Web vs Apps, Year 4

October 24th, 2014

Today, BusinessInsider – about whom I should write more, as their “Top Stories” have become more sales promotion and less news, and thus I look forward to receiving their updates less than I used to, but that is for another day – published a piece by Alyson Shontell about the future of mobile apps. In short, they see mobile apps migrating towards the Web, with native apps more like bookmarks or small content holders.

I have been writing about this topic for some time, mostly from the perspective of the vendor’s, or development, cycle. I first approached this from Apple’s incentives perspective back in March of 2011, then again from the customer and developer perspective in January of 2012. Shontell, on the other hand, approached it from a market approach. With 500MM+active Websites, there just isn’t enough screen real estate, even on the iPad 18 Plus Plus Plus, for even a tiny fraction, less than 1%, of those sites/applications.

To their credit, I suspect Google and Apple have been (at least subconsciously) aware of this for some time. Each is trying to get you to go through their search or similar apps, so you “only” need a few apps, which will help you get there. Each has their own motivations:

  • Google: Google earns its revenue ($16.5BN last quarter alone) off of advertising to people who search on the Internet. Essentially, their acting as a gateway to, well, everywhere for billions of users is what gives them prime position to sell advertising space. You as the user don’t need to know every page that has “instructions for knitting a blanket”, since Google will take you there. You don’t even need to remember most URLs. I would suspect that “return” or “repeat” searches are as valuable to Google as new searches, if not more so. If that assumption is correct, then apps like Evernote represented a serious challenge to Google. Why they were culturally incapable of developing it on their own is a story for a follow-up.
  • Apple: Apple is (or should be) as afraid of the Web as Microsoft was back in the 1990s. One could argue that the Web was the single biggest enabler of moving beyond Microsoft Windows. Entire *aaS industries simply could not have existed without the Web. If the mobile platform becomes nothing more than, well, a platform, the Apple ecosystem becomes much less valuable. Some people will always prefer the fancy hardware, but, as Apple’s ads tout, hundreds of millions of apps in the ecosystem, and the best and first ones at that, are of enormous marketing value.

It was always possible that other dynamics would drive an extended stay in native mobile apps, but the issue appears to come back again and again. In short:

  • I believe developers do not want mobile apps, but are working with it.
  • Corporations absolutely prefer the Web, for reasons of management control, costs, and the ability to speak directly with the customer, i.e. not through the gauntlet of Apple’s App Store or Google Play.
  • Customer want it, although to a lesser degree.

I like Shontell’s perspective, since in the end, the market always decides. Does the real estate matter? That, in the end, is up to the customer.

Know Your Subject

October 22nd, 2014

I have made my share of embarrassing faux-pas, saying the wrong thing, pronouncing a word the wrong way. But when I put something in writing, I try very hard not to make silly mistakes. That includes knowing my subject well.

Here is a quote from a recent BusinessInsider article on how hackers work. In case it get taken down, it is reproduced here:

One way people make themselves vulnerable is by having a weak password. Some hacks are group-force attacks that use publicly available data to hit servers with different password possibilities. People who use obvious passwords are “basically leaving the key to their front door under the doormat,” Ricotta said.

“Group-force” attacks? Is that some new methodology wherein we guess the names of your Facebook or Google groups and try them as passwords? Or perhaps we join the local book club (“group”) and then beat up the user until they give us their password (“force”).

I get mistakes and typos, but confusing “group-force” with “brute-force” is just sloppy work. One of the reasons I read the Wall Street Journal over the New York Times – among many others – is that the editing in the WSJ is of a much higher quality; sloppy mistakes slip through much more rarely.

If you are going to write about something, at least research it?

The Not-So-Simple SIM Card

October 21st, 2014

The SIM card in almost all of our phones is a tiny smartcard, a computer, that enables your mobile device to connect somewhat securely with a wireless carrier.

