Sunday, April 30, 2006

 

Tom Friedman's Other Side of Outsourcing Video

I blogged on Tom Friedman's video in my other blog. It provides a peek into the social impact of offshoring based on Tom Friedman's visit to India. I used it in the Winter Intensives but this may be of interest to others as well.


Saturday, April 29, 2006

 

People Tagging

RateItAll.com

It seems to me 'people tagging' will help people increase and diversify their informal networks, which are more useful and efficient than formal ones.
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Online Social Network RateItAll.com Introduces People Tagging

RateItAll.com, an online social network and ratings community, announced that it has launched a "people tagging" feature that allows its members to tag themselves with keywords related to their interests, and then be searchable by those keyword tags.

San Francisco, CA (PRWEB) April 29, 2006 -- Online ratings community and social network RateItAll, Inc. ( www.rateitall.com ) today announced that it had introduced a People Tagging feature to its community of nearly 200,000 registered reviewers.

The RateItAll People Tagging feature allows RateItAll members to “tag” themselves with one word keywords via their profile pages. These keyword tags might represent a reviewer’s areas of expertise, areas of interest, and/or group affiliations.

People Tags are displayed publicly on each RateItAll member’s profile page. Clicking on a People Tag immediately displays all reviewers who have tagged themselves with that particular keyword, as well as a snapshot of all recent reviews posted by those reviewers.

“We think People Tags will be a neat way for our members to keep track of what their various sub communities are talking about, or to track the reviews of experts in specific areas,” said RateItAll President Lawrence Coburn. “This feature will also be helpful in helping members of our community discover like-minded individuals.”

Reviewers will also be searchable by keyword tag. For example, a people tag search for the word “Photography” will display all the reviewers who have tagged themselves as expert or interested in photography, as well as their associated reviews.

“People Tagging is just one more way for individuals in our community to slice and dice our database of reviews to display content in a way that is most useful to their particular needs at that particular time,” said Coburn. “And I think that we’re just scratching the surface as to what this feature could be used for – I’m very curious as to what our members will come up with.”


Friday, April 28, 2006

 

TD Ameritrade

In our presentation of our prediction of the financial services industry in 2010, we highlighted the shift towards the "mobile-enabled" online trading model, as visible in the "Financial Services 2010" snapshot below. Under such circumstances, relationships with mobile service manufacturers and application developers would become critical. A first mover would get a significant and sustainable advantage due to the dynamics of the industry. I have visualized the best, worst and most likely scenarios for TD Ameritrade Holding Corporation below:


Best case scenario: Industry moves towards mobile-enabled online trading. TD Ameritrade is able to foresee this and is the first mover to integrate online trading using mobile devices. This gives it a huge lead over its competitors, which take time to jump onto the mobile bandwagon. By the time the competition follows suit, TD Ameritrade has already established itself in a dominant position. Its position is fortified by the partnerships established and the barriers to entry owing to customer loyalty. It continues its trend of aggressive M&A (Datamonitor report, 2005) and acquires companies specializing in other financial services, which it is able to incorporate into the "mobile-ready" setup.

Worst case scenario: TD Ameritrade fails to see the mobile-enabled S-curve ahead and is late to react to it. Competitors have already taken the lead by the time TD Ameritrade reacts. Given the strong consolidation dynamics in the industry, the company is soon acquired.

Most likely scenario: Owing to its customer centricity and focus on dealing with the unexpected, TD Ameritrade is able to foresee the "mobile-enabled" wave and is proactive in forming the relationships with mobile service manufacturers and application developers. By this time, Fidelity, which is big on using advanced technology for competitive advantage, has already started taking similar steps. This propels both companies ahead of the rest of the competition. Both companies get into heavy M&A activity, consolidating the industry further - and finally settle into their own niches, differentiated by the financial services they specialize in.

The recommendation for TD Ameritrade is short and simple: detect the upcoming change and act proactively to gain the first mover advantage, as described in the best case scenario.

 

itunes into 2010

Let me begin by saying that this industry is much larger and more competitive than I had thought but Apple and Itunes dominate. Apple shipped 8.5 million ipods in their second quarter of fiscal 2006. Apple also sold 250 million songs via Itunes between 1/10/2006 and 2/24/2006.

I would say that that is dominance. Their ability to sell songs grows everytime they sell an ipod. Additionally, every song (or video, or podcast, or movie) they add to Itunes increases the potential of selling additional ipods. This cycle is facilitated by the tight relationship between itunes and ipods. Apple has relied on the Digital Millennium Copyright Act to prevent people from making software to convert itunes downloads for use on other devices. The act was intended to prevent illegal copying has had an unintended benefit for Apple and had effectively locked out their competition.

The DMCA isn't the only thing working in Apple's favor. As is normal for an Apple product the designs are flawless. Both the ipod device and the itunes software are considered to be state of the art tools. None of the dozen or so competitive devices has the same feel or ease of use. The only complaint against the ipod is the high cost. But Apple is extracting the value that developing a superior product allows. In a sense, you get what you pay for. Apple has also worked to extend the number of products in their line and provide a variety of price points. Overall, Apple has built a trust relationship with their customers and their customers are willing to pay handsomely for it.

It is widely believed (and reported) that Apple doesn't make much profit from the sale of songs on Itunes. But, even if the profit is only $0.04 it begins to add up when you sell over a billion songs. Itunes has become a volume game, the more they sell, the more they use the infrastructure to their advantage. Apple makes up for lack of Itunes profit by a 27% margin on the ipod devices. In fact, when the record companies were recently trying to renegotiate the Apple content contracts they were asking for a cut of the sale of ipods. That is a pretty creative on the part of the record companies.

As I mentioned in my "itunes the user experience" post, Apple has incorporated a number of community building features into the Itunes software. That is a good thing because this industry is about to change and Apple may need all of the help they can get.

Earlier I mentioned that the industry is more competitive than I had thought. I discovered this while attempting to build a 2006 stack . I don't have relative sizes or company sizes but I can estimate them quickly. Apple sells anywhere from 75% to 90% of the mp3 devices on the market. That would then give them a power position in the song download market (250 million songs in 6 weeks is a quick $250ish million). Here is the stack that I pulled together:

2006 Online Music Services

Layer

Sub Layer

Companies

Devices


Apple Ipod, IRiver, Creative, Archos, SanDisk, Sony, Philips, Motorola, Sony Ericsson, Nokia, Motorola,

Online Music Services

Free

Live Music Archives, Cnet

Subscription

Itunes, Amazon, Audible, BuyMusic, eMusic, MusicMatch on Demand, Napster to Go, Napster + XM, MSN, Rhapsody to Go, Virgin Digital Red Pass, Yahoo Music Unlimited to Go, Sony Connect

Record Labels


EMI, Sony/BMG, Universal, Warner Bros., Thousands of Independents


I broke out devices (mp3 players), Online music services and record labels. As it turns out, the record labels aren't as big an issue as I thought they might be. Apple certainly has some type of preferential treatment given that they advertise 2 million songs and their larger competitors advertise between 1 and 1.5 million. It seems that even Sony was able to make arrangements to sell EMI and Universal songs on their Sony Connect website. As such I am prepared to admit that record labels are important but they don't seem to have much power. If the contracts are up for re-negotiation (like the initial discussions in Japan where Sony decided to pass on Itunes distribution) the record labels could cause trouble but they will have to decide if Itunes will help them sell more than they could sell without them.

