Facebook just hit 1 billion users. Brace yourself for the backlash.
Remember everything you've learned about the power of Facebook,
Twitter, and other social-media sites to promote your business? It
remains true, with one caveat: In 2013, expect to see a backlash to the
sheer massiveness of these sites--as well as the emergence of
smaller-scale, niche networks. "In 2013, we'll see more users start to
expect, if not demand, some tangible benefits in exchange for all the
time they spend online and the personal information they're sharing,"
says Trendwatching.com's David Mattin. Adds Howard Tullman, CEO of
Tribeca Flashpoint Media Arts Academy, partner at Chicago High Tech
Investors, and columnist for Inc.com: "Consumers are starting to
understand the value of their information and asking to be compensated,
whether with badges, rewards, preferred pricing, or discounts and
perks." Tullman's prediction for 2013: "We'll increasingly see new kinds
of virtual currencies and services--like Ticketmaster's Facebook app
that lets you see where your friends are sitting at an event."
At the same time, the sheer massiveness of Facebook is creating
opportunities for smaller-scale, niche networks. People aren't likely to
flee Facebook outright, Tullman says, but they will increasingly
augment their online social experience by using other networks whose
size, privacy, and more customized parameters are better suited to
specific tasks and goals.
Some good examples are Path, a free personal-social-network service
that limits users to a 150-person circle; App.net, a subscription
service that lets users create their own social networks; and NextDoor, a
private social network that helps users connect with others in the same
geographic area. MindMixer is a sort of virtual town hall that enables
communities to define and discuss ideas. Yammer, meanwhile, helps
businesses create internal networks.
The emergence of more and varied social networks will present a
challenge to businesses accustomed to Facebook and Twitter. For one
thing, many people use such networks specifically to avoid the
increasingly commercial aspects of Facebook; in that case, you would be
smart to start by limiting your presence to participation and listening,
rather than selling. Eventually, however, smaller networks could become
effective ways to reach specific geographic areas or professional
groups, or build communities around a brand. The goal here, says
Tullman, is less to attract new customers than to build deeper,
longer-lasting, and more lucrative relationships with the ones you have.
When you have that, word of mouth will naturally bring in the new
business.
Used to be you had to please your customers, your investors, and the press. What happens when your customers are your investors and your press?
In today's networked, hyperinformed economy, customers are no longer
mere buyers. They're helping design and innovate products and services,
preordering and funding products that haven't been created, and even
investing directly in early-stage businesses. If you continue to treat
your customers as mere sources of revenue, you're missing the boat--and,
quite likely, pushing them into the arms of a competitor who
understands the truly important role they can play.
For a look at the opportunities, and perils, of this new
customer-centric model, consider the Pebble Watch. The company launched
via the crowdfunding platform Kickstarter, raising $10.2 million and
netting orders for some 85,000 watches. When the anticipated September
delivery date came and went without explanation, Pebble took a serious
beating. But the company rallied, posting regular updates, including
videos and photos from its production facility. And Pebble's founder,
Eric Migicovsky, learned an important lesson. "It's awesome to see the
amount of support we have after posting an update about production," he
says. Kickstarter learned its lesson, too: In September, it announced
new rules that, among other things, require project creators to better
disclose risks and challenges associated with their projects.
But crowdfunding is just one way to get customers involved. Quirky, a
New York City company that manufactures household goods and tech
accessories suggested and voted on by its 300,000-strong community of
citizen inventors, uses another model. Rather than preselling, Quirky
produces selected products at its own risk and rewards
"influencers"--those who have helped to refine the product--with
royalties on the items' sales, which gives them an incentive to promote
the items themselves. The model has essentially eliminated the need for
traditional marketing, says Ben Kaufman, Quirky's founder and CEO. "The
nature of marketing is convincing people they need something--you don't
need to persuade someone they need something if they've already told you
they need it." Kaufman expects to see more companies follow his lead.
"It's the smart way of doing things--learning more about what customers
want up front, before making a big investment."
Even when customers aren't literally invested in a company as product
consultants, there is a growing need for companies to be more
transparent. Forward-thinking brands in all industries will increasingly
be expected to disclose information--about products, labor practices,
sustainability--that customers care about. "Brands will need to move
from just having nothing to hide, to showing and proving everything they
do," predicts David Mattin, senior analyst at Trendwatching.com. "Even
consumers who aren't interested will expect brands to prove their
ethical credentials to those who are."
Tricia Wang, a digital ethnographer who has worked for Nokia and
Microsoft, points to another emerging trust issue that marketers may
need to think about. "For a long time, brands thought that they only had
to focus on developing trust with their consumers," says Wang. "But as
companies start embracing sharing models that can rely on people's
networks to popularize their product or even create the service
itself--think Airbnb--designing for trust will be a top priority.
Successful companies will be the ones that figure out how to foster
trust--not just between the company and the consumer, but between
consumer and consumer."
Aurora Products Inc. (Aurora) is on a mission to prove with its
Aurora Natural product line that not all packaged dried fruit and nut
products are created equal. Aurora was founded in 1998 with a goal of
producing only the highest quality products possible, which the team
achieves by setting strict quality controls and encouraging a corporate
culture of creativity. The Aurora team believes that the health of the
community, the planet and its business are all interconnected so only
all natural and organic products will ever bear the company’s logo.
“We’re a family-run company and are still growing simply because we take
a lot of pride in what we do and we look to work with people who are
just as passionate as we are,” asserts Stephanie Blackwell, president,
CEO and founder of Aurora.
Aurora is based out of two separate facilities in Stratford, Conn. One
of the facilities is used for packaging all natural products, whereas
the second location is primarily dedicated to processing and packaging
organic items. The total space occupied by Aurora is approximately
77,000 square feet, with an additional 100,000-square foot facility
being built.
Aurora takes food safety very seriously, which is why the company has
been awarded SQF Level 2000 Level 2 certification by the Safe Quality
Foods Institute. SQF leads the global food industry in food safety and
quality management certification, and Aurora’s certification serves as a
testament to the company’s HACCP food safety system, which must adhere
to benchmarks set by the Global Food Safety Initiative.
