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BOB JONES: I was working
in this consulting firm.

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00:00:23,220 --> 00:00:25,410
I got bored.

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I wanted to go start
a business, and I

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00:00:27,280 --> 00:00:32,100
said it's not like
I'm in my dorm room.

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It's not like I haven't
done this before,

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so I need to be sensible
about it this time.

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Because I've had
start-ups that succeeded

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and start-ups that failed, and
I like the successes more than

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00:00:44,000 --> 00:00:45,390
I like the failures.

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00:00:45,390 --> 00:00:50,570
So I interviewed a bunch of
people, scientists, marketing

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00:00:50,570 --> 00:00:53,390
types, et cetera and came
up with about 15 ideas

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00:00:53,390 --> 00:00:55,000
and said that's too many.

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I need some filters.

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00:00:56,920 --> 00:01:00,320
The first filter was I need
to solve the right problem,

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because I'm good
enough at operations

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that I'm going to
hit the target.

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But it's embarrassing if
you pick the wrong target.

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So my definition of
the right problem

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is that you would cheerfully
pay for the solution

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and you will tell your friends.

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00:01:15,390 --> 00:01:17,400
So I can lower your
cholesterol with

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00:01:17,400 --> 00:01:18,660
a nutritional intervention.

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00:01:18,660 --> 00:01:21,600
It's not the right target,
because you don't care.

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You'll forget to take it, your
medication, most of the time,

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00:01:24,554 --> 00:01:26,970
and you're never going to talk
about it with your friends.

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00:01:26,970 --> 00:01:30,170
And I can't afford to educate
you, because I'm a start up.

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00:01:30,170 --> 00:01:34,510
If your back hurts, ooh, that's
a whole different matter.

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Because if I can help
you with something

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that makes your
back stop hurting,

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00:01:38,050 --> 00:01:39,356
you will cheerfully pay for it.

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You will tell your friends.

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00:01:40,480 --> 00:01:42,120
And if furthermore
I can set it up so

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00:01:42,120 --> 00:01:46,140
that when you stop taking my
stuff your back starts hurting,

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that's the right target.

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Second filter, I have to
be able solve the problem.

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00:01:52,420 --> 00:01:56,830
So if I had an enzyme
that metabolized gluten,

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I would be speaking to
you today from my yacht.

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00:02:00,500 --> 00:02:02,960
So that one's off the table.

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That killed all but
about five of the ideas.

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The remaining filter
was somebody besides me

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thinks this company
is a cool idea

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00:02:11,350 --> 00:02:14,080
and will buy it if
I don't screw it up.

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00:02:14,080 --> 00:02:17,610
So the last thing I did was
took the remaining ideas

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and called some senior execs
that I was friendly with,

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had companies that
could, well, one day

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buy the business-- Procter
& Gamble, Johnson & Johnson,

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Pepsi, et cetera-- and
said, I'm having some ideas.

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I'd like to hear your
thoughts on them.

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I'm not selling anything.

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Well, I knew you
were up to something.

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What are you doing?

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And when I would
offer an idea, if I

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would hear crickets and--
OK, on to the next idea.

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That's how we arrived at sleep.

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There's somewhere between 50
and 70 million people in the US

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that have trouble sleeping,
and they complain about it.

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And nobody has to tell them
the benefits of a good night's

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sleep.

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Everybody just feels
better, and there

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are nutritional interventions
that will solve the problem.

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And the companies
I talked to said

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if you don't screw this up,
we'd like to be first in line

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to talk to you in
about two years.

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So with that as background,
I had several businesses

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in the past where we
made nutrition bars

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and sold them
through clinicians.

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So my business model was
let's make a nutrition bar,

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and let's sell it
through clinicians.

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But I talked to a
number of consumers

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and said, how do you feel
about eating something

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at 10:00 or 10:30 at night
that will have you asleep

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a half hour later?

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And most of them said I don't
feel so good about that.

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I don't like the idea
of eating something.

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OK, what would you like?

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Well, you know those little
5 Hour Energy drink things?

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Make me one of those, except
with the opposite effect.

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Oops, looks like I'm in
the beverage business.

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OK, well so maybe
what I can do here

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is find the clinicians that
you are seeing about the fact

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that you're having
trouble sleeping,

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and I can do what I did before.

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My business model will be I
will call on the clinicians.

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The clinicians will
say, this is fabulous.

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I will tell my patients.

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The patients will
want to buy it.

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One day I will call Walgreens.

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We'll stock it there.

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We've done this before.

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You may remember
a little while ago

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I said I had a really bad five
or six weeks where everybody

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told me no.

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I called doctors, nurses,
physical therapists,

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dietitians.

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I went to assisted living
facilities and retirement

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communities and talked to
resident care directors.

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And without exception,
I was told no.

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People don't talk to
their doctor about sleep.

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They talk to their doctor
about their ear ache.

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If they do talk to their
doctor about sleep,

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the doctor runs for
cover, because he doesn't

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know how to solve the problem.

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And he's been trained that this
is a symptom of something else.

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You are depressed and
you need a therapist,

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or you have sleep apnea and you
need one of those Darth Vader

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devices that blows
positive air pressure

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and it keeps you
from having apnea.

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So let's refer you to
somebody else next.

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So nobody was willing to
talk about our intervention.

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This was the point--
at this point,

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we had made our
minimum viable product,

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and we were offering
free samples.

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And they didn't want
it even if it was free,

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so clearly the business
model was flawed.

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We weren't going to be able to
get it into Walgreens or places

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like that if we couldn't
find any customers.

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And the route I had chosen
to get to the customers

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was not working.

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Nevertheless, there
were people who

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were calling us back and buying
our minimum viable product.

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The one that looks
bad tastes bad,

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and because the little
manufacturer spilled

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a little solution on the threads
and it dried into something

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like superglue, you need a
vise grips to get the cap off.

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People were buying it anyway.

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Clearly we had
something there, so it

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was time to address the business
model of what is it we have,

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and to whom should we be
marketing it, and how.

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Along the way I ended up in a
conversation with Whole Foods.

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Because when I was running
a soy foods company

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I sold a lot of tofu to
them, and I knew them.

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So I thought, oh, OK.

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We'll put this together.

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We'll sell it
through Whole Foods.

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But who is our customer?

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We did a lot of work,
a lot of interviews,

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got told no some
more and concluded

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that there are a number
of niche markets here

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that we could work with.

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But the one where we were going
to start was working moms,

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and not working moms who have
infants or toddlers at home.

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They expect to be
tired, and they

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want to be able to wake
up if the baby's not

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sleeping through the night.

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So forget it.

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But once their kids are
preschool, kindergarten,

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or older, they've got
the hardest job on earth.

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Most of them have
husbands who don't shop,

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don't cook, don't pick up their
socks, so they're hardworking.

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They're daytime professionals.

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They're fussy
about what they buy

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and what they
bring in the house.

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They do shop at Whole Foods.

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It looks like the
right market for us.

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So in my conversation
with Whole Foods,

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I was pretty direct
with them and said,

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look, I can live a
long and happy life

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and never put my
products on your shelf.

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The moral of the point, I
don't want to be on your shelf

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if it doesn't make sense.

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So really the purpose of
this meeting in my view

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is to figure out will
it ever make sense

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and if so, what's
the trigger point.

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And the answer to that was
when we see enough reorders

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through Amazon to show
that there's a there there,

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come back and see them.

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Keep them posted.

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They'll remain interested.

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We are after all friends,
and it's a provocative idea.

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So the revised business
model now having

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00:08:01,980 --> 00:08:04,540
gone through this
postulate the idea,

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00:08:04,540 --> 00:08:06,240
develop a minimum
viable product,

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00:08:06,240 --> 00:08:08,010
shake it down in
the marketplace,

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identify the target is
we're reaching working

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moms via mommy bloggers.

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We've identified 100
of them, some of whom

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have as many as
100,000 followers.

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There's also all manner
of social media ways

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to reach working moms.

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So working moms,
we're reaching them.

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We're selling the product
through our website which

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will be a minuscule
percentage and through Amazon

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00:08:32,039 --> 00:08:35,730
until such point as we have
enough of a reorder stream

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to make a justifiable
approach to Whole Foods

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and other retailers.

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00:08:40,799 --> 00:08:44,590
Shortly after that, we
hope to sell the business.

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00:08:44,590 --> 00:08:48,580
So Rich, that's sort of an
impromptu summary of how

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00:08:48,580 --> 00:08:51,200
our business model
morphed and pivoted,

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and it's a work in process.

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So if you don't have anything
else to do, wish us luck.

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AUDIENCE: [INAUDIBLE].

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BOB JONES: Thank you.

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00:09:04,245 --> 00:09:05,620
PROFESSOR: So the
reason I wanted

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00:09:05,620 --> 00:09:08,810
Bob to tell you about
that is to reemphasize

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00:09:08,810 --> 00:09:11,670
this is not just an
academic exercise.

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00:09:11,670 --> 00:09:14,660
He told you about how
he succeeded before.

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00:09:14,660 --> 00:09:16,430
He told you how he
failed the first time.

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00:09:16,430 --> 00:09:18,020
He did something
different the second.

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00:09:18,020 --> 00:09:20,320
He took the second model
into the third market,

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00:09:20,320 --> 00:09:23,570
which turned out not to be the
right thing for that market.

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00:09:23,570 --> 00:09:24,730
And he's reinventing it.

209
00:09:24,730 --> 00:09:27,280
And it's been an
interesting thing.

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So what we say up here,
we're not giving you

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00:09:30,290 --> 00:09:31,490
a formula on how to do it.

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00:09:31,490 --> 00:09:34,270
We're trying to get you to think
about these kind of issues,

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00:09:34,270 --> 00:09:37,640
and this is an example
of an in-process thing.

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00:09:37,640 --> 00:09:40,690
And it's been an
interesting route.

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00:09:40,690 --> 00:09:47,550
Bob, any other comments or
people from the audience?

216
00:09:47,550 --> 00:09:49,390
BOB JONES: It's
practically a reality TV

217
00:09:51,281 --> 00:09:53,114
RICH KIVEL: What were
some of the learnings?

218
00:09:53,114 --> 00:09:57,050
It sounds like you modified
the business model throughout.

219
00:09:57,050 --> 00:10:00,986
There were learnings
[INAUDIBLE] You integrated

220
00:10:00,986 --> 00:10:02,462
different approaches.

221
00:10:02,462 --> 00:10:05,831
What were some of the learnings
that came out of that?

222
00:10:05,831 --> 00:10:07,330
What would you have
done differently

223
00:10:07,330 --> 00:10:10,730
if you were
relaunching it today?

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00:10:10,730 --> 00:10:12,117
PROFESSOR: Rich, is your mic on?

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00:10:12,117 --> 00:10:12,700
BOB JONES: OK.

226
00:10:12,700 --> 00:10:15,150
Rich's question,
for those of you

227
00:10:15,150 --> 00:10:17,620
who may not have heard it
from the back of the room,

228
00:10:17,620 --> 00:10:20,210
was what were some of
my learnings so far?

229
00:10:20,210 --> 00:10:23,010
And if I were to relaunch the
business today, what would

230
00:10:23,010 --> 00:10:25,390
I do differently?

231
00:10:25,390 --> 00:10:36,460
And I think that most
entrepreneurs are stubborn.

232
00:10:36,460 --> 00:10:37,996
I'm no exception to that.

233
00:10:44,090 --> 00:10:49,360
Well, you almost
never tackle something

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00:10:49,360 --> 00:10:51,730
that's going to be easy.

235
00:10:51,730 --> 00:10:56,180
And I have a guy on my
business advisory board

236
00:10:56,180 --> 00:11:02,810
who will give me 10 reasons why
every idea I have will fail,

237
00:11:02,810 --> 00:11:05,790
and why every suggestion
I make is dumb.

238
00:11:05,790 --> 00:11:09,000
And it's quite useful because
eight of the 10 things

239
00:11:09,000 --> 00:11:11,370
he'll rattle off, I've
thought about and addressed.

240
00:11:11,370 --> 00:11:14,730
And two of them I think, ooh,
I'd better think about that.

241
00:11:14,730 --> 00:11:17,740
But you have to be willing
to walk through walls

242
00:11:17,740 --> 00:11:19,110
because it's hard.

243
00:11:19,110 --> 00:11:21,950
And most of you will fail.

244
00:11:21,950 --> 00:11:24,200
I did.

245
00:11:24,200 --> 00:11:26,505
You'll just need to
decide that as a jockey,

246
00:11:26,505 --> 00:11:28,840
you need a different horse.

247
00:11:28,840 --> 00:11:32,490
But I found something
that worked.

248
00:11:32,490 --> 00:11:34,460
And I went out and
proudly talked about it

249
00:11:34,460 --> 00:11:36,450
to the investment community.

250
00:11:36,450 --> 00:11:38,130
And then I tried it.

251
00:11:38,130 --> 00:11:39,270
And I tried it.

252
00:11:39,270 --> 00:11:40,900
And I tried it.

253
00:11:40,900 --> 00:11:42,410
And it didn't work.

254
00:11:42,410 --> 00:11:44,720
So one of the things I
would have done differently,

255
00:11:44,720 --> 00:11:47,370
were I to do it
again, would have

256
00:11:47,370 --> 00:11:50,910
been to test the idea
right from the get-go,

257
00:11:50,910 --> 00:11:53,600
rather than just assuming
that because it had worked

258
00:11:53,600 --> 00:11:56,840
in the past, that this market
and this group of people

259
00:11:56,840 --> 00:12:00,084
was like the last market and
the last group of people.

260
00:12:00,084 --> 00:12:01,084
PROFESSOR: That's great.

261
00:12:07,390 --> 00:12:08,960
BOB JONES: Yes sir.

262
00:12:08,960 --> 00:12:11,001
AUDIENCE: It seems like
most of it is [INAUDIBLE]

263
00:12:25,314 --> 00:12:27,230
BOB JONES: I don't really
know how to do that.

264
00:12:27,230 --> 00:12:31,620
What I like is
translating science,

265
00:12:31,620 --> 00:12:33,830
which is somewhere near
to the leading edge,

266
00:12:33,830 --> 00:12:35,795
into something that
consumers can buy.

267
00:12:35,795 --> 00:12:37,920
And I don't want to get
metaphysical with you here.

268
00:12:37,920 --> 00:12:40,670
But I think there are some
really fundamental things

269
00:12:40,670 --> 00:12:42,960
wrong with our
health care system.

270
00:12:42,960 --> 00:12:47,070
And we don't often enough
provide consumers with stuff

271
00:12:47,070 --> 00:12:50,420
they can buy, which works,
without a prescription.

272
00:12:50,420 --> 00:12:52,950
And I like being in that arena.

273
00:12:52,950 --> 00:12:55,770
And I like being able to
understand what consumers want

274
00:12:55,770 --> 00:12:59,930
and translating some
fairly serious science--

275
00:12:59,930 --> 00:13:01,940
it's pretty sophisticated
biochemistry

276
00:13:01,940 --> 00:13:04,580
in our little beverage
for sleep-- into something

277
00:13:04,580 --> 00:13:08,350
that we can describe without
going into all the science.

