Business Model Canvas for Pinterest

Silberman, Pinterest’s chief executive, how the company made money¹-“Right now we don’t. But the big-picture assumption of the company is that there is a direct link between the things you pin and the things that you eventually spend money on. In there, we think, lies a model where we can actually make Pinterest more useful. And we can help businesses by bringing in more customers and helping them sell things and connect with people.”

Pinterest, a social, web-based scrapbooking application launched in 2009², lets users virtually “pin” images they like to various “boards”. It serves two sets of customers- first users have the ability to virtually “clip” and “pin” various products/ services/ pictures of interest and share it within the community, this is provided at no charge and second- it allows retailers and businesses to pin point their customer’s interests and market to them. It is this second set of customers who will help generate revenue. Through a recently tested “promoted-pins” offering, Pinterest plans to charge for advertisements based the user’s pins.

Pinterest, has shored up some key partners- VisualGraph a cloud-based image recognition and search platform was acquired in January 2014. Piquora (previously Pinfluencer) an analytics firms that tracks brands on Pinterest is a key partner. Twitter, Facebook, Google and Bing are also key partners who drive traffic and content. Pinterest also needs image content creators and managers like Getty Images. But its primary key partner is the large community of users who build content and share it. As of June 2013 there were over 70 million users, 80% of them women³.

Their key resources are people and the server infrastructure. They currently use Amazon’s EC2 and S3 for servers and storage (over 400 Terabytes) respective. This saves on capital investment and provides easy scalability⁴. As of March 2014, they have 300 employees. These also form their primary costs, people, office spaces (US & International) and infrastructure. In addition they have made a number of defensive acquisitions (punchfork and livestar- both of which are content discovery and sharing platforms). Their channels are primarily web-based with websites and mobile apps on IOS and Android.

Pinterest, has not posted any revenues, however is poised to make good on its promise to investors through ad revenue which specifically targets users based on their interest and “pins”. Pinterest allows retailers and firms to market to specific users knowing what they exactly want, . 

Big Data- Hope for a Better World

Readings:

Capturing Value from Big Data at Comscore – Through Platform, People & Perception

Numerati

How big data can improve your health

Shopping and Social Media: Retailer’s guide to big data

I read this article (http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/) about two years ago as I had just embarked on my MBA journey. It completely changed the way I look at both data and people. As recently as a month ago, this was in the front page of most media websites: http://www.nytimes.com/2014/06/30/technology/facebook-tinkers-with-users-emotions-in-news-feed-experiment-stirring-outcry.html?_r=0; on how Facebook was running tests on its users. And finally Amazon, in my opinion one of the best purveyors of big data know what you want http://mashable.com/2014/01/21/amazon-anticipatory-shipping-patent/ and has even patented the idea. This is beyond the recommended buys that we see when we log into Amazon. We live in a world of information overload and intense competition. Especially in mature markets such as the US, where brands and buying habits are well established, gaining even a sliver of market share, tips the scale in your favor. This relentless pursuit of people preferences is the direct result of this intense competition.

I work in a world of numbers and data (although not of people’s shopping preferences!) – albeit aircraft usage, automotive reliability and medical device design and testing. The analysis of usage or historic data to predict future trends has been around for ages. For instance, every time an aircraft flies, giga-bytes of data is collected- everything from the turbine engine parameters to aircraft cabin conditions- by both engine companies and airframe manufacturers- with the goal of ensuring a safe flight, charting out maintenance and building better products. The same is true of automobile black boxes- where a driver’s usage data is downloaded every time we drive to the dealer for routine maintenance. In the medical world tracking individual patient vitals and parameters has been around for a long time too. In my world it’s called Prognostic Health Management- using data to predict how the next mission will go and basing maintenance on that information. The growth of computing power and easy access to all this data allows us to start making sense of this data and drawing trends and making forecasts.