Deliciously Dynamic
Aurora currently produces over 250 products under the Aurora Natural
brand, including dried fruit, nuts, trail mix, granola and ancillary
products such as wasabi peas, veggie chips and sesame sticks. The
company only roasts its nuts in all natural or organic oil, depending on
the item. In addition, Aurora offers dry roasted nuts, allowing the
natural flavors and aromas of the nuts and seeds to be enhanced without
any added extra oils.
Trail mix may be standard fare for many snack companies, but to Aurora
the mix is about being creative. All of the company’s trail mixes
contain top-quality nuts and dried fruits without sulfites or food
colorings; all of the ingredients are either all-natural or organic. One
of Aurora’s most popular mixes is the Cranberry Health Mix, containing
plump dried cranberries, almonds, pepitas and other delicious
ingredients.
Popular granola flavors include Vanilla Crunch, Cranberry Vanilla and
Honey & Nuts. For those who simply can’t choose, Aurora also sells
two “grail” mixes, Caribbean Crunch and Forest Bounty, which combine the
crunch of granola with high-energy trail mix..
The company’s appetite for innovation isn’t limited to product
development, as Blackwell has always prioritized personality and energy
in finding the right employees. “We look for dynamic, passionate
employees rather than focus on book-learned education, because our
business is built upon keeping a creative edge in the market place,”
expands Blackwell. “For example, our head buyer used to work as the
manager of a toy store, but I could tell he was just going to be
brilliant. I hired him 13 years ago and today he travels throughout the
world looking for nut and fruit farms and managing 80 percent of our
purchasing. He’s fantastic.”
Aurora began color-coding products very early on. The company was one of
the first to provide complete plan-o-grams to display its products in
the produce section of supermarkets. A yellow label was used for raw
nuts, green for salted nuts, red for dried fruits, blue for trail mixes
and so on. “The idea was to package each of our snacks in clear
containers with color-coded labels for easy identification,” explains
Blackwell.
The Aurora difference has everything to do with the team’s attention to
health and the environment. Preservatives are entirely left out of every
Aurora Natural product, and there are no artificial colorings. In
addition, the company’s packaging utilizes recyclable plastic and
corrugated material. Though many other companies may use recyclable
plastic in packaging, Aurora Naturals doesn’t only use material that is
simply recyclable. The team utilizes materials that have been partially
recycled from previous use. But the team doesn’t stop there; oils used
in roasting nuts are reused as biofuel for transportation needs.
Staying the Course
“Aurora was not always as professionally run as it is now,” says
Blackwell. Then again, when Blackwell started the company it was just a
one-woman operation armed with a heck of a lot of passion, a kitchen
table and a postal scale. “My children spent much of their free time
helping me to pack product; hopefully child labor laws did not apply to
them,” chuckles Blackwell. “They were such a big help.”
Today Blackwell is adamant about giving credit to those who have helped
shape the growth of the company. “We have used many of our suppliers
since day one, from the company who supplies our corrugated cardboard to
our insurance agent and our plastics supplier,” she says.
Aurora enjoys many longstanding relationships with both customers and
suppliers, and the team is proud to continue forming long-term alliances
with suppliers who share those same values.
Aurora will be gearing up for further growth within the next few years
as the company’s salad fixins, flavored nuts and granola lines gain
popularity and encourage more consumers to enjoy healthy snacks.
The company recently finalized the acquisition of 12 acres of land in
nearby Orange, Conn., and began building a 100,000-square foot facility
to accommodate future growth. “The new site can accommodate up to
180,000 square feet of space,” explains Blackwell.
Behind the scenes the company is always developing new products, but the
details are strictly limited to those on a need-to-know basis,
protecting Aurora’s creative edge. Whatever products come out of the
team’s imagination will allow Aurora Products Inc. to continue putting
quality and nutrition first, cementing Aurora Natural’s reputation as a
leader in healthy, hearty and wholesome natural foods.
Sandeep Gajakas
wipes his spectacles clean, methodically and constantly. During the
course of a two-hour interview at his residence in suburban Mumbai,
Gajakas would have cleaned his glasses about half a dozen times. He also
constantly places his phone and this correspondent's phone in straight
lines, facing him. Haphazardness doesn't quite work for Gajakas.
"It [cleanliness] used to be almost like an OCD [obsessive-compulsive
disorder] a few years ago," says the 35-year-old, smiling. "But marriage
has had a good influence on me and I am a lot more at ease." Yet,
Gajakas admits that he is very particular about keeping things clean, be
it his house or his shoes. The latter — cleaning shoes — is how Gajakas
has made a living since 2003. Gajakas is the proprietor of The Shoe
Laundry, a shoe cleaning and repair service.
"I can make out the
story of a person's life by looking at his shoes. Does he walk a lot?
What does he do for a living? What is his lifestyle?" says Gajakas. And
how does he divine these insights? Well, experience, he shrugs. "I would
have cleaned 30,000 pairs of shoes and repaired some 60,000 pairs
personally since 2003," he says. That might sound like an extraordinary
claim, but then many things about Gajakas are just that: extraordinary.
Stepping Stone
Gajakas spends most of his time at home, chained to his BlackBerry
or laptop. He reads and answers close to a hundred emails each day. A
chunk of these emails have photographs of badly soiled or damaged shoes.
These photographs have been emailed to Gajakas by employees and owners
of the franchises of The Shoe Laundry from across the country. Gajakas
looks at each image carefully and suggests a solution, which he emails
back. The other emails are enquiries from people who are interested in
investing in a Shoe Laundry franchise — known as Shoe Vival.
Gajakas hasn't always worked from home, even though he confesses that
there are some great advantages in doing so — like having lunch on time.
Till a year ago, he had an office, a workshop and a thriving business
in Mumbai. "Back in 2009, we were doing 80-90 pairs of shoes a day and I
had 16 employees at the workshop," recalls Gajakas. But then, he
decided to close the booming business and focus on expanding his
business network. But before we get to know why Gajakas chose to close
down his Mumbai business, here's a quick look at how Gajakas built it
from a scratch.
Squeaky Clean
When Gajakas was eight years old, he moved to a boarding school in
Panchgani. There he excelled in sports and was an NCC cadet. His father,
who worked with Air India, travelled the world and would purchase
expensive, branded shoes that weren't available in India for Sandeep.