278
00:13:08,350 --> 00:13:10,440
So I actually don't know.

279
00:13:10,440 --> 00:13:12,120
I don't really
have any experience

280
00:13:12,120 --> 00:13:13,571
selling the one-off stuff.

281
00:13:13,571 --> 00:13:16,070
So with that as background, I'm
going to duck your question.

282
00:13:16,070 --> 00:13:18,189
I don't know.

283
00:13:18,189 --> 00:13:19,230
There was maybe one more.

284
00:13:19,230 --> 00:13:20,642
Yes, sir?

285
00:13:20,642 --> 00:13:21,624
AUDIENCE: [INAUDIBLE]

286
00:13:44,220 --> 00:13:46,510
BOB JONES: We had three
ingredients in the product.

287
00:13:46,510 --> 00:13:50,190
And there were published
papers on the action

288
00:13:50,190 --> 00:13:51,790
of each of the three.

289
00:13:51,790 --> 00:13:55,090
So sucrose gets
metabolized here.

290
00:13:55,090 --> 00:13:57,570
Protein gets metabolized here.

291
00:13:57,570 --> 00:14:01,070
And gluconeogenesis runs through
the liver, blah, blah, blah.

292
00:14:01,070 --> 00:14:04,580
And uncooked corn starch
with its complex double bonds

293
00:14:04,580 --> 00:14:08,390
takes a far longer period
of time to metabolize.

294
00:14:08,390 --> 00:14:10,670
And we would show the
papers to the clinicians.

295
00:14:10,670 --> 00:14:13,410
And they'd say, well
this is a no-brainer.

296
00:14:13,410 --> 00:14:15,240
First of all it's just a food.

297
00:14:15,240 --> 00:14:17,370
So it won't hurt you.

298
00:14:17,370 --> 00:14:18,640
It costs $1.00.

299
00:14:18,640 --> 00:14:19,440
Might help.

300
00:14:19,440 --> 00:14:20,740
Go for it.

301
00:14:20,740 --> 00:14:23,460
That was all the
resistance we found.

302
00:14:23,460 --> 00:14:25,410
There were maybe
3% of the doctors

303
00:14:25,410 --> 00:14:28,760
out there that we
called on who said,

304
00:14:28,760 --> 00:14:31,470
when you got a clinical
trial on it, call us back.

305
00:14:31,470 --> 00:14:33,620
And we did in fact eventually
do a clinical trial

306
00:14:33,620 --> 00:14:35,460
with the Joslin
Diabetes Institute.

307
00:14:35,460 --> 00:14:36,950
It did what it was
supposed to do.

308
00:14:36,950 --> 00:14:39,590
But as an entrepreneur,
I was unwilling to wait.

309
00:14:39,590 --> 00:14:41,370
Let's get in the market.

310
00:14:41,370 --> 00:14:45,430
My measure of whether or not it
works is, do they reorder it?

311
00:14:48,276 --> 00:14:48,900
PROFESSOR: Hey.

312
00:14:48,900 --> 00:14:50,170
Thank you, Bob.

313
00:14:50,170 --> 00:14:56,910
[APPLAUSE]

314
00:14:56,910 --> 00:15:00,670
OK, so now segueing
from what Bob told you

315
00:15:00,670 --> 00:15:03,230
about he's doing to find
customers and everything,

316
00:15:03,230 --> 00:15:05,000
the question again
is business models.

317
00:15:05,000 --> 00:15:09,770
And tonight we have Rich Kivel,
who I've known for many years.

318
00:15:09,770 --> 00:15:13,970
Originally an internet IT
technology entrepreneur,

319
00:15:13,970 --> 00:15:18,571
moved into the
medical area and bio,

320
00:15:18,571 --> 00:15:21,230
and more recently into the
financial technology area.

321
00:15:21,230 --> 00:15:24,590
So Rich Kivel-- his
bio is on the website.

322
00:15:24,590 --> 00:15:26,990
And his topic is
business models.

323
00:15:26,990 --> 00:15:27,850
Take it away, Rich.

324
00:15:27,850 --> 00:15:29,370
RICH KIVEL: Thank you very much.

325
00:15:29,370 --> 00:15:29,870
Great.

326
00:15:29,870 --> 00:15:31,970
Can everybody hear me OK?

327
00:15:31,970 --> 00:15:32,470
All right.

328
00:15:32,470 --> 00:15:33,594
It's great to be back here.

329
00:15:33,594 --> 00:15:36,239
I've had the privilege of doing
this class with Joe for-- he's

330
00:15:36,239 --> 00:15:37,530
invited me back for many years.

331
00:15:37,530 --> 00:15:39,560
I won't say how many,
but many, many years.

332
00:15:39,560 --> 00:15:43,670
So it's also great to be here,
being the 25th year of it.

333
00:15:43,670 --> 00:15:47,510
Has anybody here actually
attended this class before?

334
00:15:47,510 --> 00:15:48,050
All right.

335
00:15:48,050 --> 00:15:48,410
That's good.

336
00:15:48,410 --> 00:15:50,034
So I could tell some
of the same jokes.

337
00:15:50,034 --> 00:15:53,481
And I will actually get laughs
out of them. [INAUDIBLE]

338
00:15:53,481 --> 00:15:54,980
So first of all, I
want to start off

339
00:15:54,980 --> 00:15:56,920
because I love social media.

340
00:15:56,920 --> 00:15:59,650
And I'm going to include
you in my social media

341
00:15:59,650 --> 00:16:00,430
life a little bit.

342
00:16:00,430 --> 00:16:03,160
So everybody here
uses Twitter, yes?

343
00:16:03,160 --> 00:16:04,170
Or most of you?

344
00:16:04,170 --> 00:16:05,180
That's our hashtag.

345
00:16:05,180 --> 00:16:09,900
So on the count of three, I want
you guys all to cheer and yell

346
00:16:09,900 --> 00:16:13,790
in a congratulatory way for
Joe celebrating the 25th year

347
00:16:13,790 --> 00:16:15,030
of this class, all right?

348
00:16:15,030 --> 00:16:17,585
One, two, three.

349
00:16:17,585 --> 00:16:23,180
AUDIENCE: [CHEERING AND YELLING]

350
00:16:23,180 --> 00:16:25,026
RICH KIVEL: You guys.

351
00:16:25,026 --> 00:16:25,940
I love it.

352
00:16:25,940 --> 00:16:26,835
Joe, that is live.

353
00:16:26,835 --> 00:16:27,710
That was outstanding.

354
00:16:30,260 --> 00:16:32,820
So what I get to talk about
today is actually kind of fun.

355
00:16:32,820 --> 00:16:34,930
It's business models.

356
00:16:34,930 --> 00:16:37,470
And unlike a lot of
aspects of business,

357
00:16:37,470 --> 00:16:41,120
business models themselves,
they change all the time.

358
00:16:41,120 --> 00:16:42,900
And as a matter of
fact, they become

359
00:16:42,900 --> 00:16:45,360
an incredibly intricate
and important part

360
00:16:45,360 --> 00:16:49,230
of how a business succeeds or
fails, which is something new.

361
00:16:49,230 --> 00:16:53,950
As I've worked around MIT for
the past 15 or more years,

362
00:16:53,950 --> 00:16:57,230
so often the
researchers, scientists,

363
00:16:57,230 --> 00:17:00,660
engineers that I speak with are
so focused on their product,

364
00:17:00,660 --> 00:17:03,610
their technology,
the intricacies

365
00:17:03,610 --> 00:17:07,119
of a particular design,
that they actually

366
00:17:07,119 --> 00:17:09,010
don't think about the customer.

367
00:17:09,010 --> 00:17:10,060
And they don't think
about how it's ever

368
00:17:10,060 --> 00:17:11,185
going to get to the market.

369
00:17:11,185 --> 00:17:14,030
They're more interested
in can they actually get

370
00:17:14,030 --> 00:17:20,560
that new particular
engineering-physics combined

371
00:17:20,560 --> 00:17:23,170
technology to do something
they never did before.

372
00:17:23,170 --> 00:17:25,150
Can they get that
particular molecule

373
00:17:25,150 --> 00:17:26,400
to operate in a certain way?

374
00:17:26,400 --> 00:17:29,300
Or can they get that
thin film polymer

375
00:17:29,300 --> 00:17:32,180
to elude a particular drug?

376
00:17:32,180 --> 00:17:34,000
And that's fantastic.

377
00:17:34,000 --> 00:17:36,210
But very often we
forget about how

378
00:17:36,210 --> 00:17:39,540
do we actually impact the
world with our technologies,

379
00:17:39,540 --> 00:17:42,490
whether it be internet
technologies, applications,

380
00:17:42,490 --> 00:17:45,630
hardware, software,
biotechnology.

381
00:17:45,630 --> 00:17:48,160
So business models are really
the foundation of that.

382
00:17:48,160 --> 00:17:51,050
And very often that's
left to business students.

383
00:17:51,050 --> 00:17:53,180
And one of the wonderful
things about MIT

384
00:17:53,180 --> 00:17:55,470
is that there's this
great convergence, where

385
00:17:55,470 --> 00:17:58,630
business students
actually have discussions

386
00:17:58,630 --> 00:18:01,580
with engineers and scientists
and researchers and vice versa.

387
00:18:01,580 --> 00:18:03,510
And that doesn't
happen everywhere.

388
00:18:03,510 --> 00:18:04,930
So we take it for granted here.

389
00:18:04,930 --> 00:18:06,730
So I'm very privileged
to come and talk

390
00:18:06,730 --> 00:18:08,400
to you about business models.

391
00:18:08,400 --> 00:18:11,870
My background, as Joe said
is-- I started my career

392
00:18:11,870 --> 00:18:14,670
in technology, and
then moved very much

393
00:18:14,670 --> 00:18:19,300
into bioscience, biotechnology,
bioinformatics, diagnostics.

394
00:18:19,300 --> 00:18:22,660
I spent about the past
10 years doing that.

395
00:18:22,660 --> 00:18:25,650
I took two years off, and
was focused specifically

396
00:18:25,650 --> 00:18:27,725
on the financial
services industries.

397
00:18:27,725 --> 00:18:31,460
So I worked for a very large
fund in Westport, Connecticut.

398
00:18:31,460 --> 00:18:33,170
Now back in the Boston area.

399
00:18:33,170 --> 00:18:37,710
And now focused again more on
not only funding and financing

400
00:18:37,710 --> 00:18:40,060
of early-stage
development companies,

401
00:18:40,060 --> 00:18:43,020
but also in identifying
great intellectual property

402
00:18:43,020 --> 00:18:46,830
and technology, all-around
science and research.

403
00:18:46,830 --> 00:18:49,240
So today's talk is going to
be about business models.

404
00:18:49,240 --> 00:18:51,670
And I'm hoping to share
some insights with you.

405
00:18:51,670 --> 00:18:54,480
Essentially this is how
I think of these things.

406
00:18:54,480 --> 00:18:57,680
We start off with a whole
bunch of disparate data points.

407
00:18:57,680 --> 00:18:59,630
We call that information.

408
00:18:59,630 --> 00:19:02,520
Hopefully we begin to
connect those dots.

409
00:19:02,520 --> 00:19:06,310
It's almost like a
pointillist painting, where

410
00:19:06,310 --> 00:19:07,667
you have thousands of dots.

411
00:19:07,667 --> 00:19:09,250
And then slowly as
they come together,

412
00:19:09,250 --> 00:19:10,220
they start to connect.

413
00:19:10,220 --> 00:19:12,320
And then ultimately out
of that, you have wisdom.

414
00:19:12,320 --> 00:19:15,850
You have an image that
is created out of that.

415
00:19:15,850 --> 00:19:17,520
What I hope to do
today is provide you

416
00:19:17,520 --> 00:19:19,850
each of those three--
information, knowledge,

417
00:19:19,850 --> 00:19:21,300
and wisdom.

418
00:19:21,300 --> 00:19:23,880
So let's start off with
a simple foundation.

419
00:19:23,880 --> 00:19:28,300
And the foundation is to
say this-- many definitions

420
00:19:28,300 --> 00:19:30,181
of a business model exist.

421
00:19:30,181 --> 00:19:32,430
The one that I like the most
is simply this-- a method

422
00:19:32,430 --> 00:19:34,970
by which a firm uses
its resources-- cash,

423
00:19:34,970 --> 00:19:38,160
technology, its people-- to
offer its customers better

424
00:19:38,160 --> 00:19:43,100
value than its competitors,
and make money doing so.

425
00:19:43,100 --> 00:19:46,846
It tells who pays how much,
and how often do they pay.

426
00:19:46,846 --> 00:19:48,220
For those of you
that are looking

427
00:19:48,220 --> 00:19:51,810
to start companies, or even
begin to work for companies,

428
00:19:51,810 --> 00:19:53,560
especially
early-stage companies,

429
00:19:53,560 --> 00:19:55,690
the question that the
board, the investors,

430
00:19:55,690 --> 00:19:58,870
the new employee coming in
the door are going to ask

431
00:19:58,870 --> 00:20:00,500
is, what do you do?

432
00:20:00,500 --> 00:20:01,380
Who do you sell to?

433
00:20:01,380 --> 00:20:03,430
And how do you make money?

434
00:20:03,430 --> 00:20:05,360
It's pretty simple.

435
00:20:05,360 --> 00:20:07,460
The how do you make
money part is often

436
00:20:07,460 --> 00:20:09,500
the challenge for
many start-ups.

437
00:20:09,500 --> 00:20:11,016
They have very cool technology.

438
00:20:11,016 --> 00:20:13,440
They think they know
who's going to buy it.

439
00:20:13,440 --> 00:20:14,820
But they have no
idea how they're

440
00:20:14,820 --> 00:20:17,392
going to get it in the
hands of those individuals.

441
00:20:17,392 --> 00:20:18,850
Are they going to
create a website?

442
00:20:18,850 --> 00:20:21,710
Are they going to join--
sign on to the app store?

443
00:20:21,710 --> 00:20:23,520
Are they going to go retail?

444
00:20:23,520 --> 00:20:25,090
Are they going to
use a distribution

445
00:20:25,090 --> 00:20:26,440
channel or partner?

446
00:20:26,440 --> 00:20:28,627
That's the big crux of it.

447
00:20:28,627 --> 00:20:31,210
So that's the question you have
to continue to think about is,

448
00:20:31,210 --> 00:20:35,960
how do we ultimately make money
from what we are developing?

449
00:20:35,960 --> 00:20:38,730
So what's changed
a lot in the way

450
00:20:38,730 --> 00:20:41,800
we operate in this world is
the way that companies operate,

451
00:20:41,800 --> 00:20:44,244
the way that companies
are formed and developed.

452
00:20:44,244 --> 00:20:46,410
And this chart is not really
meant, in great detail,

453
00:20:46,410 --> 00:20:46,910
to be read.

