Book Report: Good Strategy, Bad Strategy

Because my memory has been thoroughly toasted by google and wikipedia I’ve decided to write short reports on the non-fiction books I read. The format is a hybrid review, highlights, and personal reaction.

Good Strategy, Bad Strategy by Richard Rumelt.

Highly recommend.

Strategy… In adjective form it has to be one of the most commonly misused terms in business. Rather than referencing any identifiable underlying strategy, the word strategic will be used as a synonym for thoughtful, tactical, opinionated, useful, or sexy. Rumelt does a good job of getting to the heart of the problems that muddy definitions of strategy in rhetoric and its development in practice.

He boils strategy down to identifying challenges, coming up with a ‘guiding-policy’ to deal with the challenges, and then a set of actions to carry out this policy. Strategy requires that the questions Why, What, and How are answered clearly and succinctly. Otherwise you have failed. The absolute key here is ensuring that your guiding-policy limits organizational focus and the scope of actions that are carried out. There has to be sacrifices.

Here are some highlights that may whet your appetite.

Bad strategy

Rumelt identifies four hallmarks of bad strategy: fluff, failure to face the challenge, mistaking goals for strategy, and having bad strategic objectives.

It doesn’t take more than a couple years in business to see all of these in action. I’m particularly sensitive to mistaking goals for strategy which often robs an organization of what Rumelt calls ‘proximate objectives’ – achievable milestones. Goals on their own never clearly communicate what has to be done near term.

Design as strategy

“Business and corporate strategy deal with large-scale design-type problems. The greater the challenge, or the higher the performance sought, the more interactions have to be considered.”

“… Hannibal was certainly not briefed by a staff presenting four options on a PowerPoint slide. Rather, he faced a challenge and he designed a novel response. Today, as then, many effective strategies are more designs than decisions – are more constructed than chosen.”

Rumelt draws on his engineering background to highlight the importance of “mutual adjustment” amongst variable components in creating outsize gains or causing catastrophic harm. What can you do most effectively with the materials you have at hand? How will they interact under possible circumstances?

A strategy is crafted – not selected by process of elimination.


“You exploit a wave of change by understanding the likely evolution of the landscape and then channeling resources and innovation toward positions that will become high ground.”

Rumelt argues that waves of technological, political, or social change are like earthquakes: they create new competitive high ground and level what stood before. Strategies can be put in place to ride these waves to sustainable advantage.

His chapter on Dynamics reminded me of some of the arguments put forward in “Cultural Strategy: Using Innovative Ideologies to Build Breakthrough Brands” by Douglas Holt & Douglas Cameron. For those who know how to exploit it, social change can be as impactful as technological change. What’s the next wave and what does it mean for your business?

Another interesting point is the importance of strengthening competitive advantage or underlying market to create value. Simply having stable competitive advantage is not “interesting” and Rumelt shares a great anecdote from a conversation with Stewart Resnick (if you don’t know the Resnicks read about them). There is a dynamic relationship between advantage and wealth.

Really great read and lot’s more to chew on that I didn’t address. I’ll have to pick it up again in a couple years.

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Why I moved. For no reason.

Back in December I decided to move to Europe. For no particular reason. I didn’t get a job here. I hadn’t met a girl here. I wasn’t escaping anything.

Why did I do it? Quite simply, because I could.

You’ve probably heard the Lucille Ball (yes, that’s Lucy, from “I Love Lucy”) saying “I’d rather regret the things I’ve done than the things I haven’t done.” It’s trite. But things don’t become trite for lack of truth or relevance.

Beyond calming my own existential insecurity there have actually been three very positive takeaways from my experience in these first few months.

Learn to love what you had

“You don’t know what you got until you lose it”

- John Lennon

I knew I would miss my friends but I didn’t realize just how much I loved New York until I left. How could I? It’s difficult to fully appreciate what you haven’t lost. Parents will tell you this about childhood, romantics will tell you this about love, and I’m telling you this now about the smelly street my favorite italian restaurant was on.

