David vs. Goliath: How can you beat a giant who owns the market?

photo by http://www.flickr.com/photos/morris278/
photo by http://www.flickr.com/photos/morris278/

Be more like Amazon Fresh, and Less Like The Phone Company

Becoming a verb for consumers is a sign that your company has made it. Google it. Just Uber It. When your company’s name becomes the shorthand for a great customer experience, customers know that they will get a consistent, reliable product or service that meets or exceeds their expectations. Great service delivery feels different to the customer, either because it’s a brand new service that builds new habits and behaviors, or because the service delivery reorients the customer to expect better, more personalized service. Can you use great service to unseat a market leader, even one that has a near-monopoly?

“Green field” opportunity – A Brand New Game

Changing a relatively new market (think: Internet search in 1996) can happen relatively quickly. Google’s market dominance happened because their search product was so much better than the substitute and there wasn’t a de-facto monopoly in place that consumers had used for years (or decades).

Changing a more entrenched market like the market for taxicabs, phone service, or grocery shopping is much more difficult because the average person has been using these services as they exist for a long time. What are the characteristics of a service or product that can disrupt such a monopoly, and what does the actual service delivery feel like for the customer?

Getting a Taxi Shouldn’t be Hard

If you’ve ever really needed a taxicab and had trouble finding one, you’ll like Uber. Uber took a long entrenched, but previously reviled experience – calling a taxi – and transformed it into a premium experience for the everyday. Uber has gone beyond what you’d typically expect of a car-dispatch service and makes your smartphone a remote control to magically summon a ride.

Uber is great because when you use it, you don’t have to know how they made car service delivery easier. You just know that when you launch the Uber app, there are cars shown on a map near your location, and when you summon them they appear in just a few minutes at your location. Paying for your service is already handled, and you can spend more time thinking about what you’re going to do at your location than figuring out how you will get there.

Winning the Customer’s “Mindshare”

Businesses that want to disrupt highly consolidated (but not strictly monopoly) industries should start by looking at existing businesses to see they are addressing the customer experience. One way to compare the traditional approach and a newer version that’s more like Google or Uber is to review the customer experience for two everyday services. Wireline phone/internet service and grocery shopping are two services that meet this criteria.

I recently ordered phone and internet service from CenturyLink – an established company that started as one of the regional Baby Bells – and did so because it was the only service available. The initial ordering experience was ok, and the company agreed to install the service on a particular day. I signed up to do part of the installation as a self-install process (connecting the DSL to the existing computer system), and away we went.

On the day of installation, CenturyLink arrived within the allotted window (3 hrs) and no DSL modem had arrived. The technician did not have a DSL router available, and was able to complete the rest of the installation. There was only one service level available and no way to upgrade the service. The technician was pleasant, but seemed overbooked and wasn’t able to get me the part that I needed, preferring instead to order it via an overnight service (the local office was only open until 3pm).

Overall score: Meh. Granted, I would have preferred to just avoid CenturyLink and use a cloud based internet service, but none yet exist because of the physical requirement to bring a wire into a building. In addition, my preferred provider (Fiber + Cable) was not immediately available in the building. The thing that could have made my experience great – the ability and willingness of the service provider to go above and beyond what was expected – also didn’t happen.

Lessons Learned: The Traditional Approach

Here are the service lessons I learned from this traditional service delivery by “the phone company”:

  1. when you don’t offer options, the customer is frustrated – I wanted more service and was not able to get it from this provider. There were no customization options available for immediate upsell.
  2. guaranteeing a service “window” is not enough for today’s customers – I’m now spoiled by the “Uber experience” where an SMS or push notification lets me know the provider is on the way.
  3. asking the customer to do some work is hard when the service delivery is broken – I couldn’t do the work the service wanted me to do because the hardware wasn’t available at the time of the install and the technician did not arrive with extra examples of this commodity hardware.
  4. if you don’t tell a story of what will happen, the customer will make up their own story – CenturyLink gave little detail on the itemized list of items and the process for finishing the job, so it was really hard to know when it was done or if it was being done well.
  5. make sure the first line of defense has some way of responding to exceptions – I expected “good to great” service and got “fair to middling” service – the mismatch was jarring.

What customer takeaways can we make from CenturyLink’s experience delivery?

  • You can’t (always) get what you want – there are physical and regulatory constraints that may keep a business the way it is and are difficult to change.
  • There is always a service component that can be better – the technician may not have known what was possible and therefore didn’t want to get in trouble by making an incorrect decision – if the service process and exceptions are well known up front.