"The discipline of NCC [where shoes are expected to be sparkling clean]
and the need to maintain my expensive shoes was my first step towards
shoe-cleaning expertise... though back then I never thought I would make
a living out of it," says Gajakas. "I was a sportsman and cleaning red
soil from sports shoes can be quite a challenge," he recalls with a
smile. It was probably the beginning of his obsession with cleanliness.
In the late 1990s, as he was pursuing his bachelor's degree in Mithibai
College in Mumbai, Gajakas remembers looking at thousands of students
going about with dirty shoes, not without some degree of horror. But the
shoe laundry idea still did not dawn on him. Armed with a degree in
fire engineering, he was all set to move to the Gulf for a regular job
in 2001. And then, 9/11 happened. Gajakas' parents shot down any move to
the Gulf, afraid that a war was about to break out.
"So, there
I was, stuck in India, with a degree that had few employment prospects,
wanting to do something different, lots of dreams but nowhere to go,"
says Gajakas.
Sole Proprietor
Gajakas
made a laundry list of businesses that he wanted to try his hand at.
Among them were floriculture business, fashion choreography business (he
had won several choreography shows in his college days),
air-conditioning dealership (since a family friend owned an AC company)
and shoe-cleaning business. A financial analysis of each business was
done. Eventually, the shoe-laundry idea won simply because "it hadn't
been done before and that excited" Gajakas.
Gajakas then hit
the first roadblock: parental approval. His father was willing to help
his son set up any business but the thought of a qualified,
award-winning sports champ cleaning other people's shoes for a living
horrified the parent. So, Sandeep found himself without funding. A job
at a call centre followed, partly to raise some money.
A little
after a year, the monotony of a desk job got to him and he quit. He was
ready to take the plunge. He distributed 5,000 pamphlets in a housing
complex, advertising shoe-laundering services. "Nine out of the 10 calls
I got were from people asking me if this was a prank," recalls Gajakas.
But a few tried the service and were impressed. Gajakas, personally,
cleaned the shoes. "For me, it wasn't about dirt. It was about
cleanliness," he adds. What followed was a series of favourable press
reports, thanks to the novelty of the idea.
Wear and Tear
Gajakas toyed with several names for his service, including Sandy's
Shoe Laundry. But then, sandy isn't often associated with shining shoes.
"We also began to get really badly damaged shoes for repair. People
would approach us saying 'take your time, but do something'. You will be
surprised at how sentimental people can be about their shoes," says
Gajakas, who adds that he would personally repair badly damaged shoes.
The trickle of cleaning jobs, over three years, became a flood of repair
and resurrection jobs. Today, Shoe Laundry charges Rs 180 to clean a
pair of shoes (including pickup and delivery) — up from Rs 99 in 2003
By 2009, The Shoe Laundry had scaled up: cleaning over 2,500 shoes a
month. He was giving talks to entrepreneurs; the company itself was a
case study in a few business schools. Copycats, sniffing an opportunity,
sprang up. Gajakas himself was stretched. "I was dealing with
customers, organising the pick-up and delivery of shoes from every nook
and corner of Mumbai, paying salaries, running an office, handling and
overseeing a workshop, not to mention still personally cleaning and
repairing badly damaged shoes," he recalls. "I got into this business
not to make tonnes of money but to do something different. I had got to
where I was because I had innovated and now I was getting tied to a desk
and worrying about the logistics of picking up shoes from all over
Mumbai," he says. Also, between 2003 and 2009, he hadn't taken a single
vacation.
The Franchise Solution
All
this made him take a hard re-look at his business. "If we had to grow
the business beyond Mumbai or even beyond what we were doing, I had to
do things differently," says Gajakas. These realisations led to the
establishment of Shoe Vival, the retail franchise of The Shoe Laundry.
The first franchise came up in Bhutan in 2010 and since then franchises
have opened in Bangalore, Surat, Indore, Gurgaon, Pune and Coimbatore.
"My biggest handicap is that I am the sole knowledge hub of processes
and techniques of this business. Plus, I don't have graduates being
churned out in shoe-cleaning and repair technology from any institute,"
says Gajakas. Those are the perils of starting a business that did not
exist.
Gajakas spends a lot of time answering queries from
people who are interested in starting a franchise. Even though there are
many enquiries, conversions are far less. "People are thrilled about
the idea and are all ready to start a franchise. Then they back off
after a discussion with their parents or wives, who don't like the idea
of cleaning shoes for a living. It's a caste-related perception," says
Gajakas. For now, he says he is having "serious negotiations" with 10
people who are willing to start a franchise. Enquiries have come in for
franchises from the Philippines, Uganda and Australia, says Gajakas.
What is his next big priority? Gajakas is seriously hunting for
franchises in Mumbai, his home turf. "It's among the biggest markets in
the country," says Gajakas. He is also in advanced talks with Shoe
Service Institute of America, a trade association of the American shoe
repair industry for licensing a proprietary service he has developed,
which will be marketed in the country.
Does Gajakas ever regret
his decision to take the franchise route and work from home? "No," he
says. "I have the time and mind space to innovate with new techniques
and processes now, instead of struggling with the logistics of a
day-to-day business. Plus, I get to eat lunch on time — something that I
never did for years."
At the time, there were very few online options addressing this need.
While some banks, like Citibank, offered the service to its debit card
users, it was typically for a high, fixed amount and was not accessible
to everyone. Basic research, including going through reports
released by the Telecom Regulatory Authority of India, revealed that 90%
of all the mobile users in India
were prepaid users. Given the rising penetration of the Internet in
urban India at the time, it was logical that the convergence of Internet
and prepaid recharge would emerge as a business opportunity. So, in
June 2009, though I was still neck deep in research, I quit my job and
started working full-time on setting up MobiKwik.
The ace up my sleeve was my to-be wife, Upasana Taku. She had worked with Paypal in the US
till 2008, returning to India to work with various start-ups. She
helped me finetune the payment options, and eventually joined the
company in 2010.
o get started, I put together a seed capital of around Rs 8 lakh from my
own pocket. Most of it went into setting up the infrastructure,
including the website, payment options, and renting of the office space
at Dwarka, Delhi. Finally, in August 2009, we launched the company.
Despite a sizeable Web presence by this time, the progress in the
initial days was slow. A majority of the Indians were yet to get used to
the idea of online recharging of their phones. Moreover, I had never
handled the finance aspect of a business. From getting the website
running to finalising deals with various telecom companies for recharge
availability, I had to learn everything on the ground since I had no
managerial experience. So, in the first year of operations, I focused
more on the overall running of the business.
The learnings were many. For example, the SBIdebit cards were, and continue to be, the most popular in the country,
but we found out that most of the users would go for the slightly older
versions of Web browsers. So we ensured that our payment options were
compatible even with the Internet Explorer 5.0 or 6.0 versions. By the
beginning of the second year of operations, we were registering 500-600
recharges a day, on an average. For every recharge of Rs 100, we would
get a commission of Rs 3-4, depending on the operator. The numbers may
not seem impressive, but these helped us
gain a foothold. As expected, things began improving in 2010, when
awareness grew and more people started using the Internet for
recharging. By the end of 2010, we also hired our first employee, a
developer, to handle the website.
The growth has been
encouraging and we managed to break even in June this year. We now have
22 employees and 15 service providers on our list, and offer much more
than the recharge facility. In February 2012, we launched an e-wallet
system, which enables users to deposit money online for facilities like
bill payment. So customers can not only recharge their phones but also
pay their bills through our website, or even via their phones. The
mobile website, launched in October 2012, has got a good response. We
are averaging about 15,000 recharges a day and expect a revenue of Rs
100 crore by the end of this fiscal year.
Walk
into a doctor's office without an appointment and you are likely to
waste the entire day trying get a diagnosis. However, help is at hand
now with HelpingDoc.com, a Delhi-based online company, which allows you to make an appointment with doctors in the NCR.
The company was co-founded by Amit Bansal, Dr Hemant Singhal, Srinivas Gattamneni and UK-based Julian Hall, in May 2012. It was conceptualised in August the previous year, when all four were attending the Entrepreneurship Summer School at the London Business School,
their alma mater, till May 2011. Their proposal was shortlisted as the
top 30 ventures worth nurturing, so the four decided to take the idea a
step further by researching the Indian market
as their launch pad. Says Bansal: "People in India are too busy to
visit a doctor. We also noticed that while online consultation is
helpful and an emerging trend in the country, physical consultation
cannot be ruled out completely."
So, in November 2011, the quartet pooled together a seed capital of Rs 85 lakh, drawn from their personal savings,
and registered the company as Helping Doc Private Limited. Most of this
money went into strengthening the technology for the venture. After
Bansal moved back to India in April 2012, he and Singhal rented an
office in Faridabad and hired a team of four. It took the team one month
to convince doctors to come on board. The founders also clearly
demarcated their roles—Bansal oversees operations, Singhal looks at the
medical aspect, Hall heads technology, and Gattamneni is responsible for
venture development.
Of course, there were several challenges. "We started by offering this as a free facility to doctors in Delhi,
but they were sceptical about it," says Bansal. So the team started
charging Rs 499 a month per doctor. "This was a fairly irregular payment
option as some doctors would subscribe for a month and drop out the
next month. So we shifted to a flat annual fee of Rs 6,000," he adds.
Here's how the website
works: search for a doctor based on a criterion such as health problem.
The portal displays a list of doctors and their location on map. You
can narrow down the list on the basis of experience, consultation fee,
distance and availability. Once you zero in on a doctor and convenient
time, you can make an appointment and get a confirmation free of charge.
Seven months on, the going is good for the fledgling start-up. The team
has already collaborated with 800 doctors, the website is getting 1,500
hits daily, and the 20-employee firm is confident of a turnover of Rs
70 lakh this year. To accommodate the growing team, they shifted to a
bigger office at Jasola, Delhi, two months ago.
Next on the
cards is expanding the repertoire by introducing consumer-based
services, such as online and tele-consultation. Their 'Ask an expert'
project on Facebook is already a hit, with at least 50 questions posted a
day to doctors subscribed with them. The company is also planning a
pan-India expansion in 10 cities, starting with Mumbai, Pune and
Bangalore, by the end of 2014. They are currently looking for venture funding to finance these plans and expect to break even by next year.
Company:Change.org What is it? An online petitioning site. Membership: 25 million users; the company is growing at a rate of 2 million new members a month. Who’s it for? Ordinary people who want to start hyper-local movements against corporations or interest groups. “If you want to win battles, you do it locally,” Change.org CEO Ben Rattray (pictured, above) told VentureBeat. How does it work? Petitions are nothing new, but the ability to marry them with social media and focus them in a hyper-local way — that’s where things start to get interesting. Simply launch a petition on Change.org, share it with your social networks, and watch it take off. The startup has a support team that will help you mobilize, and put pressure on your target. Greatest success story: Don’t believe you can take on the big banks? 22-year-old nanny Molly Katchpole launched an online petition on Change.org to put pressure on Bank of America to drop its new $5 monthly debit card fee. It was signed by 300,000 people. Victory was affirmed in November 2011. What is the secret sauce? The company has a charismatic CEO in the form of Rattray (pictured, above), who believes that technology can arm ordinary people to start revolutions. In a recent interview at the San Francisco headquarters, he told me that people are apathetic because they learn over time that their opinion or vote doesn’t matter. Inspired by examples of successful campaigns launched on blogs, Facebook and Twitter or sites like Change.org, they are recognizing that they can make a difference. “As the platform gets bigger, people in power know who we are,” said Rattray. “They recognize the potential power of viral campaigns.”
Why not raise money for a charitable cause?
Company:Rally.org What is it? A platform helps people to rally around and raise money for causes they believe in. Who’s it for? A rebel with a cause. How does it work? Create a fundraising page on Rally.org in a matter of minutes, and start accepting donations. Add your extended social network to your support list, and reach out to them on Facebook and Twitter. If your fundraising takes off, access a dashboard to analyze what’s working, and view a list of your greatest supporters. Membership: Approximately 1.5 million users. Greatest success story? A member recently raised $20,000 to help save a Minnesota church from foreclosure. What is the secret sauce? Its all-star network of supporters. Rally.org has successfully rallied celebrities like Bon Jovi and Silicon Valley’s venture capital community. When Digg.com founder Kevin Rose joined Google Ventures, Rally.org was his first investment. It was further propelled into the spotlight when it was chosen by the Romney campaign as its fundraising platform. “We’re increasingly seeing artists, brands and large corporations being very vocal and open about leveraging their celebrity and brand to benefit causes,” said Nick Warshaw, Rally.org’s business development lead in a recent interview with VentureBeat.
