Notes

[MUSIC].
So now, we're going to continue our
discussion of how the real
world and the virtual world interact with
each other in online/offline competition.
So if you look at the slide, there are
five companies that
I'm going to speak about and this is
actually very exciting for me.
Because these are comapnies I've had the
pleasure
of working with in terms of analyzing
their
data, and also doing some research trying
also
to help out the management team a little
bit.
First one is a company called
netgrocer.com.
It was really one of the very, very early
companies
in the internet selling non perishable
groceries starting at about May 1997.
And I'm going to show you how that
business grew
and evolved, and try and give you a sense
of how it is that Ebusiness companies,
Ecommerce companies
spread themselves over time and over space
in particular markets.
the second company I'm going to talk about
is one of
our favorites of course, it's part of the
Quidsi family.
That's diapers.com which began life in
2005
at 1-800-DIAPERS.com.
In fact you may see a little bit behind
me.
I'm actually still here in the Quidsi
warehouse,
again backgrounded by 1.1 Sorry, 1,200,000
square feet of
warehouse space, robots, and so on,
shipping diapers and
all kinds of stuff all over the United
States.
The third company we're going to talk
about, warbyparker.com
this company was founded a little bit
later.
This company was founded in 2010 in
February
by four students at the Wharton School
who wanted to do something very, very
interesting.
They wanted to take a product that most of
us are buying offline.
If you wear the product, which is glasses.
That's what Warby Parker sells.
You would go into an optician's, get your
eyes tested, and maybe
try on a bunch of different frames, and
buy glasses in that environment.
Now what the forefounders noticed is at
that point in time, less than 2%
of that product category in the United
States were sold online so they build
a company to try and change that and
sell glasses online and also through
offline channels.
So, we'll talk about those guys a little
bit, if
you happen to be in Boston or New York
City you
could even go and visit the flagship store
they have
their own real world flagship store
selling products directly to customers.
The fourth company I'm going to talk about
a little bit is a company called Bonobos.
This is a little bit later then
Diapers.com and a little bit earlier than
WarbyParker.com.
It was founded in 2007 by two
general coming out of the Stanford
Business School.
The current CEO is still there, Andy Dunn.
And their idea was to sell men, for all
the guys out there fashion items at great
prices and
also fashion items that really sort of fit
you
and give a better feel and trim than other
products.
The final and fifth company on the slide
is
citruslane founded by a friend of mine
Mariah out there
in California.
Really addressing the problem that some of
us
have if we have children, how to get the
best toys, the best stuff, the best kind
of gifts for our kids on an ongoing basis.
Basically to discover new products that
are
relevant to households that have small
children.
And if we don't have small children
ourselves,
we might like to gift that to somebody
else.
So those are the five companies that we're
going to sort of look a
little bit under the hood to try to
understand how all of this works.
So,
I'm just going to explain a little bit
about what
we do as academics when we examine these
things, and what
I've done with my friends and coauthors,
is we're able
to get the sales data from these companies
and match it
up with other data mainly provided by the
US government
about the kinds of people that live in
different areas of
the United States And then understand how
the characteristics of
a physical environment affect the sales of
a virtual world company.
So, why is it that one zip code has very,
very low sales
of Diapers.com products and another one
may have thousands and thousands of
customers?
Those were the things we were trying to
understand and
that was the data that we used to do it.
So the next thing I'm going to do is
I'm going to take us through five
principles that I
discovered with my coauthors doing this
research about
how the online world and the offline world
interact.
If you're interested in reading this,
the article's called, What Matters Most in
Internet Retailing.
It was published by the Sloan Management
Review.
So, the first thing that we found, kind of
summarizes some of the other things that
we talked about
earlier, is that when an online business
opens up, it
changes the cost benefit for the shopper
in particular locations.
So, if I'm living in Philadelphia 19123,
which is where I
do live, and I have access to certain
kinds of stores to
buy clothing, and let's imagine the
closest one is two or three miles away.
When an internet store opens up, let's
call it jeans.com
that changes the relative attractiveness
of shopping online versus offline.
So that's the first thing.
When an internet company comes into play
it changes
the relative cost and benefit of shopping
online versus offline.
So now we're back on principal two.
The second of our five principals.
So the second principal that I discovered
primarily
in the beginning looking at sales from
netgrocer.com starting
in 1997 is that the way ecommerce
companies develop
their sales is very structured and very
very predictable.
And so what I'm going to show you now is a
very
interesting graphic that starts out way
back in May, 1997, and there's
a picture of the US, you can see there on
the
screen, United States, and you can see the
areas that are shaded.
Those shaded areas are areas where
somebody in that location, in
that zip code, of which there are more
than 30,000 in
the United States, had actually placed an
order at the website
netgrocer.com, way, way back in the dark
ages of internet retailing.
Now what's interesting is we fast forward
through the
slides what we can see is that by the
time we've got about 42 months out or
about
three and a half years out, Netgrocer.com
was selling
products in more than 18,000 zip codes.
That's why the whole map now looks rather
dark and rather shaded throughout the
entire United States