I know even lifelong New Yorkers manage to stay awestruck and inspired year-after-year but I never loved the city with that same vigor before. Blame growing up in Los Angeles perhaps. Nevertheless I can now confirm that New York is incredible. I miss the restaurants. I miss the bars. I miss the sunshine. I miss the energy.

Am I giving up on London now and going back? No. I may never live in New York again. But I finally know what it’s like to have loved and lost New York. I want to give Woody Allen a hug. You’re an idiot if you have the means and don’t live in New York City once in your life. Period.

I can’t recommend where you live with the same passion but perhaps you would if you left.

The world owes you nothing, but it’s ok

You’re not valuable, you’re not needed, and you’re not interesting. I know I’m definitely not. But that’s ok.

People are great and happy to help. In principle. But they’re busy. Their lives are filled with value, need, and interests already. Your ‘coffee’ meeting is a bit of a hassle. Your email is #200 in the pile and they want to go home to see their kids. This is already true at home but it becomes obvious someplace new. The world doesn’t really have time for your problems.

It made me realize just how valuable my network was back in NY. I just don’t have a broad group of people here who will make introductions, vouch for me, and go out of their way to help. I’m getting there. But it takes time. It’s a good lesson on the value of relationships and a crash course in making your own way.

Until you have genuine relationships you’re effectively a charity case. Here are some lessons I’ve learned in navigating those waters:

  1. Make yourself valuable: what can you do for someone? Always find ways in which you can be helpful – with an introduction, with hard work, or even general knowledge. Put 2 and 2 together to get someone to 4. Obviously, you’re travelling to them, buying the coffee, etc.
  2. Ask for something specific: This was really difficult for me since I arrived, genuinely, rather aimlessly. It’s much easier for someone to be helpful if you have a specific ask.
  3. Follow-up: Nobody ever got anything by giving up. If someone doesn’t get back to you follow-up with a call, a second-email, follow them on twitter and corner them at an event. Use your judgement on avoiding becoming a spammer / stalker but realize that while somebody may not respond today, or meet you tomorrow, they might be free in two weeks, in a month, or in two months…

Learn to meet complete strangers

I used to live with 5 other people. 5 friends. I had several great friends living within blocks of my apartment. These were recent friends, long time friends, and one of my oldest friends. Dozens of people I really loved.

Then there were acquaintances. At parties, in bars, and even on the street. Former classmates, colleagues, the waitress with the warm smile (I should have asked her out…), the bartender who remembers your drink, a hazy memory from a late night out, or just a fleeting connection through mutual friends. People that you know – everywhere.

You show up someplace totally new and that social net is gone. You’re anonymous, yes, but only pedophiles like being anonymous in a place they call home. And even they like company on a friday night out.

So you begin meeting complete strangers. And it’s hard.

Luckily, it’s an acquired skill. I’ve always been reasonably social. I didn’t have much trouble making friends in school but that’s a very artificial social ecosystem. So are offices. The reality is that most friendships I developed in the wild after university were colleagues or friends of friends. It wasn’t really my nature to walk around shaking hands with people.

I’m not Bill Clinton yet but I’m getting much better. I still do a bit of standing around. It takes me a minute to approach someone. But I’ve quickly gotten used to showing up alone to events where I will know absolutely nobody. Having the choice between making a friend in two hours or spending friday night alone in your room is very motivating. Once you’ve gotten over the initial handshake it gets much easier. It’s been two months and I have a good group of friends that started as awkward chats in conference halls. More importantly, I’m now much more inclined to do this at parties, restaurants, etc.

I doubt that I would have forced myself to learn this skill if I hadn’t moved.

In conclusion, move somewhere for no reason. It will probably set your career back a year but you’ll be far less jaded, self-important, and less likely to become a cat person in your old age. Not that there is anything wrong with cats. People are just better.


