Mall Busting with Wal-Mart, Facebook & Zappos

Samsung strikes a deal with the beleaguered Best Buy to subsidize their rent with a store-in-a-store initiative. Borders exits the mall and last-man-standing Barnes & Noble seems to becoming a living room chachka vendor with more book browsers than book buyers. Zappos Labs runs field research in malls and Facebook launches a commerce strategy (again).

Is a retail dust bowl about to blow through the mall nationally? Or is this a digital tempest in a tea cup?

We know that online commerce is booming but it still accounts for a small slice of America’s mall business. Undeniably, this $200 billion digital business (ComScore) is expanding scope daily.

If there was ever a digital demarcator, it is the soap business. When Unilever and P&G, the markets main consumer package goods companies, begin to sell soap on Amazon, and when Wal-Mart begins to ramp up its online business, leveraging its 4,000 stories and 158 warehouses as an online distribution network, then mall property owners possibly need to rethink their role in bricks and mortar.

Inertia as a strategy

Malls are entertainment destinations. Always have been. We go to the mall for a movie or latte just as we bundled the family into the Buick 60 years ago to go shopping. But if Best Buy and Barnes & Noble leave the mall, what is left to attract the consumer? Hours of gizmo browsing and cook-book thumbing gone.

Browse-verse-buy business has whittled way the margins of many stores making Blockbuster and Gamestop digital road kill. It forced Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target’s executive vice president of merchandising to cry uncle on “showrooming” in a memo to its suppliers in 2012.

However, muscling your supplier’s prices down is a pharic victory. Even with the volume sales of Target and Wal-Mart know that they need to move some of their business into the cloud. During Wal-Mart’s August 2013 earnings call it announced that eCommerce sales rose by 30 percent in two trailing quarters. Neil Ashe, Wal-Mart’s CEO indicated its total online sales could pass $10 billion in fiscal year 2014.  This is only two percent of the stores earning and only 12 percent of Amazon which sales totaled $61 billion in 2012 but it is a marked trend and a harbinger of the exodus of earns from the mall.

What incumbent stores presently have in their favor is inertia.  The cloud and the mall are still not fluidly connected. Although each shopper is armed with a mobile computer which has the capability of scanning, sourcing and saving the consumer in every aisle, there are too many hurdles and friction between the idea of digital buying and the products within arms reach.

The mandate of any red blooded digital retailers is to eliminate this inertia.

No-click Cloud Checkout

Apple’s iTunes, Amazon and Paypal built their business on simplifying checkout: making sure that the act of buying does not get in the way of intent to buy.

One-click checkout or combining stored customer credentials with a simple password is the sole reason that these companies continue to grow their market share. Their UX team would tell you that every informational and graphic design is based on optimizing clicks to checkout. Each click makes a precipitous drop off and abandoned shopping carts litter the web.

But digital checkout demands trust and mindshare. Even online real estate barons such as Facebook have been unable to enter this market.  Although “Social” and “commerce” seems natural allies, Facebook has not been able to delivered on its promise to leverage its millions of customers to shop cross-channel.  The company launched Facebook Credits in 2009 and phased them out last year. “F-commerce” experiments abound. Remember Facebook + Amazon + P&G partnering in 2010 to change the world. Unilever followed suit launching a storefront on Facebook for its Dove brand. Retailers including JCPenney and Gamestop have attempted to monetize their Facebook community by opening stores inside the Facebook network. After underwhelming results they shut their virtual doors.

Apple and Amazon have proven that community plus one-click checkout works. These digital wallet holders started their business explicitly to sell stuff. And they are poised to remove the inertia from online shopping and with it the last refuge of the mall owner. Online shopping provides advantages with an endless aisle allowing for access to more sizes and categories. According to Nielson the average basket size is much larger for consumer package goods ($80 online to $30 offline) and beauty purchase ($30 online to $10 offline).

The question is that when the households put soap and diapers on their shopping list will they log into Amazon to buy Dove Body Wash 24 Ounce Bottles (Pack of 4) and Pampers Sensitive Wipes 7x Box?

Baked Beans & Apple Pie

The last refuge of the American mall maybe a can of baked beans and fresh produce. If the household shopper wants to grabs a can for dinner tonight or smell the oranges and squeeze the melons before buying, then off to the store they will go. Grocery stores are big box convenience stores.

However, should mall owners that are grocery-anchored feel safe? Their clientele should come from a weekly shopping list.

Well, hold your Kraft peanut butter!

The traditional grocery retailers are faced with increased competition. In March, Wal-Mart opened grocery concept stores about a tenth of the size of their supercenters. With big box and online retailers entering the grocery space, specialty grocers capturing the “foodie culture” consumer and brands creating direct relationship with the consumer, perhaps this is not a safe bet for mall owners.