I will not spend a lot of time on devices accept to mention again that Apple has locked out the other devices. This works ok today because the Ipod dominates the market but if this begins to shift or a better device hits the market, Apple may need to alter this approach. The most likely occurrence is a gradual shift to cell phones that double as mp3 players. Currently Apple has a Motorola device and Sony has an Ericsson device that will work with the respective download sites and play mp3s. As seamless mobility begins to become a reality Apple will need to re-consider their proprietary approach.

Before I move on to the competition, I would like to quickly mention the Apple Itunes situation in France. The French National Assembly recent passed a bill that requires Apple to open its software codes such that their competitors devices will be able to play songs downloaded from Itunes. This may spell big changes for Apple.

Now I am going to briefly cover the service offerings provided by the other download sites. I have broken them into two categories. The first is purchase and the second is subscription. In a purchase plan, the customer buys ownership of each song they would like to own. In a subscription, the customer agrees to pay a monthly fee and is given access to the catalog if songs. If the "to Go" subscription is purchased the user is able to copy the songs to their portable mp3 device. In either subscription mode, once the customer stops paying the monthly fee they are no longer able to listen to the songs. In the case of the songs copied to a portable device, they are programmed to expire at the end of a 30 day period and must be resynched with a valid subscription.

One thing that I learned is that most of the download companies require some sort of installation and of course a registration (and payment authorization) before you can begin to download.

Free

Live Music Archives – This is one of my favorite music sites. It offers free, fan recorded, live concert downloads. The main restriction is that bands must approve the public distribution oftheirr songs. There a quite a few popular bands who have concerts available.

Purchase

Audible.com – This one doesn't fit because they don't sell music, instead they sell Audio books. Thintersticeng this is that the books are variable priced but there is a subscription membership opportunity that will save you 30% on your purchases. There are numerous membership levels that carry a variety of discounts and free purchase credits. Subscribers alsreceiveve a daily audio wsj or nytimes.

Audio LunchBox – This site offers downloads for Independent bands. Once you purchase the song there are no drm restrictions and you can distribute the song rather freely.

BuyMusic – This site is part of the Buy.com family. They have over 900,000 songs and the Top 25 songs are $0.79. The songs are not ipod compatible.

MSN – Offers over 1 million legal downloads. Coincidentally it requires windows media playerqualifieslfies for Microsoft play for sure. The songs are $.99 each. Oddly, MSN advertises for the Rhapsody music service.

MusicMatch Music Store– The Music Match store offers 1,000,000 songs for $0.99. It requires Music Match Jukebox and interfaces with Microsoft play 4 sure. It says that music can be reached any pc but I might be mistaken. They offer a personalized recommendation engine.

Napster Light – Once you register for Napster and download the software you can access the Napster Light store and chose from 1,500,000 songs for $0.99,. The service requires Windows IE and media player required.

Virgin Digital Music Store  The Virgin store is not ipod compatible. They offer songs from 15,000 record labels for $0.99 each.

WalMart – WalMart offers your choice of 1 million songs for 88 cents. The service requires installed software and Microsoft IE. All songs are Microsoft play for sure certified. WalMart offers exclusive live content.

Music.yahoo.com – This site requires special yahoo software and offers 1 million songs and internet radio. The songs sell for $0.99 each.

Sony Connect – The Sony Store only supports Sony devices. They lack the content of itunes but have a broad selection. The site does not mention quantity of songs but the do offer songs from non-Sony record labels. The price is $0.99 per song or you can buy a whole album. The music downloads are in a proprietary Sony music format. The site requires internet explorer and the use of a the connect player software. I found that Sony offers a 6% commission for affiliate referrals plus a $1.50 payment for a cash transaction (that seems to be too much for a $0.99 song).

Subscription

eMusic – This site offers 1,000,000 songs and says that they have 1,000,000 downloads per month. The offer music from Independent record labels. Their subscriptithreeme in threee levels that each offer a fixed number of song downloads.

MusicMatch On Demand – MusicMatch offers 900,000 songs for $4.99 perservice The serivce works on any pc and requires a broadband internet connection.

Napster – Offers 1,500,000 songs for 9.95 per month. It requires Windows IE and media player. The songs are Microsoft play 4 sure certifiedworks service wirks with any pc. They offer a personalized recommendation engine and a purchase option that allows you to keep songs permanently.

Napster to Go – This service is just like Napster except it allows you to load your songs to an mp3 player. The service is a little more expensive and costs $14.95 per month. The songs will expire once the subscription ends.


Rhapsody – Offers 1,500,000 songs for download. If you download the software you can listen to 25 free full songs per month. You can also use the software to listen to radio stations. The service is very similar to same as napster but it uses real audio. They say that they work with ipods.

Rhapsody Unlimited – Rhapsody Unlimited is an upgrade from Rhapsody and allows unlimited downloads from 1,500,000 songs for $9.99.

Rhapsody to Go – Just like Napster to Go, this service allows you to download songs to your mp3 player. They will expire in a month and must be “renewed”.

Virgin Digital Red Pass – This is an extension to the Virgin download store . They do not support Ipods and they allow unlimited downloads from 15,000 record labels for $7.99 per month.

Yahoo Music Unlimited - The Yahoo subscription service is $6.99 per month for unlimited listening to over 1 million songs (if pre paid for the year it is only $4.99 per month).

Yahoo Music Unlimited to Go – For $9.99 per month you get the same songs as yahoo but are able to load them to an mp3 player.

Other

Billboard – Billboard has a website which lists the current Billboard rankings. If you cliconn the purchase cd icone you are linked to mysimon. This seems like a potential opportunity for any number of download sites.

2010 Online Music Services

My 2010 stack doesn't change much. I have no way of knowing what will emerge in the device space. As I mentioned earlier, I suspect that we will see a device convergence and pds'a, mp3 players and cell phone will continue to merge. Given the shift towards "online all the time", one would expect that if mp3 players and cellphones do not merge, mp3 players will have embedded networking technology of some type (possibly a rimstyle connection or maybe a true ip connected wireless card).

I do believe that the download websites will incorporate so much content that it would be wise for any/all of the music information providers to merge or align witBecausenload provider. Becasue of this I have removed the information layer. I also expect that each of the download sites will track and store information about their udeveloplowing thepreferencepe stronger preferrence indicators over time.