We are all trekkies: thoughts on the future of television

There is a lot of chatter about the future of television these days so I wanted to put some thoughts on paper. For reference, the context here is Netflix original programming, YouTube’s ongoing investment in a slate of original content channels, and more recent announcements like Vevo’s live music channel (MTV is back!) or Time Warner Cable’s Roku streaming app.

Here are my predictions:

  1. Subscription services continue to invest heavily in original content to avoid becoming commoditized. Debundling by ultra-premium channels (HBO & equivalents) is a reality within 2 years.
  2. New web video formats scale economically as fragmented audiences coalesce around new vertical leaders. Innovation in brand / advertiser / platform / producer relationships deliver attractive returns.
  3. Existing media silos break down as audience leaders adapt to changing consumer behavior.
  4. Multimedia properties that engage audiences across touchpoints in context-appropriate ways become increasingly common. Greater experimentation with participatory media.

It’s on the Netflix channel

Subscription services continue to invest heavily in original content to avoid becoming commoditized services. Debundling by ultra-premium channels (HBO & equivalents) is a reality within 2 years.

Netflix and Amazon are building premium subscription-based models that share strong similarities to the existing cable television offering. With the growth of on-demand usage via ‘traditional’ cable boxes (ignore Roku, Apple TV, etc.) they are effectively competing for subscription dollars as one of many on-demand programming options. Of course, it is one of your only real options if you are a cord-cutter like myself but we’re a tiny slice of the pie. For now.

Netflix believe very strongly that consumer demand is for increased granularity of choice, better value, and accessibility across devices. They’re banking that users will increasingly shift dollars away from bloated one-size-fits-all cable packages to more selectively gain access to the content they really value. The risk is that deep back-catalogues of mainstream content become a commodity available through Netflix, Amazon, and any number of media behemoth JVs that emerge over the coming years.

It’s not TV, it’s HBO.

Why does HBO stands alone from the buffet aisle on your cable bill? And why does that matter to Netflix?

Home Box Office made its name in the 70s by broadcasting exclusive high-profile content such as sporting events (notably boxing) and original serialized content beginning in the 80s. They eventually built their success on Emmy-award winning programming that became part of the cultural zeitgeist (starting with The Larry Sanders Show and eventually there was The Sopranos). This high-quality ad-free programming supported the extra cost of HBO as a standalone subscription. Of course, they aren’t standing still in the face of changing consumer habits and have invested in the HBO Go service for off-TV viewing. Notably, this service does require a cable subscription.

Netflix chief content officer Ted Sarandos famously said that “the goal is to become HBO faster than HBO can become us.” They expect those networks that have built sufficiently strong brand recognition and exclusive IP to experiment with truly debundled service soon. As a consumer, I just want to send HBO my money so I can get all their shows without a cable package. I think Netflix are correct in believing I’m going to get my wish.

House of Cards

So, was House of Cards a success for Netflix? I haven’t seen any numbers linking the show to subs increases or increased retention. Yet. But the chatter around the show has certainly been huge. They capitalized on their first-mover advantage (admittedly they had already released the less buzzy ‘Lilyhammer’) for media attention and supported this with a healthy dose of advertising. Unless you’ve been under a rock you now know that Netflix produces content and doesn’t just ship DVDs. After all, unless you’re a cord cutter you could be forgiven for only associating them with those little red envelopes. That’s a major victory.

Amazon, of course, is competing with Netflix head-on and similarly investing in original content. Interestingly, Amazon is going the route of crowdsourcing elements of its pipeline with user-reviews of storyboards affecting which pilots get the green light. They call this Amazon Studio. Once pilots are created and aired user feedback will determine which get complete series. Fast Company recently interviewed Roy Price who runs Amazon Studio if you want to learn more.

The point is that both companies view proprietary creative IP as a necessary competitive advantage moving forward.

YouTube Mogul

New web video formats scale economically as fragmented audiences coalesce around new vertical leaders. Innovation in brand / advertiser / platform / producer relationships deliver attractive returns.

