reDesign

March 20, 2013

How I choose what I write about

Filed under: Uncategorized — Rakesh Agrawal @ 10:01 am

I’ve done a lot of writing over the last two years and it has spanned quite a few topics. Some of it may seem kind of random; that reflects my diverse interests.

But there are a few themes that I’m trying to focus on:

  • Analysis that can help entrepreneurs build better products.
  • Companies whose business models are largely exploitative. This includes Groupon and Yelp.
  • Companies whose businesses can put consumers at risk.
  • Companies that violate consumer protection laws and regulations. Yes, there are some laws that are outdated and don’t recognize advances in technology. But many laws were put in place to help protect consumers from cheating by merchants. Too often, companies are looking for a free pass around these and gain an unfair competitive advantage.
  • Tech companies that are about to go public.
  • Travel and travel technologies.
  • Technologies that can create a more efficient or environmentally sound world. This includes things like car2go.
  • Technologies connected to the digital living room and connected devices.

I generally avoid writing about criticizing small projects or entrepreneurs who are just getting started. It’s unfair to criticize ideas before they’re reasonably baked. (The exception to this would be if they’re doing something dangerous or illegal.) I will write positive stories about companies that are starting up if the company is worthy of attention. Once a company reaches around $500 million in valuation, I think criticism is fair game.

I also don’t write about vanity metrics. That’s one of the scourges of the tech press. They’re lazy and easy stories to write; they drive page views; they let reporters suck up to PR people and CEOs they want access to. But ultimately, vanity metrics stories do a disservice to entrepreneurs because they de-focus from what really matters.

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March 4, 2013

How customer service should be done

Filed under: customer service, travel — Rakesh Agrawal @ 9:51 am

Live from St. Regis Deer Valley

Last week I was skiing in Deer Valley when Groupon’s terrible earnings came out. While I was skiing, I got an email from CNBC asking if I could come on air to talk about them. We tried to get me into a studio in nearby Park City, but for logistical reasons, it wouldn’t work.

I knew there was a hotel at the bottom of the hill. I wasn’t staying there, but I thought I gave them a call.

I called the concierge at the St. Regis from the slopes and asked if there was a space where I could do a Skype call for a TV interview. Jeanine said she would have to check with the manager. While I skied down, she checked. By the time I was on the lift back up, she’d called and texted me. She found a quiet space.

When I arrived, she guided me to the location. She volunteered water, note paper and a pen. She also noticed that there was music playing in the background in the room and turned it off.

That’s incredible service, especially for someone who isn’t a paying guest. I never mentioned that I’m a Starwood Lifetime Gold member. I’ll be back in Deer Valley — and next time, I plan to stay at the St. Regis.

You can watch that CNBC segment here.

November 11, 2012

Is quality journalism and analysis doomed?

Filed under: journalism — Rakesh Agrawal @ 6:12 pm

I wrote six pieces last week, covering a wider range of topics. If I were to rank them based on their potential for impact, it would go like this:

  1. How our favorite tech services should help us in emergencies - A look at the possible tsunami in Hawaii and Hurricane Sandy and how tech companies could help save lives in emergencies.
  2. Groupon’s one-year anniversary feels more like a funeral. So what’s next for daily deals? - A recap of what went with wrong with Groupon’s IPO and what’s ahead for the daily deals space.
  3. Learning from a failed IPO – A look at the failure of Varsity Books in the first dot com boom and how its co-founder managed through it and started a new company under the new rules for the current startup climate.
  4. Amazon’s advantage in holiday gift giving – Online is about more than price. Convenience plays a part.
  5. Mobile ordering cuts through the lines at Starbucks’ La Boulange – Mobile payments need to deliver more value than just eliminating the onerous task of swiping a plastic card.  (sarcasm intended)
  6. Why I’m returning my iPad mini – The iPad mini is so great that I’m taking back the low-end model I bought for something more powerful.