So what do we make of the Amazons, Targets and Krogers of the world that are relentlessly selling to us. On one side it is flattering to be given the attention- coupons and products tailored for specific consumer. However, I see the role of big data being more than just selling stuff to a consumer. It is a way for firms to become lean, efficient and focused. Manufacturing less and selling more, reducing waste, reducing our carbon footprint, reducing our energy consumption. It also allows to firms to start extracting better value for the products and services.

Beyond Varimed and correlating genetic trends with diseases, big data has a significant role to play in health care. Based on people’s lifestyles (buying habits) we can start to predict the possible health issues and try and prevent them, it will go a long way in alleviating health care costs. Research is underway at many universities to monitor certain vitals and predict cardiac arrests or even strokes before they occur based on data correlations. In my opinion, big data has the potential of changing our lives in a positive way although at first blush it seem like “Big Brother” is watching our every move.

Business Model Canvas for VEXTEC Corporation: An Engineering Consulting Firm

VEXTEC Corporation is a small business technology start-up based in Nashville, TN. We got our start with the US Air Force developing unique algorithms and models to predict aerospace component reliability- mainly jet engines and airframes. The technology now protected with over eight patents has been extended to various other components like Navy Ships, Automobiles, Plant equipment and Stents. We have also productized our technology as software that is offered through the cloud (Amazon Web Service) to our customers through the SaaS (Software as a service) model. The firms serves a wide range of market segments that includes aerospace, automotive, medical devices and plant equipment. Primary activities are helping product firms determine the reliability and durability of their components and helping make their products better. We have had a number of successes in the commercial airline and medical device industry where using our technology firms have reduced costs, accelerated product development and improved durability of their products. Our technology stays ahead of competition by incorporating the latest research and models in the area of product failure analysis through close relationships with academic institutions and R&D labs. Being a engineering consulting firm, we employ talented people good at solving complex problems. Therefore the majority of our cost is employee salaries. We also depend on a number of expensive software tools and computer servers for our work, these are the second major expense. Most of our revenue is from consulting services and a small fraction from testing and software services. The details of the individual categories is below.

Key Partners: VEXTEC’s key partners are Computer Aided Design and Finite Element Software firms that develop software needed for product design. In addition we have close relationships with numerous academic institutions and R&D labs to stay at the cutting edge of technology. We incorporate their scientific break-through within our technology.  

Key Activities: We have two business units; the federal government unit is engaged in fundamental R&D and technology development. The commercial business unit is primarily engaged in engineering services and commercialization of the technology developed. The key activities include fundamental research into component failure issues, material testing both for in-house development and as a service, developing failure models and algorithms, software development and marketing, sales and operations.

Key Resources: Our key resource is people- being a services firms we are very human resource dependent. In addition, being a R&D firm, we employ primarily mechanical, material science or aerospace engineers with advanced degrees. A second key resource is all the software and hardware infrastructure needed to develop models and algorithms

Value Proposition: Our value proposition is around improving product durability and life cycle costs. This in turn reduces warranty and product failure costs. We also help accelerate product development by reducing test costs significantly. We also offer testing services and failure analysis as add-on services.

Customer Relationship: We have multiple levels of engagement. The marketing team is primarily engaged with the customer’s management team while the project management team is engaged with the actual technical customer. For our SaaS customers we have dedicated customer service for both software and technical issues.

Customer Channels: Our primary channel is word of mouth, where happy customers bring us additional business. Most of our customers are big firms that have exhausted their internal avenues to solve their problems and have come to use based on an article in a trade journal, or interaction in a conference. We get very little business through the internet or other traditional channels.

Customer Segments: We serve a wide range of segments; Aerospace (both DoD and commercial), automotive, medical devices. We have recently made forays into Oil and natural Gas equipment suppliers and plant machinery consumers (essentially big factories)

Cost Structure: A large portion (85% +) is employee salaries due to the human resource intense nature of our service. We also have expensive software subscription fee and hardware lease expenses.

