Phone Companies Selling Consumer Behavior And Location Data – Why Not?

The truism about free online services – Gmail, Facebook, et al (yes, Tumblr too) – is that you are the product, since it doesn’t cost you anything to use them. 

But what if you are paying for something? Do you own the data about your behavior, location, etc.? Or does the service provider have the right to create another revenue stream (beyond what you pay them) by selling that data?

Anton Troianovki’s article (paywall) in the WSJ today highlights this issue in the context of phone companies monetizing subscriber data. 

The idea, as he writes is this:

When a Verizon Wireless customer navigates to a website on her smartphone today, information about that website, her location and her demographic background may end up as a data point in a product called Precision Market Insights. The product, which Verizon launched in October 2012 after trial runs, offers businesses like malls, stadiums and billboard owners statistics about the activities and backgrounds of cellphone users in particular locations.

A potential use for this:

Clear Channel Holdings Inc., one of the world’s biggest billboard companies, has agreed to conduct a trial of the Precision service, according to Suzanne Grimes, Clear Channel’s North America president. She says the service could allow billboard owners to measure how likely someone driving by is to go to the store being advertised. “You’ve got an industry that was historically about eyeballs,” she says. “Now you know more about who those people are and what their behavior looks like.”

But, as the article goes on to say, there are privacy issues. Similar efforts in Europe have run into problems. And Verizon offers its customers a way to opt out on its website.

Two thoughts on this:

1. I think that Verizon could actually go a step further and offer customers say, a $5 rebate, if they opt into the program. In the age of Foursquare and geo-tagged Facebook posts and Tweets, I would imagine that younger demographics may find this to be very appealing.  

2. Yes, this is a new way to monetize subscriber behavior…but how is this different from a magazine’s subscriber list being sold to other publishers targeting the same industry? Since I am not being coerced into buying something, if my behavior and usage data is used to serve me more relevant ads and promotions, isn’t that a good thing? 

Warby Parker, Wharton, Pricing and Strategy

Warby Parker, as hipsters and others know, is disrupting the “luxury” eyewear market. While “disruption” is a buzzword indiscriminately applied to many things these days, that’s not the case here. 

Coming into an industry that enjoyed near-monopoly concentration of market power (translation: consumers were paying a lot!), Warby Parker is taking on Luxxotica (proprietary brands here + licensed brands here = pretty much a who’s who in this industry) successfully, but still in a small way. 

A very interesting article from Knowledge@Wharton describes various aspects of the Warby Parker story. Students of business will find it especially appealing, because it touches on various elements of marketing, pricing and strategy.

Two excerpts (if you are in a rush) that I really liked from the piece.

1. Before founding the company

Before co-founding Warby Parker, Blumenthal directed VisionSpring, a group that trains women in developing countries to sell affordable glasses in their communities. The job left an impression. “It helped me recognize the power of a pair of glasses to change someone’s life,” he notes. Research conducted by the University of Michigan demonstrated that users of VisionSpring eyeglasses experienced a 35% increase in productivity and a 20% increase in monthly income, Blumenthal points out. “In international development terms, that is a miracle.”

2. Why $95 and not $45

The decision to price glasses at $95 comes with a back story. Wharton marketing professor Jagmohan Raju recalls that when the founders broached their idea to him, they originally planned to sell their glasses at half that price. “I really liked the idea overall … but after examining their analysis, I told them it’s not going to fly. [At $45 a pair], there’s no money [left over] for brand building; there will be no money in it for you and no money for investors.”

In addition to squeezing the business, a price tag of $45 was “too low” to be seen as credible to customers, according to Raju. “It would have put [Warby Parker] in a category I believed they did not want to be in. There are many companies selling cheap eyeglasses. Anyone can go on the Internet and buy two pairs for $99. But there is a perception among customers that the quality is not as good.”

The goal was to create a new price point that was still reasonable, but not low-end.

David Bell, professor of marketing at Wharton, served as an advisor to the founders in an independent study about pricing models and demand analysis. He recalls conversations around the social-psychological reasons for staying under $100. “There was a bit of discussion about what happens [psychologically to the customer] when you get to three digits,” he says. “[At the same time], $99 gets you a little bit of extra margin — $4 — but it doesn’t feel quite as classy. A price tag of $93 sounds more like a Walmart price: There’s too much exactitude there.” 

