Category Archives: E-Commerce

Bada-Bing, Microsoft Bumps up the Fight Against Click Fraud

What does suing two brothers and their mom in Vancouver for $750k have to do with taking on Google?  

More than you’d think.

As reported in the WSJ,  Microsoft recently “filed a lawsuit against three people that it alleges committed a form of “click fraud” (…)  in which automated computer scripts or large groups of people click on (pay-per-click) online advertisements without having any interest in the services or product being advertised. The company alleges that the defendants engaged in “competitor click fraud,” one form of the ruse in which a perpetrator seeks to exhaust a competitor’s (pay per click) advertising budget while boosting the prospects of their own advertisements.”

Click-Fraud-This-And-I-Will-Cut-You-SuckaThe defendants in this case are Eric Lam, his brother Gordon Lam and their mother Melanie Suen, who ran up prices for ads for auto insurance and World of Warcraft Gold.  World of Warcraft (aka WoW) Gold is a virtual currency, that you’ll need if you want to upgrade your Orc’s wimpy little “this-is-your-dad’s-Oldsmobile” battleaxe to a blinged-out Fel Edged Battleaxe.  See, the Lams owned a site called WoWMine.com, and some of their competitors included such notables as wowgold-sale.com, wow-cheapwowgold.com,  wowpowerwow.com and innumerable others. The Lams needed to get a Fel’s edge on the competition, and (allegedly) used click-fraud to peddle more of their virtual metal.  

Woo-hoo Microsoft… making the world safe again, right?

Well, the way I see it, this isn’t just a case of  “Too-Little-But-Not-Too-Late”  in the online scourge that is click fraud.  This is another way that Microsoft tries to establish itself as the “good guys” of online search who “clean things up.”

Click fraud is old news, which makes its continuance all the more appalling.As a former owner of a consumer-facing online retail store, I’ve had more than my share of terse conversations with advertising representatives at Yahoo and Google who were complicit with the abuse of their system by their “publisher” networks and “unique” users. adsense-click-fraud-cultpruit-foundMy peers who owned online businesses were all complaining too, but what real short or medium term incentive did those search engine salespeople have to look into an advertiser’s complaint of click fraud? They had an ever-increasing number of people using their services and had quarterly sales targets (and pay bonuses) directly linked to the volume of clicks on their advertiser accounts, so why bother look into a purported scam that is difficult (but not impossible) to track?    The long term incentive (customer trust, service and brand integrity) wasn’t enough to spur action.

Eventually, we negotiated some simple estimated “store credits” based on unusual click traffic.  This saved Google and Yahoo the hassle of having to investigate the integrity of their networks and gave us a bit of a break, but unfortunately that workaround only dealt with sudden bursts of click fraud.  For ongoing click fraud, particularly from sleazy competitors, it did nothing. In the past few years, I know of at least two lawsuits — against IAC and Google — launched by advertisers who allege that those search engines have not being doing enough to deliver what they promise to their customers — clicks from actual live prospective customers.  Google settled their case for $90 million. I also know of one case where Google went after a click fraudster, but only after he tried to extort them for $100k.  Aside from that, I don’t know of any cases where Google pursued legal action against people simply because they tried to make themselves (and Google) extra money by having advertisements clicked a few (hundred thousand) extra times.

Enter Microsoft and Bing.  Bing is all about making a whole bunch of nit-picky improvements to the search experience, to make it more usable and practical.  Whether or not Microsoft succeeds in getting a serious piece of Google’s pie, they will definitely raise the game in terms of search relevance and user experience. ..and “users” include advertisers, who pay for the experience.This is especially true in the beginning stages of Bing’s existence, where Microsoft has to prove the value of its audience to prospective advertisers.  So, in the spirit of “the best defense is a good offense,”  rather than wait for advertisers to complain that Bing’s system is being gamed, Microsoft has sued some poor enterprising Vancouverites with (allegedly) poor business ethics, who just wanted to make a mint selling some WoW bullion.   

Doctor-GoogleSo, this lawsuit is just a little bit of PR/street-cred for Microsoft.   What about Google?  Will it go beyond its passive “we’ll tweak our click-filtering algorithm” approach, and go after the people involved?