Several of those pieces required me conducting interviews or made use of my deeper analytical skills. The Groupon piece built on more than a year’s worth of work. One of the pieces required very little effort and no interviews. I bet you can guess which of the six required the least work and yet got the most attention.

Take something that involves Apple, slam a clever headline on it and — viola! traffic. (On the plus side, I now know how to say “linkbait” in many languages.) Social media took over and it went viral. The fact that many people read it meant many more people read it, because it stayed atop the “most popular” section.

That makes me sad.

The story about disaster-preparedness is by far the most important one. I would like every entrepreneur to read it and figure out how his or her company can help in a logical way.

If I were motivated purely by traffic, I’d keep writing stories like the one about the iPad mini. Unfortunately, clickthroughs and ratings (for TV) combined with time pressures influence too much of the coverage we see.

This isn’t just tech. Our political coverage is similarly screwed up. It takes a lot more effort to do an analysis of what Obamacare means or to look at how government is already involved in health care choices. It’s a lot easier to have two partisans shout at each other on screen. (And that will certainly get more ratings.)

It takes me at least six times as long as it does to write quality analysis as it takes to write a piece like the iPad piece. If I were being compensated based on traffic (either directly or indirectly), I know which I’d choose to write.

My motivations for writing are more complicated:

  • I want to make the world a better place. (Story 1)
  • I want to push for the design of better products and help entrepreneurs create better products. (4, 5)
  • I want to help entrepreneurs create more structurally sound companies. (2, 3)

I generally write about what I want, when I want. Still, I can’t help but notice the enormous difference in traffic levels.

I can take some solace in the fact that execs at various Valley companies, VCs and in the broader media read my work. I can hope that even if the stories like the disaster-preparedness story don’t have an immediate impact in terms of traffic, I’m getting some people to think differently about problems. And if you’re thinking about big problems like that and need some help, drop me a note: redesign@agrawals.org.

September 9, 2012

Mitt Romney’s healthcare comments flunk basic economics

Filed under: Uncategorized — Rakesh Agrawal @ 2:37 pm

I am trying to stay away from politics as much as possible this election cycle, but pandering, economic nonsense and journalistic incompetence get under my skin.

Mitt Romney said today on Meet the Press that he wants to preserve the requirement of the Affordable Care Act that insurers cover pre-existing conditions. From the Reuters story:

“Of course, there are a number of things that I like in healthcare reform that I’m going to put in place,” Romney added. “One is to make sure that those with pre-existing conditions can get coverage. Two is to assure that the marketplace allows for individuals to have policies that cover their family up to whatever age they might like.”

Romney has also said that he would repeal ACA because of the individual mandate. That’s like saying I am going to eat all the cake I want and I won’t get fat. It doesn’t work that way. Economically speaking, the individual mandate and coverage for pre-existing conditions are tied at the hip.

Any sort of universal coverage (and forced coverage of pre-existing conditions is a form of universal coverage) requires that healthy people pay into a system to help offset the cost of treating the sick. Without the individual mandate, insurance companies would go broke paying for sick patients who had pre-existing conditions because there wouldn’t be enough healthy people paying premiums.

In fact, forcing insurers to cover pre-existing conditions in the absence of an individual mandate would make health insurance’s adverse selection problem even worse. Right now, many healthy people purchase individual coverage because they’re worried that if they get sick they won’t be able to buy insurance. When I lived in Malaysia, I bought U.S. health insurance even though I was healthy because I wanted to continue to have the option for coverage in case I did get sick. I paid $110 a month for high deductible, catastrophic coverage and never made one claim on that policy. Take away that deterrent and healthy people would wait until they got sick to buy health insurance. Imagine buying car insurance only after you got into an accident.

The fact that Romney would make such a claim indicates that he’s:

  • A terrible business person who doesn’t understand basic economics.
  • Will say anything to get elected, even if it’s economically impossible.
  • Both.