Finally, I think that the download purchase option will disappear. From a download provider and subscriptionrspective a subcription service makes more sdramatic would have a dramatice effect on the record becauseand the artists becasue the entire revenue sharing model will collapse. Currently, artists are paid for a song or album purchase. If the model shift they will have to set some type of relative value. It couldn't becausey per use basis becasue the consumer wouldn't be interested in paying multiple times. That might be a more equitable system though.

Layer

Sub Layer

Companies

Devices


Apple Ipod, IRiver, Creative, Archos, SanDisk, Sony, Philips, Motorola, Sony Ericsson, Nokia, Motorola,

Online Music Services

Free

Live Music Archives, Cnet

Subscription

Itunes, Amazon, Audible, BuyMusic, eMusic, MusicMatch on Demand, Napster to Go, Napster + XM, MSN, Rhapsody to Go, Virgin Digital Red Pass, Yahoo Music Unlimited to Go, Sony Connect

Record Labels


EMI, Sony/BMG, Universal, Warner Bros., Thousands of Independents

Apple recommendations:

As I consider the next four years, I come to a few conclusions (one makes me happy, one doesn't, the last I don't care so much about). First, as much as I dread the fact that we are shifting away from music ownership the signs indicate that in the near future music downloads will over take cds as a mechanism for music distribution. As this occurs it is likely that consumers will move towards subscriptions.

Second, as devices converge and become network connected new service will evolve. A good example of this is the soon to be r. The service is reported to offer 50 hours of "saved" content ansatellite access to the satelite radio channels.

Third, as services like Amazons S3 emerge and consumers are given the opportunity to store data online, media devices will be expected to connect to the content. Once again, seamless mobility and the wireless world will enable anytime anywhere content consumption. It shouldn't matter where the data is, the expansion of wireless connectivity should allow its access.

As Apple looks to the future it should prepare for these changes by:

PS. I forgot to mention that Apple has to keep their eye on their customers. That blog that I uncovered a few days ago points out a potential customer trust issue. As the competition struggles to catch up to Apple, they will put the hard seel on their porducts and consumers may be looking for a reason to migrate. In an attempt to retain their customers, Apple needs to make their data privacy clear and do everything they can to make sure they don't run into the same "tracking" issues that trapped Sony late last year.


 

HealthCare Industry: Aetna's Strategy for EMRs

Executive Summary

Electronic Medical Records (EMRs) is the electronic version of Patient’s medical history which includes patient’s full clinical experience, including appointment scheduling, office visits, labs, health maintenance, referrals, authorizations and medications. Providing a reliable and instantaneous source of health information, EMRs enhance patient care, improves efficiency, increases profitability and help health care providers stay current and compliant with industry standards and regulations including CMS and HIPAA.

Aetna Inc., a Health Insurance major of US can leverage the benefits of EMRs to improve operational efficiency and in turn enhance its service capabilities. At present Aetna maintains medical information of individual members in a variety of formats and at several locations. EMRs would enable Aetna to decouple the medical information from various areas and deploy it in one location. Such a restructuring will further streamline Aetna’s internal processes and ensure consistency and coherence of information flow. On the other hand, Aetna can now cash in on the EMRs to plan its future products and services by having a closer insight into its customer segments and their respective requirements. On the same lines, we evaluate future scenarios for Aetna and observe that investing into EMRs is a strategic move for Aetna, which has a series of short term and long term benefits. Aetna can not only drive its operational costs down, but also can leverage the EMRS to make more accurate and swift decision in terms of launching new products and service in the future.

Aetna Inc. Company Profile:
(www.aetna.com)

Aetna (NYSE: ΑET) is one of the nation's leaders in health care, dental, pharmacy, group life, disability, and long-term care insurance and employee benefits. Dedicated to helping people achieve health and financial security, Aetna puts information and helpful resources to work for its members to help them make better-informed decisions about their health care. With over 40 million members, Aetna partners with more than 735,000 health care professionals, 437,000 primary care doctors and specialists and 4,373 hospitals to provide its members broad range of insurance and employee benefits

Being the nation’s first full-service health insurer to offer a consumer-directed health plans, Aetna continues to lead the way with in the Health Insurance Industry. Aetna offers a wide array of programs and services that help control rising employee benefits costs while striving to improve the quality of health care, such as case management; disease management and patient safety programs; integrated medical, dental, pharmaceutical, behavioral health and disability information.

Aetna’s customers are employers and not the individuals. The employers are classifies as Small, Medium or Large/National depending on the number of employees in the payroll. Operational in 50 states of US and around 26 countries, Aetna services a broad range of customers from small, mid-sized and large multi-site national employers. Aetna serves its international customers through its “Global benefits program” which can be availed in selected countries across the globe.

Aetna’s EMR Touch Points:



The figure above highlights the operational areas of Aetna which are directly impacted by the medical records of Patients. There may be several other business processes which are indirectly impacted by the medical records of patients. Of the fours key business segments with in the company viz. Product, Plan, Members and Claims, the business units dealing with Members enrollment and Claim Processing are directly impacted by the EMR technology. The medical information in these domains serves as the basis of several key business decisions in these domains with in the company. These business domains rely on the medical information of the individuals to accomplish a variety of objectives as follows:

Assessment of policy premiums

The medical information of individuals is used to determine the risk associated with individuals as well as the employer as a whole. For instance, a Metal Foundry has higher average risk of injury than a Software Company. Hence a Software company employee will have a lower premium as compared to Foundry employee for same health coverage.

Selection of Healthcare products

Depending on the medical records of individuals, Aetna offers different combination of products and services to its customers. For instance, 40+ yrs old working near a furnace will require coverage against skin and eye damage more than 40+ yrs old working in an academic institute.

Settlement of Claims

Finally, while honoring a claim Aetna needs to validate whether a particular member actually got served by a health care provider for a valid reason as per the negotiated contract. In this process EMRs can significantly reduce the operational cost by providing single point access to this information.


Future Scenarios:




The present state of Healthcare industry entails low popularity of EMRs and high overall HealthCare costs. The past trends of HealthCare industry focus heavily on reducing the Healthcare costs and increasing the total number of individual and business customers. While on the one hand EMRs empower healthcare providers to achieve lower operational costs, on the other hand EMRs also shift the power to consumers in terms of choosing the best and most reasonable healthcare provider. Based on the two key drivers of the industry viz. “Healthcare cost” and “Popularity of EMRs” we can generate two possible futuristic scenarios for a Health insurance company. The first scenario entails high health cost along with increased popularity of EMRs. This scenario has a short term implication and is most likely to happen in the industry. Once EMRs gain popularity the industry is likely to witness lower healthcare cost in the long run, which leads to the second scenario which has Low healthcare cost as well as high EMR popularity and usage. Immaterial of which path the industry matures in the future i.e. among Path 1, 2 or Path 3, its in the best interest for a Healthcare insurance provider to plan ahead for EMRs and making strategic moves to unleash the potential of EMRs.