Why not offer an internship to a teen programmer?
Organization:CodeNow What is it? A nonprofit that encourages high school students from inner city neighborhoods to pick up computer programming. Who’s it for? Developers with a few hours to spare on an occasional evening who would be willing to teach; tech startups that can offer an internship to teen graduates of the program; kids from want to learn foundational skills in computer programming through free extra curricular off campus trainings. How does it work? Teens are given netbook computers when they enter the program and sign up for 45 hours of programming training after school and during the summer or winter break. Once they complete the program, some of the graduates land internships at tech startups like LivingSocial. Membership: There are about 50 alumni of the program. The program got its start in D.C., but recently expanded to San Francisco. Greatest success story? Wilfred, a teen from a rough neighborhood in Washington D.C., who was ready to hand out handwritten business cards with the title “future engineer” in a few months. A natural at the programming language Ruby on Rails, he is now teaching the new recruits. What is the secret sauce? Its close ties to the tech community. In attendance at the recent launch event in San Francisco were venture capitalists, entrepreneurs, and other high-profile techies like Jonathan Abrams, founder of Friendster, and Roy Bahat, chairman of Ouya. The organization’s emphasis on diversity is both impressive and unique — about 40 percent of the program’s graduates are girls.
That's where department store chain Macy's Inc recently opened a facility the size of 43 football fields - big enough to stock 1 million pairs of shoes - just to fulfill orders made online.
The $150 million building, its third one dedicated primarily to supporting macys.com, has already been handling 60,000 orders on a busy day this holiday season. Macy's expects that figure to triple in two years.
"The customer is increasingly voting that she wants to shop both ways," said RB Harrison, Macy's executive vice president in charge of integrating e-commerce and store operations.
From Macy's to Home Depot Inc and Best Buy Co Inc, retail executives are racing to speed up order delivery and improve inventory management, which if done well, can help profit margins.
Many chains are also hiring staff, or even buying firms in Silicon Valley, to get the edge in technology.
"Today, tomorrow and going forward, you are comparing the experience in our store to the experience of sitting in your living room, in the comfort of your home, ordering something on your laptop, your smart phone or your iPad," Home Depot Chief Executive Frank Blake told Reuters.
"Your willingness to put up with rude associates, dirty stores and out of stocks is just going to go down and down and down. Our bar on performance in our stores is going to go up and up and up," he said.
To be sure, online sales to date account for just 7 percent of retail sales, according to Forrester Research. But the firm expects online sales growth to rise 45 percent to $327 billion and account for 9 percent of overall sales by 2016.
Retailers are realizing they must respond to that kind of growth.
"When I was meeting with brick-and-mortar retailers 24 months ago they weren't thinking about online," said Carlo Bronzini Vender, a senior partner at New York-based investment bank Sonenshine Partners who helped advise Drugstore.com when it was bought by Walgreen Co in 2011. "Now people are being more proactive about it."
Even if some retailers like Macy's are less exposed to the threat from e-commerce's 800-pound gorilla Amazon.com Inc than a company like electronics chain Best Buy Inc, they are all under enormous pressure to offer faster delivery times, better service and an array of products.
Already armed with 40 e-commerce fulfillment facilities, Amazon is set to open another 7 centers next year.
And by next year, Amazon could offer cost-efficient same-day shipping to every customer in the 10 largest U.S. cities, according to RBC Capital Markets.
This year, Saks Inc, Dillard's Inc and Kohl's Corp are among retailers that opened the biggest online fulfillment centers they have ever had.
And those without much of an online presence are moving quickly to get one. For example, T.J. Maxx parent TJX Cos Inc, which sells designer clothing and home goods at discounted prices, said on Friday it bought off-price Internet retailer Sierra Trading Post for about $200 million.
NOT-SO-SECRET WEAPON
Most national retailers have largely stopped opening new stores as same-store sales growth has slowed compared to online.
But the stores can be a major weapon for companies like Macy's and Home Depot as they fight Amazon.
Since this summer, 292 of Macy's 800 stores have been doing double-duty as mini-fulfillment centers that assemble, pack and ship online orders, up from 23 stores a year ago. It plans to add this function to 200 more stores next year.
Nordstrom Inc has been doing this for years, giving it a big lead over other department stores.
At Macy's, already 10 percent of orders placed online have been dispatched through stores this holiday season.
"It's a natural extension for us because of our ability to leverage the 800 stores' inventory," said Harrison of Macy's. He noted that the cost for equipping a store for e-commerce is relatively small, requiring a small space in the docking area for tables, scales, and room to pack boxes.
Saks is testing "ship-from-store" and expects to roll it out next fall. Wal-Mart Stores Inc and Kohl's are also testing it.
"Fulfilling online orders from the store is the most important thing that will change physical retailers over the next five years," said Matt Nemer, an e-commerce analyst at Wells Fargo.
The strategy is aimed squarely at boosting profit margins.
Saks CEO Stephen Sadove envisions a scenario in which a pair of shoes sitting unsold at his Saks Fifth Avenue flagship could be used to fill an online order and sold at full price, instead of ending up being sold at a discount, hurting profit.
Macy's computers have complex algorithms that scour companywide inventory, factor in distance and shipping costs to come up with an optimal way to assemble and ship an order.
Despite higher shipping costs, Macy's shipments are often split between locations if a computer determines that the benefit to margins from selling an item that a store doesn't need or has too much of outweighs the extra expenses.
Stores are also serving as pick-up spots for online orders, and many retailers are finding this a boon. Wal-Mart says customers spend about $60 in a store when they pick up items ordered online.
In November, Best Buy decided to assign additional employees to deal with in-store pick-ups since 40 percent of bestbuy.com orders are now picked up.
DANGER OF MISSTEPS
Even Amazon sees the benefits of a physical presence. Staples Inc said last month it will install "Amazon Lockers" at its stores, allowing customers to have packages sent to Staples stores to avoid delivery hassles.
The biggest reason many retailers are only now offering 'ship-from store' and in-store pick-up is that the traditionally managed store and e-commerce inventory had been handled separately.
That is changing rapidly. Saks is spending about $40 million this year to update its computer systems in part to integrate databases. Industry experts say Nordstrom's e-commerce lead over department store rivals stems in large part to technology investments it made years ago.
