Revolutions in Consumer Buying Behaviors

Groupon is getting a lot of attention for their latest round of funding, which values the company “above $1 billion”.

Groupon features a daily deal with a huge discount on a wide range of things–from spas to skydiving–in dozens of U.S. cities, including Chicago, Boston, New York and San Francisco, for large groups of potential buyers on the Web, through email or via social networking sites like Facebook or Twitter.

[From Groupon Grabs $135 Million From DST and Battery–Valuation Above $1 Billion for Social Buying Site | Kara Swisher | BoomTown | AllThingsD]

Rather than focus on the valuation issue, which really isn’t that meaningful aside from generating a lot of attention and completely screwing up stock options for new employees, I’d like to look at the big picture here, which is the evolving nature of consumer buying behaviors.

Every generation, or every decade if you prefer, consumer shift their spending according to evolutions in retail business models and technology.

  • In the 1970’s and 80’s consolidation in retail led to the department store phenomena and suburban shopping malls. These not only appealed to population shifts to suburbs but also to consumers who increasingly took advantage of credit card financing for purchases, credit cards that were only available as a result of the scale that department store chains enjoyed which provided access to credit markets.
  • In the late 1980’s and 90’s the warehouse club reigned supreme, offering strongly discounted goods offered in bulk or bereft of packaging that appealed to families and commercial entities. I also group Walmart in here because they, like Costco, built a business on direct to manufacturer relationships, white label, and technology driven logistics advances that resulted in an ability to offer lower prices than competitive retail channels.
  • The 1980/90’s also saw the rise of the Home Shopping Network on the backbone of expanding cable and satellite broadcast television
  • Late 1990’s and into our current generation is clearly dominated by .coms, I don’t think it’s necessary to say more beyond that.
  • If Groupon is an indicator of the next generation, group buying is a major trend that offers the potential for big consumer benefits and the ability to build a highly valuable businesses as a result.

Groupon is not alone, Gilt and HauteLook have built enviable businesses generating in excess of $100m in annual revenue by offering a club like shopping experience for fashion. and Cindarella Wine have really interesting concepts, offering 1 premium wine per day until it is sold out… essentially becoming a channel for wine labels to “dump” product not moving through their retail channels without impairing their existing channels.

Mobile coupon services like Mobiqpons also stand to gain from the expansion of location based mobile services, offering great convenience and cost savings for users.

All things considered it is a good time to be a consumer, intense competition in the marketplace is forcing a reshaping of the landscape for every retail segment.

NetSuite, The Forgotten Man

Last week I took advantage of the opportunity to visit with NetSuite during their annual user partner conference held here in San Francisco. I wasn’t expecting anything earth shattering, if only because this company has been around for a long time now, 12 years to be exact and probably as well known for it’s largest shareholder, Larry Ellison, as being a pioneer in software as a service business applications.

This is the point of my post title, NetSuite really is The Forgotten Man, not receiving the respect it is due so I wanted to get caught up and what I found reinforced impressions I already had but also revealed a more complex and interesting company that I expected.

Particularly interesting was the conversation with CEO Zach Nelson, who aside from presenting a confident and knowledgeable front for the company is a very likable guy who is willing to field tough questions and deliver thoughtful responses.

Netsuite has always had a couple of dings attached to them, first a weak channel strategy and somewhat related to that is a haphazard approach to partners. I have also heard from other people I respect that their customer service isn’t great but is improving.

The company recently brought on board a veteran, Ragu Gnanasekar, to deal with platform and partner opportunities. It’s clear this directive is not to build an AppExchange clone, in fact having said that “nobody makes money with marketplaces” I am inclined to believe they bring as much challenge as opportunity. If not an app marketplace then what… suite extension is the answer and their release of a cloud development platform certainly supports that intention.

According to NetSuite, SuiteCloud 2.0’s capabilities enable enterprises to take full advantage of the significant economic, productivity and development benefits of cloud computing, including multi-tenant, always-on SaaS infrastructure and scalable, integrated applications for Accounting/ERP, CRM and Ecommerce.

Suite extension is not a new concept, large ERP players have relied on 3rd parties to extend their suites into verticals and app functionality that was deemed either to be non-strategic or too small to worry about. NetSuite appears to be taking a different line of reasoning, which is that their opportunity is to be the cloud of choice for core ERP functionality and then cede the extended functionality and verticalization to partners. I think this is smart because even the largest of software companies can focus successfully on a handful of markets, in Zach Nelson’s words NetSuite will focus on delivering an application suite for tech companies and service companies, the rest of the market they are committing to partners.

Admittedly “service companies” is a pretty big segment of the economy and subject a lot of interpretation so Nelson’s magnanimity may not be so commendable but it’s still noteworthy that Nelson is drawing a line in the sand across which they will not cross.

Building an integrated channel strategy is no small feat and while NetSuite is showing progress here it’s also clear they are still in the building phases. A relationship with Fujitsu in Japan was highlighted and based on some previous experience I have with Fujitsu I am inclined to believe this could be quite lucrative. It’s probably not an accurate representation for me to categorize their efforts as “building” but rather increasing their dependence on for future growth.

Their efforts to extend their suite are showing real progress, one partnership in particular captured by attention if for no other reason than the complexity of the solution shows that NetSuite has good legs under them. Rootstock, a Bay Area based company, has built an MRP solution on top of NetSuite’s core ERP platform, which for those of you familiar with manufacturing software will know is no small feat.

EasyAsk and Pacejet were also highlighted as demonstrative of NetSuite’s progress in building software company partnerships, both companies offering compelling solutions built on top of NetSuite’s cloud.

One question that I had which remains unresolved is how a company like NetSuite retains the discipline to not encroach on partner built solutions when their own strategic goals are potentially impaired in the process. This is an issue all software companies face, whether on demand or on premise, but the fact that it’s not a new issue also means it’s not a major impediment.

Nelson and I had a good exchange about something he said that all SaaS companies say that really bothers me… which is that on demand customers have more power than with perpetual license companies, because they can just stop paying if not satisfied. I completely disagree with this statement. On demand app customers are just as much locked in as perpetual license customers because they don’t control the computing assets, as in if you stop paying NetSuite, or Salesforce, they can turn off your service, depriving you of not only the application but all of your data and even when you get your data back what good will it do for you as the schema is specific to a service you don’t have access to. At least with an SAP or Oracle app you can stop paying for maintenance and still keep using the app (or go to a third party maintenance provider).

Having said all that, if I were a mid market company looking for an ERP solution, NetSuite would certainly be at the top of my short list. The idea of spending the kind of money that you have to spend to get an on premise solution up and running is simply a non-starter for most of the mid-market. Netsuite provides, by most accounts, a comprehensive ERP application service with minimal setup costs and that makes it a winner in this market.

More on this topic (What's this?) Read more on NetSuite at Wikinvest