Google has something that Microsoft doesn’t: Dominance in online search. With its massive datastores, computational power, ubiquitous toolbars, regional hubs and whatnot, Google is actually in a position to put a serious dent in click fraud, by exposing the sources of it.  In fact, all Google would have to do is publicly post the stuff that its ‘click-filters’ are capturing. If everyone could see where the clicks were coming from, which ads those clicks were attacking — and even which competitor ads were NOT being attacked — there are enough people with an interest to appropriately monitor, analyze and act on this information. The people running the click fraud scams would see it too, but they can see it anyway, by opening their own Adsense accounts, so this would not give them an additional edge in the technological arm’s race. Google could maintain its ostensible image of being a neutral provider of just-the-facts, free the information for the masses, yada yada.  

How about it, Google? As Spidey’s dad famously said, with great power comes great responsibility. We don’t buy the passive, non-adversarial act. “Don’t be evil” is not a moral vision… it’s more like something an unscrupulous Swiss banker would say, trading in all kinds of anonymous gangster gold.

Online Retail Equivalent to Same Store Sales

There’s a lot of talk this time of year about retail sales, consumer spending and what this means for The Economy.  With this talk comes statistics, and with these statistics come the classic metric of traditional retail, Same-Store Sales , or as I like to call it, Seam Sore Stales (Stale Sore Seams?  Stole Sears Mare?). 

Same-store sales is a simple but effective gauge of the financial health of a retailer — it indicates how a company is doing within its base of existing stores (1 year or older, by convention).  Sales results from newly opened locations during the reporting  period will not affect the same-stores sales number, which is good, because growth through new openings tends to cloud the picture for managers and investors who want to know how a retail chain is actually performing, all other factors aside. 

Amazon.com recently made its annual “best year of sales ever” press release and received numerous scathing critques from skeptical analysts (and maybe even some hopeful short sellers).   The problem with Amazon.com and other e-tailers is that they still enjoy the shroud of hype of opacity today as they did in the late 90’s.  There is nothing close to a sames-stores sales metric out there for e-tailers.   Online businesses routinely open “new locations” in the form of alternate websites (whether acquired or internally developed) as well as new sections of their websites that differ dramatically from their core product offering.  E-tailers do not typically break out these numbers for investors, let alone give visibility to key metrics of e-tailing health such as order size (or even revenue-per-customer), conversion rate (the e-tail equivalent to “revenues-per-square-foot”), customer retention rate (“loyalty”) or the like.  As a result, their weak performance (or outright mismanagement) can go undetected beneath a surface of selectively chosen numbers. 

While it would be nice to have something as simple to understand as same-store sales for online retail, the analogy unfortunately doesn’t work. Traditional retailers are “allowed” to offer new products within the walls of their stores and still have those dollars count towards same-store sales.  Without physical walls, it’s hard to decide where to draw the line of “new store” and “new product line” for e-tailers.   Yet, leaving aside semantics, there is a fundamental logic and rigor behind the same-store sales metric that makes it compelling for understanding traditional retailers, namely, “how well is this business doing in the areas that it has previously built out?”  Without this rigorous standard to stick with, it’s too easy for online retailers to get away with a whole lot of fluff and b.s. 

I once witnessed the perils of the choose-your-own-metric dot-com management style at an e-tailer’s company meeting, a few years ago.   This was a company that, according to a well-known retail veteran,  was “subsisting as the #2 or #3 player in a whole bunch of different categories,”  with “unstable leadership.”  As an observer, I initially thought they had promise.  But then, at the end-of-year company meeting, management made an announcement that annual sales were “up”…. well…, up…. WHEN YOU IGNORED those  product categories where their competition out-maneuvered them, and which they ultimately retreated from.  Yes, management insisted, not only were sales “up,” but they were “growing at an amazing rate.”   Yes, sales grow at an amazing rate when you ignore the part of your business that is just a few years old and dead, and focus only on the part that took off in recent months.  It’s ok guys.  Just fess up.  Your earlier store didn’t succeed, so you’ve decided to build a new store.  Time will tell if that new store does better.   However, lacking the discipline of a true same-store-sales -like metric to stick by, but having plenty of deep fear and insecurity, these folks perpetuated the image of the unscrupulous dot-con,  spinning their humble-but-still-decent story into an out-of-proportion blustering lie. Was it neccessary?  Probably not.  Did it cultivate employees trust in their leadership? Definitely not.  What it did do was prolong the inevitable decisions that would have to be made, to insure the health of the company and the protection of the venture backers’ considerable investment.