In the old days of mobile, there were 2 major competing technologies – GSM and CDMA. Most of the rest of the world went GSM; the USA went mostly CDMA. Unlike GSM, which had a SIM card, and thus could have (unlocked) phones switch carriers simply by switching cards, Americans bought their phones from carriers, and closely affiliated the phone with the carrier. You didn’t have “a Motorola phone that is on the Verizon network”; you had “a Verizon phone.” Period.

Two forces contributed to the growth of SIM cards in the US over the last decade:

  • GSM: Originally just a few smaller carriers like Omnipoint used GSM, but eventually major carriers switched. This in itself was driven by the rapid development of the technology overseas.
  • iPhone: This was the first phone that was not one per carrier, but one phone across all carriers. Sure, there are some minor differences between the models and the networks they work on, but they are still just the iPhone.

As a result, people around the world have a SIM card and know about it. Most, however, do not think about it much. You switch carriers once every few years, and you probably switch phones with the same frequency. You might know about the little card in there, but it is out of your normal awareness. Those who live close to national borders, especially Europeans and some Asian residents, might think about it a bit more, but not that much.

On the other hand, regular business travels think about SIM cards regularly. The combination of prohibitive roaming costs and the need to “appear local” with a local number when in-country means unending strategies for managing multiple SIM cards. Personally, I carry 4-5 whenever I travel; I know of people who carry many more. Other business travelers actually maintain multiple phones, or even smartphones, and carry them on their person when they travel. Regularly commute between the US and UK? No problem. One iPhone with an AT&T SIM in it at all times, another with a EE SIM in it at all times.

Besides the space and organization, each SIM card requires filling up with prepaid funds (or maintaining a more expensive ongoing plan), and most importantly means the number on a card not in the device right now just doesn’t work, at least until you switch it back.

Two key factors prevent this whole mess from going away, both part of legacy carriers’ business models.

  1. Roaming: Carriers make a lot of money on roaming. There may only be a few stories of accidental $5,000 roaming bills, but even small amounts per month can add up to a lot of money across many users. The sad thing is that the incremental marginal cost of roaming over a normal local user is nearly zero, especially for data. The T-Mobile Germany user roaming in London on EE accessing 5MB of data from his iPhone cost essentially the same as a local EE subscriber.
  2. Customer Lock: How do you authenticate to your bank? Some combination of username and password, maybe two-factor like SMS (side-channel) or Google Auth (TOTP/HOTP). How about your corporate VPN? Something similar, perhaps using an RSA keyfob, which is essentially the same. There is nothing more secure or special about a wireless network that it requires a special postage-stamp-sized computer inserted into your phone to authenticate. The only reason the SIM card is there is to keep you physically hooked to the carrier.

There is nothing in the field of technology or security or risk-management that requires a SIM card for connecting to a mobile carrier; it is only carrier legacy business models.

A few years back I explored the possibility of a multi-country wireless carrier. Buy one SIM card, and add numbers from multiple countries using an app or the Web. The key is that in each of those countries in which you have a number, you are not roaming, you are native. Have a +44 UK number and +1 US number and +972 Israel number? All three will ring on your phone wherever you are, your outgoing caller ID will be the local number based on the dialed number (+1 to US numbers, +44 to UK numbers, +972 to UK numbers), and you will pay no roaming fees in any of those countries in which you have a number.

Turns out the capital to build such a thing is quite large. Negotiating rights with existing carriers and local governments requires many millions just in licensing fees and large-scale commitments. I would love to be able to “kill the SIM” card – I don’t use one on my laptop to connect to a VPN or bank, why should I use it for a mobile carrier from my smartphone? – but it requires too much capital for a small startup.

But it isn’t too much for a large company with an innovative track record.

That, I believe, is where Apple’s latest (quietly released) feature of the iPad Air 2 and iPad Retina Mini 3 could be heading. Apple recognizes that mobile iPad use depends on ease of use, not just of the tablet itself, but of the services connecting to it. Remove the need to switch physical cards to switch carriers, and users will use more of it.