“MTV was born at the start of a revolution, the cable revolution [ … ] Quarter after quarter more homes got cable TV, and we were kind of carried on that wave. And now it’s happening again with digital-enabled television. In five years 50% of homes will have Web-enabled TVs, and you can bet in the Vice demographic it’ll be even higher than that.”

-MTV pioneer and Vice investor Tom Freston for Forbes

Google’s channel investment is going to accelerate the adoption of quality vertical segment leaders on the YouTube platform. These audiences may be too small to support a cable channel’s cost structure but they are potentially very profitable. This is sometimes called ‘torso content’ because of its place between the head (costly shows for a large audience) and tail (endless supply of UGC) on a consumption curve. Read LA-based VC Mark Suster’s overview of this and don’t forget to read The Long Tail. Don’t worry, that’s the 2004 Wired article.

YouTube has built a huge audience by owning the long tail of video and establishing themselves with users as a go-to destination for online video. In simple terms, the value of video content is highly correlated with the length of the content and the audience size for that content. Ashkan Karbasfrooshan, founder of WatchMojo, wrote a nice overview of online video content economics for TechCrunch back in 2010 that I won’t regurgitate. As a platform, YouTube can profit from the long tail but this so-called torso content will drive greater engagement and CPMs. If you take a look at Ashkan’s chart, YouTube are trying to move up that pyramid.

If you’ve read The Innovator’s Dilemma a light bulb should be going off in your head: new entrant offers inferior product at lower cost – those Hollywood jerks are totally screwed! It turns out cable television has been adapting and it’s called reality TV. It’s cheap and good enough for most of us even though we’d like to pretend otherwise. Snookie is what you get for pretending to watch The West Wing.

On the other hand, trying the reverse approach is obviously not workable. Parachuting online video formats and audiences into a cable television cost structure does not work. Current TV was bound to fail as a cable channel for that reason.

Who clicks on banners anyway?

Vice is the prototypical new-media content company capitalizing on fragmentation. They own an audience of international hipsters that would have been financially inconsequential a decade ago. Vice also spotted a gap in the availability of quality video content online and were smart to invest in this very early on.

Vice has its hands in many pots, from its physical magazine roots to a new series beginning on HBO. However, the jewel(s) in the Vice crown are the video-focused verticals it creates for sponsorship by companies like Intel, Dell, and more recently Grolsh. If the recent Forbes profile is to be believed these account for “the majority” of Vice’s $100m + revenue in 2011 (expected to have doubled in 2012) at a healthy 20% margin.

Who are the other content producers YouTube is investing in? Check out the original slate. It’s a mix of experienced online hitmakers, leaders in emerging verticals like Machinima, and newly established production companies like Maker Studios, Bedrocket, and Electus. Oh, there are even content-creating brands like Red Bull.

What I’m getting at is we’re about to see a big push into what could be referred to as branded entertainment. Case in point, WPP are now an investor in Vice and they are not a media company. A quick look at Machinima’s advertiser documentation reveals they are likewise eager to offer higher-margin brand collaborations. Bedrocket is backed by the same guys who brought us ‘native advertising’ pioneer BuzzFeed. Electus is a production company with branded entertainment at its core… these are people who think beyond the banner.

Expect producers to grow revenue outside existing banner ad formats and CPM economics. This innovation will be driven by demand for above-the-line brand spend to follow audiences online. A great 2009 IAB study identified the following roadblocks to increased online brand spend: 1: “Ad formats and creative are not innovating with the medium” and 2: “We are awash in undifferentiated, low-cost inventory”

Solving these issues is a lucrative opportunity. 25% of ad budgets are still stuck in print where consumers only spend 7% of their time…

Omnivore’s dilemma

“Here we are now, entertain us”

Existing media silos break down as audience leaders adapt to changing consumer behavior.

TV still rules. There is no doubt about it. But time-shifting and streaming services are going to increasingly erode our very understanding of the term.