Low Hanging Fruit for Aetna:




As highlighted above, Aetna has the medical information segregated across Member and Claims business units. This information needs constant and ongoing maintenance in terms retaining the most recent view of the individual medical information. The primary source of this information is Employers or the Healthcare providers. The information has to be synced up at a particular frequency in order to effective and useful.

At the present state of operations, Aetna employees a group of professionals around all the touch points where medical information is maintained. Such an operation is not only cost intensive to Aetna but also slow and prone to errors. Switching to EMRs as the primary source of medical information will enable Aetna to take advantage of the technology in order to reduce costs and increase the efficiency of operations. At current state of systems, there are several loose strings not only in terms of misinterpreted medical information but also in terms of obsolete medical information. Overall, EMRs value proposition overshadows the initial costs and a worthy long term investment.

Recommendations and Next Steps:

Business Process Reengineering

The EMRs have a long term benefit and the best way to capitalize on the EMRs technology is to re-engineer the various business processes and IT support systems to integrate the EMRs in to Aetna’s operations. The present state of Aetna’s operations entails scattered patient’s medical information across business units. The first step is to assess the current state and identify the areas where medical information is used/processed/stored. Once we have a handle on the as-is state, the next step is to identify the alternate ways of feeding the medical information across the impacted areas. This could be done either through services or through restricted access to EMR information.

Strategy Consultation

The present of Aetna reveals that the business and IT systems are complicated and convoluted. In such a situation seeking consultation from well-known strategy consulting firms is a viable starting point. Once we are clear on the strategic road map for both short term and long term, we can then plan the allocation of resources and time in the direction of achieving the strategic goals.

 

IBM in Healthcare

IBM Overview

IBM is the largest information technology company in the world, housing the most number of patents compared to any other tech company. Computer hardware has always been synonymous with the IBM brand. Traditionally, servers and mainframes have made up the bulk of IBM’s revenues. As competition grew, the hardware business became a commodity market which IBM was fighting a losing battle. This culminated in a $4.7B loss in 1992 - the largest single loss of a corporation at the time, which resulted in the dismissal of the CEO. As Lou Gerstner took over the helm in 1993, he shifted the focus of IBM from hardware and technology to software and services, resulting in one of the greatest turnaround story during the 90s. When Sam Palmisamo took over as CEO in 2002, revenues from services were starting to exceed those of traditional hardware. Services was seen as the way of the future as IBM purchased Pricewaterhouse Consulting to form the new IBM Global Services. After the spin off of its increasingly commoditized PC division, IBM has truly transformed itself from merely a hardware company to service provider. No longer confined to just the technology sector, IBM leverages their expertise in technology to transcend markets and at all industries to improve their business processes.

Electronic Medical Records (EMRs)

The latest trend in healthcare is the push towards the digitization of Medical Records, also known as EMRs. Experts on medical-care costs estimate that 10% or more of the $1.7 trillion spent on health care annually could be saved through the use of transferable, electronic records. The idea behind an EMR is much deeper than simply records in an electronic format. That is just the tip of the iceberg. Currently, medical records are stored and owned by hospitals and insurance providers who control a large portion of the power within the healthcare industry as shown in our healthcare stack. With EMRs, records will no longer be owned by a single hospital or insurer. The customer themselves will own the information and thus shifting the power from the healthcare providers to the consumers themselves. With the world being networked, records such as x-rays and up to date medical information can be instantly transported with EMRs. The same information can be pulled up on a patient regardless of location. Drug allergies, medical x-rays and previous treatments can be viewed instantaneously at any hospital. The revenue and power in the future will be dictated by those who own the information. The only question is who will lead in this transformation. Doctors are adverse to change, and hospitals already have a proprietary system in place. A push is needed to facilitate change in this industry.

IBM's Role in Healthcare

IBM entered the healthcare industry in 1999 when they started the life sciences group. As discussed in class, network effects and the information age makes it very obvious for the need for massive computing power. Huge amounts of data needs to be collected, sorted and stored for EMRs. Today, IBM is in a perfect position to facilitate the push into EMR. With its army of researchers and expertise in technology, their business consulting arm can analyze processes and provide the healthcare industry with the tools they need to move into the future of EMRs. IBM also recently purchased Healthlink, one of the largest IT consultant companies specifically for the healthcare industry. This gives IBM the ability to select, strategize, implement and optimize processes within the healthcare industry. IBM currently is working with hospitals across the country on pilot projects to demonstrate how records can be transferred between locations based on open standards.

IBM's future - Taking advantage of the Network Era

As the need for computing power increases, IBM is in a unique position to provide the tools needed to move into the future. With an extensive background in technology and research, no other company is better positioned to ride this wave. Accenture is the closest competitor, but they lack the technological expertise that IBM has to offer. Laying the infrastructure has always been IBM’s forte and the healthcare industry is no different. As network externalities take place for the increasing use of EMR, the next wave will be the ability to data mine the mountains of information to analyze trends and patterns in genomics as well as diseases. This will lead to preventive medical care and personalized medicine in the future. IBM has the ability to provide the algorithms for data mining and solutions for more computing power if needed. Of course the road is never easy with competition and changing technology. IBM has to watch the landscape for smaller more nimble companies that might encroach its space in the services sector.

IBM website states that “IBM is helping clients manage an explosion of data. Accelerate discovery and development. Reduce costs. Respond to compliance and security mandates. Improve diagnoses and patient care.”

With this in mind, IBM must continue to leverage their technological expertise to push EMRs. There are no standards in place for the use of EMRs. IBM should set open standards which will allow information to flow freely. The future of IBM is services, and therefore they should take advantage of the large healthcare industry by packaging specific healthcare solutions optimized for EMRs. Privacy issues will arise as a result of EMRs and IBM should fully take advantage by offering privacy consultancy and solutions. IBM must also broaden its offerings to not only the hospitals and insurers but every player in the healthcare stack. Creating a single open platform across the stack will allow for efficient transfer of data between each company and will allow for the seamless integration of data for the healthcare industry.


 

Hottest Spot in the TV Industry: YouTube- the Video Social Network

The Popularity of YouTube

YouTube, founded in January 2005 by Chad Hurley and Steve Chen, both former employees of PayPal (among the first 20), has attracted 9.1 million users, generating 30 million video views and receiving 35,000 video uploads per day as of February of 2006 according to an article in the April 10 issue of Business Week. This site allows people to upload videos and to share and search contents with ease. This is due to growing broadband penetration and technological advancements, giving amateur video makers an opportunity to show their work. YouTube is designed to let anyone participate in the contribution of content, so in addition to the amateur home videos from around the world, people can also find clips from old and current TV shows and movies, essentially anything, on the YouTube site. This is why YouTube has become so successful within a very short time. (It allows customers to find the videos that can’t be found in stores or seen on traditional TV networks or cable channels). The most important element of YouTube is that this start-up knows what its customers want and it tries to avoid pounding its customers advertising.


Current Challenges and Competitors

Because anyone can freely upload videos onto its website, YouTube’s users can upload clips that are still under copyright, such as music and sport videos, current news, movies and TV shows, though this might put YouTube at risk of copyright infringement. In addition to this challenge, YouTube is also facing direct competition from other video-sharing social websites, especially Google Video and MySpace.com.

Google Video:
So far, YouTube has far better options for people to share videos than any other Web 2.0 video sites, including Google Video. However, taking advantage of its user-base of 80 million, Google Video can easily obtain partnerships with top-tier content providers, such as Sony, NBC, and CBS, and then provide more old/new and high quality TV shows to meet the long tail demands. In addition, Google always manages to improve its products to become slicker and more powerful. The company has recently posted a position hiring for "an Interactive TV Product Manager and Sofware Engineers with experience in 'emerging TV standards' and 'deploying robust, high-volume applications for consumer devices'", and revealed its vision: TV commercials contextually targeted to a program's content, and Interactive TV social network.

My Space:
MySpace Video is not nearly as robust in terms of content and functionality as YouTube - it appears to be mostly homemade videos, and searching for video content is not as easy. However, MySpace is aggressively promoting their video capabilities within the site. It has more than 73 million registered users, and this allows easy access to videos, and attracts independent video makers and advertisers. MySpace is the leading source of traffic for YouTube, accounting for 23% of its upstream visits for the week ending April 1, 2006 according to Hitwise data. It makes sense that MySpace would launch its own video service. Now that MySpace is owned by News Corp, it has the perfect distribution mechanism for Fox content, and could be testing out its video capability with viral videos, which have been so successful for YouTube.

Another challenge, and I think it’s the most significant challenge, is that YouTube, so far, doesn’t have a clear business model yet. They believe people don’t like advertisements while watching videos, so they are moving cautiously toward the ad-based business model. Only until recently did it rely exclusively on a few context-sensitive text ads powered by Google AdSense, and they are planning to bring in more relevant ads to the site.

Moving forward to 2010

Recently, YouTube scored an additional $8million from its backer VC, Sequoia Capital, after an initial $3.5 million last November. Sequoia Capital partner and YouTube board member Roelof Botha said:

“YouTube is at the forefront of a cultural shift in digital media entertainment and media distribution and we are delighted to continue our support. “

Based on our team’s analysis of the entire TV industry, the indexing (information aggregator) layer would catch the most revenue value. So, being such a successful video aggregator with a high expectation from its investor, how should YouTube move forward to 2010 and beyond to maintain its popularity and reach, as well as make money at the same time? Here are some potential scenarios of how the future will play out for YouTube:

1. Best Scenario:
Introduce a brand new business model, such as an innovative ads-supported revenue model and YouTube could get to stay as an individual company and keep its broad base of supporters, and strongly differentiate itself from other video-sharing sites, and lead the culture.

2. Worse Scenario:
Unable to leap the chasm and fail to generate sufficient revenue to keep the company going.

3.Likely Scenario:
It is very likely that YouTube gets bought by other company. In my opinion, companies that would buy YouTube are Yahoo! and MySpace. YouTube’s site capabilities and features are pretty much like flickr, the largest photo-share social network site. So, it is very likely that Yahoo! can integrate YouTube into its product lines. As far as MySpace is concerned, I think both YouTube and MySpace appeal to people from the same segment, that is, people who are more into independent brands, and the non-mainstream subculture. Again, MySpace is the leading source of traffic for YouTube, it is very possible for MySpace to buy YouTube to enhance its video-sharing capabilities.

Therefore, YouTube needs to do the following in order to turn popularity into profit:

1. Create an innovative and suitable business model:

According to Hitwise, the average session time for a visit to YouTube is 14 minutes. So, this site should be an ideal channel for businesses and agents to display their ads. However, one of the main reasons that YouTube is able to generate so much traffic is because there are limited ads bombarding the audiences. People don’t like to see ads when they are watching videos, because it is too distracting. Too many traditional banner ads would probably turn people away. Therefore, ad-placement and timing are important. It looks like video-based advertising is a potential approach, especially the ones done in a consumer-friendly way. Seeing YouTube’s customers are more into independent brands, the ads should be relevant, and tailored toward the preference in this targeted market.

2. Partnerships:

YouTube should build partnerships with TV and movie content providers in order to legally post their clips and trailers before or after they have been broadcasted. Again, YouTube needs to carefully choose the companies/brands they will partner with, and avoid content that is too main-stream in order to meet its customers’ taste and differentiate itself from competitors, particularly Google Video.

3. Merge with MySpace:

I think many companies are probably waiting to acquire YouTube, since it possesses huge money-making potential. If MySpace is on the list, it would be a great candidate. MySpace has a very similar target segment as YouTube, which is into independent brands and non-mainstream content. By integrating two companies on one platform . a strong business model may be created Furthermore, since News Corporate owns MySpace, it will be convenient and cost-saving for YouTune to obtain TV content.

 

corporate networking

Here is an article about Visible Path from CIO magazine. It takes social networking to a big brother level. Instead of linking to your friend it build links based on network traffic. The links get stronger as the communication increases. When you need to find someone you can see who can get you there. It isn't just email that drives the site, publicly avaiable information (such as Hoovers) is also pulled. It sounds interesting but it radically changes the privacy dynamic.

The article

 

mp3 links

Here are some mp3 articles that i want to keep track of.

http://www.internetnews.com/ec-news/article.php/3498001

http://www.mp3newswire.net/stories/5002/sandisk.html

http://www.mp3newswire.net/stories/2004/mp3boom.html

http://www.macobserver.com/article/2003/12/30.1.shtml

http://www.digitalmusicnews.com/
samsung and apple partnership
nokia digital music phone
xm portable
legal issues with artist royalties

http://www.engadget.com/2004/10/13/92-of-new-hard-drive-based-mp3-players-sold-are-ipods/

http://arstechnica.com/news.ars/post/20060109-5936.html
explosive growth of downloads in music sales, 2004 - 2.3%, 2005 - 7.3% market share

http://digital-lifestyles.info/display_page.asp?section=business&id=2881
"MP3 technology helped boost the audio and accessories markets in 2005. With the introduction of video playback capability, MP3 player sales surged 200 percent in 2005 to $3 billion. Trends in 2006 should be no different," he added.

http://www.atpm.com/11.08/bloggable.shtml
Let’s spend more time looking at economic theory’s non-comprehension of the iPod and user experience. The latest instant-classic example? Free Napster. A student survey at the University of Rochester found that even when students have Napster service for free apparently they still choose the iTunes Music Store—at 99 cents a track. How many, do you ask? Yes, that’s right. 70 percent. The survey also found no students in the sample who had purchased songs from Napster to put in their permanent collection; for that, they turned to Apple. So much for brand loyalty. And, yes, it defies Economics 101. Why would you use Napster’s service but then buy the tracks outright from Apple? Oh, that’s right, the part of Econ they always forget, that people won’t pay for substandard products.

http://www.cio-today.com/crm/story.xhtml?story_title=MP--Sales-Heading-for-Stratosphere&story_id=31326&category=crm

http://www.cio-today.com/story.xhtml?story_id=13000003AMXW
complexity <> trust

http://www.cio-today.com/story.xhtml?story_id=130000037JEC
apple dominates but could lose, to who?

http://www.cio-today.com/story.xhtml?story_id=13000003A0VG
ipod restrictions, ties between layers.

