A Blog by Jonathan Low

 

Apr 20, 2014

Will Gillette's New Razor Kill Its 100 Year Old Business Model?

The razors-and-blades strategy is a staple of business school lore and of corporate strategy: lock consumers into one platform and then keep selling them whatever they need to keep it operational - but at inflated prices and juicy margins.

Whether your product is smartphones or your service is software upgrades the same basic model is at work. You have made the cost of switching too annoying, expensive and hassled to contemplate.

But all good things are subject to disruption in the internet era and shaving is no exception. Gillette's revenue in that segment has started to drop so alternatives must be considered. The expensive blade is being disintermediated by inexpensive rivals, fashion changes have deemed beards, facial hair generally to be the look of the moment, a revulsion among younger consumers against the disposable society, all of which means customers are beginning to feel that they deserve better options.

Whether Gillette's new model will shore up the business or simply slow a long-standing trend is not yet clear, but it is evident that just because something has worked well since just after the US Civil War, does not mean it will last forever. JL


Kyle Stock reports in Business Week:

The razor has typically been just a cheap vehicle to sell expensive blades, locking customers into a proprietary platform. Every few years, the consumer-goods honchos say, ‘OK, it’s time to add another blade”; and people rush out and buy the thing en masse.

Tech Leaps, Job Losses and Rising Inequality

People in tech used to be able to tell themselves that they were making the world a better place. They still tell themselves that, of course, but the truth is somewhat less certain as is their conviction that such is true. 

What has happened, as the following article explains, is not entirely due to technology, but to the web of services, tax breaks and public or private policies that have grown up around tech as it has generated more financial benefits for those with access to them.

Which is to say, a rather dramatically limited subset of the total population.

Essentially, the return on capital investments has begun to significantly exceed that on the hiring of mere humans. This is not simply the result of wondrous economic and technological innovations working in concert, but of policies that consciously deliver those excess returns to capital rather than labor.

The question that now confronts virtually every society impacted by this development - comprising the entire world - is whether this system of laws, incentives, regulations and structural benefits is sustainable. Perhaps even more importantly is whether it should be. Those who counsel against acting hastily and warn of the dangers in meddling, fail or refuse to acknowledge that this state of affairs is, itself, the direct result of previous meddling. The issues now  are whether to act and how to do so. JL

Eduardo Porter reports in the New York Times:

As the cost of capital investments has fallen relative to the cost of labor, businesses have rushed to replace workers with technology.

Moore's Law Is Supplanted by Bezos' Law: The Cloud and the Economics of Availability

Moore's Law has defined the potential of computing power since the dawn of the dotcom era at the beginning of the Computer Age.

For those who will nod enthusiastically when asked if they're familiar with it but may have forgotten some of the, um, details, Moore's Law posited that the over the history of computer hardware, number of transistors or integrated circuits doubles every two years. The implication is that computing power would  grow exponentially, driving down the cost, availability and, therefore, the opportunity. A lot of people have made a lot of money cashing in on that bit of wisdom.

Bezos' Law, named  for Amazon founder and CEO Jeff Bezos, and explained in the article below, is the proposition that a unit of cloud computing power is going to decline in price by a certain percent every few years. What this means is that we are all migrating to the cloud - yes, all of us - because the economic incentive to do so is simply too great to ignore, let alone fight. JL

Greg O'Connor comments in GigaOm:

Bezos’s law is the observation that, over the history of cloud, a unit of computing power price is reduced by X percent approximately every Y years.

Apr 19, 2014

End of the Big Box? Why Home Depot Needs the Internet

The big box store concept was rooted in some basic economic principles based on scale, mass and prospects for net future cash flows. But the reality is that the developed world is getting overstored. The number of households from which a store can be expected to pull business has been cut in half.

This means that the big box model is becoming inefficient and potentially less profitable. Customers, especially professionals may increasingly find it more effective to order in bulk via the internet and then pick up at their nearest Home Depot location rather than wandering in and hoping its all there. Home Depot itself sees this future clearly and is investing in making that alternative more attractive.