454
00:20:46,910 --> 00:20:48,910
But overall, what
you have here is

455
00:20:48,910 --> 00:20:53,790
an example of how over time, you
have points of history where,

456
00:20:53,790 --> 00:20:56,840
as industries
developed, changed,

457
00:20:56,840 --> 00:21:00,810
they went away, what you had is
different ways of communicating

458
00:21:00,810 --> 00:21:03,970
with the world, different
ways of actually connecting

459
00:21:03,970 --> 00:21:05,570
with consumers.

460
00:21:05,570 --> 00:21:09,250
If you think about back in the
days of merchants and mechanics

461
00:21:09,250 --> 00:21:11,700
and industrial
businesses, the way

462
00:21:11,700 --> 00:21:14,740
they operated and communicated
was much different.

463
00:21:14,740 --> 00:21:18,510
Retail stores existed, but in a
very, very, very different way.

464
00:21:18,510 --> 00:21:20,820
They were family-run stores.

465
00:21:20,820 --> 00:21:23,350
Most of the products and
services we bought from

466
00:21:23,350 --> 00:21:25,790
were from a few large
retailers like Sears,

467
00:21:25,790 --> 00:21:27,490
whether that be your
washer and dryer

468
00:21:27,490 --> 00:21:30,100
or your tools or other things.

469
00:21:30,100 --> 00:21:33,590
As technology continued
to mature, what you saw

470
00:21:33,590 --> 00:21:35,970
is the financial service
industry becoming very, very

471
00:21:35,970 --> 00:21:37,144
sophisticated.

472
00:21:37,144 --> 00:21:38,560
And the financial
service industry

473
00:21:38,560 --> 00:21:44,800
began to allow us to see
business in a global way.

474
00:21:44,800 --> 00:21:48,210
Out of that came complex
advertising campaigns,

475
00:21:48,210 --> 00:21:50,740
global marketing and
distribution mechanisms.

476
00:21:50,740 --> 00:21:55,480
And what you saw is entirely
new ways to buy and reach

477
00:21:55,480 --> 00:21:58,120
the end user, the products.

478
00:21:58,120 --> 00:22:00,580
What really changed is,
at this end of the world,

479
00:22:00,580 --> 00:22:06,160
where you had technology, was
then introduced in such a way

480
00:22:06,160 --> 00:22:09,855
that distribution of goods--
ultimately the ability

481
00:22:09,855 --> 00:22:12,590
to connect an individual
who wants a product

482
00:22:12,590 --> 00:22:15,240
or service to that
product or service--

483
00:22:15,240 --> 00:22:18,600
the barriers of distance,
the barriers of manufacturing

484
00:22:18,600 --> 00:22:20,012
suddenly went away.

485
00:22:20,012 --> 00:22:21,970
The United States has
probably done this better

486
00:22:21,970 --> 00:22:24,520
than almost any
place in the world.

487
00:22:24,520 --> 00:22:26,920
We can get something
delivered tomorrow

488
00:22:26,920 --> 00:22:30,380
that we ordered this afternoon
at 11:00 AM or 1 o'clock

489
00:22:30,380 --> 00:22:35,440
in the afternoon, whether it be
a product or service, because

490
00:22:35,440 --> 00:22:38,860
of financial support and
backing for those type

491
00:22:38,860 --> 00:22:42,740
of organizations, whether it
be the manufacturers, the UPS,

492
00:22:42,740 --> 00:22:44,450
the FedEx, and others.

493
00:22:44,450 --> 00:22:47,654
The distribution channels
have shrunk greatly.

494
00:22:47,654 --> 00:22:49,570
When I travel to different
parts of the world,

495
00:22:49,570 --> 00:22:55,200
they find an amazing selection
of products and services

496
00:22:55,200 --> 00:22:57,000
that we have in
the United States.

497
00:22:57,000 --> 00:23:00,170
And when you go elsewhere,
you notice how limited it is.

498
00:23:00,170 --> 00:23:01,670
If you're living
in parts of Europe,

499
00:23:01,670 --> 00:23:03,330
if you're living
in parts of Africa,

500
00:23:03,330 --> 00:23:06,570
parts of Asia, if you're
living in most of Russia--

501
00:23:06,570 --> 00:23:08,520
the ability to actually
order something today

502
00:23:08,520 --> 00:23:14,470
and see it arrives in the next
month is very, very unlikely.

503
00:23:14,470 --> 00:23:16,470
And the more remote you
are, the less likely

504
00:23:16,470 --> 00:23:18,060
it is it's ever
going to reach you

505
00:23:18,060 --> 00:23:20,850
on time, or without
being lost in some part

506
00:23:20,850 --> 00:23:22,260
of the distribution channel.

507
00:23:22,260 --> 00:23:24,260
So I encourage you
to think about,

508
00:23:24,260 --> 00:23:26,860
as technology has changed
and distribution channels

509
00:23:26,860 --> 00:23:29,280
have changed, it has
impacted the way that we

510
00:23:29,280 --> 00:23:32,020
operate and build companies.

511
00:23:32,020 --> 00:23:34,540
So at MIT, when we
think about how do you

512
00:23:34,540 --> 00:23:37,070
bring a company from
the idea to the market,

513
00:23:37,070 --> 00:23:40,670
or what is so often called
the lab to the market, the way

514
00:23:40,670 --> 00:23:44,657
you think about that has to
integrate the business model.

515
00:23:44,657 --> 00:23:47,115
So for those of you here that
are scientists or researchers

516
00:23:47,115 --> 00:23:50,340
or engineers, as you're thinking
about your new products,

517
00:23:50,340 --> 00:23:51,770
your service, or
your technology,

518
00:23:51,770 --> 00:23:55,630
you have to continually test
who is going to buy this.

519
00:23:55,630 --> 00:23:58,110
How am I going to get
it to the consumer?

520
00:23:58,110 --> 00:24:01,520
How will this ultimately impact
the people that I care about,

521
00:24:01,520 --> 00:24:03,020
the people that are
going to benefit

522
00:24:03,020 --> 00:24:05,485
from my product or my service?

523
00:24:05,485 --> 00:24:06,860
Just as Bob was
sharing with us--

524
00:24:06,860 --> 00:24:09,830
before-- some of the learnings
he had as he was developing

525
00:24:09,830 --> 00:24:12,810
his new company, were
those bumps in the road

526
00:24:12,810 --> 00:24:15,754
as they realized that various
ideas they had about, hey,

527
00:24:15,754 --> 00:24:16,920
we'll give it away for free.

528
00:24:16,920 --> 00:24:19,253
Or perhaps we'll go through
this particular distribution

529
00:24:19,253 --> 00:24:19,910
channel.

530
00:24:19,910 --> 00:24:22,340
Those things did not work.

531
00:24:22,340 --> 00:24:23,680
You learn from those.

532
00:24:23,680 --> 00:24:24,560
You incorporate.

533
00:24:24,560 --> 00:24:25,870
You speak to more consumers.

534
00:24:25,870 --> 00:24:28,630
You speak to more investors
that are expert in the space.

535
00:24:28,630 --> 00:24:30,620
And you modify your approach.

536
00:24:30,620 --> 00:24:33,045
So as all of you think about
building companies, products,

537
00:24:33,045 --> 00:24:34,670
and technology, think
about how are you

538
00:24:34,670 --> 00:24:36,490
getting it to the consumer.

539
00:24:36,490 --> 00:24:38,490
I think the mistake that
a lot of people have is

540
00:24:38,490 --> 00:24:40,660
they think that as they
read The Wall Street

541
00:24:40,660 --> 00:24:42,740
Journal or Bloomberg
or MSNBC is,

542
00:24:42,740 --> 00:24:45,060
they hear about the
stories of these companies,

543
00:24:45,060 --> 00:24:47,530
and the stratospheric
growth of these companies.

544
00:24:47,530 --> 00:24:50,950
But they think success is
this linear process, when

545
00:24:50,950 --> 00:24:51,740
it's really not.

546
00:24:51,740 --> 00:24:53,030
Success is really messy.

547
00:24:53,030 --> 00:24:54,270
It's noisy.

548
00:24:54,270 --> 00:24:57,070
There's lots of bumps, lots
of failures and challenges,

549
00:24:57,070 --> 00:24:59,780
whether it be because of
market acceptance, technology

550
00:24:59,780 --> 00:25:01,890
failures, or it
happens just simply

551
00:25:01,890 --> 00:25:07,116
because the market was not
ready for what you were doing.

552
00:25:07,116 --> 00:25:08,490
The goal is for
you to figure out

553
00:25:08,490 --> 00:25:10,990
throughout those
bumps and those curves

554
00:25:10,990 --> 00:25:13,340
how to identify
opportunity, and also

555
00:25:13,340 --> 00:25:15,820
how to modify your
products and services.

556
00:25:15,820 --> 00:25:18,477
So that brings us to
business models in general.

557
00:25:18,477 --> 00:25:20,810
There's lots of different
ways to think about a business

558
00:25:20,810 --> 00:25:21,900
model.

559
00:25:21,900 --> 00:25:24,150
Complexity was famous for years.

560
00:25:24,150 --> 00:25:25,940
I remember when I was
in graduate school,

561
00:25:25,940 --> 00:25:27,780
they would talk about
business models, sales

562
00:25:27,780 --> 00:25:29,440
and marketing and distribution.

563
00:25:29,440 --> 00:25:32,370
And it was mind boggling.

564
00:25:32,370 --> 00:25:35,227
If they pass it out on
an 8 1/2 x 11 sheet,

565
00:25:35,227 --> 00:25:37,560
you would need a magnifying
glass to figure out what was

566
00:25:37,560 --> 00:25:40,650
happening because the
distribution channels were not

567
00:25:40,650 --> 00:25:41,450
as sophisticated.

568
00:25:41,450 --> 00:25:44,420
The technology was
not as sophisticated.

569
00:25:44,420 --> 00:25:46,430
So you had complex models.

570
00:25:46,430 --> 00:25:48,830
And within these
complex models, there

571
00:25:48,830 --> 00:25:51,300
were lots of points
of failure, lots

572
00:25:51,300 --> 00:25:54,212
of points where your reseller
or your OEM channel--

573
00:25:54,212 --> 00:25:55,795
your original equipment
manufacturer--

574
00:25:55,795 --> 00:25:58,472
or your distributor
was failing, lots

575
00:25:58,472 --> 00:26:00,180
of points where the
manufacturing was not

576
00:26:00,180 --> 00:26:03,530
succeeding or the retail
environment was struggling.

577
00:26:03,530 --> 00:26:06,220
So what's happened is you've
seen simplification of business

578
00:26:06,220 --> 00:26:10,150
models-- these ideas that
become simplified in such a way

579
00:26:10,150 --> 00:26:13,580
where you say to yourself,
I'm building this,

580
00:26:13,580 --> 00:26:16,260
and I want it to be in
the hands of these people,

581
00:26:16,260 --> 00:26:19,500
whether that be a consumer, a
doctor, a lawyer, if it happens

582
00:26:19,500 --> 00:26:21,300
to be a large corporation.

583
00:26:21,300 --> 00:26:24,060
What's the easiest
way to get there?

584
00:26:24,060 --> 00:26:26,036
And leveraging
technology, leveraging

585
00:26:26,036 --> 00:26:27,660
all of those things
that are out there,

586
00:26:27,660 --> 00:26:30,010
including the good advice
of experienced people,

587
00:26:30,010 --> 00:26:32,000
will help simplify this.

588
00:26:32,000 --> 00:26:34,450
An example might be
Zipcar, a company

589
00:26:34,450 --> 00:26:36,880
we're all very familiar with.

590
00:26:36,880 --> 00:26:39,450
This is a relatively
simple business model.

591
00:26:39,450 --> 00:26:41,460
It almost seems so
simple that you'd

592
00:26:41,460 --> 00:26:45,620
be amazed if you presented
this to an investor and said,

593
00:26:45,620 --> 00:26:46,530
this is our model.

594
00:26:46,530 --> 00:26:47,470
This is it.

595
00:26:47,470 --> 00:26:49,510
And we're going to build
basically a company

596
00:26:49,510 --> 00:26:52,250
worth-- a publicly traded
company-- I don't even

597
00:26:52,250 --> 00:26:55,700
know what the market
cap is at right now.

598
00:26:55,700 --> 00:26:58,270
Fantastic, successful
organization,

599
00:26:58,270 --> 00:27:01,610
operating globally in many
cities around the world.

600
00:27:01,610 --> 00:27:04,170
They kept it very simple,
very organized business model.

601
00:27:04,170 --> 00:27:07,710
How many people
here use Dropbox?

602
00:27:07,710 --> 00:27:10,170
You get 2/3 of the group
here that use Dropbox.

603
00:27:10,170 --> 00:27:15,050
When's the last time you saw
a Dropbox advertisement on TV?

604
00:27:15,050 --> 00:27:16,500
It doesn't exist.

605
00:27:16,500 --> 00:27:18,800
20 years ago, if you were
looking to build a company,

606
00:27:18,800 --> 00:27:20,650
you'd have to have an
advertising budget.

607
00:27:20,650 --> 00:27:21,580
You'd have to think
about how we're

608
00:27:21,580 --> 00:27:23,290
going to wind up getting
this into the hands

609
00:27:23,290 --> 00:27:23,910
of the right people.

610
00:27:23,910 --> 00:27:24,860
Who are the right people?

611
00:27:24,860 --> 00:27:26,318
Are we going to
sell to businesses?

612
00:27:26,318 --> 00:27:28,200
Are we going to
sell to individuals?

613
00:27:28,200 --> 00:27:30,340
What's Dropbox's business model?

614
00:27:30,340 --> 00:27:34,460
How come you guys know
so much about Dropbox?

615
00:27:34,460 --> 00:27:36,160
AUDIENCE: [INAUDIBLE]

616
00:27:36,160 --> 00:27:37,890
RICH KIVEL: How was that?

617
00:27:37,890 --> 00:27:38,524
Word of mouth.

618
00:27:38,524 --> 00:27:39,440
Other people told you.

619
00:27:39,440 --> 00:27:40,639
It's viral.

620
00:27:40,639 --> 00:27:42,680
So somebody tells you
about this incredible thing

621
00:27:42,680 --> 00:27:43,410
called Dropbox.

622
00:27:43,410 --> 00:27:45,030
You can sign up for free.

623
00:27:45,030 --> 00:27:48,380
You can get a certain amount
of megabits of space for free.

624
00:27:48,380 --> 00:27:50,380
And all of a sudden, you
start uploading photos.

625
00:27:50,380 --> 00:27:52,755
Or you're sharing PowerPoint
presentations and documents.

626
00:27:52,755 --> 00:27:53,797
And your friend signs on.

627
00:27:53,797 --> 00:27:56,088
And then all of a sudden,
you tell three other friends.

628
00:27:56,088 --> 00:27:56,970
And they sign on.