In the future, I hope we will see them take this approach to killing the SIM card entirely on its phone line. Where they go, the others follow. It would be nice to see the days of phone-SIM-carrier integration finally loosened.

Incredible Shrinking Bluetooth Car Adapter Market

October 20th, 2014

I drive a several-year-old car that came with no bluetooth integration. When we bought it, it mattered, but only a bit. Since then, all of our audio and video have become digital, and we have multiple bluetooth-capable mobiles with us on a regular basis. Bluetooth has come to matter much more.

Unfortunately, the design of our dashboard, like many cars in the last ten years, makes replacing the radio extremely complicated. Rather than the standard single-DIN interface, it looks something like the following photo (not of my actual car). The radio is right above the gearshift.


Notice how the radio has a very strange faceplate style.

A few years ago, I even bought a nice JVC after-market head unit to install, only to discover that I simply could not get it in. So I put my nice JVC in storage, went to my fallback and looked for aftermarket bluetooth adapters that could stream audio through the car’s speakers for phone calls and audio. Unfortunately, pickings are extremely slim. I ended up buying a Parrot mki9100 with a standard ISO wiring adapter, and a proper harness to connect it to my car’s wiring.

Over time, I have explored the car audio market, as the lack of aftermarket has always seemed interesting to me. Apparently, there are very few manufacturers of “integrated Bluetooth adapters” that allow one to play music and do phone calls through the car’s audio infrastructure. Initially, as Bluetooth became widely available on phones but auto manufacturer radios were slow to adapt, a number came to market. But over time, the costs of the units plus installation came close to the cost of just buying a better-than-original aftermarket audio unit from the likes of JVC/Kenwood, Pioneer or higher end Alpine. So most consumers either left it as is, or bought aftermarket car audio systems, rather than integrated Bluetooth adapters.

Finally, car manufacturers, slow to respond but responding eventually, began to integrate Bluetooth and even multimedia capabilities into their manufacturer original units. As the gap between original units and aftermarket units shrank, and Bluetooth became integrated on all of them, the market for integrated adapters became almost unsustainably small.

In response, the number of providers has almost disappeared. Only Parrot remains in business. Motorola, Sony, many others created integrated adapters, and then let them wither on the vine.

A niche market filling in a need can be a good market… but only for a few years. It is great to use as a springboard into adjacent markets – in our example, becoming a primary manufacturer of Bluetooth components for aftermarket manufacturers or even OEM supplier of multimedia components to car manufacturers – but the transition must be quick, or one will be squeezed on both ends.



Qik or Slow?

October 17th, 2014

Messenger apps have been all the rage in the last few years. iMessage and WhatsApp and Google Chat and Kik and Skype so on. This has been distinct from real-time or synchronous conversation, which started with the phone, and moved to more modern options, some of which are closely related to messaging, such as FaceTime, Skype, Google Hangouts, etc.

Now, apparently, “Skyperosoft” is looking for its next big growth area, and wants into the multimedia messaging game. Skype already does real-time voice and real-time video in addition to chat – indeed, it was one of the very first in all of these markets; I have been using Skype for over a decade now, since shortly after it was available (first public beta was released in the summer of 2003).

Yet, someone at Skype feels it has the mantle of “last decade’s technology”, a has-been. It is missing the now-hot market of video messaging. Unlike video conversations, which are real-time and usually person to (multi-)person, video messaging involves recording short clips of video and then including them as part of a conversation.

Technically, the difference between the two is minimal. After all, video messaging and Skype are very similar. Skype even allows one to attach a photo or video – or take a video – using your iPhone or Android (probably Windows Phone as well, although, ironically, Skype features on Windows Phone have lagged behind iOS and Android since the Microsoft acquisition). Just click “Attach”, and either “Choose an existing photo” or “take a new photo/video” and it will become part of the chat conversation.