But there are risks.
Computer systems and staff have to be ready or else retailers can face disaster, said Forrester Research analyst Sucharita Mulpuru. The use of stores is pointless if, for example, an inventory system gives the stockroom person collecting an order incorrect information about where a coat is located, leading to wasted time.
There is also a big risk of an item in store being "shopworn," or unsuitable to be sold.
"It's smart to fulfill from stores if you can figure out a way to get your operations right," Mulpuru said, noting the potential for human error is another concern. Such problems are limited at fulfillment centers because the systems are highly automated.
Executives agree. Harrison said stores are not meant to replace fulfillment centers, with their much greater breadth and quantity of products, but are there to supplement them.
"It's always going to be more efficient to ship from a fulfillment center," Saks' Sadove told Reuters. "You're never going to be perfect in 'ship-from-store'."
SILICON VALLEY APPEAL
To support its e-commerce strategy, retailers are aggressively hiring in Silicon Valley. Nordstrom took on more than 400 new employees with software engineering and website development experience, including Kirk Beardsley, an e-commerce executive from Microsoft Corp who had been a director of business development at Amazon for over seven years.
Retailers hope to take this even further by analyzing online data. Macy's executive Harrison said data collected this holiday season will help prepare for the next steps in its online push.
Last year, Wal-Mart acquired California-based start-up Kosmix, which developed technology to filter data from social media networks. As a result, Wal-Mart's San Bruno, California-based e-commerce offices now house more than 1,000 staff.
Getting hold of the technology to back up these efforts is driving acquisitions. They are frequently small ones, driven by retailers' attempts to master the online sales process, rather than immediately boost sales.
Home Depot, which bought tech start-up Redbeacon earlier this year, is looking to acquire or partner with more companies in the Valley, according to CEO Blake.
Redbeacon, founded by a trio of Google Inc veterans, matches homeowners with the best contractors for jobs such as cleaning and home repair. That kind of innovation will send shock waves through the sector, Blake said.
"I think there is going to be as much change over the next 10 years in retail as in the last 50 years. So if you're prioritizing where you put your best people, your best resources and all the rest, for us it's on inter-connective retail," said Blake.
(Additional reporting by Jessica Wohl, Olivia Oran, Sarah McBride, Alistair Barr, Brad
Walmart, the world's largest retailer, embraces social, mobile, and the startup spirit to compete against Amazon. Will it be enough?
Illustration by Owen Gildersleeve
Jeremy King was ignoring the largest retailer in the world. For a month, he'd been getting calls from a Walmart recruiter. King was used to being wooed, since he was well known in Silicon Valley as an engineer who built key parts of eBay's infrastructure. The calls kept coming. Finally, he picked up the phone and let Walmart know exactly what it would take to get him to interview. "I was like, 'Why don't you get the CEO on the phone--let him talk to me and then maybe I'll come in?'" recalls King, who didn't even know who the CEO of Walmart was. "I was being cocky. The CEO of the world's largest retailer wasn't going to meet with me just so I'd do an interview."
The next thing King knew, Walmart arranged for him to join a videoconference with CEO Mike Duke. "It was the strangest thing," King says. "Mike's office in Bentonville is the original one that Sam Walton had, complete with 1970s wood paneling. I was looking at this video, thinking, Where is this place?"
Over the next 45 minutes, though, Duke made what King calls an irresistible pitch. After years of seeing his company lag online, Duke swore that digital was now a priority for Walmart. Duke had restructured the company, placing e-commerce on equal footing with Walmart's other, much larger divisions. He had made serious investments in high-tech talent, acquiring several startups. One, a 65-person social media firm called Kosmix with expertise in search and analytics, was the impetus for Walmart rechristening its Valley operations "@WalmartLabs." Duke was looking for people who would revive the company's sites and services, and energize its entire culture. He hoped to turn a company famous for rigid, coldly effective business processes into one that's flexible, experimental, and entrepreneurial. In other words, Duke wanted to inject a bit of Silicon Valley into Bentonville, Arkansas. In the summer of 2011, King signed up as CTO of Walmart.com. "We've hired hundreds of incredibly talented people, in Silicon Valley and around the world," says Duke of his aggressive moves. "We are playing to win."
WalmartLabs is now housed in a boxy office tower in San Bruno, California, a few miles south of San Francisco. In just over a year, it has helped Walmart.com revamp its search engine; presciently identified the potential of the now red-hot "social gifting" market, where companies use social media cues to suggest presents; and this fall launched a test that offers same-day shipping to customers.
This last move is a clear signal of Walmart's serious intent to compete in digital e-commerce--and blunt the looming threat of Amazon, which has its own same-day shipping experiments. Having marginalized Barnes & Noble and Best Buy, Jeff Bezos has his eyes on a bigger target. Amazon has been moving aggressively to sell Walmart staples such as diapers, soap, pet food, and cereal, even letting customers subscribe for items they want to receive regularly. Walmart is the world's biggest grocer, and a central part of its strategy is that the millions of folks who visit its stores weekly to buy food will purchase a lot of other stuff. That's a key reason Walmart's 2011 revenue of $419 billion dwarfed Amazon's 2011 sales of $48 billion.
In e-commerce, however, Walmart is a distant challenger. The company has never broken out its Internet revenue, though in 2011, the analyst Internet Retailer estimated it to be $4.9 billion. In October, Walmart projected that global e-commerce would be $9 billion in the year ahead. Meanwhile, Amazon has been on a tear, with sales rocketing toward $100 billion annually in 2015. Analysts I spoke to believe Amazon has eaten into Walmart's sales of books, music, DVDs, electronics, and even toys. "When people started to say that Amazon was going to be the Walmart of e-commerce," notes Scot Wingo, CEO of ChannelAdvisor, an e-commerce technology and consulting firm, "that's when we started to see more signs of life from Walmart."
It would be a radical oversimplification to chalk up Walmart's digital revival solely to a hungry competitor (and Walmart execs often insist, perhaps a bit too strenuously, that they are not fixated on Amazon). No, Walmart needs to get digital because that's where its customers are headed. Soon everyone's phone will be smart enough for easy shopping. With Internet-enabled tablets selling for well under $200, lower-income families are already turning into online customers. "The way our customers shop in an increasingly interconnected world is changing," Duke says.