629
00:27:56,970 --> 00:27:59,920
And then all of a sudden,
when that is shown as viable,

630
00:27:59,920 --> 00:28:03,490
before you know it, they've
got an entire model here

631
00:28:03,490 --> 00:28:07,210
that is making them a
fortune, because they now

632
00:28:07,210 --> 00:28:09,960
have businesses and
large-- what they call

633
00:28:09,960 --> 00:28:13,410
Pro subscribers, large
users-- paying large dollars

634
00:28:13,410 --> 00:28:15,570
in order to access that data.

635
00:28:15,570 --> 00:28:16,620
It's fantastic.

636
00:28:16,620 --> 00:28:19,630
Does that look like a
complicated business model?

637
00:28:19,630 --> 00:28:21,710
No, not really.

638
00:28:21,710 --> 00:28:25,450
Here's another example
of simplicity rules.

639
00:28:25,450 --> 00:28:28,340
We have the luxury of
leveraging technology.

640
00:28:28,340 --> 00:28:32,210
And we also have different types
of mechanisms in order for us

641
00:28:32,210 --> 00:28:34,152
to educate consumers.

642
00:28:34,152 --> 00:28:35,860
Viral marketing is
certainly one of those

643
00:28:35,860 --> 00:28:37,170
we'll talk about today.

644
00:28:37,170 --> 00:28:40,210
So simply put, your business
model is not your business.

645
00:28:40,210 --> 00:28:41,640
Please remember that.

646
00:28:41,640 --> 00:28:44,090
The business model and
business model innovation

647
00:28:44,090 --> 00:28:47,580
is critical in developing
a quality business,

648
00:28:47,580 --> 00:28:50,150
attacking new markets and
driving profitability.

649
00:28:50,150 --> 00:28:52,950
Just as Bob had shared
earlier, the ability

650
00:28:52,950 --> 00:28:57,880
to modify change and
dwarf your business model

651
00:28:57,880 --> 00:29:02,539
is critical because
just one small change

652
00:29:02,539 --> 00:29:03,830
can make all of the difference.

653
00:29:03,830 --> 00:29:04,990
And we're going to talk
about some companies that

654
00:29:04,990 --> 00:29:06,420
made small changes.

655
00:29:06,420 --> 00:29:08,680
And it's made all of the
difference in their success.

656
00:29:08,680 --> 00:29:12,080
So I'll do the academic
part of this presentation

657
00:29:12,080 --> 00:29:14,250
to give you components
of the business model.

658
00:29:14,250 --> 00:29:17,830
Then we're going to talk
about some good examples.

659
00:29:17,830 --> 00:29:20,360
And then I'm going to leave
plenty of time for Q&A,

660
00:29:20,360 --> 00:29:23,350
and end on time,
as I promised Joe.

661
00:29:23,350 --> 00:29:24,970
So from a business
model perspective,

662
00:29:24,970 --> 00:29:26,095
there's lots of components.

663
00:29:26,095 --> 00:29:28,840
There's aspects of a business
model that should exist.

664
00:29:28,840 --> 00:29:31,200
Overall, they're pretty simple.

665
00:29:31,200 --> 00:29:32,920
What is the value proposition?

666
00:29:32,920 --> 00:29:35,250
What are the market segments
that you're targeting?

667
00:29:35,250 --> 00:29:36,580
What is the value chain?

668
00:29:36,580 --> 00:29:38,660
And what is the structure
of that value chain?

669
00:29:38,660 --> 00:29:40,620
Who's involved in it?

670
00:29:40,620 --> 00:29:42,980
What is your position
within that value network?

671
00:29:42,980 --> 00:29:44,550
Are you at the
early, early stage

672
00:29:44,550 --> 00:29:46,250
from a standpoint
of manufacturing?

673
00:29:46,250 --> 00:29:49,059
Are you at the end stage
from a standpoint of actually

674
00:29:49,059 --> 00:29:51,100
delivering the product or
service to the consumer

675
00:29:51,100 --> 00:29:53,150
or are you somewhere
in the middle?

676
00:29:53,150 --> 00:29:55,160
How do you generate revenue?

677
00:29:55,160 --> 00:29:57,100
And how do you generate margins?

678
00:29:57,100 --> 00:29:59,461
And those are two
very different things.

679
00:29:59,461 --> 00:30:00,960
There are companies
out there we all

680
00:30:00,960 --> 00:30:03,610
know that generate tremendous
amounts of revenue.

681
00:30:03,610 --> 00:30:07,590
And their margins are very
tiny-- 1%, half a percent

682
00:30:07,590 --> 00:30:08,940
or less.

683
00:30:08,940 --> 00:30:11,414
But they make it up because
the revenue is so extreme.

684
00:30:11,414 --> 00:30:12,830
You have other
companies out there

685
00:30:12,830 --> 00:30:15,840
that have exceptionally
high margins, tremendously

686
00:30:15,840 --> 00:30:19,470
high margins, not
very large revenues.

687
00:30:19,470 --> 00:30:22,680
Think about luxury
goods resellers.

688
00:30:22,680 --> 00:30:25,360
Take a look at the
average consumer

689
00:30:25,360 --> 00:30:29,180
that goes out and buys a
luxury bag or a nice suit

690
00:30:29,180 --> 00:30:31,840
or an expensive watch.

691
00:30:31,840 --> 00:30:33,820
Well I can go buy a
watch from Movado.

692
00:30:33,820 --> 00:30:36,704
Or I can go buy a
watch from Swatch.

693
00:30:36,704 --> 00:30:37,870
These are beautiful watches.

694
00:30:37,870 --> 00:30:40,530
They're made by large
manufacturing groups.

695
00:30:40,530 --> 00:30:43,120
They're going through a very,
very sophisticated distribution

696
00:30:43,120 --> 00:30:43,680
channel.

697
00:30:43,680 --> 00:30:46,520
And they're made in
the tens of thousands.

698
00:30:46,520 --> 00:30:49,270
Those watches are sold
anywhere between $39.00,

699
00:30:49,270 --> 00:30:52,480
$49.00 up to probably $1,000.00.

700
00:30:52,480 --> 00:30:54,650
And they're sold
in the thousands

701
00:30:54,650 --> 00:30:57,360
through retailers that
you see in the mall,

702
00:30:57,360 --> 00:30:59,080
through retailers
that are online,

703
00:30:59,080 --> 00:31:01,850
and also through big-box
sellers like Walmart

704
00:31:01,850 --> 00:31:04,682
or Costco or others.

705
00:31:04,682 --> 00:31:06,140
You think, wow,
that's interesting.

706
00:31:06,140 --> 00:31:09,190
Someone like Swatch and also
Movado, which is much higher

707
00:31:09,190 --> 00:31:12,590
end, they both sell through
similar distribution channels.

708
00:31:12,590 --> 00:31:14,380
They do tremendous volume.

709
00:31:14,380 --> 00:31:17,040
So they have very,
very high revenues.

710
00:31:17,040 --> 00:31:19,760
But their margins
are incredibly small.

711
00:31:19,760 --> 00:31:22,070
The goal is saturate the market.

712
00:31:22,070 --> 00:31:24,780
Get as many people
to buy as possible.

713
00:31:24,780 --> 00:31:26,520
Take a look at other
types of products

714
00:31:26,520 --> 00:31:28,990
that are similar that
are called watches.

715
00:31:28,990 --> 00:31:31,430
Very often they're
then called timepieces,

716
00:31:31,430 --> 00:31:35,750
where you have watches that
are handmade, where they're

717
00:31:35,750 --> 00:31:38,130
made in a very, very
subtle way, where it's

718
00:31:38,130 --> 00:31:42,890
a lot of on-hand or craftsman
work and craftsman design,

719
00:31:42,890 --> 00:31:45,320
very low on the
manufacturing side.

720
00:31:45,320 --> 00:31:47,660
It might take months to
make a particular watch,

721
00:31:47,660 --> 00:31:48,861
if not longer.

722
00:31:48,861 --> 00:31:51,110
And the watches sell for
tens of thousands or hundreds

723
00:31:51,110 --> 00:31:52,600
of thousands of dollars.

724
00:31:52,600 --> 00:31:55,400
You think about
IWC, Patek Philippe.

725
00:31:55,400 --> 00:31:59,200
Many of these watches will sell
for $100,000.00 or $50,000.00

726
00:31:59,200 --> 00:32:00,850
for a watch.

727
00:32:00,850 --> 00:32:03,630
Totally different
business model.

728
00:32:03,630 --> 00:32:06,020
Their margins are very large.

729
00:32:06,020 --> 00:32:08,680
But their overall revenues are
relatively small because they

730
00:32:08,680 --> 00:32:11,080
don't sell a lot of pieces.

731
00:32:11,080 --> 00:32:13,140
Think about Mercedes-Benz.

732
00:32:13,140 --> 00:32:16,510
And think about Ford.

733
00:32:16,510 --> 00:32:19,900
If you base success on the
total number of vehicles sold,

734
00:32:19,900 --> 00:32:23,800
Ford kills them year
in and year out.

735
00:32:23,800 --> 00:32:27,310
If you base it on margins,
slightly different story.

736
00:32:27,310 --> 00:32:29,670
Ford has some products that
are incredibly high margins,

737
00:32:29,670 --> 00:32:31,120
like their SUVs.

738
00:32:31,120 --> 00:32:33,167
They have other products,
like their low-end cars

739
00:32:33,167 --> 00:32:34,250
that are very low margins.

740
00:32:34,250 --> 00:32:35,750
But they're looking
to get adoption

741
00:32:35,750 --> 00:32:37,990
within a particular marketplace.

742
00:32:37,990 --> 00:32:40,200
Mercedes, much different story.

743
00:32:40,200 --> 00:32:44,160
Very high margins on virtually
every vehicle they sell.

744
00:32:44,160 --> 00:32:47,102
Much lower volume.

745
00:32:47,102 --> 00:32:49,560
So all of these things have to
be taken into consideration.

746
00:32:49,560 --> 00:32:53,590
You cannot choose your business
model because it seemed like it

747
00:32:53,590 --> 00:32:56,300
made sense, because you
saw a competitor doing it.

748
00:32:56,300 --> 00:32:58,070
You have to figure
out where are you

749
00:32:58,070 --> 00:33:00,770
within that particular
value network.

750
00:33:00,770 --> 00:33:02,540
The competitive strategy
plays into that,

751
00:33:02,540 --> 00:33:04,710
and what stage of
development is the company.

752
00:33:04,710 --> 00:33:06,960
So I'm going to flip through
a couple of these slides.

753
00:33:06,960 --> 00:33:08,180
And we'll dive
into some examples.

754
00:33:08,180 --> 00:33:09,555
And I'm hoping
you guys have lots

755
00:33:09,555 --> 00:33:10,830
of questions at that point.

756
00:33:10,830 --> 00:33:15,080
So the value proposition, which
is really number one here,

757
00:33:15,080 --> 00:33:17,870
is really a description
of the customer problem,

758
00:33:17,870 --> 00:33:19,830
the solution that
addresses that problem,

759
00:33:19,830 --> 00:33:22,520
and the value of the
solution from the customer's

760
00:33:22,520 --> 00:33:24,220
perspective.

761
00:33:24,220 --> 00:33:27,185
The customer's perspective
is very important here.

762
00:33:27,185 --> 00:33:30,040
If I am buying, let's
say an Apple product,

763
00:33:30,040 --> 00:33:33,200
which I see a lot of here,
well there's a lot of things

764
00:33:33,200 --> 00:33:36,260
there that I as a consumer
might be attracted to.

765
00:33:36,260 --> 00:33:39,010
I love the design of it, the
size of it, the feel of it,

766
00:33:39,010 --> 00:33:40,850
the way it operates.

767
00:33:40,850 --> 00:33:44,390
If, for example, you're
buying a desktop computer,

768
00:33:44,390 --> 00:33:46,310
and you chose to
pick out a Dell,

769
00:33:46,310 --> 00:33:48,870
or you chose to pick out
another type of manufacturer,

770
00:33:48,870 --> 00:33:50,710
not like Apple--
maybe you're buying it

771
00:33:50,710 --> 00:33:53,830
for entirely different
reasons than that Apple user.

772
00:33:53,830 --> 00:33:56,620
So think about what is it
that the customer perceives

773
00:33:56,620 --> 00:33:57,800
as value.

774
00:33:57,800 --> 00:34:01,500
Is the customer looking for low
cost or are they looking for

775
00:34:01,500 --> 00:34:03,259
speed?

776
00:34:03,259 --> 00:34:04,550
Are they looking for something?

777
00:34:04,550 --> 00:34:07,880
You need to make sure that your
value proposition offers that.

778
00:34:07,880 --> 00:34:10,050
From a market
segmentation perspective,

779
00:34:10,050 --> 00:34:11,280
it's choosing your audience.

780
00:34:11,280 --> 00:34:15,440
And we could talk about this
entirely throughout this class.

781
00:34:15,440 --> 00:34:16,840
But I'm going to keep it short.

782
00:34:16,840 --> 00:34:19,630
You have to know who that
ultimate end user is.

783
00:34:19,630 --> 00:34:21,909
Who is that person that's
going to write that check,

784
00:34:21,909 --> 00:34:23,889
recognizing that different
market segments have

785
00:34:23,889 --> 00:34:25,164
different needs.

786
00:34:25,164 --> 00:34:26,830
If you're selling,
we'll use the example

787
00:34:26,830 --> 00:34:29,889
I did a moment ago-- if you're
selling to that high-end watch

788
00:34:29,889 --> 00:34:33,780
buyer, who's buying
essentially a timepiece that's

789
00:34:33,780 --> 00:34:36,684
going to be passed down
for generations, that's

790
00:34:36,684 --> 00:34:39,100
a different type of buyer, a
different type of a marketing

791
00:34:39,100 --> 00:34:43,460
approach than if you're
selling a Swatch watch, which

792
00:34:43,460 --> 00:34:45,590
borders on a disposable watch.

793
00:34:45,590 --> 00:34:47,520
If it lasts five
years, it's fantastic.

794
00:34:47,520 --> 00:34:49,478
By then, you probably
have bought three or four

795
00:34:49,478 --> 00:34:50,310
more watches.

796
00:34:50,310 --> 00:34:53,670
Same thing for computers and
cars and many other things.

797
00:34:53,670 --> 00:34:55,239
Additionally value
change structure

798
00:34:55,239 --> 00:34:57,800
and position in the value
network are critical to this.

799
00:34:57,800 --> 00:34:59,920
And they're part of that
initial slide I shared.

800
00:34:59,920 --> 00:35:02,172
So what is the firm's
position in the value chain?

801
00:35:02,172 --> 00:35:04,130
What are the activities
within the value chain?

802
00:35:04,130 --> 00:35:07,390
And how the firm will
capture part of the value

803
00:35:07,390 --> 00:35:09,864
that it creates
within that chain,

804
00:35:09,864 --> 00:35:12,280
because where you fit within
that chain and how much of it

805
00:35:12,280 --> 00:35:15,920
you own is really,
really important to know.

806
00:35:15,920 --> 00:35:18,070
If you're Netflix
think about where

807
00:35:18,070 --> 00:35:20,500
are you in the value chain.