Google Wallet, ISIS and other phone wallets promise to make in-store shopping more digitally fluid, but what is the digital wallet never makes it to the mall.  Online grocery shopping has grown five fold over the past eight years to $25 billion. Tablets devices have made shopping more leisurely and couch commerce has accelerated.  With CPGs moving their diaper and detergent business into the mainstream online stores like Amazon, the inertia may soon come from the home.

Poaching People

Since Tesco opened their virtual grocery store on the subway in Seoul, Korea two years ago, scan and shop on-the-go signage has become more common. While it is still a media gimmick, it has the potential of becoming a way of luring the shopper online. In every mall or transit hub America at least one brand has attempted to use the in-mall media to engage with the shopper and move them into their cloud store.

In CNET interviews with Zappos Labs’ (an Amazon-owned online retailer) the Director, Will Young, confesses that his team sits around malls stalking shoppers. Their goal is to emulate these shoppers’ behavior online. Young is asking “How can you make the digital experience feel like the in-store experience?”

Whether they succeed or not, there is no question that malls need to re-evaluate their passive media deals. When a brand buys signage on an ad impression basis but uses this media to poach customers then this signage perhaps should not be sold as an impression but as a “mini-storefront”.

Mall owners nationally are holding strategy sessions to evaluate how technology is affecting their business. These stakeholders need to re-evaluate their real estate assets and start to see media as leasable square footage.

Part Two: Mapping the Mall (to be continued)

Jump, Tap, Exit. (Jumptap & Millennial)

by Gary Schwartz (14/08/2013)

Jumptap may be the last man standing of the incumbent mobile ad networks to have their exit. The acquisition by Millennial Media, its erstwhile competitor, in a predominantly stock transaction, may not be the glory finish that many had hoped.   What does consolidation mean to the mobile ad world?

Good things . . . in the long term.

Grooming a network

George Bell came on as the new Jumptap CEO in 2010 to ostensibly position the company for an exit.  Bell was the ideal candidate coming from General Catalyst and being an accomplish network deal maker. Back in 1996, Bell took Excite network public.  Apart from a few digital faux pas such as turning down the then two-year-old startup Google offer of $750,000 for their search engine, the Excite network continued to grow with impressive revenues through 1998.

Over the past two years, under Bell’s leadership Jumptap has grown its position in the crowded media market establishing global partnership into markets in Asia and vied for the budgets of digital agencies, direct response and brand advertisers and the inventory of publishers globally. And mobile budgets have grown for all mobile ad network stakeholders.

In Jumptap’s M&A prep this year, the company took in a $27.5 raise from WPP, Keating Capital and General Catalyst topping their raise to date at $121.5 million. A significant number. Key was Jumptap’s decision to bring on board John Hadl a mobile media veteran and rainmaker who advised Millennial Media, Admob and Quattro Wireless.

2013 was its make or break year.

Patents alone

On patents alone, Jumptap should hold significant market value. After the first patent was issued in June 2009, Jumptap has received 52 patents; at an impressive IP quota of one monthly. It has many more published patent applications in the pipe.

George Bell, has advocated from day one for IP differentiation and has continually stated that patents underscore the company’s commitment to ad targeting and smart ad solutions. The company holds a good spread of patents from ad targeting, coupon selection, bid optimization (realtime bidding) and the management of third-party data.

Augme Technology’s (a mobile media company) lawsuit against Millennial Media over ad targeting last year, patent mud-slinging seemed to be the first indication of a mobile ad war.

The Millennial Media acquisition may not vindicate the hard work and positioning on patents and network growth and may speak more to the general mobile ad market ennui.

Ups and Downs

The mega valuations that Admob and Quattro Wireless commanded from Google and Apple respectively four years ago soon rang hollow after Apple shelved Quattro’s platform and mobile ad sales showed halting growth.  It seemed that the online leviathans were just building a mobile ad network and waiting. Mobile buying remained challenging – there was not the scale and simplicity that is required to attract media dollars.

Then last year the market began to heat up with cool results: InMobi received strategic investment from Softbank,  Opera purchased AdMarvel  and Millennial Media, after trying for a Quattro-like exit, opted for an IPO which was surprisingly successful.

Markets results remained challenging. Velti and Augme, both of which had transitioned their business to mobile advertising away from their traditional higher margin mobile marketing business, showed slowing growth.

Of the ad networks, Millennial Media was the closest to turning a profit and generating consistent positive operating cash flow. Now with its expanded holdings what should the network focus on to grow?

“Cross Screen”

There is an oft-quoted line in technology that many are over optimistic in the short term and overly pessimistic about the long term.

