell additional channel of communication, which could prove extremely useful in case of Jeff’s blog attacks.

5. Engage into social media. Create pages at Facebook and other major social sites and gather a fan base. These people could help Dell to counter attack Jeff’s blog posts by comments on their Facebook walls.

I believe that Dell learned its lesson as the Dell vs. Jeff Jarvis is taught at the business schools and today Dell actually has a Facebook page with more than 173,000 fans. However, did other companies learned from Dell?

Facebook in two years

Facebook is most popular social network today with more than 400 mil. users. Oddly enough, nobody can really determine what was Facebook’s competitive advantage over social networks like Orkut, My Spaces, … that gave Facebook such a head start over them. I believe that it was from a great part luck and from the other part ease of use that Facebook gained critical mass of users quickly enough to became number one in the world (Although, in some countries like Brazil or Russia, social networks like Orkut and Odnoklasniky dominate the market).

Facebook, as a private company, does not publish its financial data. Therefore, all numbers about revenues, which are on internet blogs are just rumors or estimates. According to blog InsideFacebook, Facebook reached up to $700 mil. revenues in 2009, most of which came from advertisement.

In its early days, Facebook used to be a place to connect with your friends and find new friends. Today, it is a major place for searching and consuming multimedia entertainment recommended by your friends. At times, Facebook even surpasses Google in internet traffic. However, how will Facebook look like in two years?

Firstly, I believe that Facebook is here to stay at least for another five years unless there will be a huge problem with security or performance and at the same time, users could easily switch to available alternative. Secondly, importance of social games at Facebook platform and sale of virtual goods will grow both in usage and revenue. Thirdly, Facebook might extend use of its virtual currency at the expense of PayPal and credit card payments, which could create another stream of revenue (approx 1.5% of value of each transaction ). Last but not least , there will be more emphasis on privacy of personal information, where Facebook will have to prove itself as a reliable and trustworthy partner.

Marketers are ready to put even more money in executing their campaigns on Facebook, now it depends if Facebook stands the challenge.

Will Google Operating System Change the way we use computer?

 

On the 7th July 2009 Google announced its own operating system Chrome OS based on Linux and other open source technologies. Chrome OS will in its look & feel resemble Google Chrome web browser and web browser actually will be single application installed on the Chrome OS powered devices. The new OS will be released in July 2010 with first devices coming from major computer manufacturers. Chrome OS is supposed to run on:

• Tablets
• Netbooks
• Notebooks &desktops.

Each of the Chrome OS version will have modified input and display methods to fit the specifics of the device. After success of Google’s mobile devices operating system Android. Chrome OS announcement has been considered as an openly communicated aspiration to replace Microsoft’s “application’s eco system” including its core product Windows.

From Google, it is definitely a bold step. However, is operating system on a computer still important? Do we really care about OS underlying infrastructure and communication standards or we care more about applications and GUI (Graphical User Interface)?

I believe that role of the role of OS today is less important unless it fails to cope with basic requirements for stability and security. On the other hand, given the current stagnant homogenised retail OS environment led by Windows, followed by MacOS and Linux, where major innovations are originating from 1970s, there is a room for improvement.

• What could be changed at current OS:
1. Speed of booting up
2. Access to documents from anywhere / any device
3. Minimum interference with what user does
4. Increase Security
5. GUI easier to use

 

• What Chrome OS offers:
1. Speed booting and immediate Internet access (in 2sec)
2. Data accessibility across platforms and devices (on line documents storage)
3. Worry less about drivers (Cloud printing)
4. Enhanced security (physical developer / admin button)
5. GUI resembles web surfing

"The promise of Chrome and Chrome OS is that the devices that you give to your employees will have a 2-second boot time, will be completely disposable and the price will be incredibly low." (Eric Schmidt at Atmosphere, 12.04.2010)

Does it mean that Chrome OS is the new big thing? I would like it to be so. Unfortunately, there is a major issue in its deployment strategy to the market.

Even though developers can view its source code and compile it, Chrome OS won't be available for download because it requires a special hardware configuration and it's not designed for multi-boot. Chrome OS is just the platform for Chrome OS netbooks.

If you have to get Chrome OS with new computer without possibility to download it and install side by side with your current operating system, its penetration will considerably slow down.