Revenue: Our revenue is from two sources; he federal government R&D revenue is through long term fixed price contracts negotiated in advance and assured for a fixed period. Our commercial business revenue is through consulting services fee charged based on nature of problem and software service subscription charged based on number of users and functionality.

Web Based Business Models & Lifestyle Marketing

Readings:

Business Models

Dollar shave club

Warby Parker

Menswear startup Bonobos

Hointer

The internet has the ability to drastically ease the barriers of entry for any business- be it retail- B2C, B2B, IT services, Consulting services by leveraging the virtual infrastructure rather than the physical one. This significantly reduces initial investments needed to get the venture off the ground. Allows manufacturers to source raw material and manufacturing infrastructure from all over the world and get the product/ services to the market without investing in a traditional distribution channel (at least initially) or traditional media based advertising and yet have a wide enough reach. As opposed to opening one retail location to test the market, you now have the ability to reach a sizable population of customers to ensure the product/ service will succeed.

The Web has taken traditional business models and added its own flavor to the various pieces- be it value proposition, revenue, key activities etc. Amazon web services (AWS) is a great example of how firms now can offer products/ services through the cloud. Over the past few years, my firm is in the process of productizing its proprietary technology and offering it as software over the cloud. The AWS has significantly eased the barriers of entry into the software world in a big way by giving a small business the ability to reach many customers through the Web without investing in its own infrastructure. The SaaS model has completely rewritten the traditional software models by significantly reducing infrastructure needs for both the consumers and the developers. The App store and its numerous apps have spawned a whole generation of entrepreneurs by providing both the infrastructure and the channel to bring their innovative apps to the consumer.

I see business models gradually morphing to suit the current generation’s lifestyle. The current consumer leans heavily on technology on a daily basis. This has resulted in a number of firms reaching the consumer through the Web. Amazon’s revenues in 2013 were $75 billion with over 80 million unique visitors every month (https://www.quantcast.com/amazon.com). Amazon has changed the way we shop- for books and everything else! I see Hointer, Bonobos , Warby Parker and Dollar Shave Club an offshoot of this lifestyle based marketing. Clothes were an item I (& most people) refrained from shopping online given the need to touch, feel & try before buying it. Hointer and Bonobos have changed one of the most painful experiences men had to endure- shopping for clothes. It’s now been made easy, with as little human interaction as possible! As this trend gains ground we are seeing traditional brick and mortar stores gradually go out of business (Borders, Circuit City) or dramatically modify their business models (Macy’s, JC Penny, BestBuy).

As with retail, the media industry is also shifting to the Web with most of us relying on the internet for our daily dose of news and entertainment! The web has brought about a paradigm shift in the creation and consumption of content. In has completely removed barriers of entry into this world by letting anyone with a computer or a mobile phone to create content and reach millions. This is forcing traditional content creators to completely rethink their business models. A great example is AMC with its interactive apps for the various shows letting viewers get more out of their television experience and incentivizing live viewing by letting them participate! Network TV is facing the brunt of the growth in digital media with rapidly dwindling advertising revenues. Youtube and other media outlets provide a great channel for content creators to reach viewers without expensive infrastructure or bureaucracy.

The web has altered the way we work, shop and play- forcing firms to change the way they conduct business. Easing infrastructural barriers has spawned unique business models that cater to today’s life style.  This is a great report by Ernst & Young on digital retail and its effect on brick and mortar retail. http://www.ey.com/Publication/vwLUAssets/Digital_retail:_analyzing_the_effect_on_retailers/$FILE/Retail_thought_leadership_Digital_Retail.pdf. But web based selling does provide a great amount of data on customer buying habits and preferences allowing firms to tailor their offerings. http://mashable.com/2014/01/21/amazon-anticipatory-shipping-patent/ is a great article on how Amazon knows what you want!