"I'm not going to be Chicken Little and tell you the company is going to go away if we don't get the Internet and mobile right," adds Neil Ashe, the company's top-ranking e-commerce executive. "We have an obligation to the mission to get this thing right because the customer expects it of us." Like the best Internet companies, Walmart obsesses about its customers more than its competition.
In 2012, Walmart celebrated its 50th birthday. In its first 25 years, Walmart became the world's biggest general merchandise retailer. But Sam Walton wanted to be a grocer as well. "A lot of people said that was crazy," says Joel Anderson, the CEO of Walmart.com U.S. who joined the company in 2007. "Twenty-five years ago, we couldn't even spell grocery. People thought we'd never figure it out."
Anderson says the next 25 years are about becoming a digital company. "In the first few years, were we tinkering and experimenting and not moving? There's some truth to that. But look at our history. When Walmart leans into something, it's like a tidal wave."
In April 2011, Walmart bought Kosmix for a reported $300 million. Kosmix's expertise lay in simplifying the sprawl of the web for users; its algorithms were novel because they tried to understand what a user wanted rather than just match her query text. For example, if a user searched for "presidential election," Google would return pages that contain variations on that term. Kosmix could find pages that were part of that topic even if the pages didn't contain the specific phrase. It then sorted them into categories such as candidate biographies, news stories, and polling data. Only in the past year have Google and Microsoft's Bing added Kosmix-like topic pages to their search results, but Kosmix's founders, Venky Harinarayan and Anand Rajaraman, hit upon the idea way back in 2004.
Walmart wanted to apply Kosmix's artificial intelligence to commerce, but it also wanted the real brains behind the tech. Harinarayan, 45, and Rajaraman, 40, both born and raised in India and graduates of the prestigious IIT Madras university, have been inseparable friends since they met as PhD students at Stanford in the 1990s. Both skinny and short, they have more than a passing physical resemblance, and they operate as a united pair. In the Valley, which loves its duos (such as Bill and Dave, Jobs and Woz, Ev and Biz), they're known as Venky and Anand.
The pair first tackled the problem of organizing the web in 1996, when they founded Junglee.com. In 1998, Jeff Bezos acquired the company for $250 million in stock. He realized that Junglee's technology would help its customers compare prices with other online stores, a bold move toward transparency that turned out to further solidify the company's hold on those customers. Rajaraman became Amazon's director of technology, while Harinarayan was charged with creating Amazon's Marketplace, where any merchant could sell its wares on Amazon's site. "I'd meet with Jeff for a couple hours every week," says Harinarayan. "What we came up with in 2000 was pretty much what Amazon has executed on since then." Analysts estimate 40% of the goods sold on Amazon are via Marketplace.
The duo left Amazon in 2000, and after a four-year stint as venture capitalists, founded Kosmix. The company had a unique ability to find meaningful information in the cacophony of the web. An application it built, called Tweetbeat, became one of the hottest ways to explore Twitter during the 2010 soccer World Cup, because it made it easy to discover who was talking about your favorite team or even individual players. That's part of what lured Walmart execs--they salivated at the idea of bringing this kind of intelligence to shopping. People are always offering clues about products on social media--writing reviews, liking brands, checking into stores, announcing the products they want to buy.
And what lured Harinarayan and Rajaraman, besides the money? They saw an opportunity to do something more interesting than merely replicate their work at Amazon for its rival. (In a delicious irony, Bezos profited from the Walmart deal--he was an early investor in Kosmix.) "What has changed since Amazon became big?" Rajaraman asks rhetorically. "You can connect the social experience, the in-store experience, and the online experience. Nobody could do that."
When the Kosmix team landed at Walmart in the summer of 2011, they found a mess. "The only thing Silicon Valley about Walmart was that we had an office in Silicon Valley," says Gibu Thomas, the senior VP who heads up Walmart's mobile tech team and was one of the first executives to approach Kosmix about a deal. "It was run like a traditional IT organization," he says, explaining that Walmart used outsourced, off-the-shelf systems to power key parts of its site. Worse, Walmart's 27 worldwide subsidiaries used incompatible technologies; the sites did not connect seamlessly with the stores or with Walmart's legendary supply chain.
Walmart.com's search engine epitomized its failure. "Executives at Walmart--at the board level--were running searches and saying, 'This is embarrassing,'" says Sri Subramaniam, the WalmartLabs exec who ran the rebuilding effort. If you used Walmart.com's old search engine to check out "smartphones," you'd get links to a couple of cell-phone chargers, not the iPhone. A "cotton socks" query returned results for cotton candy and balls of yarn.
The Kosmix team, so deeply ensconced in the ways of Silicon Valley, worried that cultural differences would hamper their efforts to turn the site around. "My first reaction was, Wow, this is going to be interesting," says Chris Bolte, who works on Walmart's search marketing systems. But those fears proved unfounded. More than a half-dozen people on both sides of the acquisition say that Kosmix's integration into Walmart was amazingly smooth. "I think part of it was that Walmart knew that they needed us, that this was a turnaround situation," Subramaniam says.
Their first job was to create a new search engine. It took just 10 months, with just a dozen or so engineers. Walmart will not discuss specific sales figures, but execs report that the improved search tools have increased the number of people who are converted from visitors to buyers on Walmart.com by as much as 15%. If you search for cotton socks now, you'll actually find them.
When Harinarayan and Rajaraman transformed Kosmix into WalmartLabs, they put roughly half the staff on such boring but crucial tasks. They deployed the rest as true lab workers, with the freedom to experiment in small teams on far-flung new ideas. "We organize these teams as mini startups with six to eight people," says Harinarayan, who learned from Bezos's organizational innovation of so-called two-pizza teams. "One person acts as CEO, and they have a clear business goal. We step out of the way and let these guys run it."
One of the first projects born from this approach was Shopycat, a gift-recommendation app that Walmart.com launched on Facebook before the 2011 holidays. Shopycat scans your friends' profiles to identify interesting gift ideas from their stream of likes, comments, and status updates, discerning if the "Ted" your pal is raving about is the geeky ideas festival or the Seth MacFarlane stoner comedy. Shopycat then seeks out an appropriate gift for such a stoner/thinker from Walmart's product database. Walmart says Shopycat led to an increase in purchases on the site, though it won't say by how much. For the 2012 holidays, the team built Shopycat into a section of Walmart.com called Walmart Gifts; customers will log in with their Facebook or Twitter account to get personalized recommendations.