It’s also ridiculous that David Gregory didn’t challenge Romney on the notion that he could keep the requirement to cover pre-existing conditions while eliminating the individual mandate. Either Gregory didn’t understand that the two are inextricably linked or he didn’t want to appear to be biased. Neither scenario paints a good picture for the state of journalism today.

Too often, journalists let claims like this slide. In this election cycle, more than ever, journalists have off-loaded that work to “fact checkers”. Sorry, but that’s a key part of a journalists job. It’s a sad state of affairs when Jon Stewart is doing more to challenge his guests than the host of Meet the Press.

August 5, 2012

eBay Now offers same-day delivery from local retailers

Filed under: mobile — Rakesh Agrawal @ 7:48 pm

[Note: I will be adding screenshots. Check back in about an hour.]

eBay is trying to revolutionize local commerce. eBay’s new product, eBay Now, allows consumers to have same-day delivery of products found at local retailers. It weaves together eBay’s acquisition of Milo.com and its launch of PayPal Here in a way that makes ordering a hard drive much easier than ordering a pizza. And it arrives just as fast.

I received an invitation to an early beta of eBay Now currently under way in San Francisco. The beta includes “all eBay shoppers who have SF addresses on file and opted to receive emails,” said Lina Shustarovich, an eBay spokeswoman.

I ordered a hard drive and had it within an hour. Although services like TaskRabbit and Postmates offer variations of local delivery services, eBay Now seems focused on chain retailers. With Postmates, I can order from any business. What makes eBay Now particularly interesting (and a stronger competitor to Amazon) is that it incorporates real-time inventory data from eBay’s Milo.com acquisition. eBay has partnered with marquee local names like Nordstrom, Best Buy, Target, Macy’s and Bloomingdales.

The experience starts off with some use cases; that’s especially important in launching a new concept.

You can search by product or see items at one of the featured retailers. I placed an order for a Toshiba portable hard drive. (I figured out that my hard drive was coming from Best Buy based on the map.) This could either be an omission or it could indicate an intention for eBay to use local retailers as warehouses and own the customer relationship. If there’s substantial demand, eBay could then figure out which products it should warehouse itself and which to source from local retailers. It would make logistical and economic sense to warehouse products like iPhone batteries, condoms and beer and to use local retailers for long-tail items.

“I wouldn’t say we’re trying to use stores as warehouses,” Shustarovich said. “As you know, on ebay.com/local, RedLaser, and Milo, we send people from the Web/mobile phones and into stores to buy. eBay Now is our way of making local shopping more convenient and easier than ever before. It gives shoppers choice and another option for local.”

Placing the order was almost too easy; there was substantially less friction than most mobile apps. Within a minute or so, John had accepted my order. I could see the location of John’s car as he drove to Best Buy. The app kept me updated on the fact that he had picked up my order and was on his way. The estimated delivery time moved up and down as he made his trip.

The final leg of the delivery was longer than necessary because John didn’t have my apartment number, despite it being stored in my account. When he arrived, I paid with the PayPal Here app on his iPhone.

I didn’t receive a receipt from Best Buy; my only receipt is from eBay Now. Again, this provides for some interesting speculation on where eBay may be trying to take this.

John said he’s been working with eBay Now for about a week and has made four deliveries. He found out about eBay Now through a friend who encouraged him to apply. He had also been trained to ask me some questions about my eBay Now experience, including how I found out about it (by email) and whether I’d use it again (probably).

In this case, Best Buy’s price turned out to be the same as what Amazon is charging, $54.99. Coincidentally, while I was waiting for my hard drive, I received a shipping notice for an Amazon order I placed last Tuesday. That’s due to arrive tomorrow.

Although not incorporated in the current product, I can imagine that small businesses who use PayPal Here would have their inventory loaded into the same database. That would give small businesses a big reason to choose PayPal Here over Square.

For the beta, eBay is waiving the $5 delivery charge for the first 3 orders and also taking an additional $15 off the first order.

There were a few hiccups along the way, which is to be expected of a product this early:

  • The app didn’t have my apartment number in the correct spot. On my screen it showed up in front of the street address. According to the courier, he didn’t see it at all. Given that high density areas is where eBay Now will work best, having that fixed is critical.
  • The pricing shown in the app didn’t reflect the promotional credit, but it was correct in the final tally.
  • The first credit card I used didn’t work. There’s no reason it shouldn’t have worked.
  • The app doesn’t accept SMS. (But it is smart enough to have an auto responder to that effect.)

One other thing that is unclear: I have no idea how to return the unnecessary hard drive I just ordered. Maybe I can sell it on eBay.

June 11, 2012

New bet with Felix Salmon of Reuters

Filed under: Uncategorized — Rakesh Agrawal @ 8:10 pm

I have a new bet with Felix Salmon of Reuters tied to an exit for Square.

I win the bet if:

  • Square is acquired on or before December 31, 2012 by anyone other than PayPal.

Felix wins the bet if:

  • Square is not acquired on or before December 31, 2012.
  • Square is acquired by PayPal.

Stakes: Dinner next time we are in the same city at a place of the winner’s choosing.

“Acquired” means that an agreement has been announced by. The transaction need not have closed.

The outcome of this bet does not cancel out our previous bet related to Groupon and Priceline. (One that I’m currently winning.)

Any disputes will be settled by Naveen Selvadurai.

June 8, 2012

Would Rocky Agrawal ever work for Groupon?

Filed under: daily deals, groupon — Rakesh Agrawal @ 1:00 pm

This post is an excerpt from a forthcoming book on Groupon.

It’s a question I’m asked quite often by friends, family, journalists and once by a Groupon employee.

Apparently, it’s plausible that I would. When I posted on April Fool’s Day that I was joining Groupon (a day after a scathing analysis of Groupon’s earnings restatement), quite a few people believed it. I had several reporters contact me to ask me for interviews on my new job.

What made it believable is that most of the post was actually true. Aside from the part about, um, actually joining Groupon:

  • I’ve spent my entire career in product management and business development. It’s my true passion.
  • I’ve also spent much of my career on local products.

My initial and ongoing motivation for writing about Groupon and LivingSocial (and increasingly, Yelp), is to help small businesses make better decisions. By analyzing these business models, I hoped that SMBs who do even the most basic due diligence could find resources that would help them make a better informed decision on how to spend their hard-earned dollars.

I was chatting with a VC the other day about how wave after wave of local sites have raped small businesses, promising internet magic but delivering dubious value.

As I’ve said repeatedly, Groupon is not always a terrible thing for merchants. There are some cases when it makes sense. (Yelp, on the other hand, is always a bad buy.) Some of Groupon’s newer products actually make sense for small businesses.

One thing that I’ve heard from several sources is that Andrew Mason actually cares about small businesses. When he hears that a deal has gone bad or that a business lost a lot of money on a Groupon, he pulls out the checkbook and tries to make it right. Not in the “please don’t sue us and run to the press” way, but because he genuinely wants to make it right. Even Jessie Burke of Posie’s Cafe told me this. (To date, the company has not allowed me to speak with Andrew Mason, so I can’t offer a personal assessment.)

Over the last year, I’ve been approached by a number of companies that are looking to tackle the local space, from startups to the giant internet companies, about joining their teams to help small businesses. If I thought a company had a credible plan for helping small businesses really use the power and efficiency of the Internet, I would consider joining them.

Even if that company were Groupon. I look toward the future, not the past.

But I would have to believe that Groupon genuinely wanted my input and I would have a role where I could drive products in a way that would work for small businesses. If it was just about silencing a vocal critic, that wouldn’t be interesting.

Joining Groupon would obviously carry a lot of brand risk for me. Based on my April Fool’s Day joke, I know how a lot of people would feel about it. Many were puzzled, some called me a traitor and many offered their congratulations.

My friend Dave wrote on my Facebook wall:

Congratulations but I have to say I’m a bit disappointed. Here’s why, businesses that build their empires based on questionable/unethical business practices that ruin other businesses (especially small and local) should not be rewarded later for changing their practices after they’ve been exposed. I’d rather they go belly up but short of that, I hope you can help them stop ruining SMBs.

My friend Walt wrote:

Wow! Rocky life is full of surprises – this is a big one! The are very fortunate to have you!

And J.T. wrote:

I recall a lot of us thinking that their best move would be to hire you when last we met.

June 1, 2012

Groupon investors race for the exits as lockup ends

Filed under: daily deals, groupon — Rakesh Agrawal @ 2:12 pm

Groupon shares dropped to a new all-time low today as its lockup ended, releasing a torrent of new shares on to the market. Thirty minutes into the trading session, Groupon had already traded 75% of its average daily trading volume. This was Groupon’s third highest volume trading day. (Disclosure: I have various puts against Groupon.)

Groupon filed to go public a year ago tomorrow. Back then the New York Times estimated a $30 billion valuation for the company; today’s closing value was $6.3 billion. That’s about 80% off. It’s just barely higher than the $6 billion that Google reportedly offered for the company last year.

Public market investors have lost a Groupton on the stock, which is down 52% from its offering price and 63% from its first-day close.

Early insiders are still fine, of course. Groupon co-founder Eric Lefkofsky and his affiliated entities took nearly $400 million off the table well before the IPO. Even those who got in the last round of financing, such as Fidelity, T. Rowe Price and Andreesen Horowitz are up, at least for now. Those shares were purchased for approximately $7.90, split adjusted. At today’s close, that’s a 23% return.

For locked up shareholders, the timing of the lockup’s end couldn’t have been worse. It came shortly after Facebook’s IPO and on a day with bad macroeconomic news.

What’s ahead for Groupon

I have been following the company closely since the S-1 was filed; I’ve predicted that without substantial changes to its core business model, Groupon stock is going to zero.

The company is trying hard to diversify beyond its core daily deals business with forays into loyalty, travel, liquidation of unwanted merchandise, instant deals and, most recently, payments.

Groupon Now, once touted at what Groupon would have been from the beginning, has been an unmitigated failure. Although the company likes to say that Groupon Now sold 1.5 million Groupon vouchers, that’s roughly 1% of Groupons sold last year and likely a smaller portion of revenue. “In just one year Groupon Now! has hit a milestone that took the original Groupon deal platform 15 months to accomplish,” Dan Roarty, VP of Groupon Now! said in a press release. But once you reach a certain notability and are a multibillion dollar company, your success has to come much, much faster.  Tom Cruise took 18 years to make his first movie. If it took him another 16 years to make the second one, that would be a failure.

To be fair, Groupon’s other businesses don’t have the structural problems that Groupon’s daily deals product has. They aren’t toxic for merchants. But they also aren’t gigantic profitable businesses. Here is my quick handicapping of the new product lines:

  • Getaways – Highly competitive business, with margins in the 20-30% range (vs. 40-60% in the daily deals business). The quality of Groupon’s offerings have been lackluster. I had my own terrible experience with Groupon Getaways.
  • Goods – Margin competitive business. Groupon doesn’t have the logistics capabilities of Amazon or the ad distribution power of Google.
  • Now! – Low volume, forces a change in consumer and merchant behavior. LivingSocial abandoned its product in the space.
  • Rewards – Trying to change consumer and merchant behavior too much. Structural flaws in the product.
  • Payments – This is a potential opportunity for Groupon, but is incredibly competitive. Not only is Groupon comepting with Square, PayPal and Verifone, there are hundreds of independent sales organizations that target this space. Groupon would have to tremendous volume to succeed in this space at the prices they’ve put forth.

With the exception of Goods, I don’t see any of these businesses being material to Groupon’s revenues in the next 12 to 18 months.

At a town hall meeting with employees, Groupon’s Andrew Mason reportedly said, “We’re still this toddler in a grown man’s body in many ways.”

And like a toddler, Groupon is sticking its hands everywhere; it has no idea what it wants to be when it grows up. Here’s a partial list of the companies and brands that Groupon is trying to compete with: LivingSocial, Amazon, Google, Expedia, Priceline, Hotwire, PayPal, Square, Verifone, American Express, Visa, MasterCard, Fab, Woot, Facebook, OpenTable, Mindbody Online, Envision Salon, First Data, Costco, every newspaper, every Yellow Pages.

Groupon’s investors were counting on the kind of stratospheric growth that the company was experiencing before its IPO to propel its stock price. So far, the trajectory has all been downward.

May 26, 2012

Deal: Virgin America vouchers for travel through June 15

Filed under: Uncategorized — Rakesh Agrawal @ 8:53 am

Last summer, Virgin America ran an incredible deal for air travel. I bought too many and need to get rid of some of them.

These are great vouchers that are good for any city in Virgin’s route map. They are good for last minute trips and are in Main Cabin Select, which includes extra legroom, unlimited free food and alcohol, unlimited premium movies and priority security and boarding.

As you all know, I’m a huge fan of Virgin and fly them whenever I can.

Here are the high level terms:

  • Good for last minute trips. I’ve used some of my vouchers for trips that otherwise would cost $2,000.
  • Must complete all travel by June 15.
  • Only valid in Main Cabin Select.
  • You are responsible for taxes. For U.S. trips, this is about $14 for a non-stop. Cabo, Cancun and Puerto Vallarta taxes are about $90.

I’m asking $400 each. (Which is roughly what I paid, plus transaction costs.) You can pay me by paypal and I will send you the code that you can use to redeem on Virgin’s Web site.

If you are a friend and are coming to visit SF, you also get a place to stay in my guest room.

Interested? Email me at redesign@agrawals.org.

May 18, 2012

Why I didn’t write about Groupon’s 1Q earnings

Filed under: Uncategorized — Rakesh Agrawal @ 7:09 am

Some of you undoubtedly noticed that I didn’t write up my views on Groupon’s earnings.

It’s not because Groupon suddenly proved that I’ve been wrong for the past year. To the contrary, Groupon’s earnings report reinforced everything I believe about the company. Since earnings, I’ve bought even more puts against the company. I believe that the markets continue to misread the company and that the company takes very deliberate actions to confuse the markets. There are a number of intricacies of accounting that come into play. (In this case, unlike in the past, Groupon isn’t doing anything wrong.)

The primary reason I didn’t write up my analysis is that it doesn’t help small businesses or entrepreneurs. It would primarily help professional money managers and hedge funds.

My goal all along has been to help small businesses and entrepreneurs. The byproduct of that has been helping professional money managers. But professional money managers can afford to pay for my analysis; many of them value it and already do. It’s counterproductive for me to give that analysis away.

This situation illustrates the two markets for financial news: the consumer market and the professional market. Over the past year, a number of people have told me that I’m providing professional-grade analysis in the consumer media market.

Unfortunately, the two markets also pay vastly differently. It’s incredibly hard to make meaningful money in consumer media. You need a lot of scale. But if you have unique information in the professional markets, it’s worth a lot of money.

Tiering of information is very common. Bloomberg and Reuters are two of the world’s highest quality news organizations. But they fund their news operations with the massive profits they make from their professional products. I was talking to someone earlier this week who told me, “If there’s one thing we can thank Wall Street bankers for, it’s funding two high quality news sources.”

There’s another challenge with writing sophisticated financial analysis for the consumer press: many people don’t understand it. Then I have to deal with comments and personal attacks from people who have no clue what I’m talking about. That provides a negative value for me. When I’m talking to hedge funds and mutual funds, at least I know they understand the core of my argument. (Even if they don’t always agree.)

Going forward, I’ll continue writing about business models and elements of the story that affect small businesses and entrepreneurs. I want to help both of those groups succeed.

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