In a free market, that wouldn't be so bad. Manufacturers of competing MP3 players, such as Sony, Creative and Samsung, could provide software to automatically convert the music to a compatible format. But that would be illegal, thanks to a little-known law called the Digital Millennium Copyright Act, which Congress passed in 1998.

The DMCA was billed as an antipiracy measure. It prohibits anyone from "circumventing" a copy protection scheme such as that used to scramble songs from the iTunes store, or from creating software to do so. It was hoped that those restrictions would prevent hackers from unscrambling music or movies and uploading them to the Internet.


Thursday, April 27, 2006

 

Turbine Entertainment goes to the Next Level

Turbine Entertainment is one of the few independent studios in the business of Massively Multiplayer Games (MMOGs), and bills itself as "the largest privately-held online game studio in North America." Even with substantial licenses such as Dungeons & Dragons and Lord of the Rings, Turbine faces deep-pocketed competition from companies such as Sony Online Entertainment, Korean juggernaut NCSoft, and 800-lb gorilla Blizzard Entertainment (a subsidiary of Vivendi Universal).

Turbine is part of an emerging industry that lives and breathes the network economy; how else do you value virtual goods? In order to succeed, however, this company will need not only profitable products and business fundamentals, but also a deep understanding of the industry structure and emerging trends that will shape their business.

Video gaming is a "blockbuster" industry, driven by the remarkable sales of a few hits and the break-even sales (or losses) of the vast majority. With this in mind, it is no wonder that a basic network stack shows deep vertical structures in the industry. Much like the movie industry, publishers assemble portfolios of products to reduce risk while hoping for a hit. (Note that Atari is Turbine's publisher for Dungeons & Dragons Online.) Blizzard is the notable exception to this rule, as World of Warcraft has climbed to over 5 Million subscribers this year.

In order to compete against the heavy hitters, there are three trends that Turbine should invest in:

1. Be a publisher; build a portfolio. One-hit wonders are the lifeblood of studio, but they often mean that a company survives project to project. A portfolio of products distributes that risk, and the publishers role adds another few percentage points of revenue in the deal. In the last few years NCSoft has invested heavily heavily in acquisitions, resulting in City of Heroes, Guild Wars and Auto Assault. SOE has launched a bundled package of MMOGs. The right range of products will provide the flexibility to deliver a new generation; the right platform will keep players with one network.

2. Start porting; be device-friendly. Trends in music and video consumption clearly show that consumers are doing more to shift where and when they are entertained. While MMOGs often require heavy computing power, high resolution and streamlined UI for player communication, the latest generation of consoles is signaling that viable multiplayer environments are here -- complete with voice chat. NCSoft has shown the way with Final Fantasy XI, a game which has been compatible with the PC, PS2, and now XBox360. Flexibility in devices and interfaces will prepare Turbine for the next level of consumer demand.

3. Leverage external resources; use APIs and Open Source. Fans of gaming have consistently shown a deep technical grasp and passion for the industry. The results of this have ranged from independent first-person shooter modding projects to content development for games like Neverwinter Nights or Morrowind. Blizzard took this one step further when they established APIs so that fans could deeply modify their user interface, in effect building new client programs to interact with World of Warcraft; hundreds of these clients are now available. Mod development is only the beginning of a larger trend in user-created code and content.

The opportunity for a company like Turbine is to find products (especially infrastructure) that need to scale, and open those to a community of developers. Community members get to contribute to their favorite game platforms and showcase their skills; the company gets to leverage rapid (and inexpensive) development while focusing on core products. APIs and open source provide a doorway to resources that are not described in the industry stack today.

 

Future of WebMD

Emdeon (Formerly WebMD)

April 17, 2006

Quan M. Nguyen




Current Landscape


Currently within the healthcare sector, much of power resides within the service and healthcare providers. These two providers dictate to employers the service

s offered as well as work with healthcare solutions to provide added value to the back to the payers and hence the patients. The new player within this industry is the web portal, with WebMD being the primary player. WebMD initial goals are to provide information for patients, making it easier for them to make various health decisions.

Changes to the Sector

The Electronic Medical Record has become the new disrupting technology within the healthcare sector. The EMR provides the healthcare industry the ability to have a consolidated data record for each patient. This record would include all health care records from physicians, hospitals, and health insurance providers. This record would change how patients decide on doctors as well as allow providers the ability to analyze data to help reduce health costs. Payers would then be able to change their selection process of health insurance providers.

Future Landcape


The future landscape of the healthcare is dictated by the addition of EMR’s. Currently the providers had much of the power and revenue stream. In the future, the power is shifted towards the payers and patients. This is due to the empowerment of the patient having the EMR as reference to any medical issue that may arise. The patient can now analyze their health care to others as well as examine common health care practices. Payers will now be able to dictate to providers specific performance metrics to providers to ensure that their employees are taken care of health wise. Within the sector, privacy issues arise as well as a need to central data repository to handle this data. Many discussions will take place in who will maintain and secure the EMR. Players such as WebMD have the opportunity to increase their power and revenue share in this future landscape.

WebMD Overview

"WebMD is the leading provider of health information and services to consumers and healthcare professionals. The online healthcare information, decision-support applications and communications services that we provide: -help consumers take an active role in managing their health by providing objective healthcare information and lifestyle information. -make it easier for physicians and healthcare professionals to access clinical reference sources, stay abreast of the latest clinical information, learn about new treatment options, earn continuing medical education credits and communicate with peers. -enable employers and health plans to provide their employees and plan members with access to personalized heath and benefit information and decision support technology that helps them make informed benefit, provider and treatment choices."

WebMD is currently one segment out of the 4 segments integrated into Emdeon. 4 Segments of Emdeon are Emdeon Business Services, Emdeon Practice Services, WebMD Health, and Porex.

Description of Emdeon 4 Segments (From www.emdeon.com)

Emdeon Business Services provides revenue cycle management and clinical communication solutions that enable payers, providers and patients to improve healthcare business processes. Emdeon Practice Services provides physician practice management and electronic health record software and services that increase practice efficiency and enhance patient care.

WebMD Health provides health information services for consumers and physicians through our public online portals, and for employees and health plan members through our private online portals.

Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications.

