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Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

joelonsoftware.com

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Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#21

Post by alabut »

This is Joel's humorous version of what Steve Blank refers to as "knowing your market type"[1]. Steve classifies them as new vs existing markets (there's also a third called "resegmented markets" but those just sound like existing markets to me).

He gave an example in one of his Haas lectures that I'll never forget of how disastrous it can be to mistake the two market types by comparing the marketing strategies of Blackberry vs Tivo.

Blackberry knew they were releasing advanced new products into a market of users that primarily only used pagers, so they described their product as a two-way pager, even though it's nothing like a pager under the hood. They described it in terms that people could instantly grok what the hell it was and early adopter usage was off the charts.[2]

If Tivo followed the same model, they should've described themselves as a tapeless VCR. But the company didn't just miss the obvious opportunity, they actively avoided it and even went so far as to ban the word VCR from any marketing, press releases or interviews. This came straight from the top, from the CEO, who believe that the VCR was primitive tech and the Tivo was so technically advanced as to be in a different class of gear.

Tivo got confused about what market they were in. They had great tech that was completely torpedoed by their marketing. As a result, Tivo's adoption curve was much slower, never got above a few million users, and didn't cross over into mainstream usage except as a verb.

[1] http://steveblank.com/2009/09/10/customer-development-manife...

[2] Bonus points for the self-taught MBA crowd: go read Clayton Christensen's The Innovator's Dilemma and figure out why Blackberry wasn't able to sustain their lead.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#22

Post by FaceKicker »

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful).

The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you have (economies of scale), but Ben and Jerry's has both of these properties as well and the author says it has "no network effect". It is true that its reviews have a strong network effect, but that's not the part of their business they profit from directly - you can easily just check Amazon for its reviews and then go to Buy.com to actually make the purchase.

Can someone clarify what he might mean when he says Amazon's business has a strong network effect?

I also don't really understand how Amazon has "strong customer lock-in", either. Maybe "weak customer lock-in" would be appropriate, as once you make an account it's easier to order more items, since you don't have to figure out the design of the website and re-enter your credit card and shipping info. Amazon Prime clearly has strong lock-in as you're paying for a one-year subscription in advance, but nowhere near the majority of customers use it (I would assume) and it didn't even exist in when this article was written.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#23

Post by demallien »

FaceKicker wrote: post #22

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful). The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you…

I think he was referring to the fact that people talked about Amazon, even outside of geek circles. It was the first big online retailer - before that, people just didn't buy things online. Amazon changed that by generating suffcient word-of-mouth buzz. That buzz in return allowed Amazon an easier job negotiating with publishers to distribute their books, which made Amazon cheaper than bricks and mortar stores, which increased the buzz, which allowed them to negotiate even better prices.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#24

Post by ljf »

FaceKicker wrote: post #22

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful). The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you…

Amazon plays off its suggestions of what else to buy, that data is from the network, not your personal network, but the data is only valuable once you have enough users, or else the data is too spiky.

These suggestions to just throw one or two more targeted items into your basket is where they really excelled.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#25

Post by FaceKicker »

demallien wrote: post #23
FaceKicker wrote: post #22

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful). The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you…

I think he was referring to the fact that people talked about Amazon, even outside of geek circles. It was the first big online retailer - before that, people just didn't buy things online. Amazon changed that by generating suffcient word-of-mouth buzz. That buzz in return allowed Amazon an easier job negotiating with publishers to distribute their books, which made Amazon cheaper than bricks and mortar stores, which…

I mentioned word-of-mouth buzz in my post, but it didn't make sense to me that that could be the reason as Ben and Jerry's ice cream has the same thing going for it (as an anecdotal example, I never bought it until my girlfriend bought a couple flavors and I tasted them and found out how much tastier than generic ice cream it was).