808
00:35:20,500 --> 00:35:22,304
AUDIENCE: Describe
the value chain.

809
00:35:22,304 --> 00:35:23,220
RICH KIVEL: Excellent.

810
00:35:23,220 --> 00:35:26,090
So you asked if I could
describe the value chain.

811
00:35:26,090 --> 00:35:28,702
So think about the entire cycle.

812
00:35:28,702 --> 00:35:30,160
And I'll use Netflix
as an example,

813
00:35:30,160 --> 00:35:31,220
because I mentioned it.

814
00:35:31,220 --> 00:35:34,260
So what does Netflix
do, essentially?

815
00:35:34,260 --> 00:35:35,760
AUDIENCE: They're distribution.

816
00:35:35,760 --> 00:35:37,134
RICH KIVEL: They're
distribution.

817
00:35:37,134 --> 00:35:38,749
To who?

818
00:35:38,749 --> 00:35:39,540
AUDIENCE: End user.

819
00:35:39,540 --> 00:35:40,581
RICH KIVEL: The end user.

820
00:35:40,581 --> 00:35:42,392
They are at the far
end, whichever end

821
00:35:42,392 --> 00:35:43,600
you want to call the far end.

822
00:35:43,600 --> 00:35:45,410
They're at the far
end of the cycle.

823
00:35:45,410 --> 00:35:47,530
There's not much after that.

824
00:35:47,530 --> 00:35:52,970
They're distributing a movie,
something entertaining, to us.

825
00:35:52,970 --> 00:35:54,470
If you think about
that entire value

826
00:35:54,470 --> 00:35:58,980
chain or that entire cycle,
it goes all the way back,

827
00:35:58,980 --> 00:36:02,740
way, way, way back to
somebody, maybe a year ago

828
00:36:02,740 --> 00:36:06,270
or 20 years ago that had an
idea for a picture, an idea

829
00:36:06,270 --> 00:36:09,740
for a movie or a
film, who then as they

830
00:36:09,740 --> 00:36:11,890
moved through that
value chain, maybe

831
00:36:11,890 --> 00:36:13,390
they found a screenwriter.

832
00:36:13,390 --> 00:36:15,600
They ultimately,
perhaps, found a studio.

833
00:36:15,600 --> 00:36:17,420
That studio ultimately
made a decision

834
00:36:17,420 --> 00:36:19,590
whether they were going
to fund it or not,

835
00:36:19,590 --> 00:36:21,930
just like a venture capitalist.

836
00:36:21,930 --> 00:36:26,620
Movies are just like starting
companies-- idea, all the way

837
00:36:26,620 --> 00:36:29,510
through to the business
plan to the funding.

838
00:36:29,510 --> 00:36:32,020
That venture capitalist,
or in the case of a movie,

839
00:36:32,020 --> 00:36:34,340
it's the studio that
says, we love it.

840
00:36:34,340 --> 00:36:35,050
We want it.

841
00:36:35,050 --> 00:36:37,260
The story's outstanding.

842
00:36:37,260 --> 00:36:38,324
We want to buy the story.

843
00:36:38,324 --> 00:36:39,990
We're going to put
this much against it.

844
00:36:39,990 --> 00:36:43,540
They then build the team.

845
00:36:43,540 --> 00:36:45,260
So they find who's
going to be the lead.

846
00:36:45,260 --> 00:36:46,250
Who's going to be the second?

847
00:36:46,250 --> 00:36:47,090
Who's going to be the third?

848
00:36:47,090 --> 00:36:48,280
Who's going to the
action character?

849
00:36:48,280 --> 00:36:49,880
Who's going to be the romantic?

850
00:36:49,880 --> 00:36:51,250
Where is it going to be filmed?

851
00:36:51,250 --> 00:36:54,150
All of these aspects are
just like a business.

852
00:36:54,150 --> 00:36:56,760
They've got to find the
CEO, the CFO, the CTO.

853
00:36:56,760 --> 00:36:57,554
They have to figure
out where are we

854
00:36:57,554 --> 00:36:58,720
going to locate the company.

855
00:36:58,720 --> 00:37:01,190
Where's the best
place for it to be?

856
00:37:01,190 --> 00:37:03,540
And then at that point,
they start working on it,

857
00:37:03,540 --> 00:37:05,330
and toiling away,
and filming it.

858
00:37:05,330 --> 00:37:08,680
And filming could take
weeks, months, or even years.

859
00:37:08,680 --> 00:37:11,630
Then ultimately,
it's distributed.

860
00:37:11,630 --> 00:37:14,060
Now it might be distributed
directly into theaters.

861
00:37:14,060 --> 00:37:17,140
Or if it doesn't
get great reviews

862
00:37:17,140 --> 00:37:19,460
in the early, early
days of distribution,

863
00:37:19,460 --> 00:37:21,970
it might actually
go directly to DVD.

864
00:37:21,970 --> 00:37:25,004
And that's when
Netflix jumps in.

865
00:37:25,004 --> 00:37:26,920
So if you think about
it, that's a long cycle.

866
00:37:26,920 --> 00:37:29,460
And I probably skipped 30 parts.

867
00:37:29,460 --> 00:37:31,660
So where do you fit within
the distribution channel

868
00:37:31,660 --> 00:37:34,232
is absolutely critical
for you to understand

869
00:37:34,232 --> 00:37:36,690
how you think about that, and
where you actually capitalize

870
00:37:36,690 --> 00:37:38,360
and make money.

871
00:37:38,360 --> 00:37:39,860
Netflix also had
the big challenge

872
00:37:39,860 --> 00:37:42,840
where they were facing a major
competitor at that time when

873
00:37:42,840 --> 00:37:44,740
they first came to market.

874
00:37:44,740 --> 00:37:47,540
Does anybody even remember
who that competitor was?

875
00:37:47,540 --> 00:37:49,140
AUDIENCE: Blockbuster.

876
00:37:49,140 --> 00:37:52,870
RICH KIVEL: Blockbuster got
their butt kicked by Netflix.

877
00:37:52,870 --> 00:37:54,740
What happened?

878
00:37:54,740 --> 00:37:57,460
What happened was
two major things.

879
00:37:57,460 --> 00:38:00,420
Number one, technology changed.

880
00:38:00,420 --> 00:38:03,300
DVDs came out.

881
00:38:03,300 --> 00:38:05,850
VCRs were going away.

882
00:38:05,850 --> 00:38:09,070
So videotapes made perfect sense
when you went into Blockbuster.

883
00:38:09,070 --> 00:38:12,840
It was big, bulky, didn't
even think about shipping it,

884
00:38:12,840 --> 00:38:13,840
easy to break.

885
00:38:13,840 --> 00:38:16,450
It gets crushed, doesn't work
so well, tape gets pulled out,

886
00:38:16,450 --> 00:38:17,280
whatever.

887
00:38:17,280 --> 00:38:20,170
Blockbuster had a great model.

888
00:38:20,170 --> 00:38:23,000
They were at the end of the
cycle to us, the consumer.

889
00:38:23,000 --> 00:38:24,940
They put little
stores everywhere.

890
00:38:24,940 --> 00:38:26,450
And they made it easy.

891
00:38:26,450 --> 00:38:28,100
But all of a sudden,
the DVD world

892
00:38:28,100 --> 00:38:29,600
came out, where you
were able to get

893
00:38:29,600 --> 00:38:32,130
super high-definition
quality picture motion

894
00:38:32,130 --> 00:38:36,180
pictures on a DVD that is
as flat as an envelope.

895
00:38:36,180 --> 00:38:38,990
Netflix said, hey,
why are we building

896
00:38:38,990 --> 00:38:40,280
stores for these things?

897
00:38:40,280 --> 00:38:42,040
People already know
the movie they want.

898
00:38:42,040 --> 00:38:44,760
Or they could use this new
technology called the internet,

899
00:38:44,760 --> 00:38:48,340
and figure out what movie they
want, which is mailed to them.

900
00:38:48,340 --> 00:38:50,780
The other big challenge
that Blockbuster had

901
00:38:50,780 --> 00:38:54,390
was the whole process
of limited supply,

902
00:38:54,390 --> 00:38:57,690
and demand on that supply.

903
00:38:57,690 --> 00:39:01,220
So they penalized you if you
don't return the video on time

904
00:39:01,220 --> 00:39:03,270
because they were
losing revenue.

905
00:39:03,270 --> 00:39:06,320
If you didn't get it put
in that little tiny box

906
00:39:06,320 --> 00:39:10,261
by 7:00 AM or 10:00 AM the next
morning, you got charged a fee.

907
00:39:10,261 --> 00:39:10,760
Why?

908
00:39:10,760 --> 00:39:13,290
Because somebody
else wanted their one

909
00:39:13,290 --> 00:39:16,660
of three copies of that movie.

910
00:39:16,660 --> 00:39:18,830
They couldn't have
an unlimited supply.

911
00:39:18,830 --> 00:39:21,150
Whereas the ability
to reproduce and print

912
00:39:21,150 --> 00:39:23,570
DVDs-- virtually unlimited.

913
00:39:23,570 --> 00:39:25,100
Everybody in this
room could order

914
00:39:25,100 --> 00:39:28,830
a DVD today of a hot
movie that just came out.

915
00:39:28,830 --> 00:39:30,780
It could be at your
house tomorrow.

916
00:39:30,780 --> 00:39:32,660
There's no distribution issue.

917
00:39:32,660 --> 00:39:36,170
The ability to reproduce that
DVD, drop it in an envelope,

918
00:39:36,170 --> 00:39:38,650
and mail it to you is
effortless, completely

919
00:39:38,650 --> 00:39:40,780
automated.

920
00:39:40,780 --> 00:39:43,040
So what you have here
is this convergence,

921
00:39:43,040 --> 00:39:45,500
where there was an opportunity.

922
00:39:45,500 --> 00:39:47,940
There was technological
change, whether it

923
00:39:47,940 --> 00:39:50,500
be DVDs or internet or
a combination of both,

924
00:39:50,500 --> 00:39:54,020
that allowed Netflix to
completely crush Blockbuster.

925
00:39:54,020 --> 00:39:57,650
And then Netflix changed
themselves, didn't they?

926
00:39:57,650 --> 00:40:00,170
They recognized that
our ability to capture

927
00:40:00,170 --> 00:40:03,900
more bandwidth, the ability for
us to actually download a movie

928
00:40:03,900 --> 00:40:06,510
was increasing in many
parts of the United States,

929
00:40:06,510 --> 00:40:09,000
not everywhere, not everywhere.

930
00:40:09,000 --> 00:40:11,770
But as our ability,
especially in large cities,

931
00:40:11,770 --> 00:40:13,992
increased to download
movies-- now all of a sudden,

932
00:40:13,992 --> 00:40:16,450
it changed to we don't even
have to ship it to you anymore.

933
00:40:16,450 --> 00:40:18,110
All you have to
do is download it.

934
00:40:18,110 --> 00:40:20,710
It streams to you.

935
00:40:20,710 --> 00:40:22,210
And then they created
a whole series

936
00:40:22,210 --> 00:40:23,501
of other distribution channels.

937
00:40:23,501 --> 00:40:25,570
Now you can get
Netflix on your Roku.

938
00:40:25,570 --> 00:40:28,050
You can get Netflix in
all of these other areas.

939
00:40:28,050 --> 00:40:30,870
So if you think about it, when
the guy that started Netflix

940
00:40:30,870 --> 00:40:34,210
started off, it was
a very simple model.

941
00:40:34,210 --> 00:40:35,230
People like movies.

942
00:40:35,230 --> 00:40:39,120
They're willing to pay for them
so they can watch them at home.

943
00:40:39,120 --> 00:40:41,280
DVDs are the new thing.

944
00:40:41,280 --> 00:40:44,930
And we've developed a complex
shipping method and mechanism

945
00:40:44,930 --> 00:40:47,519
and a model of
warehousing DVDs that we

946
00:40:47,519 --> 00:40:48,810
can get it to people overnight.

947
00:40:48,810 --> 00:40:50,040
And they can keep it
for a day, a week.

948
00:40:50,040 --> 00:40:51,498
We don't really
care, because we're

949
00:40:51,498 --> 00:40:52,770
going to keep shipping more.

950
00:40:52,770 --> 00:40:53,830
It was so simple.

951
00:40:53,830 --> 00:40:55,832
The business model could
not have been easier.

952
00:40:55,832 --> 00:40:57,290
But what they did
is they continued

953
00:40:57,290 --> 00:40:59,620
to change and morph
their business model

954
00:40:59,620 --> 00:41:01,420
as the technology changed.

955
00:41:01,420 --> 00:41:03,740
And they continue to stay
far ahead of the curve.

956
00:41:03,740 --> 00:41:08,426
What is the latest thing
that Netflix is now doing?

957
00:41:08,426 --> 00:41:09,550
AUDIENCE: Producing movies.

958
00:41:09,550 --> 00:41:11,091
RICH KIVEL: They're
producing movies.

959
00:41:11,091 --> 00:41:12,290
How crazy is that?

960
00:41:12,290 --> 00:41:14,860
But can you imagine if you
were the CEO of Netflix

961
00:41:14,860 --> 00:41:17,450
and you said to the
VCs when you went in

962
00:41:17,450 --> 00:41:19,930
to talk to them a decade
ago, well here's the thing.

963
00:41:19,930 --> 00:41:20,890
I got a business idea.

964
00:41:20,890 --> 00:41:23,223
What we're going to do is,
we're going to basically kick

965
00:41:23,223 --> 00:41:24,920
Blockbuster's ass.

966
00:41:24,920 --> 00:41:26,950
We're going to distribute
these things on DVDs.

967
00:41:26,950 --> 00:41:28,240
And then we're going to
start to do downloadable.

968
00:41:28,240 --> 00:41:29,615
And then, by the
way, we're going

969
00:41:29,615 --> 00:41:31,750
to become a movie
production studio.

970
00:41:31,750 --> 00:41:33,542
Their head would explode.

971
00:41:33,542 --> 00:41:35,000
And they would just
say, listen you

972
00:41:35,000 --> 00:41:36,490
have no idea what you're doing.

973
00:41:36,490 --> 00:41:39,430
And you don't understand
how complex the market is.

974
00:41:39,430 --> 00:41:42,030
That's why earlier
I said, simplicity.

975
00:41:42,030 --> 00:41:44,290
When you launch your
business, keep it simple.

976
00:41:44,290 --> 00:41:46,510
Show that that model
is easy to understand.

977
00:41:46,510 --> 00:41:48,460
And then from there
you continue to expand.

978
00:41:48,460 --> 00:41:50,910
Who would have thought
Netflix is now producing some

979
00:41:50,910 --> 00:41:53,750
of the best shows out there?

980
00:41:53,750 --> 00:41:56,880
Orange Is the New Black is one
of the top shows out there,

981
00:41:56,880 --> 00:41:59,347
produced by Netflix.

982
00:41:59,347 --> 00:42:00,680
What are some of the other ones?