So where do we go from here?  I say, release the key metrics.  Tell us your conversion rates.  Tell us your average order size.  There’s no competitive issue — all the e-tail insiders know these numbers anyway

Barring that, at the very least, let’s get a breakdown by website (flagship site versus all the other stuff, including recent launches and acquisitions), or perhaps a little more granularity on those merchandise categories.  Not to pick on Amazon.com or anything (but this is what comes with the leadership territory), here is the merchandise-type breakdown of their Net Sales, in their last annual report (divided between the “North America” and “International” regions):

Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 

Compare that against how they broke-out their “Cash-and-Equivalents” holdings:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government and agency securities . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

Seriously, I would gladly trade some of that detail on Amazon’s cash-equivalent securities, to get some info about, oh, I don’t know, let’s say… BOOK sales. Or maybe even a distinction between the “Electronics” and the “other” for starters.

This lopsided approach to what is important detail from an investor’s point of view is largely a function of SEC reporting requirements. When those requirements change, there will be some accountant fees and some bruised egos, but long term, we’ll see better-educated investors and improved management practices. And a lot less bluster.

Double Feature: Effective Leadership Teams | ImageKind Purchased by CafePress

Just to mix things up a bit, this post is a two-for-the-price-of-one Double Feature: One part management development thought du jour, one part online business news punditry (with copious Wikipedia links throughout).

Part One:  Just the other day, I heard an interview with Professor Michael A. Roberto of Bryant University, formerly of Harvard Business School, who is the author of numerous writings, including the highly-acclaimed 2005 book, Why Great Leaders Don’t Take Yes for an Answer.  One of the things leaders are paid to do is to facilitate good decision making, as well as to facilitate an effective execution on those decisions. In his book, Professor Roberto gives the reader a holistic view of the role of debate, dissent and consensus in the decision and execution process. Roberto breaks out and explains some of the levers (in plainspeak: the main influencing factors and controlling mechanisms) to cultivate and manage debate and consensus in different situations.

Central idea: Effective decision making involves not just asking “What decision should I make?”  but also asking “How should I go about making the decision?”    In the parlance of a previous Meme Menagerie metaphor-gone-wild, it’s deciding on what vehicle to ride and what rules/exceptions to navigate by, rather than agonizing over a map trying to choose a fixed destination.

A highlight of Why Great Leaders Don’t Take Yes for an Answer  is Roberto’s analysis of President John F. Kennedy’s leadership team and decision making process when it came to dealing with Cuba. (Nareg, surely this will satisfy your desire for narrative continuity in this blog, from the triad of posts two weeks ago.) Roberto constructs a neat little “Before-After” analysis that shows how, from the American perspective, the Bay of Pigs Invasion was a total fiasco, versus the more artfully handled Cuban Missle Crisis, a mere 18 months later. After the Bay of Pigs Invasion, John F. Kennedy said, “How could I have been so stupid, to let them go ahead?”   According to Roberto, Kennedy proceeded to look for an answer to that question, and not just on the level of CONTENT, but also — and more importantly — on the level of PROCESS.

Yes, many mistakes were made (the passive voice is used) in terms of specific decision CONTENT, when it came to el Bahía de Cochinos in April 1961. But Kennedy’s true wisdom came out in the overhauling his war cabinet and crisis decision making PROCESS. According to Roberto, Kennedy deliberately changed the following four aspects of his deliberation process, in time for October 1962:
1) Who participates in the deliberations?
2) What norms and ground rules will control the deliberations?
3) What structures will participants use to deliver and exchange information?
4) How and when will the leader introduce their ideas?