And even if Amazon has more of this word-of-mouth going for it than Ben and Jerry's, I would think this would be a result of their implementation (i.e., it's a well-done site and that's why people tell their friends), rather than something inherent to its business model which is what the article is talking about.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#26

Post by FaceKicker »

ljf wrote: post #24
FaceKicker wrote: post #22

How does Amazon have a "strong network effect"? I'd still use it even if none of my friends did; it's not like Facebook (or instant messaging networks, to use the 11-year old example from the article) where my friends not using it would render it useless (or even less useful). The only things I can think of is that (1) customers will advertise for you by word-of-mouth, and (2) it's cheaper per user the more users you…

Amazon plays off its suggestions of what else to buy, that data is from the network, not your personal network, but the data is only valuable once you have enough users, or else the data is too spiky. These suggestions to just throw one or two more targeted items into your basket is where they really excelled.

Do people really use these suggestions though? I don't think I've ever used them personally (maybe once?), but maybe others do. And even if people use them very frequently, I still don't think that would make the usefulness of Amazon grow as a "square" of the number of users as the article implies.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#27

Post by notahacker »

jfoucher wrote: post #2

" If you want to chat with people, you have to go where they are, and ICQ and AOL have the most people by far. Chances are, your friends are using one of those services, not one of the smaller ones like MSN Instant Messenger. With all of Microsoft's muscle, money, and marketing skill, they are just not going to be able to break into auctions or instant messaging, because the network effects there are so strong. " Fun…

The comment about the effectiveness of AOL's lock-in looks a bit optimistic with the benefit of hindsight too.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#28

Post by dagw »

Macha wrote: post #6
skore wrote: post #3

Earlier quoted context omitted.

Care to elaborate? I still use ICQ and various xmpp accounts, plus skype. Had an MSN account a while back, but only for two friends who ended up switching away from it. Yes, Microsoft bought skype, but that's not really "breaking into", that's "buying". You wouldn't say that Microsoft "broke into the FPS market by making Halo".

Everyone I see frequently who still uses IM (and not just Facebook) uses MSN, so I guess it's a location thing. I'm in Ireland. (And AOL is out for people that want to talk to non-Americans, probably, as I had to jump through hoops to get a AIM to talk to American friends) .

Pretty much same here in Sweden. Before everybody jumped to Facebook, they where all on MSN.

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#29

Post by ljf »

FaceKicker wrote: post #26
ljf wrote: post #24

Earlier quoted context omitted.

Amazon plays off its suggestions of what else to buy, that data is from the network, not your personal network, but the data is only valuable once you have enough users, or else the data is too spiky. These suggestions to just throw one or two more targeted items into your basket is where they really excelled.

Do people really use these suggestions though? I don't think I've ever used them personally (maybe once?), but maybe others do. And even if people use them very frequently, I still don't think that would make the usefulness of Amazon grow as a "square" of the number of users as the article implies.

Yes, I've used them many time, and I know my (non technical) girlfriend does too.

I've found similar novels that I've liked through the suggestions, bands I've enjoyed and recently when buying the 'Lean Startup' I ended up buying 2 of the suggested books.

Many time I end up not buying the item I originally went there for, instead buying one of the suggestions, or the suggestions on a suggestion... depends how the reviews look.

As I see it Amazon were the first to really use this data successfully and meaningfully.

The other networks I guess would be the Amazon Wishlists which for a time were hugely popular. I still see wishlist links on personal and informational sites, as a way to give back to the site creator. That network is pretty powerful too!

Re: Old, but gold - "Strategy Letter I: Ben and Jerry's vs. Amazon"

#30

Post by skore »

dextorious wrote: post #19
skore wrote: post #3

Earlier quoted context omitted.

Care to elaborate? I still use ICQ and various xmpp accounts, plus skype. Had an MSN account a while back, but only for two friends who ended up switching away from it. Yes, Microsoft bought skype, but that's not really "breaking into", that's "buying". You wouldn't say that Microsoft "broke into the FPS market by making Halo".

"""Care to elaborate? I still use ICQ """ So you are that guy! The parent meant that of course people have had since migrated off of AOL and ICQ. ICQ is almost nothing today, and even yesterday, before Facebook took over, tons of people had switched to MSN. Wikipedia gives: MSN 330 million active (June 2009), ICQ 50 million active (Feb 2010). You can do the math.

Yes, I think I use ICQ for communication with precisely three people. So I guess I see your point ;-)
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