In the short term mobile revenues will grow slowly and organically as budgets move into digital. However, in the long-term there is tremendous opportunity to accelerate these budgets if we can manage to simplify the mobile buy across all digital touch points.

Jumptap’s Unified Audience Exchange and their previous partnership with 24/7 (which has credibility on the PC side) was a sign of a multiscreen ad strategy. Networks like Jumptap and TapAd had begun touting the importance of a cross-channel ad buy.  Paul Palmieri, Millennial Media’s founder and CEO mentioned Jumptap’s expertise in cross-screen media a key asset to their network.

Brands want to follow their consumer across their many interactive screens. Google, Facebook and Pandora have made their mobile offering increasingly advertiser-friendly. Larry Page on his quarter call last month said that Google wants “ to make advertising super simple for customers. Online advertising had developed in very device specific ways with separate campaigns for desktop and mobile. This made arduous work for advertisers and agencies, and meant mobile opportunities often got missed.”

Digital consumer engagement has become a top priority for advertisers and publishers. There is a trend to make mobile advertising easier to buy. Online, mobile and offline media need to be seamlessly connected. Targeting across multiple screens (not just mobile) is essential for brands drive conversion and path-to-purchase.

Millennial will need to navigate through a rash of nimble new start ups in the space (App Nexus, Adelphic, Native, Nextage, Media Math). Consolidation, simplification and cross-screen budgets will help Millennial but it will be difficult for this public company to pivot.

The Washington Post: Bezos’ Legacy

by Gary Schwartz  (06/08/2013)

The newspaper business is tough.  Over the weekend the New York Times Company sold The Boston Globe and its other New England media properties to John W. Henry, principal owner of the Boston Red Sox for $70MM. It bought the asset in 1993 for 1.1BB.

When Jeff Bezos, the CEO of Amazon, agreed to purchase the Washington Post newspaper (affectionately called WaPo by its readers) for $250m, was he buying a viable business or and the glory of 80 years of traditional media leadership.

With a net value of 20BB, Jeff Bezos can buy many things. Does he see this as an extension of his internet empire or as a way this new-age business genius can secure an old-world trophy and a media legacy?

Amazon Publishing, Amazon Studios  . . .  but this is different

Bezos has taken on incumbent media business before. He has single-handedly changed the publishing world. Amazon Crossing, Amazon Publishing’s imprint acquired Pötzsch’s Hangman’s Daughter series and translated it from German into English and launched it in audio and print. The series became a #1 bestselling Kindle book and in June 2013, the book reached the platinum one million copies sold.

Amazon Studios is now developing movies and TV series, and recently announced five new video-on-demand program pilots. It has started a crowd sourcing campaign soliciting 2-15 minute long shorts to pitch a feature-length film idea. Amazon Studios evaluates each submission, and will seed some of the submissions with $10,000.  The studio then grooms the development funding successful scripts through to the theatrical release incentivizing film makers that get their ideas from paper to the silver screen $400,000.

White-Glove Legacy

But the Washington Post is different. He did not purchase the Post’s other online assets: Slate magazine, TheRoot.com, and Foreign Policy. The flagship Washington Post newspaper purchase seems more of a personal acquisition and less a vertical strategy. Bezos will become an owner taking over the Graham family title. Does Bezos what some old-world legacy to place on his media mantel?

Post chief executive, Donald Graham has known Bezos for about 15 years which most likely helped this transition easier. He told FT.com that “He [Bezo] is a very patient, long-term investor.” He will need to be. Despite the paper’s move into digital publishing, the Washington Post has seen a decline in circulation (6.5% in the last year alone) and the trick down pain of declining advertising sales.

Innovation?

What Bezos is buying is the paper’s white-glove media position only rivaled by The New York Times. The paper hold its place as the seventh most popular daily newspaper in the US. Many in the industry is watching closely and hoping Bezos can bring his magic to the ailing publishing business.

Journalist Carl Bernstein who broke the Watergate story with the Post, told Politico that this change of power is “recognition that a new kind of entrepreneurship and leadership, fashioned in the age of the new technology, is needed to lead not just The Post, but perhaps the news business itself”. Bernstein’s partner and Post associate editor Bob Woodward, said on MSNBC. “I think in some ways, this may be the Post’s last chance to survive, at least in some form of what it was.”

So with the world watching what will Bezos do? Will he launch 3D printing with this property? Will he connect one-click commerce to this new newspaper install base? Maybe he will simply use this blue-chip Washington company as entree to the DC Beltway and all the value of being a Washington insider.

While Bezos will surely add innovation to the paper, he will be careful not to vanquish Katharine Graham’s family-run papers legacy and maybe happy to simply keep the association with grit journalism at its best.