Moving away from just being a web company, WebMD changed their name to Emdeon Corporation. This move can be attributed to the move into business and practice services. WebMD is most likely the face of Emdeon to the typical patient in providing health information services. The 2 segments, Business and Practice Services show their willingness to move into additional avenues of revenue. With the increase interest in Electronic Medical Records, Emdeon is attempting to position themselves as one of the major players within the healthcare sector. Recently, WebMD/Emdion created a partnership with Dell in providing Dell employees with Electronic Health Records. This along with their continued exposure with WebMD, Emdeon can become a possible warehouse for all patients, physicians, payers, and providers in terms of the medical record. Although privacy is a major concern, this risk offers a greater reward in terms of Emdeon’s profitability. Emdeon could then compete with consultant companies such as Accenture and IBM Services in terms of supporting the payers and providers in terms of support as well as providing an outlet for the physicians and patients in viewing new medical information and history of care.

Suggestions Moving Forward

I believe that Emdeon must position their WebMD segment to patients and physicians in the fore front. WebMD can be the Google of the healthcare sector. They can then position themselves with providers and payers, pushing the brand awareness of WebMD. By bundling this service with their other core segments, Practice and Business Services, they can combine information between the segments to provide the ultimate warehouse for anyone in the healthcare sector. I believe that the WebMD segment is the key to their success. If patients understand that WebMD is the place to go to find any information about medicine, physicians, and other provider information, I believe that the hospital health systems and other health care players will be more willing to work with WebMD and other Emdeon business segments.

With the push of the electronic medical record in the healthcare sector, Emdeon’s data competency makes them a perfect fit in getting themselves firmly entrenched in the electronic medical record race. Their Business Segments are setup to handle all aspects of the electronic medical record. Initially, Emdeon should work on getting the initial electronic medical record started. They can work with getting patients and providers connected and initial medical information together. This can then allow them to add in the physicians and then the actual medical history from hospital systems and other medical care facilities.

Consequences

The consequences of Emdeon/WebMD failing to taking advantage of the EMR transition in the healthcare sector can be extremely great. Without a added information from their core business, you will see other layers take advantage and strengthen their hold within the healthcare solutions as well as add web solutions to compete with WebMD. The winner in the privacy services layer could also easily take over WebMD’s strength on the web. The web portal layer is already very week in revenue and power compared to the other layers in the health care sector. WebMD can ill advise not working themselves into the EMR competition to grow the Emdeon and WebMD name.


 

Amazon's Future (Expanded)


When Jeff Bezos originally envisioned Amazon he thought that the Internet would enable a new business model. He knew that no physical store could contain every book catalogued but you could build a virtual store that could list all of these books. His original plan was to leverage the Internet to avoid the expense and hassle of dealing with inventory by linking directly with distributors to fulfill orders. In essence Amazon would simply control the “Information provider” layer by listing books for sale and would link with other companies to handle the rest of the functions. Unfortunately, one of his first discoveries was that if he wanted to provide a good customer experience and to get a good price on product he would have to build and operate warehouses. This lesson was repeated at almost every level in the stack to the point where Amazon has brought almost every competency in the stack in house.

Warehousing: They have built one of the most efficient and advanced warehouses of any retail operation. They turn their inventory 20 times a year whereas the typical turn in retail is about 15 times a year. In the past three years they have lowered the cost of operating their warehouses from 20% of revenues to less than 10%. They are leveraging their warehousing and fulfillment competencies to provide these services to other sellers as evidenced by the Amazon Advantage program in which sellers can ship units to the Amazon warehouse and Amazon takes care of the sale. For this service Amazon takes 55% of the sale price.

Customer Service: Amazon has a customer service center that is the envy of the industry, in fact they provide customer service to most of their partners such as Target and Office Depot. Like warehousing, this was a competency that Bezos never intended to develop but found it necessary to provide the positive customer experience he envisioned.

Payment: Amazon’s 1 click payment system, while subject to some controversy, has been patented, and provides some stickiness for their site. I was not able to find information as to which company they were using to process credit cards but I’m assuming this is not one of the things they do in-house.

eCommerce Platform: Amazon offers its e-commerce platform to large resellers such as Target, Office Depot, Virgin Entertainment Group, and Borders.com. For smaller sellers they offer zShops and an auction site. In this area they have strong competition such as Microsoft, IBM, and Oracle, but what separates Amazon is that they are able to offer their customers cross promotional opportunities with other sellers using the Amazon platform. This is something that none of the other platforms offer.

Delivery: Amazon has very strong relationships with FedEx, UPS, and USPS to deliver product by traditional means. To lock in customers they offer Amazon Prime where you pay $79 to get free two day shipping on select products, discounted upgrade to 1 day shipping, and free standard shipping. Amazon is also entering into the digital content delivery arena with a subsidiary called CustomFlix. CustomFlix allows customers to send or upload digital content and then CustomFlix digitizes the content and either burns it onto CD or puts it in a streaming format to be sold on Amazon. This should scare companies like Netflix or Napster since this is most likely the first small glimpse of Amazon’s strategy for selling digital media content.

If you can’t wait for shipping Amazon has teamed up with Borders to offer same day in-store pickup. Right now they only offer this service through Borders for books, videos or CDs but what if they were to offer this service for other items such as big screen TV’s or other things that are difficult or expensive to warehouse and ship. A retailer like Best Buy might be incentivized to use this to gain an advantage over a competitor like Circuit City. Amazon might even strike a deal whereby the store will deliver to the customers house. Extrapolating this out, could Amazon strike deals with enough partners whereby these partners essentially become the fulfillment arm of Amazon and Amazon no longer has to worry about warehousing, fulfillment or delivery?

Information Provider: Amazon’s ability to use and provide information in the form of their recommendation engine is without peer. Any robust commercial e-commerce site records the users click stream, pages visited, items purchased, etc., and most will do some limited analysis. Amazon goes deeper and wider in this analysis to not only look at what you’ve purchased and where you’ve been but culls information from all of its users to develop a profile of your shopping habits, and then recommends items you might be interested in. We see the network effect in action indirectly here, the more people that use the site and the more information they collect, the better the recommendation they can make. A more direct manifestation of network effects is seen in the user’s recommendations and ratings of product, the wish list, wedding registry, and baby registry features. The one thing that Amazon does not provide, in terms of information, is independent product reviews. This is left to sites like CNet, ZDnet, and PCMag.com.

Amazon is clearly capturing value by specializing, and building industry leading competencies, in many of the layers in the stack, but they are also building value by integrating across the layers. Unlike Microsoft, Amazon is not developing a closed system, in fact they are opening up all of the “guts” of Amazon to web developers to see what interesting new applications might come from this. This makes sense since innovation will likely come from startups and small companies. The most common use of the Amazon web services is grabbing the product image and details from the Amazon site and placing it on your site. But their web services go far beyond just providing product information. One of the newest services is their S3, or Simple Storage Service, which provides hosted storage services that they say can be used to store and retrieve any amount of data, at any time, from anywhere on the web. They also offer their e-commerce services which allows developers to essentially built a slightly scaled down version of the Amazon site including customer reviews and detailed product information.