Another clever retail application of WalmartLabs's core technology has been to use spikes in social network chatter to predict demand for out-of-the-ordinary products. Last year, the team correctly anticipated heightened customer interest in cake-pop makers based on social media conversations on Facebook and Twitter. A few months later, it noticed growing interest in electric juicers, tied in part to the popularity of the juice-crazy documentary Fat, Sick and Nearly Dead. The team sends the data to Walmart's buyers, who right now are only using it to confirm its other research. But as these signals become stronger, execs say it will play a larger role in purchasing decisions.
WalmartLabs has also created projects that just get customers to think differently about Walmart and e-commerce, including Get on the Shelf, an online contest for people to submit their own inventions to go on sale at Walmart. Get on the Shelf was a social marketing blockbuster, garnering more than 4,000 submissions, over 1 million votes, and news hits in small towns across America. Then there's Goodies, a subscription service in which Walmart customers pay seven dollars a month for home delivery of a gourmet food box--creating a discerning test market for the grocer in the process.
By themselves, none of these projects will single-handedly boost Walmart's e-commerce business. Taken together, though, they showcase a new dynamism at the retailing giant. "We're going to find ways to live at the edge," says Walmart e-commerce exec Ashe. "Every three or six months, you'll see something come out from us that will make you say 'Wow.' "
The next step, says Harinarayan, is about "scaling up Labs." But he and Rajaraman won't be part of it: In June, Harinarayan and Rajaraman announced that they were leaving WalmartLabs. To many outsiders, the abruptness of the founders' departure seemed troubling. It had been only a year since the acquisition, and they hadn't completed the "earn-out" phase, meaning they wouldn't receive their full share from the sale. Was their departure a sign that dynamic tech entrepreneurs felt smothered by Walmart's corporate culture? Or was it that Walmart could no longer tolerate leaving these hands-off leaders in charge?
Harinarayan and Rajaraman dismiss the speculation. They say they had spent eight years on the startup, and they were simply ready for time off. One Friday not long after the announcement, I meet Harinarayan at a coffee shop across the street from Kosmix's first office in downtown Mountain View. He's the picture of a relaxed man. After chatting about Walmart and Amazon for an hour, he told me he was free to keep talking, as he didn't have anything else to do that day. And he is quite sanguine about walking away from the money. "Given the fortune that Anand and I have had in our careers, if you're doing anything just for money, at this point it's going to be the wrong thing to do."
Jeremy King took over as the head of WalmartLabs, and to get a sense of where he will bring the skunk works, I visit the gleaming new Walmart store off the Almaden Expressway in San Jose where Jonathan Sherman, a WalmartLabs product manager, gives me a peek into the digital dimension being woven into this temple of American retail.
That future begins, like everything else, with a smartphone app. Walmart imagines that as you go through an average day, you'll remember things you need--milk, bread, a new tennis racquet, a toy truck for your nephew's birthday--and tell the voice-enabled Walmart app. The app will list each item's location inside your local Walmart and include product info; eventually, it will also learn your preferences and offer recommendations. And once you're actually in the store, you'll be able to summon an associate to help you.
Walmart's current iPhone app has only a few of these features: The voice-list system works very well, and, depending on which store you're in and what you're looking for, the app can sometimes locate your product.
At the moment, though, it won't show you extensive product info for all items, and it won't summon store help. The company has begun to test mobile checkout in select stores. As part of it, Walmart presents customers with a running tally of their total bill as they shop, the first explicit nod in my journey through WalmartLabs to the fact that millions of Walmart shoppers are on tight budgets.
This effort to reinvent the in-store shopping experience is an argument that Walmart's physical stores are a great asset, not a liability. "We are uniquely positioned to give customers anytime, anywhere access to Walmart by combining the smartphone, online, and the physical stores," Duke says. "Ultimately, that will give us an edge over any competitor." When I ask Walmart executives about Amazon's moves to offer more customers next-day and same-day shipping, many were amused. "It's fun to see them trying to be us," says Walmart.com CEO Anderson. "We have more than 4,000 forward-deployed fulfillment centers and we're already doing shipments from some of them. Some people call them stores."
"If you think about the last 20 years of retail, how people shop in a store has not changed," Thomas says. "The question we're asking is, how do you bring to a store the capabilities that have made e-commerce successful? With 200 million customers a week, if you can increase the average basket size by a dollar--that's billions of dollars every year." In fact, it's more than $10 billion--more than its projected annual e-commerce revenue this year.
If Walmart fails in its digital transformation, it won't be for lack of resources or possibilities. Ninety-six percent of Americans live within 20 miles of a Walmart. No one has as much money; no one has a better supply chain; no one has such a close connection with so many customers. Walmart execs know this. "We'll spend more on capital expenditures this year than Amazon has spent in its entire history," Ashe tells me (hyperbolically).
That size, however, is also Walmart's greatest enemy. WalmartLabs's two-pizza teams can come up with a thousand innovative ways to improve shopping, online and off, but none matter if the company's execution is slow and bureaucratic. And the fact is that implementing these ideas will always be complex. Every change to how items are delivered, or how customers navigate stores, or how applications work with the company's existing IT structure is a maneuver that requires the coordination of thousands of moving parts.
But Walmart can succeed online without becoming the Amazon of the web. The phrase I hear most often from Walmart people is that the only way the company will win online is "by being Walmart." And they're right. Walmart doesn't need to be something radically different. The company that mastered IT in the service of unbeatable prices must now master web technology. It doesn't need to chase Amazon so much as it needs to identify how a digital Walmart can be as much a part of its customers' lives as the stores are today.
And it has to think long term. It may take a decade or more for Walmart to be a successful digital retailer. "Somebody at one of the board meetings asked me, 'Neil, how long is this going to take, and how much is it going to cost?'" Ashe recalls. "And I said, 'It's going to take the rest of our careers, and it's going to cost whatever it costs. Because this isn't a project, this is the company.'"
Basic research, including going through reports
released by the Telecom Regulatory Authority of India, revealed that 90%
of all the mobile users in 