The price had to be right for another important reason: For every pair of glasses Warby Parker sells, it gives a pair to someone in need. (According to the company, almost one billion people worldwide — 15% of the global population — lack access to glasses.) TOMS, the shoe manufacturer known for its simple cloth espadrilles made with recycled vegan materials, is perhaps the best known company that employs a buy one/give one business model.

Is Tiffany’s The Kleenex Of Diamonds?

Does “Tiffany’s” connote an exclusive, luxury product? Or does it refer to the company Tiffany & Co.?

That, is at the heart of a lawsuit, writes Claire Suddath, on Bloomberg Businessweek.

One of the interesting excerpts from the article is around the “true value” of the diamonds sold in both stores:

Meanwhile, that Costco diamond might actually be worth more than its price tag. In 2005, Good Morning America, appraised both a Tiffany diamond and a Coscto diamond. As it turned out, the $16,600 Tiffany cut was 58 percent more expensive than its $10,500 value, while the $6,600 Costco version was actually 17 percent under its appraised value of $8,000. On the WeddingBee.com blog, several women admitted to having Costco rings and said that when they had them appraised, every single ring was worth more than they paid, sometimes by thousands of dollars.

Of course, a diamond is just a piece of coal subject to super high pressure and temperature. But if you still attach intrinsic value to it, perhaps a diamond from Costco is not such a bad deal after all.  

Groupon and Dynamically Priced Restaurant Meals: DOA?

Adam Lashinsky, of Fortune magazine, has an interesting piece on Groupon that is wrapped around his interview with Eric Levkofsky, one of Groupon’s founders and one of its two co-CEOs today. 

It makes for an interesting read. But what jumped out of it for me was this: 

What’s more, Groupon thinks it has a whole new approach to retail pricing. Jeff Holden, an Amazon veteran who heads product development for Groupon, suggests that Groupon can use its giant merchant and customer rolls to introduce dynamic pricing that mimics the success of airlines. It’s “completely ridiculous,” says Holden, that a restaurant would charge the same for a meal on an evening when the joint is empty than when it is jammed. Airlines figured this out a long time ago, and restaurants, using Groupon’s ability to target local customers, adjust their pricing opportunistically. “There’ll be a street price and a Groupon price,” says Holden.

Now, dynamic or “demand-based” pricing is one of those things that makes great sense on paper and some sense in practice.

Airlines use this of course, as the excerpt says. And scalping, for movie tickets and sporting events, is the market’s response to the lack of dynamic price setting on the part of authorized ticket sellers. In fact, in markets where electricity is dynamically priced, there is even some evidence that consumers respond in intended ways. So far, so good. 

But restaurants selling a steak for $64 on a Friday evening but dropping it to $32 on Mondays and Tuesdays?

In theory, based on basic laws of supply and demand, such a scheme should smooth out demand over the week and everyone comes out ahead. But in practice, I highly doubt if that’ll work because it collides with consumer behavior. 

We go to restaurants not because of the “utility value” of ready-to-eat fresh food (alone). Instead we go because we value the whole restaurant “experience”. We go because a crowded, hard to get into place signals quality and scarcity in our primal brains. And so many of us go towards the end of the week and over the weekends because we have the luxury (or the illusion, depends on how you see it) of time. 

What this means is that while many of us are OK with flying (for leisure) on off-peak days between inconvenient airports to save money, not many of us (a few might) are going to visit restaurants on off-peak days, at inconvenient times, just because the food is marked down by 50%. And that is even if the restaurants were to rashly sign up to gain a predictable discounter’s reputation.  

So how exactly does Groupon plan to change consumer behavior on such a massive scale?

Want Quality Online Content? Pay Up.

The Financial Times reported earlier this week that some YouTube channels may be going the paid subscription route soon.

The obvious question though is, will YouTube viewers pony up? 

That’s important because, while the amounts in question – $1.99, OK, $2 a month, $3 or $4 – don’t represent a lot of money in absolute terms on a monthly basis, YouTube customers aren’t used to paying for content and any attempts at changing that behavior may only be marginally effective. A company called J. C. Penney recently and famously found out how set consumers are in their ways…

At the same time, companies like Google are not dilettantes. They have enormous amounts of historical and research data, and some pretty clever models that must be telling them what their chances of success are with this move. Otherwise why would they bother going to the trouble of launching these new channels in the first place? We’ll find out in a few months just how good those models and their underlying assumptions are. 

