Don’t dig for gold – sell the shovels

Panning_on_the_Mokelumne

During the Californian gold rush, merchants selling supplies to miners made more money than the miners digging for gold during the gold rush.

Samuel Brennan was a San Francisco based merchant and publisher who promoted the hell out of the gold found, triggering the gold rush.

The locals wanted to keep it quiet but word got out. Hundreds of thousands of people came from all over the U.S. and the world starting in 1849 looking for their fortune digging for gold. While Samuel Brennan happily sold them shovels.

It was he, not a miner, that became California’s first millionaire.

Enhanced by Zemanta

Will Amazon commoditize bulk e-mail delivery?

Most organisations use email as a part of their marketing, brand and communication strategies. Whether it’s an e-commerce company sending a promotion to their database, a real estate agent promoting ther latest listing or BMW sending a service reminder to their clients. E-mail marketing is a low cost and effective strategy that can be measured easily, created quickly, and sent frequently.

However, behind the scenes is a complex business involving the management of the deliverability of e-mail. With thousands of messages being sent every second, spam filters are becoming increasingly smarter and it’s becoming harder to guarantee deliverability. Companies in this space compete on the ability to get your promotional or informational email into a customers inbox before their ISP or spam filter intercepts it.

The business of email deliverability is significant. Constant Contact is a listed entity on the Nasdaq.Campaign Monitor is a great business based in Australia serving many of the worlds leading brands, and is a significant player. Mail Chimp is another great provider that has managed to make the process of sending email campaigns fun and quirky, just to mention a few.

The economics of these businesses intrigue me. Take Mail Chimp for example. From what I can ascertain, a company like Mail Chimp has around 500,000 users. Before they offered their free service, they claimed to have over 100,000 paying customers however today that number is possibly much higher. The average Mail Chimp plan costs around $75 per month. On this basis they would be generating a recurring monthly revenue of $7.5m. Not bad! 

Maintaining deliverability however, is tricky and requires constant attention to ensure IP ranges are not blocked, domain names are not black listed, and that users are not using the services of the provider to send unsolicited mail. With this kind of cash-flow you could afford to hire great engineers and offer them a fantastic work environment with the perks of a much larger and more established tech company.

What’s more is that e-mail delivery is a highly useful utility required by most businesses and it’s not going to go out of fashion any time soon…

However of you’ve been following this space, you’d have read about Amazon’s latest edition to the EC2 cloud, Simple Email Service or SES. 

Amazon’s cloud is adding a service for sending bulk e-mail, saying it will eliminate the burden of “building large-scale e-mail solutions to send marketing and transactional messages.”

Amazon’s Simple Email Service was announced in January and is targeted at business customers. It will integrate with the Elastic Compute Cloud and other Amazon platforms.

Simple Email starts out with a free usage tier, and then costs 10 cents for every 1,000 e-mail messages sent. This make SES a viable “wholesale” platform on which to launch a white labelled delivery service, especially if they are going to manage the deliverability issues.  Providers can scale their costs as their businesses grow without the need to invest heavily in datacenter capacity that they might never use. 

While Amazon is best known for its retail business, they are most certainly a thought leader, extraordinarily innovative, exceptionally agile, very responsive to the market and definitely offer the richest cloud based product portfolio which is constantly expanding. 

Amazon send an astronomical number of emails including customer service responses, promotional emails, order confirmations and more. If anyone knows how to deliver emails, Amazon does.

It is interesting to think how this industry will play out. I predict a bunch of white labelled providers will crop up, and that some large organisations will take deliverability in-house using Amazons platform. However that said, Amazons entry into the market poses a disruptive threat to the industry that could commoditized the industry to some degree, the same way as Gmail and Google Apps have disrupted the hosted mail industry.

Once the e-mail delivery business becomes commoditized I see the key differentiator between providers becoming interface usability and content creation.

If the providers are smart their focus will broaden to add value by simplifying and automating the process of actually creating email content which of course is where the rubber meets the road when sending promotional and informational newsletters.

Google’s ITA takeover is unfair business

If you’ve been following the tech news you will be aware that Google made a $700m offer for ITA software in July last year. ITA is the software platform which powers most of the travel search engines that we use. Sites such as Kayak, Orbitz, Tripadvisor and numerous others have exclusive access to ITA’s QPX platform that allows complex real-time querying of flight routes, pricing matrixes and seating availability to deliver consumers the best options based on their travel requirements. These businesses generate a booking fee when tickets are purchased and are all significant companies.

The deal has since been under scrutiny by the department of justice however this week it was announced that the department of justice has allowed the deal to proceed.

There is a significant conflict of interest here. Flight data should be independent of those who agrigate it. If you were CEO of Kayak, what would your 5 year plan be? Of course the investors don’t care. Sequoia Capital has investments in Kayak, Google and ITA. Their money is going in circles. 

Under the terms of the agreement, the department of justice will require Google to establish internal firewall procedures to ensure competitors’ intellectual property and that ITA’s customers will be able to extend their contracts into 2016. New customers are also ensured that they will be able to license ITA’s software on “fair, reasonable and non-discriminatory terms” into 2016. What’s more, the proposed settlement provides for a formal reporting mechanism for complainants if Google acts in an unfair manner.

What this means is that after 5 years, Google will be able to compete with other companies using the ITA datasource, or if Google wish to, they can terminate all ITA contracts. Come 2016 and Google might be the only company where you can easily search and book airline tickets through. 

Take for example Hipmunk. This is by far the best online flight search tool. I prefer it to Kayak. It sorts flight results visually so you can compare flights by flight and stop over length as well as price. By default it sorts flights by a metric called “agony”. When traveling we don’t necessarily want the cheapest flight. Most of us might pay more for a shorter flight with less stopovers that arrives at a reasonable hour, especially if the difference is only 5 or 10%.  The “agony” search will sort flight results based on length, number of stopovers and lowest price, returning flights ordered by least “agony”. Of course, you can still choose to sort your data by priice, number of stops and so on. If Google owned the ITA datasource and decided to cut its existing contracts this kind of innovation may have never seen the light of day.

What does this deal mean for the consumer?

Less choice, less innovation and less competition.