My NYC flat had an AppleTV (iTunes, Netflix), cables for connecting computers (Hulu plus, YouTube, Amazon on demand…) and, most exotically, a broadcast antenna. Switching between these different sources isn’t really harder than navigating your average DVR remote and as far I’m concerned they are all ‘TV’. While this made us one of only about 5 million US households to truly ‘cut the cord’ – that’s less than 5% back at the turn of 2012 – it doesn’t make us too dissimilar to the 33% of consumers who used a streaming service. I just don’t believe it matters to the consumer whether they are watching time-shifted cable, Netflix, or a live show.

This does matter for distributors (ie, ‘channels’) and gets back to the very point of Netflix and Amazon investing in original content in anticipation of eventual debundling. Comedy Central needs me to know and care that ‘Workaholics’ is one of their shows. I don’t. I engage with @UncleBlazer @ADAMDEVINE @ders808 directly. If only they would start one of those YouTube channels…

Tablets, laptops, and social feeds are media agnostic and used in varying ways depending on circumstances. Sound isn’t always available. Sometimes we’re multitasking. Sometimes we only have a minute while others we’ll binge on Game of Thrones for an entire weekend. Like any advertiser, media properties are going to need to reach consumers on their terms at their convenience. The most successful media brands of tomorrow will create content in every form suited to informing and entertaining their audience.

Let’s return to Vice as an example of a modern content company. Their video programming is of variable length (though longer stories are typically broken down into sections) and exist alongside long-form text, comics, music, and events. They are defined by their audience rather than the type of content they produce.

Should the New York Times produce feature-length documentaries? What about interactive features? Maybe that’s a use of their editorial staff their audience would value. EDIT: Conde Nast just announced they are building out video content channels for their flagship publications. Their print content isn’t worth nearly as much in digital as in magazine form so they’re chasing higher RPMs with video content. It’s a smart move. Quality video content isn’t always available for a vertical so now is the time for land grabs.

Licensing will be a growing opportunity for specialized producers as established print-media companies and brands seek out video content that resonates with their audience.

If entertainment habits increasingly span media from print to video to games… then why would a ‘show’ be limited to one format?

We are all trekkies

Multimedia properties that engage audiences across touchpoints in context-appropriate ways become increasingly common. Participatory media becomes more common.

Is your teenager growing increasingly aloof? Prone to moodswings? Not getting laid?

They could be binge viewing.

Turns out, plenty of people are completely willing to immerse themselves in a specific franchise for days at a time. This amusing ‘binge viewing’ trend has been democratized by streaming services but it has always existed.

Most of us bothered watching shows we only sort-of-liked because we desperately wanted to be entertained (who remembers channel surfing? “God, there is never anything on.”) Broadcast television shows were watched by huge portions of the population and were meant to be broadly palatable. Cable was a huge deal and drove increased TV consumption because differentiated channels could be consumed exclusively by their respective audiences.

In a fragmented market with abundant supply the audience of any given property will increasingly skew towards the trekkie.

It turns out, many people exhibit trekkie behavior over limited timespans. That’s what leads to binging. Trekkies exhibit another interesting trait. They are obsessed with everything Star Trek – from the shows to the toys. If you are creating IP that an audience loves why limit yourself to a specific video format?

Celebrity gossip has always been a primary spinoff business of entertainment properties but it isn’t typically owned by the producers. One notable exception comes to mind. The Kardashians have proven that celebrity itself can be turned into a valuable multichannel media property very quickly in the age of social media and reality TV. A common refrain is that they shouldn’t even be famous. Well, they wouldn’t have been 20 years ago but Kim is riding media disruption to become one of our first torso stars.

Obviously, completely fictional characters also have a life beyond the show. If Charmin Toilet Paper manages to say something on twitter shouldn’t your writers? Just as Kim is one unfolding narrative across media, TV shows won’t be limited to video anymore. If you’re creating a successful show then your audience are going to be rabid social outcasts hungry for every bit of information, discussion, and participation they can get. At least for an hour.