By providing these services they are allowing new entrants the ability to store, sell, and deliver content to end users. This means that content producers won’t have to worry about paying to build those competencies they can concentrate on producing content and Amazon takes care of the rest. So Amazon is lowering the cost of market entry for content providers and at the same time raising the switching costs. Not only will content producers have access to best in class eCommerce platform, warehousing, shipping, and customer service but they can harness the power of the network with the recommendation engine and the user rating system.

Does opening up Amazon’s functionality to web developers ensure that they will be the platform of choice on which new sites are built? Amazon has three critical components already in place in order to make that happen; 1) They are allowing nearly free access to their core asset, the e-commerce platform, 2) they have started to offer hosted storage services, which seems to be for developers but it’s not too far of a stretch to imagine that they will offer this service to individuals for all content. In fact they already have a service called “Digital Locker” that allows individuals to store their eBooks, eDocs, and music and video files. 3) Their CustomFlix service enables a publisher to simply give Amazon a copy of the media they want to sell and they take care of the rest. There is no need to worry about duplication, hosting, warehousing, or delivering product.

Future Strategies:

Amazon creates a storage space for users to store all of their content. They could set up a iTunes killer where users would buy music or video on the Amazon site, or on any other site, but instead of downloading it they would store the music at Amazon. Users would be able to access this content wherever, and on whatever, they wanted and would not be tied to a single device such as the iPod since in the near future wireless access should be ubiquitous enough and fast enough to allow this. Based on what you have stored at your site, Amazon could make recommendations as to what other products you might be interested in and send that directly to the device where you could automatically purchase it.

I could imagine one form of this service taking the form of a Myspace-like account. Users could create their profile, list their favorite movies, books, etc., and use the storage to host some of these files. I’m imagining this as an organic recommendation engine. Where the existing recommendation engine distills the actions of many people into a single recommendation this would essentially be giving recommendations from your friends. The danger of commercializing this site too much is that you lose the viral nature that makes Myspace so successful.

Amazon becomes the premier content aggregator. Amazon already has a huge video library of virtually every CD and video made. With the creation of CustomFlix it seems likely that in the future they won’t take physical product from the content producers but will only take a single digital master and replicate it as needed. This accomplishes a number of goals; first it means that Amazon can serve that content in any form that the users needs, either a mobile streaming, online, or physical format. Amazon would not need to acquire any content companies such as Netflix or Napster, they would already own this content. Next it would mean that they wouldn’t need to support and manage such an extensive system of warehouses. Of course physical products such as a CD player still need to be stored and shipped, but the solution to this is to build relationships with physical retailers, just as they have with Borders.com, to offer in store delivery.

Amazon separates its core competencies into separate subsidiaries. I think the interesting part of this strategy is that they would be going back to the model that Jeff Bezos originally had in mind. The reason Amazon built warehouses and customer service facilities in the first place was that they weren’t able to get the level of service they wanted with out making these investments. They are already providing many of these other competencies, such as warehousing, as a service and by breaking these out into separate subsidiaries they may be able to grow each company by extending their reach to new customers who would not have previously used Amazon for these functions. Specifically they could break out their customer service and warehousing functions. This would rid the company of a tremendous overhead costs of these service centers and it would allow these subsidiaries to service some of Amazon’s competitors.

Amazon extends its reach into physical retail. We’ve already seen this with Amazon’s in-store pickup partnership with Borders. I mentioned above that they might partner with other retailers to extend this pick up service, but they could take it one step further and provide their product information either in store or via wireless device. Imagine you’re shopping at Best Buy and you log into the Best Buy site, powered by Amazon, and you can find information about each product complete with user reviews and ratings. With the press of a button you make your purchase using Amazon’s 1-click purchase technology and you pick up the item in store, or arrange to have it shipped to you.

Besides enriching the shopping experience the real value of deploying this technology is that it gives you a way to track customer behavior. Other than being able to capture information about customer purchases, it has been impossible to track customers in a physical store in the same way you can follow their click path online. By integrating this online component with the physical store retailers could gain previously unknowable information and allow them to maximize revenues through better product placement or product pairing.

Best case scenario: Amazon is able to leverage its access to media content to build the most extensive library of downloadable or streamable content. Users purchase the content which is then stored remotely, to be accessed anywhere, anytime, and on any device the user chooses. Competitors like iTunes, Napster, and Netflix become irrelevant since they cannot provide the same breadth of content as Amazon. The ability to store your video, audio, eBooks, eDocs, and other digital products all in one place creates switching costs that lock customers in to Amazon.

By providing the hybrid retail/online platform described above to physical stores, Amazon becomes tightly integrated with leading retailers across all retail segments. This partnership enables Amazon to be able to offer in store pickup for almost all of the items they sell. Once they have established enough partnerships they are able to significantly reduce the amount of inventory they need to warehouse and items they need to ship, greatly reducing overhead.

Worst case scenario: The online retail market becomes even more fragmented than it is today with consumers looking more to opinion leaders and social networks for recommendations on what to purchase and where to purchase it. Customers still visit Amazon to check out the consumer reviews but then go elsewhere to purchase products. As fewer and fewer people purchase from Amazon their user recommendations become less relevant and their recommendation engine becomes less accurate. Amazon actually facilitates this increasing fragmentation by opening up it core assets through web services. More and more smaller retailers now have access to the same powerful platform as Amazon and use it to build their own custom branded stores. Every person with a blog or Myspace account becomes a merchant and people find others in their network from which to purchase items. Amazon becomes the fulfillment arm of retail and loses the value of the network.

Large retailers such as OfficeDepot, Target, and Borders follow Toys R Us’ lead and break their contracts with Amazon since they are unhappy with the amount of value that Amazon is extracting fro the relationship. These large retailers build their own sites on proprietary platforms and begin to compete directly with Amazon. Customers continue to go to Amazon to do research but then visit stores to make a purchase.

Most likely scenario: Amazon continues to be the dominant player in online retail, using its ever deepening knowledge of customers to provide ever more personalized product suggestions. Developers user their web services to pull product information to their own websites but instead of creating traditional ecommerce sites which drive sales to Amazon, developers are creating mashups between Amazon and search and mapping engines. These mashups allow users to get product information from Amazon and then find the lowest price through the search engines and find the closest store through the mapping engine. The increased revenues that Amazon had hoped for by opening up their API’s never develop. Amazon begins charging for their web services leading to a stall in developer adoption.

Amazon expands its online storage strategy to consumers and provides at least 1GB of storage. Users can purchase videos and music from Amazon and store it online or they can upload their own content. Due to contractual limitations with the content producers Amazon does not have the rights to distribute their entire catalog which allows competitors like iTunes and Napster to stay in business.


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