If Chrome OS would run on the same machines as Windows and MacOS does, users would boot into Chrome OS in just 2 secs in comparison to 43 secs with Windows in case that they would like “just” to check their email, chat on Facebook or watch videos on YouTube. Later, they would find out that they do not need their “main” OS that much, because Google Docs can do basic word processing and spreadsheet job and store their documents on-line. That would ultimately hit Windows market share. Why Google didn’t choose this compelling strategy is mystery to me.

As Google went into shipment with new computer devices model, it also chose its competition consisted of:

• Microsoft Windows / MacOS esp. on notebooks with standby / hibernate feature
• Apple iPhone OS on iPad / iPad in general
• Linux on netbooks

I think that Chrome OS makes greatest sense on tablet devices, therefore the toughest battle will be with the iPad. We can see similar situation between Android mobile devices and iPhone.

In conclusion, I think that Chrome OS can make a difference at the outdated OS marketplace. However, its shipment strategy is flawed and will hinder its market inception. At the same time, Chrome OS might had a bright future in tablet devices, provided tablet manufacturers will adopt it quickly and will create similarly “sexy” devices as iPad.

Quo vadis, Microsoft?

Although, there is a lot of resentment among PC users about Microsoft, I am not going to comment on emotions, but rather will stick to facts and general trends. You can argue about Microsoft’s internal innovation capabilities and its sometimes controversial contributions to the shape of the IT industry. However, nowadays, Microsoft is without doubt the biggest player in the IT industry at least based on the market capitalization (see figure 1). At the same time, its arch rivals Apple and Google are getting closer with their business models more relying on Internet (in case of Google totally relying on Internet).

Figure 1

Microsoft’s obligatory SEC filling 10K reveals information about current revenue streams. The cash cow product is Office together with Enterprise Resource Planning system Dynamics (former Navision). Expectantly, second place with 25% share in revenues assumes Windows, followed by server software like Windows Server and Microsoft SQL Server. Then come so called “hungry dogs” represented by two groups. First, entertainment services with Xbox, Zune, and Windows Mobile and second “hungry underdog” On-Line Services with 5% revenue share (mainly coming from Microsoft’s Advertisement product). See figure 2 for graphical expression.

Figure 2

To expand on the On-Line services subject, where Google was able to generate $23.65 bil. of revenue with gross profit $14.86 bil., Microsoft generated only $3.09 bil. with operating loss $2.25 bil.! I would call this a strategic gap.

Apart from competition, Microsoft creates troubles for itself on its own. The most significant example is its operating system Windows Vista, which did not persuade corporate customers to switch from reliable and proven Windows XP. As a remedy for that, Microsoft had to launch new re-vamped operating system Windows 7 ahead of product roadmap followed by massive advertisement campaign. To add to the problems, Microsoft’s mobile devices platform shrink its market share to 7% in 2009 (see Figure 3).

Figure 3

What is going to be Microsoft’s reaction? Well, Microsoft always pursued strategy identifying the best technology or product at the market and than either purchase or replicate it. We have been noticing executing this strategy recently as Microsoft started replicating Google products like:

· Google Search vs. Bing

· Google Maps vs. Bing Maps

· Google Docs vs. Microsoft Office 2010 On Line

· Gmail vs. re-vamped Hotmail

· Google Sites vs. Microsoft Live Groups

Most importantly, Microsoft announced Google’s main technological pillar cloud computing as its cornerstone strategy for the near future.

On top of that, Microsoft is aware of rising importance of mobile internet. Recently, unusual news has been released that Microsoft, company which in the past refrained from engineering its own computer or mobile hardware, launched its own branded mobile phones KIN ONE and KIN TWO with totally re-vamped Windows Mobile 7. Moreover, Microsoft’s management felt a need for such a radical change that due to almost complete re-design of the operating system, majority of applications designed for previous version of Windows, will not work on Windows Mobile 7.

Steve Ballmer’s vision of Microsoft product mix from the CEO Summit 2010 is on Figure 4.

Figure 4

In conclusion, I believe that Microsoft could stay at the top of the industry at least for next two or three years, provided that it will shift its core products like Windows and Office even more into on-line services without the hassle of deploying additional technologies (e.g. Sharepoint Server for collaboration). This can be achieved by further moving to the cloud, which could overtake part of the IT infrastructure used today in corporate sector. Firms will definitely welcome low frill collaboration services and decrease maintenance costs. In the retail segment, imitating Google approach seems to be a good strategy. Also, Windows 7 was a genial way out of the “Vista” problem with additional cash from unhappy Vista customers. Now the stakes are on the Windows Phone, whether it can compete with Apple, Android, RIM and Symbian. Generally speaking, this year we will keep hearing about Microsoft.