And that’s all it took some participants to produce their scene for the fan-sourced Star Wars Uncut.

Now, why wouldn’t you be able to profit from that increased engagement across channels?

Which brings us to audience participation and where user-generated-content could meet scripted experiences. Mark Suster (again… does anyone else write about this?) recently wrote a great post with his vision of where audience participation could take television.

He proposes two broad concepts that I think are spot on: series that evolve based on audience participation and loose-form MMOV where people choose their own outcome. I certainly agree that Minecraft, in the video game realm, showed that certain audiences would accept low-fidelity for greater control which is fascinating.

Circling back to my earlier arguments I strongly believe that IP doesn’t need to be tied to any specific medium. I googled “maps of game of thrones” after watching the entire first season in a weekend. I was a total trekkie that day. That’s basic derivative content that can be selectively engaged with by an audience and could be fantastic fodder for crowd contributions.

An alternative is owning the content creation but varying distribution in innovative ways to catalyze new event-driven experiences. A few years ago the agency Droga5 created an experience that allowed the public to discover snippets of Jay-Z’s upcoming book Decoded across the locations in which its narrative unfolds. The discoveries came together through the Bing search engine.

What if the narrative elements and themes of a narrative unfolded across small towns? Each episode could be a geographically bound physical event as much as a point in time that needs to be lived to gain a truly complete understanding. It’s like the experience of seeing the play Sleep No More where the action is distributed across rooms and only the collective experience can approach the complete narrative. 3rd party accounts – either retold or captured – would be required for a complete understanding. These could be valuable currency for social status, influence, and real web traffic.

Mobile commerce beyond the digital wallet

Ink has been flowing about mobile payments. The latest piece I read was Fred Wilson’s on mobile revenue models which stresses the value of servicing mobile transactions as a business model. Off the top of my head I think we’ll see two broad areas of development on the payments front as well as a related problem set addressed in parallel with payments.

Here is more or less what I see happening in the mainstream:

  • Tightly integrated loyalty programs and convenient mobile payment solutions from the largest and most innovative physical retailers first (ie, what Starbucks is already doing). Curiously, this retailer-by-retailer approach in some ways takes us back to the pre-CC days of revolving credit lines… probably a very good loyalty mechanism for those that achieve buy-in from their customers but likely transitory. (ie, I load up my Starbucks app to buy down the line which makes me a captive consumer as if I had a gift card)
  • A long battle to own mobile payments for all retailers (with Square and PayPal in the lead) ultimately resulting in significant involvement by the VISAs and Mastercards of the world. This battle will probably last the rest of the decade. Are we going to have closed systems with apps like a Visa passbook or APIs hooking directly into checking accounts or credit lines to power myriad proprietary apps? What role does the OS, physical device, or carrier play? How long do we keep the plastic?
  • Radical changes in retail experience driven by changing consumer behavior. Experiential, usefully staffed showrooms will become the normative retail format. Think beyond Apple Stores. Try the product. Get educated. Customize it. Buy it on the spot via your mobile with next-day or same-day shipping. This could tie-in strongly with just-in-time localized manufacturing or final assembly for certain products (see trend-du-jour 3D printing). The purpose of physical retail locations will become more marketing-centric and the relationship between multi-brand retailers and their suppliers will evolve. VC Lawrence Lenihan wrote a great piece on this recently.

It’s this last problem set that I find most interesting near-term because its closely tied to the adoption of innovative mobile payments solutions but not dependent. There is going to be a world of innovation beyond the transaction itself. People are already buying online or via mobile phones at home and this changes physical retail.

Changing consumer behavior is going to drive innovation and change in stores from omni-channel loyalty mechanisms, to apps with in-store utility (maps, styling tips, friend polling features, inventory lookup, material details), same-day delivery (Shutl), in-store analytics coupled with check-ins (see today’s news about Nomi on the analytics front) that would allow retailers to track in-store interest in specific brands or products for targeted post-visit campaigns… There are going to be major opportunities to help retailers stay ahead of the curve in the next couple years. And a lot of pain for those retailers that fall behind.