Roberto boils this down to four convenient C’s: 
1) Composition 
2) Context 
3) Communication 
4) Control
…thus proving that even professors at the Harvard Business School are able to leave the ivory tower once in a while and write fun, insightful, wide-ranging, jargon-free, accessible fare for the Hudson News masses.


Part Deux:  You read it here on this blog first, well over a year ago. The upstart ImageKind is not really a competitor to the typical online art and poster players like AllPosters, but rather, to the make-your-own-stuff sites like Flickr and CafePress. ImageKind has a savvy, well-considered strategy and their execution is, for all intents and purposes, flawless. Their only Achilles’ heel is a somewhat difficult to remember name.

All of these conditions are now satisfied by their acquisition, last Tuesday, by CafePress, in a deal valued between $15-20 million dollars. They did it in just two years, and with considerably less traffic, visitors or customers than Barewalls.com, an earlier upstart art-prints-and-poster-company that I co-founded many years ago and ultimately sold for, well, less than $15 million.  But it ain’t about how many millions. (“yes it is, Dan”) It’s about the process, the people, the leadership and the backers, and ultimately, the value and experience created. We at Barewalls were punkasses in the punkass dot com heydey, and hey, we fared much better than most. But today we live in a post-punkass times. So it’s moments like these that makes this aging Internet entrepreneur kvell with pride in the success of one’s own (image)kind.

So, are the two parts of this Double Feature post related?  Did ImageKind possess the kind of leadership team and process worthy of a Cuban Missle Crisis? Did their internal management team and board of directors have the right stuff to create value for the company’s investors, customers, staff and business partners?  Well, I haven’t yet met any of the ImageKind folks, although since writing that post last year about them I became Facebook-friends with their primary backer, Kelly Smith of Curious Office, who I suppose I’ve come to sort-of-know through Facebook status update osmosis. I haven’t seen him stare down any communist dictators lately, but he does take some nifty photos

Circling back to the first part of this post: Yes, it’s important to look at a mistake, ask “what went wrong” and then act in a way to correct matters. And it’s equally important to look at a success, ask “what went right” and then find a way to replicate it.

Keep on replicating, Curious Office.

New Poster Child : ImageKind

Came across this interesting new company in the field of selling art prints & posters online: www.ImageKind.com  

As co-founder and former head of Barewalls.com (one of the PPPs — Prominent Poster Players — of the dot-com era),  I can say with some authority that these guys get it. They have a good print-on-demand business model and clear marketplace differentiation, with a warm fuzzy “Web 2.0”-esque sense of “community,” user-generated content, a logo with the color orange and a really sleek interface… and not to mention (well, ok, I’ll mention it), a very solid understanding of brand management and business development

The hook for this site is that it’s the place where you can feature your art — you being the repressed (or possibly underrepresented) artist — and where you can find some pretty nifty art by other folks too. 

Now, although in a higher sense ImageKind’s true competitor is CafePress or Flickr, rather than the more obvious Allposters/Art.com behemoth, there are clearly some areas of high margin, high demand product sales that they can scoop up from the “traditional” online marketplace for wall decor, in order to help pay the bills. 
You know what I’m talking about. 
It’s called Vincent van Gogh’s “Starry Night.”  It’s called anything by van Gogh, actually. Or Monet. Or Manet. Or almost anything by Picasso.  Ah, yes, sweet memories. Those good ‘ol art print cash cows, ubiquitous to dorm room walls everywhere, courtesy of the dead white European men who painted them 70+ years ago. Go to ImageKind’s site and you will see all of those popular items peppering the site experience, everything from Da Vinci to Dali, Kandinsky to Khalo (although I guess Khalo is technically more of a was-recently-living-non-white-female-non-European), and you realize, yes, this is still the poster business, and yes, print on demand is getting cheaper, but the kids still want their Impressionists and Pre-Raphelites.