Information Proliferation & the Segment of One

Readings:

Origins of Social Media

IBM’s CEO on data, the death of segmentation and the 18-month deadline

Community Relations 2.0

The LongTail

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The evolution of the internet from a read and learn to an inform and disseminate has occurred at an extremely rapid pace – blame ubiquitous connectivity for it. Never before has information, people and their opinions had the reach or the influence they wield today. Social media has redefined the way news- national, international or local spreads. Viral, a term previously associated with the spread of infectious diseases, today is commonly used to describe how news proliferates. This power in the hands of the individual has in my opinion created the “Segment of One”, where each of us has the ability to take a stand, express an opinion, share an idea, collaborate, contribute and clearly articulate our likes/ dislikes, needs and wants & be heard. Companies that used to build and experiment with their product or services now have a conduit into their customer’s use habits. This of course comes with the added baggage of catering to those needs or losing the customer to your competitor. In the old way, firms could afford to ignore the customer’s voice and still do business as usual. The social web has networked all these customers and there is indeed strength in number! The AOL and Comcast customer services are instances of how firms that had a culture of ignoring customers in the past continued to do so and paid the price!

Crowdsourcing and crowd-funding are great examples of how venture financing has changed since the spread of social media. As a part of my other course this semester, The Integrative Capstone, I am spending two full days around start-up at a New Venture workshop in Indianapolis in a couple of weeks. It will be interesting to see how many of the new ventures build on this social media platform and also leverage this medium for funding, ideas and feedback. The HBR article on community relations is a great example. Most of us reach out to google every time we come across a roadblock- be it a personal one related to a medical condition or a professional one related to our work lives. Just as there are social groups discussing specific cures, there are groups that tackle challenging problems- aerospace, computing , engineering - all only for personal gratification. The social web has indeed made the world a village where individuals can make contributions to worthy causes in any corner of the world. A typical example is “Narayana Hrudayalaya”- a heart-care center that performs heart surgeries free of cost for those who need it- based in Bangalore, India. People all over the world make charitable contributions that help with keeping the mission alive. Would this have been possible without the social web- I am sure it would have, but not at its current pace.

However, the use of social media has other ramifications. People leave their footprints all over the web and social media-either knowingly or involuntarily- it is this data regarding their preferences, buying habits, activities, personal and professional life etc. that is invaluable to companies and helps create a segment of one.  I think this is where the concept of longtail creeps into the picture. I work in modeling risk- mainly risk of failure of aerospace components, an area of engineering that is extremely risk averse. Distributions play a critical role in driving failures- a rate/ low probability event can sometimes cause catastrophic failure- so a long tail with low probability of occurrence events is a concept I am intimately familiar with. In the context of marketing, unless the cost of selling to these long tails can be justified or the product is a niche’ offering it makes little sense to build a business around it. A significant percentage of products in today’s world are commoditized- where margins are low and profitability is dictated by volumes. You can see it even in the media business- where books, music and movie offerings are tailored for the majority. The segment of one helps in understanding the individual needs and better, informing the customer of the product and influencing his buying habits. A lot of firms were ambushed by the proliferation of social media and were caught wrong footed. But over time they have developed means to use this to listen to their customers and sell them the products they want.

Creative Intrusion: Sum of parts greater than the Whole

Readings:

Crowdsourcing: Dawn of Human networks

How to build your start-up without learning code?

Information Liquidity

Why the groundswell- and why now?

Making the transition to the social web

Star Search

Days of developing breakthrough technologies in the isolation of a laboratory are long gone. Today, people come together through the social web to provide their inputs whether you like it or not! I call it creative intrusion- giving individuals and firms the opportunity to leverage the collective intellect of people all over the world. The GNU and “Beerwares” are typical examples of this collaborative effort. This ability to harvest the opinions and inputs of people presents firms a valuable opportunity to - 1) collaborate on product development 2) have a real-world control groups to market test 3) determine segments of the market that need to be convinced  4) reduce product life cycle times and many more. The social web has allowed people to have an opinion and express it and be heard.