FourSquare and money lying on the ground (Updated)

Recently, I registered to a one year old internet service called FourSquare (foursquare.com). FourSquare caused new internet hype with adding 100 000 additional users just in ten days in March 2010. Estimates for current number of users are amounting 1 mil. Allegedly, Yahoo offered $125 mil. for the company, although it's valuation based on its capital is $6 mil. FourSquare is most frequently compared to Twitter, recently valued at $1.44 bil., which is 240 times as much as FourSquare's current value. According to web analytics firm Compete, Twitter had 22 mil. visitors in December 2009, which is 22 times more than FourSquare. In conclusion, investors value future cash stream of one Twitter customer as $65.5 and FourSquare customer $6. Building upon investors valuations, is FourSquare under or overvalued? Lets look deeper in FourSquare's history, what it does and it's business model.

FourSquare has been founded by Dennis Crowley and Naveen Selvadurai after trying similar project with Google called Dodgeball in 2005. It was probably too early for such a project as Google shut down the service in 2009. Dennis and Naveen should thank Google for the time and money it invested to shape the product as FourSquare is sometimes called DogeBall 2.0. So, what is ForSquare about? Actually, it's a mix of location based social network and a game. After registering to the service (you can link your Facebook and Twitter account), you mark the places you visit in a good old fashioned physical world and get various virtual badges . After collecting the right badges, you can actually get discounts and gifts at various bars, restaurants, food chains etc. I believe that the badges concept was taken from Microsoft's XBox Live service where you gather achievements for completing special task in games or on-line. Similarly as achievements, badges earn you honor when ranking with other folks at the FourSquare and more importantly guide users to specific behavior like going to places you want them to go. And here we are getting to the FourSquare business model. For instance, if you are a restaurant owner and want to attract more customers, you go to the FourSquare's paid Dashboard application, where you can offer specials for people, who step by in your place. Moreover, all the users, who checked in to your place, let their friends know over FourSquare site so that you get a multiplication effect by 21st century "word of mouth" advertising. Another source of revenue will be marketing statistics about consumer behavior, which could serve big companies like Coca Cola and Starbucks to track, who is coming to their stores.

Nice idea? Local internet advertisement business is estimated to be worth of $10 billion and so far nobody could tackle it in a proper way. I believe that FourSquare is on the right track to make a big cut from this market for several reasons:

1. It's a community service so that updates about hot vs. not so hot places will happen really quickly
   
2. FourSquare put its stakes to mobile internet, which is growing by building application for all major mobile platforms
   
3. It is gaining critical mass of users thanks to ability to import friends from Facebook and Twitter
   
4. Last but not least, FourSquare is very easy to use…
   

My opinion is that Foursquare has a more sustainable business model than today's Twitter and therefore it's valuation could be even higher than $125 mil. On the other hand, the threats on the way could be the "second movers" like Twitter, which announced its service @anywhere and Facebook. Moreover, in January 2010, users were coming to FourSquare from three main sources:

1. From Google 24%
2. From Twitter 21%
3. From Facebook 19%

It means that if Twitter and Facebook create their own location based services, FourSquare could theoretically loose 40% of its incremental user's base. Given the FourSquare's three digits growth in users base, the speed of competitors move is crucial. This competitive risk is most probably the reason of mediocre FourSquare's valuation. I place my bets on FourSquare!

HP is buying Palm for $1.2 Billion

Do you remember these cool monochrome devices, geeks used to track their dentist's appointment? At that time, nobody even dreamed about iPhone and Internet was available only in desktop computers with huge CRT monitors with small screens. Yes, I mean legendary Palm Handhelds, which dominated the nineties.

The company had hard time in 00s and at one time even dropped its own operating system PalmOS to replace it with Windows Mobile in its devices! That was horrendous for all Palm fans and customers. In 2007 Palm management refused to launch net-book "Folio", which could have been the EePC of today. ASUS and others took that niche... Eventually, in 2009 Palm hired former Apple executive Jon Rubinstein and launched a "my last chance" smartphone PalmPre. Unfortunately, the candidate for an "iPhone Killer" got killed and now HP got the pioneer company in handheld computing. Lets see what the future brings.