983
00:42:00,680 --> 00:42:01,640
AUDIENCE: House of Cards.

984
00:42:01,640 --> 00:42:02,764
RICH KIVEL: House of Cards.

985
00:42:02,764 --> 00:42:05,579
So you think about--
that's mind boggling.

986
00:42:05,579 --> 00:42:07,870
What is the difference between
Netflix and Blockbuster?

987
00:42:10,380 --> 00:42:13,130
Leadership, the ability
to change, the ability

988
00:42:13,130 --> 00:42:16,550
to see around the next
curve, and actually

989
00:42:16,550 --> 00:42:21,367
change the business model of
the company in order to adapt.

990
00:42:21,367 --> 00:42:23,950
So I'll finish up this area of
revenue generation and margins.

991
00:42:23,950 --> 00:42:25,533
We talked a little
about that earlier.

992
00:42:25,533 --> 00:42:27,800
Competitive strategy--
how will the company

993
00:42:27,800 --> 00:42:30,050
attempt to develop and sustain
a competitor advantage?

994
00:42:30,050 --> 00:42:31,716
And I've shared a
little bit about that.

995
00:42:31,716 --> 00:42:32,920
Netflix is a great example.

996
00:42:32,920 --> 00:42:34,420
And then one other
component of this

997
00:42:34,420 --> 00:42:36,629
is where are you on the field?

998
00:42:36,629 --> 00:42:38,170
Understanding where
your business is.

999
00:42:38,170 --> 00:42:40,534
And the Netflix example is
one that is pretty clear.

1000
00:42:40,534 --> 00:42:42,200
When you're over in
this area here where

1001
00:42:42,200 --> 00:42:44,574
you're pilot testing, and
you're in the gestational area,

1002
00:42:44,574 --> 00:42:47,240
or you're doing the roll out,
or you're in slow growth,

1003
00:42:47,240 --> 00:42:51,240
that may not be the time to take
on two or three new business

1004
00:42:51,240 --> 00:42:55,930
models or enter a different part
of the distribution channel.

1005
00:42:55,930 --> 00:42:59,560
But as you start to get
the terminal velocity,

1006
00:42:59,560 --> 00:43:01,700
that's the time when you
start to really look back

1007
00:43:01,700 --> 00:43:03,980
and say, hey, now let's
take a look at our market

1008
00:43:03,980 --> 00:43:05,040
in a different way.

1009
00:43:05,040 --> 00:43:07,760
We've got the velocity, whether
it be the funding, the adoption

1010
00:43:07,760 --> 00:43:08,940
within the marketplace.

1011
00:43:08,940 --> 00:43:11,280
And then at that point,
based on the maturity,

1012
00:43:11,280 --> 00:43:13,070
you can start to
think of expanding.

1013
00:43:13,070 --> 00:43:14,672
So where are you on the field?

1014
00:43:14,672 --> 00:43:16,130
It's always important
to know that.

1015
00:43:16,130 --> 00:43:18,320
A lot of companies--
Blockbuster is clearly

1016
00:43:18,320 --> 00:43:21,150
one of them-- that took
their eye off the ball,

1017
00:43:21,150 --> 00:43:23,480
and they just focused
on what they were doing.

1018
00:43:23,480 --> 00:43:26,260
And what they did is just
stuff that we look at now.

1019
00:43:26,260 --> 00:43:28,980
We go, gosh, that was so naive.

1020
00:43:28,980 --> 00:43:31,260
You thought maybe
eliminating the late fees is

1021
00:43:31,260 --> 00:43:32,470
going to solve your problem.

1022
00:43:32,470 --> 00:43:35,940
You thought reducing price--
you thought more stores is going

1023
00:43:35,940 --> 00:43:37,770
to-- you look at that now.

1024
00:43:37,770 --> 00:43:40,495
You say, wow, that's the best
that management team could

1025
00:43:40,495 --> 00:43:42,340
come up with.

1026
00:43:42,340 --> 00:43:44,700
They were not stepping
back and saying, where

1027
00:43:44,700 --> 00:43:46,420
are we on the field, guys?

1028
00:43:46,420 --> 00:43:49,620
What's happening in the entire
space that we're playing in?

1029
00:43:49,620 --> 00:43:51,320
And where do we play?

1030
00:43:51,320 --> 00:43:53,190
A great example is Google.

1031
00:43:53,190 --> 00:43:56,360
This is a snapshot of the Google
website launched September 4,

1032
00:43:56,360 --> 00:43:58,720
1998.

1033
00:43:58,720 --> 00:44:00,810
Isn't that awesome?

1034
00:44:00,810 --> 00:44:03,975
Has it changed very much?

1035
00:44:03,975 --> 00:44:04,600
Think about it.

1036
00:44:04,600 --> 00:44:05,500
How cool is that?

1037
00:44:08,110 --> 00:44:09,660
That is elegant.

1038
00:44:09,660 --> 00:44:10,269
How simple.

1039
00:44:10,269 --> 00:44:10,810
Look at that.

1040
00:44:10,810 --> 00:44:11,740
What is it up there?

1041
00:44:11,740 --> 00:44:18,660
Index contains 25 million
pages, soon to be much bigger.

1042
00:44:18,660 --> 00:44:22,290
How many trillions of pages does
Google have currently indexed?

1043
00:44:22,290 --> 00:44:23,890
Think about that.

1044
00:44:23,890 --> 00:44:27,760
But what's also important think
about is this-- Google could

1045
00:44:27,760 --> 00:44:30,890
have state just like this.

1046
00:44:30,890 --> 00:44:34,041
They could have
stayed a simple what?

1047
00:44:34,041 --> 00:44:35,040
AUDIENCE: Search engine.

1048
00:44:35,040 --> 00:44:35,956
RICH KIVEL: That's it.

1049
00:44:35,956 --> 00:44:36,702
Search engine.

1050
00:44:36,702 --> 00:44:38,410
It could have been a
great search engine.

1051
00:44:38,410 --> 00:44:41,140
They could have been a better
search engine than anyone.

1052
00:44:41,140 --> 00:44:42,850
That was what they
were promoting.

1053
00:44:42,850 --> 00:44:45,780
We will find you what you're
looking for faster, better.

1054
00:44:45,780 --> 00:44:46,650
We prioritize.

1055
00:44:46,650 --> 00:44:48,020
We have complex algorithms.

1056
00:44:48,020 --> 00:44:49,603
We have a whole bunch
of smart people,

1057
00:44:49,603 --> 00:44:51,580
probably from MIT,
that are helping

1058
00:44:51,580 --> 00:44:56,100
you find that weird
shit you're looking for.

1059
00:44:56,100 --> 00:44:57,150
Seriously.

1060
00:44:57,150 --> 00:45:01,370
You're looking for-- you
need a pink doily that

1061
00:45:01,370 --> 00:45:03,440
will be eight inches
that is under a lamp

1062
00:45:03,440 --> 00:45:05,530
for your grandmother's house.

1063
00:45:05,530 --> 00:45:08,410
Or you're looking for
a new hand-held device

1064
00:45:08,410 --> 00:45:09,560
for something else.

1065
00:45:09,560 --> 00:45:11,010
They're going to
find it for you.

1066
00:45:11,010 --> 00:45:12,960
I'm looking to book
a trip to Paris.

1067
00:45:12,960 --> 00:45:16,230
They're going to help prioritize
it, best hotels Paris luxury.

1068
00:45:16,230 --> 00:45:17,960
Put those in, boom.

1069
00:45:17,960 --> 00:45:19,420
Boolean search, we all remember.

1070
00:45:19,420 --> 00:45:24,130
Put in all the complex-- the
word plus this are in quotes.

1071
00:45:24,130 --> 00:45:26,110
They have better
algorithms than Yahoo.

1072
00:45:26,110 --> 00:45:29,140
They have better algorithms than
AltaVista, better algorithms

1073
00:45:29,140 --> 00:45:30,420
than NaviSite.

1074
00:45:30,420 --> 00:45:31,960
The list goes on.

1075
00:45:31,960 --> 00:45:34,820
They could have stopped
there, and just continued

1076
00:45:34,820 --> 00:45:37,560
to be the best search
engine in the world.

1077
00:45:37,560 --> 00:45:38,310
And you know what?

1078
00:45:38,310 --> 00:45:42,937
They're still killing everybody
in search, killing them.

1079
00:45:42,937 --> 00:45:45,020
People that like Bing or
others probably disagree.

1080
00:45:45,020 --> 00:45:47,810
But I think they kill it.

1081
00:45:47,810 --> 00:45:50,580
But what did they
do as a business?

1082
00:45:50,580 --> 00:45:52,600
Or I should say,
what didn't they

1083
00:45:52,600 --> 00:45:57,060
do since 1998 as a business?

1084
00:45:57,060 --> 00:45:59,450
Look at what Google is today.

1085
00:45:59,450 --> 00:46:02,460
Give me a few ideas, one
word from a bunch of you.

1086
00:46:02,460 --> 00:46:05,140
Just what is Google
today besides search?

1087
00:46:07,932 --> 00:46:08,699
AUDIENCE: Brand.

1088
00:46:08,699 --> 00:46:09,740
RICH KIVEL: It's a brand.

1089
00:46:09,740 --> 00:46:11,648
What?

1090
00:46:11,648 --> 00:46:12,820
AUDIENCE: Maps.

1091
00:46:12,820 --> 00:46:13,820
RICH KIVEL: Google Maps.

1092
00:46:13,820 --> 00:46:15,590
Most of us live on Google Maps.

1093
00:46:15,590 --> 00:46:16,263
What else?

1094
00:46:16,263 --> 00:46:17,250
AUDIENCE: Mobile.

1095
00:46:17,250 --> 00:46:18,190
RICH KIVEL: Mobile.

1096
00:46:18,190 --> 00:46:21,540
Think about Google is the
mobile app in so many ways.

1097
00:46:21,540 --> 00:46:22,110
What else?

1098
00:46:22,110 --> 00:46:22,860
AUDIENCE: Browser.

1099
00:46:22,860 --> 00:46:23,852
Email.

1100
00:46:23,852 --> 00:46:24,935
RICH KIVEL: I missed that.

1101
00:46:24,935 --> 00:46:25,601
AUDIENCE: Email.

1102
00:46:25,601 --> 00:46:26,300
Browser.

1103
00:46:26,300 --> 00:46:27,050
RICH KIVEL: Email.

1104
00:46:27,050 --> 00:46:29,120
Browser.

1105
00:46:29,120 --> 00:46:31,522
AUDIENCE: [INAUDIBLE]

1106
00:46:31,522 --> 00:46:32,188
RICH KIVEL: Yep.

1107
00:46:34,740 --> 00:46:36,240
What I haven't
heard, maybe somebody

1108
00:46:36,240 --> 00:46:40,770
did say is Google is data.

1109
00:46:40,770 --> 00:46:44,780
What Google is,
is Google is data.

1110
00:46:44,780 --> 00:46:48,030
They have figured out
ways to capture, store,

1111
00:46:48,030 --> 00:46:51,850
analyze everything we do.

1112
00:46:51,850 --> 00:46:57,460
Google knows more about
us than our families do.

1113
00:46:57,460 --> 00:47:00,660
And because of that, they're
able to impact the world.

1114
00:47:00,660 --> 00:47:03,830
Do you realize that Google
Health, as an example,

1115
00:47:03,830 --> 00:47:09,010
actually provides data,
completely anonymous data,

1116
00:47:09,010 --> 00:47:11,480
to groups like the CDC?

1117
00:47:11,480 --> 00:47:14,910
If there is an increase
in the number of people

1118
00:47:14,910 --> 00:47:18,900
in the Northeast, specifically
Maine, New Hampshire,

1119
00:47:18,900 --> 00:47:23,640
Vermont that are in the
increase in searches

1120
00:47:23,640 --> 00:47:27,830
around a particular
series of symptoms

1121
00:47:27,830 --> 00:47:31,270
at a particular time of year,
that data is actually given

1122
00:47:31,270 --> 00:47:36,930
to groups like the CDC to help
think about positioning cures,

1123
00:47:36,930 --> 00:47:39,190
positioning vaccines,
and positioning hospitals

1124
00:47:39,190 --> 00:47:40,020
and support.

1125
00:47:40,020 --> 00:47:42,490
Think about how
powerful that is.

1126
00:47:42,490 --> 00:47:45,050
If there is all of a sudden,
thousands of searches,

1127
00:47:45,050 --> 00:47:47,810
because a bunch of moms in New
Hampshire, Vermont, and Maine

1128
00:47:47,810 --> 00:47:54,250
start Googling high temperature,
all of these symptoms

1129
00:47:54,250 --> 00:47:58,720
that might be relevant, or
regular cough or these types

1130
00:47:58,720 --> 00:48:03,020
of rashes, and that's regularly
Googled, all of a sudden Google

1131
00:48:03,020 --> 00:48:05,600
has a data set where they
can see trends before anyone

1132
00:48:05,600 --> 00:48:07,570
else can see them.

1133
00:48:07,570 --> 00:48:09,570
They know everything
that's happening

1134
00:48:09,570 --> 00:48:12,370
on a very, very global
scale, both micro and macro.

1135
00:48:12,370 --> 00:48:14,582
And it really helps
make the world better.

1136
00:48:14,582 --> 00:48:16,040
Now people will
get scared and say,

1137
00:48:16,040 --> 00:48:18,331
you know it's about privacy
and all these other things.

1138
00:48:18,331 --> 00:48:20,110
And I absolutely believe that.

1139
00:48:20,110 --> 00:48:21,820
But there is good
that can be created.

1140
00:48:21,820 --> 00:48:24,820
This is a data company
that is changing the world.

1141
00:48:24,820 --> 00:48:28,780
They know more about you
because of what you search,

1142
00:48:28,780 --> 00:48:32,420
how long you hover over a
particular part of a website,

1143
00:48:32,420 --> 00:48:36,166
what you do on a regular basis,
the time of day that you do it,

1144
00:48:36,166 --> 00:48:37,540
the type of things
that you like,

1145
00:48:37,540 --> 00:48:40,280
whether it be the type of
music, the type of concerts,

1146
00:48:40,280 --> 00:48:42,880
the type of places you
vacation, the type of hotels

1147
00:48:42,880 --> 00:48:44,630
that you shop.

1148
00:48:44,630 --> 00:48:46,990
All of those things
are very powerful.

1149
00:48:46,990 --> 00:48:49,479
So Google is a data
company, different than what

1150
00:48:49,479 --> 00:48:51,770
their original business model
was, or at least appeared

1151
00:48:51,770 --> 00:48:52,270
to be.

1152
00:48:52,270 --> 00:48:54,556
And part of it is
because of this.

1153
00:48:54,556 --> 00:48:55,110
This is--

1154
00:48:55,110 --> 00:48:57,110
AUDIENCE: [INAUDIBLE]
accidental business model?

1155
00:48:57,110 --> 00:49:00,456
Bt they weren't going to
make any money. [INAUDIBLE]

1156
00:49:00,456 --> 00:49:03,312
stumbling on [? ad words. ?]