“Honey, I’m going shopping for groceries – where’s the list?”

Grocery shopping is another service where the service delivery has remained largely unchanged for decades for most consumers. The basics are simple: drive or walk to the store, pick out your items, pay for them, and drive or walk home. There have been some contenders to change this idea (Webvan, Peapod, and others), and they have largely been niche services in tech centers.

Amazon Fresh is a new take on the idea of grocery shopping, giving you almost instant grocery delivery and letting you order from your home or office from an online grocery catalog. The ordering experience was instantly familiar – it felt just like Amazon’s other services – and I immediately thought, “why haven’t I grocery shopped like this before?”

Adding items to my cart was really easy with Amazon Fresh, and the selection seemed really large. The search bar in particular made me think that the selection was nearly unlimited (even though a few searches revealed that it was not as large a catalog as it felt) and I was able to complete all of my shopping in a few minutes. One interesting facet of shopping online is that I was able to see the result of the cart and adjust the items to get above or below a dollar amount, and I started to think harder about the cost of the individual items.

Amazon gave me an incentive to increase my order by posting a shipping upgrade in the upper left-hand corner of the page, letting me know that I could become a “Big Radish” by spending over $300 in this order (I didn’t make it there) and “win” free shipping. During checkout, I also had the option of adding suggested items to the order, but not in a hard-sell kind of way. One of the most innovative features they offered was the opportunity to change my order after it was placed. Instead of pitching the service as “modify your order” Amazon messaged this as “forget something in your basket?” reminding me of the experience of leaving the store having forgotten to buy something on the list.

The actual service delivery for Amazon Fresh was really painless. The driver arrived at the appointment time, brought all of our items in branded Amazon insulated bags, verified the items against the pick list, and left. Having the entire grocery shopping service done in just a few minutes felt like a huge win. Overall score? FTW.

Tech-driven Service Delivery FTW

Here are the service lessons I learned from Amazon’s take on grocery shopping:

  1. provide several service options with seemingly unlimited customization – this was a clever hack that allowed me to pick many options from the available service times and many items from the catalog in a way that felt almost unlimited but actually was the normal schedule and catalog.
  2. show up exactly when you say you’re going to show up – I set an appointment time, and they showed up. Done.
  3. if you ask the customer to do something for you, make it a high-value activity – Amazon asked me to identify which items should be on the list that they picked from the warehouse and because I picked exactly what I wanted, I felt satisfied that the same items showed up on my doorstep.
  4. help the customer feel more comfortable by being transparent about your quality checking – because we used the same list to verify the order, it was easy for both the driver and for me to know the job was done.
  5. give your service providers a strong procedure and help them know what to expect – even though Amazon Fresh hadn’t delivered to the location before, there was a very tight procedure that the driver followed to deliver a great experience. I knew what to expect and so did the driver, so it was a lot easier to meet or exceed my expectations.

What sort of experience can you get when you focus on customers – as in Amazon’s grocery delivery business?

  • You can (always) get what you want – you don’t have to go to the store, and you don’t have an unlimited selection or supply, but it’s pretty great.
  • Much of the service component is built into the business – leaving less pressure on the providers to make a heroic effort to respond to unexpected exceptions.
  • You can wow the customer – add unexpected benefits like specials, product samples, or “thank you” gifts as part of your retention and loyalty business.

Service is the Secret Weapon

If you want to build a sustainable service business at scale and want to disrupt the monopoly-like leaders who are already in place, what can you do? You can follow the lead of Amazon, Uber, and Google to change service delivery so that it’s focused on personalization, timeliness, and excellence. You can build a system that asks the customer to help, and delivers value for the help. You can drive down costs – especially in an area that’s hard for the incumbent to match. And you can build a brand based on the promise that “it just works”. You’ll know you’re there when customers use the name of your company as a verb to describe the process they love.

A Customer Service Time Warp (remember 2007?)

Shopping Cart, Circa 2007
photo by http://www.flickr.com/photos/akeg/

A recent discussion with my kids made me think about how much has changed in the customer service world (and in the expectations of customers) in the last five years. Let’s take an example – picture yourself in 2007. You’re at a retail store (perhaps BestBuy) in search of an item (a new computer monitor or an interesting accessory.) Upon arriving to the store, you find an associate, who tells you that the item is out of stock; suggests an alternative; and waits while you make a decision. If the service experience is good or bad, you might not remember to write it down, blog about it, or offer praise or complain to the retailer later.

Compare that to your experience today when you can use Decide to determine whether or not to buy the item you’re seeking; Amazon to purchase the item, and any one of a million services to share directly with the manufacturer of the item how you’re feeling and whether you like what you bought. So, what happened to the retailer? They were cut out of the loop by the creative destruction of the market they used to inhabit. And what happened to you? You gained speed, utility, and choice, and the ability to find the right item for you at the time that you wanted it. And you’ve also lost the tactile ability to touch and review the item; the social interaction of actually paying for the thing in the store, and the opportunity to interact with an expert in real time who can help improve your choice.

(No, I’m not suggesting that going to the retail store was better, but that it’s very different from the retail shopping experience we have today.) What’s a retailer to do to stay relevant to the customers that want more information; the customers that would prefer to buy whenever and wherever they are, and the customer who’s just not sure?

One way that retailers can provide superior service is to engage in conversations with people who care about the products they’re trying to sell. (Yeah, you say to yourself, what does “engaging” mean in this situation and why does it matter anyway?) Having real conversations with real people – via Skype, Twitter, Facebook, or pick your medium – builds empathy and brand loyalty. You’re never going to be able to compete with Amazon or NewEgg or Buy.com on price. And you can compete with them by being the best source of information and conversation around a specialized topic (making coffee, being gluten free, what are the best stereo speakers, etc.) and by taking a cut of affiliate revenue (either directly by selling goods or indirectly by driving targeted, quantified business elsewhere).

Another way retailers can provide superior service is to put people on the front lines who care and who are able to fix problems (either through a flexible policy or a fixed dollar amount in budget) so that the inevitable breaks in service don’t cause your customers to think that one bad experience defines your company for them. If you don’t trust that front-line employee, do it yourself or find someone you can trust to implement the idea, quantify and qualify the results, and share them with you regularly.

Finally, retailers (including Best Buy, who led beautifully in providing social media contacts through its Blue Shirt initiative and had trouble following up and providing a similar positive experience in-store) can just ask themselves a really simple question: “if I came to this store, would I want to shop here instead of at one of our competitors?” If you don’t have at least 3 reasons that make your shopping experience 10x better than your competitors, your customer isn’t going to want to shop there either.

HOW TO: Go From Eating Pizza to Building a “Disruptive” Startup in just 54 hours

This weekend I participated in an amazing event at Startup Weekend Seattle. I found some great new friends, got the opportunity to pitch amazing ideas in front of a crowd, and contributed to an epic journey: building a complete startup from a pizza dinner to a working prototype with media buzz and excited potential customers in just 54 hours.

As I gathered my thoughts on my plane ride this morning, I wanted to share the semi-live blog of what happened so that we could share not only the successes that we achieved over the weekend but also the many decisions, missteps, fails, and pivots that our amazing team (Yijen Liu, Adam Loving, Forest Baum, Myk O’Leary, me = Greg Meyer, and Scott Nonnenberg) made to build the almost-finished (and already winning accolades) service to Wake up with Friends: ShakeupCall

Just the pitch from Startup Weekend, Please …

If you just want to hear the pitch, go here to see a video of our pitch on GeekWire. Or, keep reading …

The Story of ShakeupCall

Once upon a time … a successful team made choices and used agile techniques to stay focused and have fun. This allowed us to dodge a number of difficult problems and still had a great time to build a great almost-done product. Let’s start with the beginning of Startup Weekend (cue the way back machine …)

Friday Night, 6pm: Meet and Pitch

The beginning of Startup Weekend is a bit of a melee. Over 200 people attended, and 60 people pitched. But first, we had a “lightning round” where we practiced pitching nonsense ideas (some of which were pretty awesome) and then it was time for the main event. Yijin, Adam, Greg, and Forrest all pitched … very different ideas. So how did we end up on the same team?

Survival of the Fittest Idea

The pitching is really only the beginning of Startup weekend – where the next 30-60 minutes looks like a rugby scrum as individuals first sort by indicating their top three choices using sticky notes, but really what’s going on is the grouping of people into likely teams with complimentary skills. Everybody seems to need a designer, and there are not enough of them to go around. Add to that the mix of developers with different skills sets and preferred tools (and the randoms like us business types who can do many different things that might not be related to the task at hand) and you have an interesting challenge.

Friday, 10 PM, Adam’s “Early Birds” idea gels around a team

Forrest and I both had lukewarm support for our pitch ideas, as did Yijen, so we decided to form a team with Adam, who had already found Scott and Myk. We decided that we liked the “Early Birds” idea – make a gamified social experience where friends could help each other get healthier by competing to wake up on time – but we weren’t sure about the name, which we felt was quite similar to Angry Birds. At this point in the process, 4 hours in, we had accomplished the following:

  • Formed a team
  • Considered a few options for business models for a “social alarm clock” game
  • Narrowed to a basic technology platform of Heroku, Ruby on Rails, and Twilio, and thrown out the idea of making a pure mobile app (emulated or otherwise)
  • We also didn’t have a designer.

We decided to come back at 9am having picked a few domain names and to hammer out the functional model of the app and the branding by Saturday at Noon.

Later on Friday Night

Domains are picked. Technology platforms are bootstrapped.

Bright and Early on Saturday Morning at 8:45am, We Get Started In Earnest

We decided that the most important thing in the morning was to have breakfast, so we enjoyed the food spread and coffee from Trabant and got to work.

Our goals for the morning seemed simple. By Noon, we wanted to reach our first Agile goal of:

  • Writing user stories on sticky notes and starting to prioritize them
  • Take an initial swag at the branding, which became “Wake up with Friends”
  • Bootstrap and build the development environment

To do this, we split tasks, with Scott, Myk and Adam working on the technology; and Forrest, Yijen, and I brainstorming on marketing collateral. The developers did some magic to get everything going and managed to stay on task despite the fact the three of us were chattering, gesturing, and writing on whiteboards and easels to work on these marketing ideas:

  • Concept and source the logo art (thank you @ebencom);
  • Write a customer development survey to assess purchase intent and user interest;
  • Determine how best to get a reasonable number (50+) of answers to get a representative sample;
  • acquire Twitter handles (@shakeupcall and @shakeywakey) and populate them with content;
  • create a “name squeeze” or subdomain at http://get.shakeupcall.com to allow people to sign up and share for a service that wasn’t live yet. (it helped that @thomasknoll is amazingly nice and had a great tool for this in @launchrock)
  • Produce a Facebook page and figure out how to get it enough “likes” for a custom name (25)

By 11:30am Saturday we are in Good SHAPE.

Awesome! We bootstrap the environment, use GoDaddy to find some domains, quickly write some content and get social, and BOOM. We’re not sure what we’re selling.

Maybe we’re not in such Good SHAPE.

Enter Mentors – one of the keys of Startup Weekend and an essential component to tweaking these nascent ideas and building them into viable business models in such a short time with the resources available. We were lucky to have help from Adam Philipp, who suggested that we were being too cerebral and that maybe we should just own the humorous aspects of sending an audio file via a phone call to someone in the morning to help them wake up. Eugene Hsu, another amazing mentor, convinced us that we needed to punk and Rick Roll our friends for the best effect. And thoroughly muddying the waters in a helpful way was Kate Matsudaira. So now, we needed to do some serious customer development.

To the Cloud!

To test our ideas, we posted our SurveyMonkey survey using our favorite crowd tool, Hacker News. We used a catchy closed title, “Have trouble waking up?” and added the word “startup” to indicate that we were non-traditional marketers, and then all voted up our idea. We got lots of answers.

Our First Monetization: Ourselves.

Proving the adage that there is always a business in selling pickaxes to miners, we quickly hit the choke point in SurveyMonkey’s free account of 100 responses. So we needed to plunk down some cold hard cash to keep our fledgling startup going: $24.95 for a month’s service. While we were waiting for more answers to roll in, we continued our marketing efforts:

  • Forrest and I added twitter handles to the Tweetdeck and iPhone applications and broadcasting the value proposition of the business and some funny messages through Twitter and Facebook
  • Yijen worked on wireframes for the various pages of the app and corrected some of our user stories and UI designs that were misaligned
  • Forrest had a strange fascination with oddly hilarious sounds, which made us laugh, but we weren’t sure how to make it part of our application.
  • And the dev team worked on, and on, and on…


At this point we were sort of tired, kind of hungry, and we had been single threading and working on individual tasks rather than forming, storming, and norming as an entire team. And then some of these individual efforts came together in an amazing way.

Two key things happened that galvanized the team:

  1. We got a tweet from the Director of Engineering at Hark.com – this was important because it gave us a different way to monetize than the initial way we considered – and opened up the idea of sending really annoying (but potentially viral and social) clips to one another.
  2. Scott got Agile on all of us and took us to the Agile Woodshed – he led us through three rounds of feature prioritizing and cutting such that almost 50% of the development schedule was cut 24 hours into the 54 hour project. Scott, Myk, and Adam also tasked Adam with determining the method of sending and concatenating audio with Twilio (thanks @rahims for all of your help), to validate the input of the user’s simple math problem, and to bootstrap the alarm page. I got the job of building a slide deck and Yijen worked on the licensing and business model. And Forrest continued to listen to funny sounds.

Saturday 8pm, I go home. And finally spend a little family time.

But not much.

Saturday 9:30pm – I plan to Build a Slide Deck and Go To Bed.

I started building a slide deck and making sure that the Facebook site had enough likes for a custom name. And that was going pretty well, until 10:14pm.

We had received an effective “Cease and Desist” – though not formally sent by a lawyer, a competitor had noticed us and had asked us to stop what we were doing, 28 hours into a startup. On the one hand this was amazing validation of our concept and market presence; on the other hand, it was very annoying that we hadn’t realized this before.

So, we changed our Tag line: The Social Alarm Clock Wake Up With Friends.

And this meant I had a little work to do:

  • Change the existing collateral to remove the phrase
  • Analyze 330 survey responses (and notice that we had almost 100 people waiting to get our app)
  • Make the slide deck
  • Wonder if Adam was still awake.

5:30am Sunday – The Critical Path to Development is 3 hours old.

I couldn’t sleep, so I got up to work on the social channels and to ask for Clif Bars from the Seattle Startup Weekend Crew. I noticed that Adam had sent an email at 2:30 demonstrating that the basic idea that we wanted to do – use Twilio to send a phone call to you having a selected audio file and a user-supplied message read with text-to-speech software – worked! Also, Adam built the simple math problem.

I set a ShakeupCall, called myself, and it worked. Brilliant!

Finding Product/Market Fit – 9am Sunday

At this point, we needed to finalize what we were building and for whom. Fortunately, the survey data was giving us more than directional information on demographics of the people who liked to send funny messages to their friends: 90% 18-34 year old men. (BROS! Well, not quite, but you get the idea.)

To make these people happy, Forrest, Yijen and I decided that the model of the YouTube viral video most closely matched the kind of content young men might send to each other to be obnoxious and social. And since we wanted to build an app that would also socially humiliate someone who didn’t finish their ShakeupCall validation correctly, we thought the noises and sounds should be as obnoxious as possible.

We then got fantastic feedback from Enrique Godreau about how to license content. And I told him about Sleep.fm asking us to stop, which made him smile. Eugene Hsu also encouraged us to think BIG and to think SILLY – because people like that too. Forrest and I used this opportunity to find awesome songs on http://turntable.fm and to rapidly iterate through the kinds of songs you would or woudn’t like to hear in a phone call to wake you up. When Yijen added annoying YouTube viral videos to the mix, we realized that Forrest’s audio skills could be used to create a montage of really annoying viral sounds – and that would make a great demo. So off he went to do that.

1pm Sunday – Bugs are Scuttling about, and Devs are Cranky

By early Sunday afternoon we had most of the app together but there were some things (layout, CSS controls in the template that we bought to mitigate design risk) that just didn’t work. Myk and Adam and Scott worked togther to determine the things that needed to be cut and presented those decisions in a quick Scrum session where we cut a few more features. This made us a bit sad, but we wanted to create a really great demo that we could try beforehand, and we were running out of time.

The teams both engaged in peer activities – devs peer programming, Forest and Yijen and I hacking words out of the slide deck and rearranging it so that it made more sense given the changes in the application and the changes in our business model since the previous night. Scott figures out how to post to Facebook effectively and Myk builds a date/time picker to make the choosing a bit easier.

2:30pm – We practice the demo for the first time. It sucks.

The timing isn’t quite right, I’m not sure what I want to say, and a few of the slides are wrong. It’s good that we have a little bit of time to practice before our 4pm deadline to do a sound check and pick our presentation slot. Demos #2,3 and 4 go much better and there are some parallel UX tweaks on the web site that help us tighten up the view.

4:02pm – We go do our tech check, and realize WE HAVE NO CONTINGENCY PLAN FOR THE PHONE CALL.

We realized we can record the phone call and place it on a phone for playback if things don’t go well with the web server or the network, which makes us feel … a little better.

5:00-5:05pm eat Dinner.

We refine the slides a bit more, relax, are nervous, and then relax a bit more. It feels like we might be done with Part 1 of this Startup Weekend idea.

6:00 pm Sunday – the Pitches Start

Some of the pitches are awesome. Others, not as awesome. Nerves. There’s a break. We figure out some presentation tips while we’re on deck which represents another risk but it makes everything look a bit slicker.

7:40pm Sunday – we’re on!

And then, we pitch. Wow. The Crowd Loves It. Whoa. QA. We do ok with that, then stumble off stage in an adrenaline-fueled haze. (Hi-fives and fist bumps all around.

At 9:00, the judging starts.

We try to figure out who our team likes for the audience prize, and wonder who will win prizes. @Heuge and I set @ShakeupCall messages for the next morning, as we’re both getting up early. And then, it happens. We win the special prize for “Most Disruptive”! 60 pitches. 23 teams. 3 winners. 3 special awards. Awesome. And we go to the bar to celebrate.

At 1am, I am packing for an international trip to go to Canada.

This is not enough sleep.

5:45am Monday morning, standing in line at SeaTac Airport.

My phone rings – oh right, it’s that ShakeupCall I set for myself at 5:45am. I listen to the call, and it’s DIFFERENT! I’m confused, and then my text-to-speech tells me “Congratulations on Winning a Prize at Startup Weekend from Kevin Croy” and he’s giving us mad props.

AMAZING! I get it. Shakey loves me. I answer the simple math problem (5+2) and I post my thanks to Kevin on Facebook. I can’t wait until he sets his next ShakeupCall so that I can compete with my friends to send him the best wakeup call.  (A side note: the math problem is something I had no problem handling at a noisy airplane counter when I was running on only 3 hours of sleep – it was an accidental and solid customer validation step.)

We owe some thanks.

We wanted to thank all of the teams, judges, and sponsors. And especially Rahim from Twilio, Marc Nager, Eugene Hsu, Adam Philipp, Enrique Godreau, Bob Crimmins, John Cook, and Rob Glaser. And Amazon for being a gracious host.

What’s next?

There’s clearly a market.

Our survey (n=430) indicates

  • 24% will definitely buy at $3/month
  • They skew disproportionately to 18-34 year-old men
  • 100+ people want in on this.

And we did it in about 144 (8 + 20 + 20 hrs each) dev hours.

This is just the story of 1 team and how we did what we did – Startup Weekend is so much more than that and is a great event to build your startup in 54 hours (or just to meet some amazing people.) We haven’t figured out the whole business model or the individual items we haven’t yet fixed. But we’re going to work on it. And in the meanwhile, I can schedule a @ShakeupCall for myself to wake up and have more fun.

If you like it, Tweet it and share the word!

How do you build service to scale?

I read @codybrown‘s excellent analysis of network growth and scaling with regards to MySpace, Facebook and Twitter this morning and got to wondering if the concepts he’s talking about can be applied to broader concepts in Customer Service. Brown presents the idea that services like MySpace have failed because they couldn’t channel their explosive growth into a system that worked not only for the core adopters but also for mainstream users. Later-arriving, “fast-follower” services with more focused missions are stealing the MySpace user (Last.fm for music, Facebook for social networking, etc.) because you don’t have to be an insider to figure out how to find the service useful. What does this mean for service concepts in general?

The recent purchase of Zappos by Amazon is a good example of a company with fanatical customer focus acquiring another company with fanatical customer focus. Both Zappos and Amazon have built service to scale — and, I believe, will be able to avoid the problem that @codybrown references — because they focus on three things: Customer Service above all else, Mass Customization, and Back-end services that lower the cost of transactions.

Both Zappos and Amazon practice fanatical devotion to Customers. Zappo’s motto, stated directly in its logo, is “Powered by Service”. About.zappos.com states that “Customer Service is everything.” Amazon has similar focus, calling itself “Earth’s Most Customer-Centric Company.” There are many customer testimonials that might provide additional detail here — the point is that both of these companies have made it possible for customers to tell other customers whether a product or service is good or bad. By empowering the customer and by pledging to fix it when the customer’s expectations aren’t met, both Zappos and Amazon have created a situation where their best customers will shout the company’s name from the rooftops and their worst customers will have a strong process for recourse. Customer Service, and policies that reinforce that customer service, make it possible for both of these companies to build the rest of their brand around that service.

To deliver that service, both Amazon and Zappos practice what I call “mass customization” rather than making an individual web site, store, or product offering for one customer or set of customers. This may sound contradictory, because each customer does get an individual order, and that customer may have an individual concern that sounds different than another customers. But if you take the perspective of looking at groups of customers who buy shoes (in the Zappos world) and then you segment them so that they all buy shoes in roughly the same way (even if front-end design templates and brand segmentation make it seem different), and you fulfill these orders and return them in roughly the same way, then you’ve built the system to have a relatively constant cost per order, even though your product offerings may be myriad in their breadth.
Build once, deliver many different flavors with a common back-end system, and you’ll be able to satisfy the Customer Service needs of all of those different customers.

To deliver this vision of build once, deliver many flavors, both of these companies had to build back-end logistics, supply-chain, and fulfillment services that lowered the overall cost of doing transactions. For Amazon, this meant building software systems to manage inventory, present and build stores, make and fulfill orders, and then building a physical distribution system to implement this vision. For Zappos, the implementation was slightly different, but the effect was the same: build a system that as it scales provides learning curve improvements, opportunities to apply LEAN and greater efficiencies and profitability overall per order. Only now as their services are growing and growing do these investments look particularly shrewd, especially when new product lines (Clothes.com, e.g.) are introduced for the combined company to market. Amazon is leaving Zappos alone to operate as an autonomous unit. Good move — I think it will pay off for both companies.

What does this mean for Twitter, Facebook, MySpace, and other new product entries? Build your service to planet scale — at least in your head. If you don’t know how your service will function when it’s really really big, then you will miss the opportunity as MySpace did to shape the service and prevent fast-followers from cherry-picking the best parts of your model. Make your offering a defensible position — as both Zappos and Amazon have done — but focusing on a service offering your present and future competitors can’t easily duplicate. And finally, a paradoxical idea: you need to try many ideas and fail fast, but remain focused on the small goal that’s easy to explain to your most fanatical and dedicated customers, as well as the mainstream customers you don’t have yet. Keep it simple, please the customer, mass-customize by configuring your offering rather than building net new code for each segment, and build your systems and your ideas to scale.

Amazon Whispersync — what other products could it create?

I confess: I am not an e-book reader. I use the old-fashioned library and a daily newspaper to consume printed media. Yet the recent introduction of Amazon’s Kindle 2 made me stop and think about whether I should consider changing my reading habits to incorporate the e-Book. The main reason? The feature Amazon calls Whispersync.

Whispersync (you can catch some more information here) is a service that uses the Kindle’s built in 3g network to deliver a “bookmarking” service and to synchronize your reading on your Kindle with your reading on another Kindle. But wait a minute. With the release of Kindle for iPhone, Amazon has not only created an interesting service that can travel with you whereever there is internet connectivity, but also created a streamlined purchase “deck” for buying any Amazon products at that same point.

It’s as if Amazon had just reached out and created a virtual storefront in your pocket — more usable than the mobile web sites you might use today — and had thrown in the ability to read e-Books as a sideline. What else could you use this interesting technology to promote?

I came up with a few ideas: portable notetaking, pedometer and exercise logger, automatic photograph tagger, and then it hit me straight in the face — Amazon Whispersync is a gateway drug for Amazon S3. The pipeline to deliver e-book content to any device, anywhere, is also the pipeline to deliver any files anywhere and to store them. It means that instead of having to rely on the memory capacity of my mobile device I can start to rely only on the speed of the network to deliver the information. This trend can already been seen in products like mobile Pandora, which as a streaming music program would seem to be an oxymoron on the iPhone platform. Yet strangely, it works.

So what has Amazon created? The Whispersync technology gives Amazon a technology platform to deploy some of its vast distribution capabilities in digital media. The same logistical challenges inherent in delivering whatever book I want to my doorstep are relevant to digital media, though the physical challenges look and feel a bit different. Whispersync has the promise of becoming an ecosystem — a way to easily reach Amazon customers anywhere and everywhere that they are — and a way for Amazon to extract some valuable payment from those customers whereever they happen to be. They won’t be far from their wish lists. Just wait until Mark Zuckerman gets a hold of this technology and uses it to drive micropurchases on Facebook.

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