However, Skype felt a need to release a new app, presumably for one or both of two reasons:

  1. Context: The photos and videos primarily exist outside of the Skype app. Once I already take a video outside of Skype, I have no need to go back to Skype to use it; I can send it using iMessage, Google Chat, WhatsApp or any of a dozen other apps. Further, each major platform has its own default app that receives prominence of placement – Chat on Android, iMessage on iOS – none of which is Skype.
  2. Perception: Skype is perceived as older, a more dated app, despite it being the near-universal app. It has identity beyond your particular mobile (WhatsApp’s simplicity and Achilles heel); it is completely cross-platform (iMessage’s weakness); it does not make its money from reading your conversations (Google’s problem); it has all forms of communication in a single app; it has a broad base of users.

Does Skype actually need a new app to combat the above? Probably not. More likely it will confuse and cannibalize its existing app, which may weaken the Skype brand overall.

Microsoft is a solid company with a long track record of making a lot of money by fulfilling basic computing needs for individuals and corporations – Office, Windows, Exchange, Outlook. None of these is exciting, futuristic, innovative, but all have been solid moneymakers for decades. In most cases, when Microsoft has tried something radically new and different, it has fallen flat on its face. Skype under Microsoft is trying to behave in the same way.

Could Skype reinvent itself by having tighter video messaging integration and easier use? Definitely. Will it succeed by breaking that functionality out? Probably not. But at least they are trying.

It’s Not Your Competition… It’s You

October 15th, 2014

If your business gets killed, don’t blame the competition; it’s you.

If your industry is upended, don’t blame the competition; it’s you.

Back in the late 90s, partners and I founded 2 start-ups.

  1. The first – electronic transcripts in the Web’s early days – died in its cradle, when the big gorilla in the industry indicated it was going in that direction. In retrospect, letting our startup go was a mistake. It took many years for electronic transcripts – think of them as secure academic wire transfers – to take off, and there is still plenty of room in that industry, over 15 years later. It wasn’t the big incumbent that killed it; it was our misreading the situation. We simply did not yet have the experience in strategic marketing to understand what was going on.
  2. The second – mobile Web for devices that ran on GPRS with tiny screens – lived somewhat longer, and then died. Officially, it was the result of the horrible market in 2001; nearly no one could raise funds, and we founders had families to support. But it was at least as much the result of mistakes we made. Everyone makes mistakes, so I don’t feel too badly, and I am unlikely to make the same mistakes twice, but the market only provided the challenging environment; we were responsible for its demise.

I was reminded of my own past when I watched the interview of Finnish Prime Minister Alexander Stubb on CNBC. PM Stubb says that Apple killed Finland’s 2 big industries, its “national champions”, and is thus responsible for its recent downgrade.

  • The iPhone devastated Nokia, whose once-dominant phones looked ancient overnight. Nokia tried to but simply could not catch up.
  • The iPad took a hatchet to the paper industry. Many will say it is very good to use less paper, but when you do, major paper manufacturers are going to suffer.

Is the Prime Minister correct that the iPhone and iPad have severely hurt Finland? Of course he is, but only in the proximate sense. Apple could not have done so without Nokia and the paper providers leaving the field open to innovation that could do them so much damage. Despite being somewhat (paper) or very (Nokia) high tech, these companies – the industry as a whole – acted like the world would remain unchanged or, at best, change at the pace they set. The parties responsible for the companies’ damage were themselves.

But in an evem deeper sense, the damage is the responsibility of, well, Finland. By tying its economy so closely to a few industries and a few “national champions”, Finland, with national resources unavailable to most private companies, was able to give a leg up to those same champions for quite some time in their industries, as long as the industries were not fundamentally changed. The moment that a truly innovative competitor came along, they didn’t have a chance. Their being “national champions” hamstrung them in their ability to be flexible and respond.

I certainly feel badly for the Finns. But the interview itself shows that the Prime Minister still sees Apple, not Nokia or Finland’s policies themselves, to blame.

Somewhere in the borders of Finland, new competitors in existing industries, or possibly even new industries, are waiting to provide the next generation of Finnish strength. But it will only come when Finland allows and helps them to grow and innovate, rather than shed crocodile tears over its once-glorious past.

Donations Are Sales and Other Charitable Marketing

October 13th, 2014

In the USA, when someone needs a medical device – wheelchair, crutches, etc. – one buys them from the local drugstore or supplier via insurance. Many of these can even be found on Amazon. With one-day delivery and Amazon Prime, it often pays to order from them rather than buy at the local supplier. When you are done with it, you sell it. Even though they don’t market this are too heavily, eBay has 32,000+ active listings for wheelchairs alone!

This may keep things simple – get everything from your local drugstore or doctor and bill the same insurance – but it is pretty inefficient. After all, most people don’t need the wheelchair, crutches or other device for more than a relatively short period.

Israel’s market is a little different. The Israeli HMOs do not pay for these devices, unless they really will be used for a very long time. Instead, a local non-profit called “Yad Sarah” loans just about every reusable medical device available under the sun to any citizen or resident. Yad Sarah has offices across the country.

Of course, borrowing a $200 wheelchair runs the risk of it never being returned, or perhaps being resold. When your cost is near-zero, why not sell it off at any low amount?

To improve its return rate, Yad Sarah takes a deposit equivalent to close to the full value of the item. It is simple, just swipe a credit card, they will take off $25 for those aluminum crutches or $140 for that super-adjustable wheelchair, and when you return the item, they will refund the money to you.

But Yad Sarah is a donations-driven non-profit, which needs to maximize its donations to keep operating (and running its beautiful facilities).

Of course, Yad Sarah does the usual mail and phone campaigns, but this organization has the particular advantage of interacting with potential donors at 2 moments: pickup and return. It has 3 choices as to how it can request donations.

  1. Sell the items: Well, it could, but it would violate its non-profit mission, and likely bump up against retailers and importers who could sell items for cheaper. When I broke my ankle, the deposit for crutches with Yad Sarah was more than the crutches cost on Amazon.
  2. Ask for donations at the time of loan: It could do this as well, but it is the worst time. People already are calculating the cost of purchase vs loan with deposit. In addition, at the beginning of an injury cycle, doctors’ bills, surgeries, lost wages are all ahead, along with current pain. No one wants to give now. So make people give a deposit, but make it clear that it is refundable.
  3. Ask for donations at the time of return: By the time of return, people are feeling better, most of the pain and cost is in the past. Religious feeling and goodwill are particularly strong after recovering from illness or injury. But most importantly, the person has already paid the credit card bill. If the deposit was $100, that amount has been written off. The return of $100 feels like a bonus.

At the time of return, Yad Sarah personnel are trained to ask, “do you want to leave some or all of it as a donation?” The very symbol of illness and injury is being stored away; work is returning to normal; you feel good and you get some almost unexpected funds to boot. Who wouldn’t want to give at that time?

Asking for donations is selling something, in this case a good feeling and tax receipt as opposed to a tank of gas or a smartphone, but a sale nonetheless. Successful sales are about packaging and timing the sale in just the right way.

When Doctors Take Vacations

October 8th, 2014

Over the weekend, I had a lovely dinner with a friend of mine, an excellent general practitioner / primary care physician, who works in a medical system built mostly upon HMOs. While there is non-HMO practice, it is mostly reserved for specialists and people who cater to the wealthy, like the rapidly-growing field of concierge medicine.

In this particular structure, the HMOs all have a mix of employee doctors and private practice doctors.

  • Employee doctors receive a fixed salary, along with the usual benefits, sick days, vacation days, etc. Employees see as many patients as can be fit into their working hours.
  • Private practice doctors are independent, working either for themselves or an independent employer such as a group practice. They have contracted with the various HMOs to accept patients on their behalf, and receive payment for each patient they see.