Taste and Mechanics

Fred Destin wrote a must-read primer on the difficulties of eCommerce titled “Ecommerce is a slog.” In the grossest simplification your business is going to come down to (CLTV) Customer lifetime value – Customer acquisition cost (CAC) being in the black and keeping costs of logistics / fraud / payments / returns low enough to reach attractive margins.

On the selling side it comes down to “presenting the right product at the right price with the appropriate level of convenience” as he states – of course, you can go wild with social and editorial mechanisms to frame the ‘right’ product for your customer. Where it gets tricky is that, as Fred astutely observes, “you can make assumptions about recurrence, but most of the time recurrence is a mirage and (because of weak attribution analysis) you end paying full CAC on your returning customers anyway.” Therein lies the massive appeal of subscription services.

Fred ultimately makes the point that on top of playing a scale game you need an angle: solve for CAC, solve for retention, own a lucrative niche somehow…

I was discussing some of these things a month ago with my former boss who had some very early ecommerce experience through pioneer Blue Nile. We came to the conclusion, which he coined, that competitiveness in retail can come from Taste or Mechanics. I think these are two distinct categories of what Fred calls an angle.

Some random examples: eBay: mechanics. Achieve defensible marketplace liquidity across categories. Amazon: mechanics. Be unbeatable in convenience and price for the greatest number of products through massive scale. Note that they still lose money… Gilt: mechanics. Leverage human impulse to win on recurrence. Also unclear if this is a sustainable business in the long run. Zara (not ecomm but play along): mechanics. Apply just-in-time design to win locally at global scale.

What about taste? Obviously this is more often seen in single-brand physical retailers like JCrew or a designer like Christian Dior. Great multi-brand examples would include Collette and Opening Ceremony but do they have the scale to even make the same breath as the above? Not until now. There is an interesting trend of smaller shops – with a distinct vision – creating outsize online presences. LN-CC out of Dalston is a perfect example. These are not, however, fit to be venture-backed businesses.

Large luxury retailers with market-moving buying teams (ie, taste) like Barney’s or Neiman in the US are interesting because winners in this segment seem challenged by international expansion. Different markets have their own, strong and often internationally recognized, players (Barney’s in the US, Harrod’s in the UK, Galleries Lafayette in Paris). I’m not sure what has prevented them from following the brands they stock or lower-tier stores in expanding.

Who has managed to build an eCom-first business on taste?

Net-a-porter comes to mind because of their editorial efforts. Though they play a pretty straightforward be there and have scale game a la Amazon at a higher price point (luxury brands don’t want to be on Amazon hence the opening for a net-a-porter to solve for ‘right product’ online) they are also heavily invested in a very serious merchandising operation. Basically, they are the Barney’s / Neiman Marcus of the web.

Nasty Gal is perhaps the quintessential taste-led digital success story. They have products and a voice that captured a market segment very, very quickly without physical retail. But they are hardly innovating as a business model proposition. They are not winning by mechanics but by taste.

Farfetch could be another example. Their merchandising (taste) is built on that of hand-picked boutiques… see earlier observation on these shops. Anecdotally, this approach has enabled them to fill some cracks in supply at the higher end missed by the Net-a-porters of this world: slightly more challenging pieces distributed in very limited runs worldwide that someone is going to search for specifically. In theory, their drop-ship approach through the boutiques could also prove interesting for margins. Taste & mechanics? Their investors seem justified in being excited.

Everlane is another company that has gotten some hype lately. They claim to win by mechanics with their’no middleman’ claim but this doesn’t actually make them any different than any brand-owned store. They’re bringing the market a certain taste at a price point that it couldn’t easily be found at before.

I’m going to follow this closely… there are more and more brands trying to win online first as well as players trying to build taste-driven multi-brand shopping destinations (Gilt’s failure with Park & Bond is an interesting case study).

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