1157
00:49:03,312 --> 00:49:04,520
RICH KIVEL: I think so, yeah.

1158
00:49:04,520 --> 00:49:06,519
AUDIENCE: --earned them
the money to do all this

1159
00:49:06,519 --> 00:49:07,286
stuff. [INAUDIBLE]

1160
00:49:07,286 --> 00:49:08,660
RICH KIVEL: I
think you're right.

1161
00:49:08,660 --> 00:49:10,300
I think it may have
been accidental.

1162
00:49:10,300 --> 00:49:12,425
It might have been the
genius of Eric Schmidt, when

1163
00:49:12,425 --> 00:49:14,834
he was put in there by
the venture capitalists.

1164
00:49:14,834 --> 00:49:17,000
It might have been a lot
of very smart board people.

1165
00:49:17,000 --> 00:49:19,340
It might have been
a lot of factors.

1166
00:49:19,340 --> 00:49:21,250
But they harnessed
that opportunity

1167
00:49:21,250 --> 00:49:22,350
that everyone else had.

1168
00:49:22,350 --> 00:49:26,200
Any of the other search
groups could have done this.

1169
00:49:26,200 --> 00:49:28,660
No matter how good the
Google algorithms are,

1170
00:49:28,660 --> 00:49:30,650
they're not that
much different, I'm

1171
00:49:30,650 --> 00:49:32,784
sure, than some of the
best search out there.

1172
00:49:32,784 --> 00:49:34,200
Are they much
different than Bing?

1173
00:49:34,200 --> 00:49:35,200
Are they much different
than the other ones?

1174
00:49:35,200 --> 00:49:36,230
I don't know.

1175
00:49:36,230 --> 00:49:38,640
Are those companies going
to ever become as important

1176
00:49:38,640 --> 00:49:41,360
on a global basis as Google?

1177
00:49:41,360 --> 00:49:43,610
Think about Google
Maps is great.

1178
00:49:43,610 --> 00:49:45,630
What about Google Earth?

1179
00:49:45,630 --> 00:49:48,560
How many people here have
not used Google Earth?

1180
00:49:48,560 --> 00:49:50,350
Will both of you stand up?

1181
00:49:50,350 --> 00:49:52,320
Everybody's used Google Earth.

1182
00:49:52,320 --> 00:49:53,560
It's the coolest thing.

1183
00:49:53,560 --> 00:49:56,520
If I'm booking a hotel,
and I'm booking a hotel

1184
00:49:56,520 --> 00:49:59,697
in the north of Spain-- we go
every year on vacation-- if I'm

1185
00:49:59,697 --> 00:50:02,030
booking a hotel and I've never
stayed at a hotel before,

1186
00:50:02,030 --> 00:50:04,430
I will look at it
on Google Earth

1187
00:50:04,430 --> 00:50:06,140
because I don't believe
the website that

1188
00:50:06,140 --> 00:50:08,650
says across the
street from the beach.

1189
00:50:08,650 --> 00:50:11,144
It might mean across the
street from the beach.

1190
00:50:11,144 --> 00:50:13,060
And by the way, the
street is also referred to

1191
00:50:13,060 --> 00:50:15,070
as an eight-lane highway.

1192
00:50:15,070 --> 00:50:17,200
I'm not going to be
super happy with that

1193
00:50:17,200 --> 00:50:18,410
when I show up for vacation.

1194
00:50:18,410 --> 00:50:19,876
So I'll Google Earth it.

1195
00:50:19,876 --> 00:50:20,750
I'll see where it is.

1196
00:50:20,750 --> 00:50:23,010
And I'll be able to
see what's happening.

1197
00:50:23,010 --> 00:50:25,180
It's incredibly powerful,
these little things.

1198
00:50:25,180 --> 00:50:26,740
And they know I'm
searching that.

1199
00:50:26,740 --> 00:50:28,340
So it goes back
to the data piece.

1200
00:50:28,340 --> 00:50:31,540
And a lot of it is driven
around this-- the fact

1201
00:50:31,540 --> 00:50:35,030
that the change in price
of storage has dropped

1202
00:50:35,030 --> 00:50:39,690
so dramatically has transformed
every bit of technology,

1203
00:50:39,690 --> 00:50:43,320
whether it be the ability for
Netflix to download movies

1204
00:50:43,320 --> 00:50:46,600
or store them, the ability
for you to get on an airplane

1205
00:50:46,600 --> 00:50:49,610
right now, and while
you're on that airplane,

1206
00:50:49,610 --> 00:50:54,090
instead of watching one
terribly chosen movie coming out

1207
00:50:54,090 --> 00:50:58,930
of a ceiling projector, you
have a seat in front of you

1208
00:50:58,930 --> 00:51:00,197
that has a screen in it.

1209
00:51:00,197 --> 00:51:01,530
And you can pick from 30 movies.

1210
00:51:01,530 --> 00:51:03,410
That's just storage.

1211
00:51:03,410 --> 00:51:05,450
That plane has enough
storage that we

1212
00:51:05,450 --> 00:51:07,867
can pick from 30 different
movies at each seat.

1213
00:51:07,867 --> 00:51:09,450
If you're on JetBlue,
you can actually

1214
00:51:09,450 --> 00:51:11,790
watch streaming TV as well.

1215
00:51:11,790 --> 00:51:13,700
So because of this,
everything's changed.

1216
00:51:13,700 --> 00:51:15,710
The rules of the
game have changed.

1217
00:51:15,710 --> 00:51:19,850
So the question always is,
what business model, and why?

1218
00:51:19,850 --> 00:51:23,190
And if you think about each
of these different businesses

1219
00:51:23,190 --> 00:51:25,182
on the surface, if you
didn't know any better,

1220
00:51:25,182 --> 00:51:27,140
you would think they were
in the same business.

1221
00:51:27,140 --> 00:51:28,060
Apple sells computers.

1222
00:51:28,060 --> 00:51:29,250
So does Dell.

1223
00:51:29,250 --> 00:51:30,240
Bentley sells cars.

1224
00:51:30,240 --> 00:51:31,570
So does Cadillac.

1225
00:51:31,570 --> 00:51:33,130
Vertu sells cell phones.

1226
00:51:33,130 --> 00:51:34,830
And so does Nokia.

1227
00:51:34,830 --> 00:51:36,740
But their distribution
channel and models

1228
00:51:36,740 --> 00:51:38,142
are dramatically different.

1229
00:51:38,142 --> 00:51:40,100
So I'm going to give you
a few examples of what

1230
00:51:40,100 --> 00:51:42,920
I consider really
innovative business models.

1231
00:51:42,920 --> 00:51:45,790
Some of these companies we
touched upon already today I'll

1232
00:51:45,790 --> 00:51:47,264
touch upon a few of them again.

1233
00:51:47,264 --> 00:51:48,680
And we can go into
any more detail

1234
00:51:48,680 --> 00:51:49,810
you want or ask questions.

1235
00:51:49,810 --> 00:51:51,977
But I think Amazon is
probably one of the greatest

1236
00:51:51,977 --> 00:51:52,810
companies out there.

1237
00:51:52,810 --> 00:51:54,730
Jeff Bezos is an
absolute genius.

1238
00:51:54,730 --> 00:51:58,541
Might be why he's
worth over $20 billion.

1239
00:51:58,541 --> 00:52:03,210
He has figured out a
company that he started,

1240
00:52:03,210 --> 00:52:09,160
based on the concept of selling
books online and harnessing

1241
00:52:09,160 --> 00:52:12,170
what was called user
groups or essentially

1242
00:52:12,170 --> 00:52:16,180
peer-to-peer communication
in order to provide reviews.

1243
00:52:16,180 --> 00:52:19,050
That was the initial concept.

1244
00:52:19,050 --> 00:52:20,870
We're going to
sell books online.

1245
00:52:20,870 --> 00:52:23,510
And we're going to harness the
power of the internet, where

1246
00:52:23,510 --> 00:52:26,841
people provide feedback about
the books they purchased.

1247
00:52:26,841 --> 00:52:27,840
Were they happy with it?

1248
00:52:27,840 --> 00:52:28,460
Was it good?

1249
00:52:28,460 --> 00:52:30,160
Was it-- et cetera.

1250
00:52:30,160 --> 00:52:32,970
We take all this for granted
now, because since then we

1251
00:52:32,970 --> 00:52:34,170
can pick movies that way.

1252
00:52:34,170 --> 00:52:35,640
We can pick
restaurants that way.

1253
00:52:35,640 --> 00:52:37,480
We can pick hotels that way.

1254
00:52:37,480 --> 00:52:39,490
That user experience is there.

1255
00:52:39,490 --> 00:52:42,610
But Amazon has gone
far bigger than that.

1256
00:52:42,610 --> 00:52:44,400
So I look at the
Amazon business model.

1257
00:52:44,400 --> 00:52:48,380
I say basically it's a business
model of leveraging assets.

1258
00:52:48,380 --> 00:52:50,502
That's the business model.

1259
00:52:50,502 --> 00:52:51,960
How many of you
have been following

1260
00:52:51,960 --> 00:52:54,935
what Amazon's doing lately?

1261
00:52:54,935 --> 00:52:56,560
A couple of big
announcements at Amazon

1262
00:52:56,560 --> 00:53:02,380
in the past 30 days,
the 60 Minutes special.

1263
00:53:02,380 --> 00:53:04,200
How cool is that?

1264
00:53:04,200 --> 00:53:07,850
If anything, it could just
be a project of Bezos.

1265
00:53:07,850 --> 00:53:13,240
But think about just the idea of
the drone concept of delivering

1266
00:53:13,240 --> 00:53:16,700
packages in a way that
actually reaches the consumer,

1267
00:53:16,700 --> 00:53:19,240
essentially the goal being
the same day that they order.

1268
00:53:19,240 --> 00:53:20,990
So they've got
this drone concept

1269
00:53:20,990 --> 00:53:23,870
that is going to allow these
robotic drones to provide

1270
00:53:23,870 --> 00:53:25,250
people packages.

1271
00:53:25,250 --> 00:53:27,240
Now we all know there's
lots of red tape there.

1272
00:53:27,240 --> 00:53:30,945
You've got-- you've got
the approval of the FAA.

1273
00:53:30,945 --> 00:53:33,250
You've got all these
other governmental issues.

1274
00:53:33,250 --> 00:53:35,250
But the fact that they
are thinking that far out

1275
00:53:35,250 --> 00:53:37,220
of the box-- think about this.

1276
00:53:37,220 --> 00:53:38,970
I'm going to use that
example from before.

1277
00:53:38,970 --> 00:53:42,470
Imagine if Jeff Bezos walked
into his investors and said,

1278
00:53:42,470 --> 00:53:42,970
yo dude.

1279
00:53:42,970 --> 00:53:45,110
I need some money
because I got this idea.

1280
00:53:45,110 --> 00:53:47,730
We're going to
sell books online.

1281
00:53:47,730 --> 00:53:49,620
And people are going
to tell us whether they

1282
00:53:49,620 --> 00:53:51,230
like the books or
not, which will then

1283
00:53:51,230 --> 00:53:54,150
enforce whether we
sell more books or not,

1284
00:53:54,150 --> 00:53:55,940
whether we carry
that author anymore.

1285
00:53:55,940 --> 00:53:59,680
And then soon, we're going to
have drones delivering stuff.

1286
00:53:59,680 --> 00:54:00,350
It's crazy.

1287
00:54:00,350 --> 00:54:03,880
What can't you buy
on Amazon right now?

1288
00:54:03,880 --> 00:54:04,440
It's amazing.

1289
00:54:04,440 --> 00:54:06,060
I can buy tools on Amazon.

1290
00:54:06,060 --> 00:54:08,250
I can buy anything on Amazon.

1291
00:54:08,250 --> 00:54:09,330
The drones is one thing.

1292
00:54:09,330 --> 00:54:11,110
The latest one that came
out this week was fantastic.

1293
00:54:11,110 --> 00:54:12,610
What was the other
release that they

1294
00:54:12,610 --> 00:54:17,431
were talking about this
week regarding Amazon?

1295
00:54:17,431 --> 00:54:17,930
I'm sorry.

1296
00:54:17,930 --> 00:54:19,260
Say it louder.

1297
00:54:19,260 --> 00:54:20,135
AUDIENCE: [INAUDIBLE]

1298
00:54:21,777 --> 00:54:22,610
RICH KIVEL: Exactly.

1299
00:54:22,610 --> 00:54:24,540
Did you hear the new word
that came out for this?

1300
00:54:24,540 --> 00:54:26,915
This is definitely going to
be one of those things that's

1301
00:54:26,915 --> 00:54:35,440
in the 2014 anticipatory--
so it's anticipatory consumer

1302
00:54:35,440 --> 00:54:36,530
something or other.

1303
00:54:36,530 --> 00:54:37,470
I don't even
remember what it is.

1304
00:54:37,470 --> 00:54:38,553
I just heard it this week.

1305
00:54:38,553 --> 00:54:39,185
I loved it.

1306
00:54:39,185 --> 00:54:40,810
This is going to be
one of those things

1307
00:54:40,810 --> 00:54:42,309
that next-- at the
end of this year,

1308
00:54:42,309 --> 00:54:47,190
it'll be the new word that
falls in to the dictionary.

1309
00:54:47,190 --> 00:54:50,750
The concept that they
know so much about us

1310
00:54:50,750 --> 00:54:54,900
that they can actually begin to
anticipate what we might buy,

1311
00:54:54,900 --> 00:54:57,490
very similar to how Google
is a data company-- they can

1312
00:54:57,490 --> 00:55:00,870
anticipate what we're going
to click on next-- Google

1313
00:55:00,870 --> 00:55:04,330
can pretty much tell
so much about you, just

1314
00:55:04,330 --> 00:55:06,310
on what you're clicking
on next, and the speed

1315
00:55:06,310 --> 00:55:08,060
at which you do it, and how
long you spend on a website.

1316
00:55:08,060 --> 00:55:09,518
Amazon does exactly
the same thing.

1317
00:55:09,518 --> 00:55:11,340
We all go on to Amazon now.

1318
00:55:11,340 --> 00:55:14,430
And it will say, other people
that purchased that product

1319
00:55:14,430 --> 00:55:16,560
also bought these eight.

1320
00:55:16,560 --> 00:55:18,780
Or here is your last purchases.

1321
00:55:18,780 --> 00:55:21,420
Here's some
recommendations for you.

1322
00:55:21,420 --> 00:55:24,420
It's gotten so good that
it's so much-- I don't even

1323
00:55:24,420 --> 00:55:26,240
understand why people
do junk male anymore.

1324
00:55:26,240 --> 00:55:28,660
It blows my mind.

1325
00:55:28,660 --> 00:55:33,790
I get stuff in junk mail for
clearly not my demographic,

1326
00:55:33,790 --> 00:55:36,530
stuff that might be perfect
if I was a 17-year-old girl

1327
00:55:36,530 --> 00:55:39,500
or an 88-year-old guy.