Like the difference between employees and consultants at any firm, being a consultant can be more lucrative on a cash basis, if you can fill up the hours, but runs the risk of having not enough hours billed.

The interesting twist here is how the payments are provided. Unlike in many fee-for-service countries, these HMOs pay the independent doctors once per quarterly visit. The doctor receives payment the first time the patient visits the doctor in each fiscal quarter (which matches calendar quarters), but not for any subsequent visits.

Thus, if you visit the doctor on Oct 1st, the doctor will receive, say, $50; if you visit once on Oct 1st and once again on Dec 31st, the doctor will receive $50. If you visit every single Monday from Oct 1st through Dec 31st, the doctor will still receive… $50.

In essence, the HMOs want the doctors to have some of the efficiency incentives that come from maximizing patients treated, while at the same time discouraging “patient cycling”, where the same patient comes in again and again and again, running up HMO costs.

Inevitably, like all incentives, this payment system, too, has several downsides:

  1. Don’t Come Back: Once a doctor has seen you on Oct 1st, it is a zero gain for him to see you again that quarter. It even qualifies as a loss, since when you return on Nov 1st, he could be seeing some other patient who has not yet been in this quarter, making $50 off of her!
  2. Vacation Time! Once a doctor has reached the number of visits he wants per quarter, he has little incentive to work too hard the last 2 weeks of the quarter. Even worse, most of the visits then are likely to be repeats of people who have already visited in the quarter. Why work hard for the last 2 weeks for zero additional income?

Both of these issues are mitigated, at least partially, by market factors. Anyone who is sick yet cannot see their doctor because they discourage repeat visits in the quarter will lose their patients very quickly, followed by their HMO contract. The medical business is a repeat business; you simply cannot live on the one-time $50 (or whatever it is) payment. In this respect, doctors are like any other business that has an incentive to “take the money and run” but understands that it needs its reputation intact and repeat customers.

The “Vacation Time” issue is a harder one to crack. The most direct evidence for it is the fact that most doctors in the system actually do take vacations in the last weeks of the quarter. It is much harder to get an appointment in the last weeks of March, July, October and December.

How do we solve for the vacation time issue? Partially we don’t. As long as all the HMOs in the region function in the same way, there is no competitive pressure to solve the issue. However, if we really wanted to, we would need to change the payment mechanisms slightly. Here are two possibilities:

  1. Bonuses: pay small incremental bonuses for visits in the last 2 weeks of the quarter. Thus, a first visit is $50, a follow-on generates no payment, but a follow-on in the last 2 weeks generates a $10 bonus. Many doctors will still choose to take a vacation over the work, but it will create some balance.
  2. Sliding Scale: Instead of paying a fixed fee per quarterly patient, pay a sliding scale based on first visit. Make it $40 in the first month, $50 in the second month, and $60 in the third month, or similar. Make the later visits worth more. Most doctors would be happy to take this, as would most businesses. Money upfront is worth more than money later.


SaaS and Soft Drinks? Maybe Not

October 6th, 2014

Last week, we looked at PepsiCo and its channel strategy for Pepsi True.

A third possibility did occur to me – unsurprisingly, since I spend the bulk of my time in the technology world – that PepsiCo envied SaaS.

Let’s look at 2 companies, PepsiCo and Salesforce (numbers as of this writing):

  • PEP: Market cap of $139BN, revenues of $66BN, operating profit of $6.7BN, revenue multiple of 2.1, P/E of 20.89.
  • CRM: Market cap of $35BN, revenues of $4.1BN, operating loss of ~$232MM, revenue multiple of 8.5, P/E of, well, infinite.