Anyway, let me get back to the immutable truth that made me write this post: Quality costs money. Repeat after me, if you’re not already convinced. Quality. Costs. Money. And nowhere is this truer, than online. 

Consider these companies or services (what’s the difference if you’re a consumer?): Facebook, Twitter, Google Search, Gmail and YouTube.

The business model for the first four is based on content created by users, growth via network effects and various creative (and mostly ad-driven) monetization techniques. And that was true of YouTube also, as long as its content consisted mostly of user-made videos of babies, cats and exploding cans of Mountain Dew that didn’t cost much more than a few minutes of someone’s time. 

However, content on YouTube has been evolving over the last couple of years. Tens of YouTube channels have been drawing millions, or even tens of millions of viewers on a daily basis. In fact, one of the many things that the 290m+ views for Gangnam Style on YouTube illustrate is that quality entertainment draws immense audience interest online (or offline, for that matter). 

But…what good are millions of viewers if you can’t capture some portion of the value you are creating for them – and using those proceeds to in turn pay your employees, pay your bills and make a respectable amount of profits?

The Internet does many things. It dramatically lowers your distribution costs. It also significantly weakens the distributors and allows content creators to more directly connect with their consumers. Further, it helps with the content discovery issue. And finally, it meets the needs of the long-tail. 

What it doesn’t do, and cannot do, is to reduce all the other costs associated with creating quality content (original series, anyone?) - actors, writers, editors, AV crews, etc. This is as true of video entertainment as it is of quality journalism and writing, as many magazines and newspapers have also been discovering over the last year or two. 

Unfortunately, ad revenue can only subsidize that content to a certain degree. That’s because the online content market is highly fragmented (blame the long-tail) and the cost for online ads is steadily dropping as the number of online destinations increases much faster than the online population. 

Brian Robbins, the man behind AwesomenessTV, of the Dreamworks acquisition fame, admits as much:

“If we were building a business today solely on advertising revenue from YouTube, I’m not sure I’d be so bullish,” he said. “Eventually, yes. But the opportunity to create IP that’s valuable and that could be valuable downstream in all the other platforms that exist, that’s a big revenue stream.”

[As an aside, I couldn't find a single article or post on AwesomenessTV's profitability. Not saying it wasn't profitable, but this little detail is strangely lacking in all the breathless articles describing its acquisition.]

So with neither broadcast TV’s re-transmission fees nor million-dollar TV-network style ads underwriting quality content, what’s left?

Subscription fees. 

Don’t want to, or can’t pay? There’s always LOLcats on YouTube. 

Chickpeas, Instead Of Tobacco = What US Consumers Want

Hummus, like Greek Yogurt, has been becoming increasingly popular in the US. 

Many restaurants (in major metropolitan areas) now offer a hummus appetizer and many grocery stores, airport eateries and even gas stations, now carry Sabra’s hummus spreads.

But, David Kesmodel and Owen Fletcher write on the WSJ (paywall), Sabra, a joint venture of Pepsico and Israel’s Strauss Group (who knew?!), has too many chickpeas (the main ingredient in hummus) in its Washington and Idaho supply baskets. 

So, as a way to mitigate those risks and potentially lower costs, Sabra has been encouraging farmers in Virginia to switch from Tobacco to Chickpeas. And given slowing US demand for Tobacco products and rising demand for hummus (between $315m and $530m), they are making that switch:

James Brown, a 72-year-old tobacco, corn and soybean farmer in Clover, Va., said he knew nothing about chickpeas when an extension agent from Virginia State (which receives research funding from Sabra) called him several months ago and asked if he would plant the legume.

He said he jumped at the opportunity because he is looking for ways to make his roughly 300-acre farm more profitable.

Mr. Brown planted four acres with chickpeas in mid-April. That week, his wife served him the first chickpeas he’d ever eaten. “They tasted pretty good,” the farmer said.

And because the vast majority of American consumers still don’t know about hummus, this market, and the acreage devoted to Chickpea cultivation, are both likely to grow significantly in the next few years.