The groundswell in people participation is direct fallout from “Ubiquitous Connectivity” and “Information Liquidity”. Social web has given people a channel to publish their opinions, likes/ dislikes about any and every topic – products, services, social issues, environmental issues, fitness and many more. In addition, these opinions are finding an audience. These opinions are triggering specific reactions from the people. None of us buy a product, book a hotel, eat at a restaurant or visit a place without first learning about how other people feel about it. The web populace has been very smart at discerning genuine opinions from propaganda or advertisements. Firms are now starting to see the need for being active listeners and participants in these fora. Tools like Salesforce.com’s Marketing cloud provide a platform for monitoring their digital brands and creating digital marketing campaigns.

http://www.wired.com/2014/04/how-ge-plans-to-act-like-a-startup-and-crowdsource-great-ideas/ shows how GE “accessed the global brain” to solve a complex aerospace problem. The “Not Invented Here” attitude of large firms is gradually giving way to collaborative development. However, there are many instances where marketing on the social media or unintended missteps led to disastrous outcomes (https://econsultancy.com/blog/7913-14-epic-social-media-fails )

But has crowd sourcing/ crowd funding helped propagate start-ups with little or no thought process? I see very little relation between writing code and a start-up. I see entrepreneurship being more than having a gee-wiz code and snazzy mock-ups. Creating and delivering value still needs to be front and center. The dot-com era is littered with numerous examples of start-up that failed due to e-commerce hype. I feel crowd sourcing and crowd funding and the social web in general fueling a similar hype. 

The 5th P: How social media has added People to the mix

Readings:

Made to Engage

Do You Trust This Face?

Does the Internet Make You Dumber?

Does the Internet Make You Smarter?

Secret of Engaging Customers in Online Communities

The internet has provided unfettered access to information, both good and bad. How individuals or firms leverage this information to their advantage essentially drives the final outcome(s). The internet and social media, for the first time have provided firms an unprecedented access into a customer’s mind- his likes and dislikes, needs and wants and finally his/her perceived value of a service/product. Firms in the past, spend millions in market research, product testing, segmentation, now have access to similar information and that too real-time through social media channels. Firms having spent decades working on the traditional marketing equation of 4Ps- Product, Place, Price and Promotion with little or no interaction with the 5^th P- People are now forced to rethink. The internet and social media has flipped this equation to let People be the driving force. Twitter, Facebook and Amazon provide a conduit for customers to praise or vent about a product helping form instant opinions about a firm’s product that are hard to erase. However, the upside for the firms is the ability to better segment the markets, refine their offerings and customize their products as needed in collaboration with the people who want it. Days of “Any color so long as it’s black” are long gone. The access to information is eroding the advantage firms had in the past- trying to sell the same product at different price points, offering products that are perceived to have “advanced” or “new” features and finally resorting to advertising gimmicks. Now potential customers have access to price information of the product and its competitors in the different channels and locations. Have detailed reviews of product features by real customers and don’t pay any attention to traditional media advertisements.

Has the internet made us smarter or dumber? Can we really pass judgment this soon on its impact? To me, internet is a tool- how you use it drives what you derive from it. The same internet that has given us Wikipedia, GNU and a collaborative search for cure to major diseases also gave us cyber stalking, pornography and the silk route. IS that to say all internet is good or all internet is bad- of-course not. As with any invention, the good come with the bad. Having a Facebook to connect with friends/ family and express opinions comes with all the associated privacy concerns and identity thefts. I am sure similar concerns were raised regarding children’s grades when the television became popular (http://www.csmonitor.com/1983/0819/081943.html) , did that keep its influence from growing? However, over time people realized the need to recalibrate and use it to our benefit.

The internet and social media has shortened the news cycle, redefined how we get our news and information about everything. It gives firms a unique ability to learn, cater, collaborate, influence and watch real-time how their customers react and use their products. It is hard to ignore the irony in this strip by Scott Adams on how social media and the internet have affected the way we do business and how it still is a quite a confusing landscape to navigate.