I have no real inside information, but it is safe to assume that the PepsiCo executives are intelligent, worldly and well-read people. I feel confident that they keep track not only of their own industry, but others as well, and regularly read the business pages and journals. I have no doubt that they have been watching the tech sector – they were one of the earlier companies to hire a senior executive as CISO – and understand, as the above numbers show, that tech companies get high multiples, and the recurring revenue of SaaS companies like Salesforce get even higher multiples. The multiples above – 8.5 for Salesforce vs 2.1 for PepsiCo – just reinforce it.

It is possible that PepsiCo’s executives looked at the SaaS companies, saw their committed monthly recurring revenues (CMRR) and their impact on cash flow and valuation, and said, “I want that! Let’s see if we can find a way to get that sort of revenue.” This sort of reaction is natural for executives under pressure from shareholders who also look at those valuations and wonder why their holdings don’t have the same numbers.

However, I discount the impact of recurring revenue here for two reasons.

  • First, there is no indication that Pepsi True is sold primarily, or even at all, in a “subscription-only” model. While that may happen, and Amazon does have some support for it, subscription-only soft drink is even more radical of a change than online-only, and so is likely to have been reported, if true.
  • Second, if the primary interest were subscription, PepsiCo would not sell it through Amazon, but rather directly through its own Web site. Subscription revenue – and SaaS valuations in general – depends entirely on signing up new customers, getting renewals up and churn down. You cannot do that without a direct customer relationship.

Of course, it is possible that (a) the reporters missed this important bit and (b) PepsiCo doesn’t understand how important the direct customer relationship is to subscription-based business models and multiples.

Do Pepsi’s executives see the valuations? Definitely. Are they envious? Possibly; or possibly they are content to run a beverage company with a 10% operating margin and $139BN valuation. But did SaaS-envy drive the Amazon-move? Nice idea, but likely not.

It Isn’t Just the Product

October 3rd, 2014

“If you build it, they will come.” – Field of Dreams

Other than in films, the “Field of Dreams” philosophy is a really bad way to build a business. After all, it isn’t just about the product. It may not even be primarily about the product. It is about the entire package – the product, packaging, price, placement, promotion, channels  – that we call “strategic marketing”, combined with the ability to execute – operations, product development, etc.

This week, one of the largest drinks manufacturers in the world taught a lesson in channels.


Pepsi is releasing a new soft drink, “Pepsi True.” Responding to growing concerns about artificial sweeteners and their impact on health – possible carcinogens, more recently indications that it so negatively affects gut bacteria that it may cause increased weight gain – Pepsi True is made with sugar and an all-natural sweetener called Stevia.

A major drink company responding to changes in tastes and health demands in the market by releasing a new drink is hardly innovative or different. What is different is that PepsiCo is selling True exclusively through Amazon. Pepsi True is unique among Pepsi’s drinks not only because of its formulation, but because of its radically different channel.

Unlike a new entrant, with extremely restricted cash and few existing relationships, PepsiCo already has an entire global distribution and retail marketing network, a mixture of company-owned and contracted providers. For a mythical “NewSoftCo” to avoid the issue by going Amazon might not be radical, as it has nothing in place; for PepsiCo to actively ignore its existing networks, many of which it actually owns, is radical.

Clearly, Pepsi, which spends untold millions on each new product (I quite look forward to the next 10K to see if they report how much they spent on developing and launching Pepsi True), is going the Amazon-only route because it believes two very important things:

  1. The best way to reach its target market – those who want an all-natural soft drink with lower calories – is through Amazon, since that is where they do much of their shopping.
  2. Selling through their existing channels is a bad idea because either:
    1. It will cause losses, since not enough people will buy via direct retail channels. OR
    2. It will negatively impact the Pepsi True brand, reducing purchases by those who do buy online.

Either way, for a major market-driven retail consumer goods company to recognize that selling online via a major partner is not only the best way to sell its product, but the only way to do so without either losing money offline or negatively impacting online speaks volumes about changes in consumer behaviour, even in the humdrum soft drink market.