Whether customers will respond is an open question. But what is not is that the model that worked so well for most of the company's history no longer does. JL

Shelly Banjo reports in the Wall Street Journal:

The seller of tools, saws, particle board, and washing machines is making a hard turn toward the Internet in the face of changing shopper habits and fast diminishing returns from new store openings.

What Online Restaurant Reviews Say About the Reviewers

Talk about your passive-aggressive. We gleefully, even passionately offer our opinions online about virtually everyone or everything with which we come in contact. We Instagram snaps of food into which we are about to dig whether prepared by ourselves or a noted, obscure or soon-to-be-famous chef.

We purport to be providing a service to our fellow (wo)man, but as the following article explains, analyses of the language employed in such reviews suggests that they are probably much more about us than they are about the food at hand - or mouth.

Evaluations of the vocabularies leads researchers to report that victimization is a big part of the psycho-scape. Sexual references are extant and addiction metaphors abound.

What does it all mean? Probably nothing more than that we are desperate for outlets permitting self-expression and creativity. Food has become a canvas on which we feel not just free, but empowered to wax poetic or homicidal.

This can all be amusing, but not if you are in the business of selling sustenance to the public as a livelihood. In that case, forewarned is forearmed. These people are not your friends. They are not your fans. They are not the reviewer for the New York Times. They are employing your enterprise as a backdrop for their own purposes. Be prepared. JL

Emily Badger reports in WonkBlog:

In assessing restaurants, we're intimately wrapped up in assessing ourselves as metaphorical addicts or spurned victims or appreciators of fancy things.

Apr 18, 2014

Share of Who's Stomach? $1 Billion in Cuts Planned as Coke's Profit Falls

A billion dollars buys a lot of jobs or raises or new products or facilities or openings into new markets. So when a company like Coca-Cola says they are cutting $1 billion, it signifies the need for serious readjustment.

That people are not drinking as much soda as they used to is a trend, not a surprise. The reasons are varied but have to do with aging populations concerned about weight and health, newer alternatives that satisfy other needs and, well, boredom with the status quo.

Coke has room to grow in emerging markets, but 41 percent of its business still comes from the developed world, so to some degree this is about pivoting away from soft drinks. That move is fraught. Pepsi has been trying to do so rather more explicitly than Coke for several years and has received nothing but grief for its efforts. Investors seem to believe the problem is management not trying hard enough rather than consumers tuning out the message.

However the company decides to address this challenge, it appears that the sort of incremental line extension approach to change will be insufficient and that it must prepare for the sort of change that has roiled so many other industries. JL

Duane Stanford reports in Bloomberg:

The company has been slow to react to health concerns about its drinks, as well as the growing desire for beverages that aren’t carbonated colas.

It's Not About Fixing the Algorithm: Big Data and the Real World

Call it context or situational awareness or experience, but the crucial ingredient in making big data big probably relies more on pulling your head out of the computer screen than on aggregating all the right numbers.

A particularly popular example of this lies in the review of Google Flu Trends. Established with all of the usual societal benefits in mind - and as a subtle way of reinforcing the underlying value of both the data and the company that generated it - recent evaluations have established that it consistently overestimated the incidence of flu.

Adherents argue that this is a result of newness and that as the data set becomes more longitudinal - in other words, as we have more experience - the algorithm can be tweaked and the accuracy improved. Others maintain, however, that this has more to do with assumptions built into the model than with any deficiencies in the data itself.

We live in a world in which more and more decisions of greater import have to be made with less information in shorter periods of time. The perfect is the enemy of the good. We have to learn to interpret using our instincts, experience and common sense, not wait for the ultimate data set. JL

Mikkel Krenchel and Christian Madsbjerg report in Wired:

Big data is nothing without “thick data,” the rich and contextualized information you gather only by getting up from the computer and venturing out into the real world.