Anyway, I think ImageKind’s main challenge will be to work with their hard-to-remember name, and become as ubiquitous as CafePress has become with user-generated t-shirts and mugs. To do this they will need to continue their nimble marketing and business development efforts.  Also bear in mind that Art.com is no slouch… back after AllWalls bought up the Art.com domain name from Getty Images, they sought to differentiate themselves as a place for the “professional artist” crowd, and they’ve continued to maintain this separate storefront / brand differentiator even after their merger with Allposters.

So while ImageKind’s site tells its prospective creative contributors that “anyone can create a work of art with our printing and custom framing engine,”  the analogous page on Art.com talks about “…even more opportunities for exposure to buyers by listing and selling your art across multiple sales channels.”  

ImageKind wants to help you, the person with a non-art career, feel like an artist. 
Art.com wants to help you, the artist, feel like you have a career in your art. 

ImageKind offers you a Vanilla-powered forum where you can post and read messages from other ImageKinderlach.
Art.com offers you  free Art.com-branded (and probably VistaPrint-private-labelled) business cards to all the Registered Art.com Artists.

ImageKind is taking the Flickr / PhotoBucket concept and giving it some commercial legs.  
Art.com took those circa 1999 artist mega-gallery portals, made a more compelling offering, and hooked it up to a massive shopping audience.  

So you see, there’s room to play here. Not everyone is a “professional artist,” and I think what ImageKind is doing is smart. Plus, they have a really cozy feeling going for ’em… a genuine “we care about you” attitude.  That’s worth a lot in this business.

Now, as for this business: This is a business where there is and always will be abundant, fragmented supply of the raw material — imagery.  Many attempts have been made to try to move vertically through the art world supply chain and/or to consolidate a position in it… for example, as the largest worldwide bank of licensed images, or as the largest printer of offset lithographic and limited edition art prints, or as the largest domestic consolidator/drop-shipper of said offset prints.  (Yes, I know that’s an awful, jargon-filled run-on sentence… click here for an excerpt from the Barewalls Interactive Art business plan, ninth revision, circa 1998, which should clarify all this.) 

I still maintain my original Barewalls thesis, which was that in a fragmented, over-supplied industry undergoing disintermediation and changes of technology, the key was to own the customer relationship. How to bring the customer the product, whether on a mass-produced offset print, an on-demand photo print, a giclee, or on a wall-sized LCD panel, that would all change with time. 

Hmmm. Seattle, Washington?  A few years ago, these guys would have been snapped up by Corbis.  Maybe it’s not too late.

-<>-


ABOUT IMAGEKIND:  Launched in May last year (almost a year to date), the company is led by Kelly Smith. It’s the first of three current projects at Curious Office , a Seattle-based incubator which he co-founded with Adrian Hanauer. In February this year they raised $2.6 million in a Series A round, led by  Holtzbrinck Ventures, which included Crosslink Capital, European Founders Fund, and several prominent angel investors ( Tom Hughes, Erik Blachford and Oliver Jung). Apparently they’re getting some good site traffic and lots of member sign-ups… they’re a rising star, with potential for more.

Da Vinci Code Poster Smorgasbord

Da Vinci Code PosterWell, MovieGoods have locked down the wholesale supply of movie posters and have gone on a licensing spree. 

Here is their collection of Da Vinci Code movie posters.   We’ve gotten three updates of the jpegs from them this month alone… not only do they have all the usual variations and such, they also have a set of Leonardo Da Vinci clip art images, emblazoned variously with a red wax seal and/or variations on the movie logo, named “Style A” through “Style V.”  Ok, we get it… you have a Corbis account and know how to use Photoshop.  Can we move on now?

Maybe they are test marketing the posters in small batches, and seeing which ones last… i.e. rapid prototyping using print on demand. Or maybe this is some kind of “collect them all” scheme?  Or maybe it’s just about market saturation… the way plants will dump out thousands of seeds in order to assure at least one will take hold?  

 This reminds me of the Star Wars Episode One licensing frenzy in 1999.  What a bust.  I’m glad I didn’t have all that paper rotting in my warehouse. Who knew Jar Jar Binks was NOT the next Ewok / Furby?

Pre-Dated Entry (Icon)

%d bloggers like this: