Your place or mine?

The internet is presenting many vexing challenges in many industries and retailers and retail landlords are not exempt. One such question is whether one should sign up to (or build) an online shopping centre (a ‘portal’).

I hope my observations are just as valuable to property managers thinking about going into this space as it is for retailers who are thinking of signing up. (My arguments actually hold true for any non-internet company entering this space although I refer to shopping centre landlords given the audience of this website.)

THE OPTIONS

There are a few shopping ‘portals’ that have launched – and soon more will come knocking on your Inbox.

There is OfferMe, or Westfield’s initiative and not to forget that ubiquitous Google has done the same with several Australian retailers in tow. The list goes on, and I would not be surprised if most major landlords are planning a similar initiative.

There are many additional options for retailers to enter the online space directly or indirectly:

  1. Go it alone (Using SEO and creating a dedicated ‘etail’ destination)
  2. The ‘daily deals’ sites (e.g. Catch of the Day, Spreets)
  3. Sell through 3rd Party sites (e.g. EBay)
  4. Using plug-ins (APIs) to leverage Facebook (for example) as a trading platform (Payvment is one free option.)
  5. Leveraging social media (Foursquare, Twitter) for promotional purposes or using online coupons (Groupon, Living Social) is not ‘real’ online retailing, but tangentially relevant to this argument.

THE ANSWER

The answer to the question I posed to landlords and retailers above is…‘probably not’.

I will qualify my answer with two salient observations:

 

In 2002 I was tasked with the responsibility of shutting down the eCommerce initiatives of my then employer – a major Australian Retail Property Manager. I am intimately familiar with many aspects of operations like these. I am not familiar with the cultures and strategies of ANY of the current players in this space – and I am not commenting about anyone’s specific strategy.

I am also (as a minority shareholder) in the process of raising capital for a venture in this space that will completely change the way retail businesses runs – using current technology. (If we get it up.) I mention this because I have researched this space well, and for a long time. (And in case there are investors out there...)

I mention these two facts because my observation may be somewhat contentious - but only if it is misconstrued. I don’t have an agenda and I don’t have any particular insight into any current initiative, and I am not commenting about anyone’s strategy.

But if you decide to do it anyway, I would like to point out the traps and fallacious arguments or ‘benefits’ that are trotted out in the typical business case.

1. The economics of the web is completely different.

If a brand-new site (ala Zappos) can go from 0 to millions in months and be capitalised in the BILLIONS in a few years, then being small, being new and being unknown is of no consequence.

Having a ‘brand’ in the ‘real world’ is of no relevance on the web.

Consequently, the questions to be answered are:

(a) What is the real value that the portal ‘administrator’ will add?

(b) And is this reflected the deal you are signing up for?

Before you do a deal on the internet, you have to appreciate a completely different set of economics. For instance, how much would pay someone as an ‘affiliate marketer’ to promote your product online? I sell a few eBooks, and the typical commission is 50%. Some products offer 100% commission (because the seller makes money afterwards once the ‘buyer’ is on his site.) On the other hand, eBay charges anything from $0.01 to $19.99.

Suffice to say the value proposition in the online world is fluid, and there is often limited precedent.

2. Does the portal operator ‘get’ internet culture?

There is such a thing as internet culture and it is the opposite of pretty much every ‘culture’ I have ever observed on the corporate world.

I don’t say this lightly - I have worked on 4 continents and it is pretty much universal:

Every big business wants to have control. On the web you have to dispossess yourself of that notion – and for obvious reasons established companies find that almost impossible.

For example, having ‘policies’ on your portal that cover the following areas would be a sure sign of NOT ‘getting’ the internet:

  • Comments will be moderated and negative ones will be deemed inflammatory and be banned.
  • The ‘tenants’ on the portal will have to comply with ‘communication guidelines’.
  • The site values its brand and consequently sets limits as to what you can sell and how you can promote it, and some sort of control to ensure ‘just enough variety’ but not too much competition.
  • The portal owner owns the traffic – and may share some of the data with you but not all.
  • You will have to maintain certain ‘standards’…
  • The strategy is to aggregate different types of retailers – just like in a shopping centre – because it is ‘convenient’ for the customer. (How inconvenient is it really to jump to another shop on the other side of the world with one click?)

This command-and-control approach does not work online.

People don’t want to have relationships with brands. They want to have relationships with people.

The question is: can your company act like it is ‘people’? This applies to the ‘portal’ and the ‘shopfront’ – and it is the test of whether you really ‘get’ it.

The reality is that companies act like companies.

If you think you can control anything, there are about a gazillion hackers and a squadron of trolls lined up to prove you wrong.

I would be very surprised if any established non-internet company can truly change their culture and their strategy to one that operates effectively on the web.

Not even a company like Microsoft can play the internet game successfully. The transition from corporate behemoth to an internet-ready ‘player’ is a cultural issue and has nothing to do with technology, products, experience, strategy, brand or capital.

This is one of the main reasons why media companies have failed to translate their dominance of the content/news and existing relationships with readers into web-dominance. This is why we use Wikipedia and not Encyclopaedia Britannica.

3. Is there a formal agreement with a specific term reminiscent of a lease?

Every successful eCommerce site that I can think of operates on the basis of pay-as-you-go, and leave-whenever-you-like.

The internet is anarchic. The site owner has no power and no real influence – beyond what is granted by the internet ‘community’. You will never win an argument with the crowd (even if you are ‘right’) – and no matter what your terms and conditions stipulate, the user is really, really always right.

To think that a relationship can be governed by a contract has always been a stupid idea (designed to make money for lawyers), and on the web this is affirmed daily with few exceptions.

In an age of rapid technological development (long) contracts may be economic suicide.

For instance, even though eBay has T&C – they fundamentally rely on the users to rate each other and the community effectively sets the standards.

IN SUMMARY

I have highlighted just three indicators that may signal that there may be danger ahead.

  • Does the relationship reflect fair value in the context of the internet environment, or is premised on the same principles as a shopping centre – or any ‘traditional’ worldview?
  • Does the portal ‘get’ and accept the anarchic nature of the internet?
  • Are there digital locks and chains to tie you down?

MY ADVICE TO RETAILERS AND PROSPECTIVE PORTAL OWNERS:

Don’t rush.

Unlike real estate, there is not a limited supply of space. According to the US Department of Commerce, 4% of commercial activity occurs online. 96% occurs off line. The one with the right PROPOSITION will win – not the one who was first. (Remember, there was Six Degrees before Myspace and Facebook. There was Altavista before Yahoo and Google.)

There is a difference between the leading edge and the bleeding edge – and it is a fine line.

It’s about people.

The real change in shopping is the ‘social dimension’. This is of course not new – every decent property manager and retailer knows this and uses this.

People are social and will always be. Think about how this aspect will manifest itself in the ‘new order’ – and don’t focus on the technology.

Experiment.

Whilst you don’t have to rush, you do have to evolve. There is a strong meme on the internet at the moment (see this HBR archive) about the importance (and benefits) of failure. In this new world order you have to simply ‘launch’ and get on with it. Being stuck in a cycle of constant executive reviews works well when you are building a billion dollar shopping centre. Not so much when you are building a $500 website that you will scrap tomorrow.

If you are you are going to do it, you have setup that business truly independently and staff it with people who are not representative of the organisation. (Transferring your ‘stars’ across will be the worst thing you can do because they will naturally emulate the strategies and behaviours that previously made them successful.)

Consider Seth Godin’s wise words:

“As you gain resources, the act of being wrong goes from being fatal to annoying to a precious opportunity, something that you've earned. You won't advance your cause or discover new truths if you're obsessed with being right all the time…”

Established businesses rarely understand how being wrong can be an opportunity. And the internet practically ensures (if not demands) that you are ‘wrong’. Constant change must be in your corporate DNA.

Social media is not magic. Read this, from a respected Ad Agency CEO, for a full explanation. Forrester research notes (in effect) that social media is just an enabler – and not black magic.

I outline a basic strategy with some tools for you here. Learn how to use it. Use it. Just don’t expect it to ‘save’ a business that is otherwise flawed.

First and foremost the internet is about people, and unless you get what they are all about – and unless you are prepared to abandon your old paradigms, I am convinced the best conceived venture will fail. Conversely, if you really ‘get’ the internet, chances are you could be successful.

CONCLUSION

This post has been about a specific type of online trading opportunity and my arguments don’t necessarily apply to all the other multi-channel opportunities.

In addition to the decision to go multi-channel or not, it is imperative for retailers to get their businesses adapted to mobile technology and also to understand the new social landscape. These are three hairy challenges indeed.

Would you like to know if you have what it takes?

As promised earlier here is the ‘do-you-get-it’ quiz:

  1.  Do you know who Gary Vaynerchuk is and do you share his view about internet?
  2. If you don’t know who he is, I’ll give you a second chance. If you understand and agree with what he is saying here then you have also passed the quiz.

I hope that I helped you get there.