1328
00:55:39,500 --> 00:55:42,630
I'm like, why are they
advertising that to me?

1329
00:55:42,630 --> 00:55:44,559
It's amazing.

1330
00:55:44,559 --> 00:55:46,600
It's even when it just
shows up, it's in my mail.

1331
00:55:46,600 --> 00:55:47,670
I'm talking about inbox.

1332
00:55:47,670 --> 00:55:49,010
So this stuff comes in.

1333
00:55:49,010 --> 00:55:51,470
You think, what a wacky
way to make money.

1334
00:55:51,470 --> 00:55:53,870
Amazon's got it down.

1335
00:55:53,870 --> 00:55:55,430
They recommend things
that make sense

1336
00:55:55,430 --> 00:55:56,920
to me because they take a look.

1337
00:55:56,920 --> 00:55:58,750
I've been an Amazon
member for years.

1338
00:55:58,750 --> 00:56:00,210
They can say, listen these
are the kind of books

1339
00:56:00,210 --> 00:56:00,910
this guy's ordered.

1340
00:56:00,910 --> 00:56:02,070
This is the kind of
music he's ordered.

1341
00:56:02,070 --> 00:56:03,450
This is the kind of other stuff.

1342
00:56:03,450 --> 00:56:05,390
Hey, we have some
recommendations.

1343
00:56:05,390 --> 00:56:08,000
They're not recommending
to me silly things

1344
00:56:08,000 --> 00:56:10,000
that just don't make sense.

1345
00:56:10,000 --> 00:56:13,240
So now Amazon going to this next
approach, which is absolutely--

1346
00:56:13,240 --> 00:56:15,445
it's so MIT-ish, I loved it.

1347
00:56:15,445 --> 00:56:17,790
It is algorithmically driven.

1348
00:56:17,790 --> 00:56:22,524
It is anticipatory shopping,
that anticipatory experience,

1349
00:56:22,524 --> 00:56:24,190
where they actually
believe that they're

1350
00:56:24,190 --> 00:56:26,960
going to reach a
point where they have

1351
00:56:26,960 --> 00:56:31,710
such familiarity with you, that
they have an idea what you are

1352
00:56:31,710 --> 00:56:34,610
likely to buy next, based
on prior purchasing habits,

1353
00:56:34,610 --> 00:56:38,140
based on the time of day, the
time of year, you name it,

1354
00:56:38,140 --> 00:56:41,030
that what they're envisioning
is that they will actually begin

1355
00:56:41,030 --> 00:56:44,830
to ship those things to the
closest warehouse to you,

1356
00:56:44,830 --> 00:56:49,340
and deliver to them to you
that day or the following day.

1357
00:56:49,340 --> 00:56:51,130
It's mind boggling.

1358
00:56:51,130 --> 00:56:51,950
All-around data.

1359
00:56:51,950 --> 00:56:52,870
Amazon's incredible.

1360
00:56:52,870 --> 00:56:53,740
They're leveraging assets.

1361
00:56:53,740 --> 00:56:55,550
Apple-- we could talk
about them for years.

1362
00:56:55,550 --> 00:56:58,482
Has anybody here seen
the Steve Jobs movie?

1363
00:56:58,482 --> 00:57:00,940
I just watched that, coming
back from California last week.

1364
00:57:00,940 --> 00:57:03,020
That thing-- what
a fantastic movie.

1365
00:57:03,020 --> 00:57:07,500
And Ashton Kutcher did a
fantastic job as Steve Jobs.

1366
00:57:07,500 --> 00:57:10,460
But the genius of
this guy really

1367
00:57:10,460 --> 00:57:12,225
spoke about why Apple succeeded.

1368
00:57:12,225 --> 00:57:15,120
And it was a great story
about how he started, and got

1369
00:57:15,120 --> 00:57:16,480
kicked out, and came back.

1370
00:57:16,480 --> 00:57:19,840
But it's really providing
convenient solutions.

1371
00:57:19,840 --> 00:57:22,090
Apple is about quality design.

1372
00:57:22,090 --> 00:57:25,640
And stuff better
work the first time.

1373
00:57:25,640 --> 00:57:27,550
When you plug it
in, it better sync.

1374
00:57:27,550 --> 00:57:29,880
When you go to the app
store, it better be there.

1375
00:57:29,880 --> 00:57:31,200
It better download.

1376
00:57:31,200 --> 00:57:35,700
If it doesn't-- it's
incredible how good they are.

1377
00:57:35,700 --> 00:57:36,840
It's all about convenience.

1378
00:57:36,840 --> 00:57:38,670
That is a totally
different model

1379
00:57:38,670 --> 00:57:41,700
than virtually every other
computer company out there.

1380
00:57:41,700 --> 00:57:44,444
Dell's a great company,
has a different model.

1381
00:57:44,444 --> 00:57:45,735
We're going to build it custom.

1382
00:57:45,735 --> 00:57:47,120
You tell us what you want in it.

1383
00:57:47,120 --> 00:57:49,120
We're going to modify it
any which way you wish.

1384
00:57:49,120 --> 00:57:50,960
And we're going
to ship it to you.

1385
00:57:50,960 --> 00:57:53,920
It's not the Apple model.

1386
00:57:53,920 --> 00:57:56,206
Who would have thought
years ago-- many of you

1387
00:57:56,206 --> 00:57:58,220
may not even remember,
but years ago there

1388
00:57:58,220 --> 00:58:01,305
was no such thing
as Apple stores.

1389
00:58:01,305 --> 00:58:02,680
How do you buy an
Apple computer?

1390
00:58:02,680 --> 00:58:05,310
Well you bought it
primarily online.

1391
00:58:05,310 --> 00:58:07,770
There were very few
distributors of Apple computers.

1392
00:58:07,770 --> 00:58:09,960
Apple started off selling
to large school systems

1393
00:58:09,960 --> 00:58:10,920
and others.

1394
00:58:10,920 --> 00:58:15,450
And now the Apple Store is as
common in cities in the United

1395
00:58:15,450 --> 00:58:19,750
States and towns as a Starbucks.

1396
00:58:19,750 --> 00:58:23,570
What a different model that
is-- totally mind boggling.

1397
00:58:23,570 --> 00:58:28,050
When most people were moving
away from retail box stores--

1398
00:58:28,050 --> 00:58:32,640
those expensive locations--
and moving to everything

1399
00:58:32,640 --> 00:58:34,290
being internet, Apple
said no, no, no.

1400
00:58:34,290 --> 00:58:36,220
We want to be closer
to the consumer.

1401
00:58:36,220 --> 00:58:38,760
We want the experience
to be superb.

1402
00:58:38,760 --> 00:58:41,980
We want them to be part
of this experience.

1403
00:58:41,980 --> 00:58:43,182
They've then opened stores.

1404
00:58:43,182 --> 00:58:45,140
And they're making
tremendous money doing that.

1405
00:58:45,140 --> 00:58:46,910
Who knows Etsy?

1406
00:58:46,910 --> 00:58:48,620
These guys are
cool, aren't they?

1407
00:58:48,620 --> 00:58:50,450
What a neat idea.

1408
00:58:50,450 --> 00:58:54,920
Doing good on a global basis,
something that could never

1409
00:58:54,920 --> 00:58:56,600
been done years ago--
a business model

1410
00:58:56,600 --> 00:58:59,100
where they basically
figured out ways

1411
00:58:59,100 --> 00:59:02,050
to harness the
power of creativity,

1412
00:59:02,050 --> 00:59:05,030
the power of different parts
of the world, people living

1413
00:59:05,030 --> 00:59:07,900
in small villages building
beautiful things that

1414
00:59:07,900 --> 00:59:11,240
would never be seen outside
of probably a 500-mile radius

1415
00:59:11,240 --> 00:59:13,900
of their village,
if that, are now

1416
00:59:13,900 --> 00:59:15,440
part of this very
special network

1417
00:59:15,440 --> 00:59:16,820
where they can build things.

1418
00:59:16,820 --> 00:59:18,020
And you can go online.

1419
00:59:18,020 --> 00:59:19,430
And you can purchase them.

1420
00:59:19,430 --> 00:59:21,300
And a very small
piece is kept by Etsy.

1421
00:59:21,300 --> 00:59:24,710
And most of it goes back to
the artist, to the individual.

1422
00:59:24,710 --> 00:59:27,440
It's phenomenal, the thought
that somebody sitting

1423
00:59:27,440 --> 00:59:32,380
in Peru or Uganda, or somebody
sitting in a far part of Russia

1424
00:59:32,380 --> 00:59:34,860
that builds beautiful
things is actually

1425
00:59:34,860 --> 00:59:38,390
selling them to people
sitting in Japan or in Paris

1426
00:59:38,390 --> 00:59:40,380
or in Boston.

1427
00:59:40,380 --> 00:59:42,570
It's absolutely incredible.

1428
00:59:42,570 --> 00:59:44,870
Other innovative models Zara
is probably my favorite.

1429
00:59:44,870 --> 00:59:47,240
Everybody here knows
Zara at this point.

1430
00:59:47,240 --> 00:59:47,940
I love Spain.

1431
00:59:47,940 --> 00:59:48,730
And I love Zara.

1432
00:59:48,730 --> 00:59:52,430
They're an absolutely
mind boggling story.

1433
00:59:52,430 --> 00:59:55,780
Who thought one company could
innovate an industry that

1434
00:59:55,780 --> 00:59:59,140
has been stagnant and
without innovation

1435
00:59:59,140 --> 01:00:00,140
as the fashion industry?

1436
01:00:00,140 --> 01:00:03,110
The fashion industry has
operated the same way

1437
01:00:03,110 --> 01:00:06,800
for about 100 years.

1438
01:00:06,800 --> 01:00:07,970
They have models.

1439
01:00:07,970 --> 01:00:09,170
They have designers.

1440
01:00:09,170 --> 01:00:10,710
They have magazines.

1441
01:00:10,710 --> 01:00:13,480
The only innovation,
the only innovation

1442
01:00:13,480 --> 01:00:15,840
that's actually hit
the fashion industry

1443
01:00:15,840 --> 01:00:19,320
is they sell some stuff online.

1444
01:00:19,320 --> 01:00:20,720
They outsource manufacturing.

1445
01:00:20,720 --> 01:00:23,190
They've been doing
that for 75 years.

1446
01:00:23,190 --> 01:00:26,480
They have expensive
high-paid designers.

1447
01:00:26,480 --> 01:00:29,140
And they basically have
a distribution channel

1448
01:00:29,140 --> 01:00:29,980
through retail.

1449
01:00:29,980 --> 01:00:32,260
It's been exactly the same way.

1450
01:00:32,260 --> 01:00:35,100
The challenge is that many
people who want high fashion

1451
01:00:35,100 --> 01:00:37,060
can't afford high fashion.

1452
01:00:37,060 --> 01:00:39,630
These guys came in and
revolutionized the market.

1453
01:00:39,630 --> 01:00:42,490
And their business model
was harnessed and built

1454
01:00:42,490 --> 01:00:45,110
around time-to-market.

1455
01:00:45,110 --> 01:00:47,060
That is the business model.

1456
01:00:47,060 --> 01:00:50,970
They put people at every
fashion show that's important.

1457
01:00:50,970 --> 01:00:54,620
They're in New York,
Paris, Milan, everywhere.

1458
01:00:54,620 --> 01:00:56,980
And those people are
there taking sketches,

1459
01:00:56,980 --> 01:00:59,970
taking digital photos, and
those things they believe

1460
01:00:59,970 --> 01:01:02,110
the Zara consumer would want.

1461
01:01:02,110 --> 01:01:05,420
Those things are imaged, sent
back instantly to the factory.

1462
01:01:05,420 --> 01:01:10,340
50% of all Zara products
are made in Spain.

1463
01:01:10,340 --> 01:01:11,540
They're sent back.

1464
01:01:11,540 --> 01:01:14,990
They're built. And they're
sent to the stores.

1465
01:01:14,990 --> 01:01:18,626
Virtually none of the
products you find in the Zara

1466
01:01:18,626 --> 01:01:20,250
last in the store
more than four weeks.

1467
01:01:20,250 --> 01:01:22,124
And they will not continue
to replenish them.

1468
01:01:22,124 --> 01:01:25,810
They've created this concept
of scarcity, this concept

1469
01:01:25,810 --> 01:01:28,020
that what you're
buying is high fashion

1470
01:01:28,020 --> 01:01:30,910
and it's in a limited supply.

1471
01:01:30,910 --> 01:01:34,410
That is fantastic, compared
to you go to Macy's.

1472
01:01:34,410 --> 01:01:37,690
And there's 800 of
the same sweaters.

1473
01:01:37,690 --> 01:01:40,130
And there's 8,000 of
the same men's shirts.

1474
01:01:40,130 --> 01:01:44,210
And if I go to a different
Macy's, it's exactly the same.

1475
01:01:44,210 --> 01:01:46,360
There's no sense
of scarcity there.

1476
01:01:46,360 --> 01:01:49,320
Very low design,
very high volume.

1477
01:01:49,320 --> 01:01:52,860
However, if I walk
into the Armani shop

1478
01:01:52,860 --> 01:01:57,540
on Newbury Street or the Fendi
shop, and look at the bags,

1479
01:01:57,540 --> 01:02:01,700
there's a sense of scarcity--
high price, limited resource.

1480
01:02:01,700 --> 01:02:02,760
This is this year's bag.

1481
01:02:02,760 --> 01:02:04,990
This year's jacket.

1482
01:02:04,990 --> 01:02:07,810
Zara basically turned it on its
head and said, no, no, no no.

1483
01:02:07,810 --> 01:02:12,080
We're going to have scarcity
and volume and price.

1484
01:02:12,080 --> 01:02:14,010
And they nailed it
on all of those.

1485
01:02:14,010 --> 01:02:16,430
You don't ever see the Zara
stuff of at Marshalls and T.J.

1486
01:02:16,430 --> 01:02:18,120
Maxx, do you?

1487
01:02:18,120 --> 01:02:20,674
Because they don't
have excess inventory.

1488
01:02:20,674 --> 01:02:22,840
The reason you can walk
into Marshalls and T.J. Maxx

1489
01:02:22,840 --> 01:02:26,230
and pick up Burberry and Cartier
and all these other brands

1490
01:02:26,230 --> 01:02:31,020
is because Bloomingdale's
and Macy's and all of them

1491
01:02:31,020 --> 01:02:31,930
overstocked on them.

1492
01:02:31,930 --> 01:02:32,830
The season changed.

1493
01:02:32,830 --> 01:02:34,580
They don't know what
to do with the stuff.

1494
01:02:34,580 --> 01:02:38,930
So they slash price 60% off, 70%
off, 80% off, then boom, it's

1495
01:02:38,930 --> 01:02:40,875
off to Marshalls.

1496
01:02:40,875 --> 01:02:43,500
And those companies have created
an entirely different business

1497
01:02:43,500 --> 01:02:46,544
model of getting high-quality
goods to consumers.

1498
01:02:46,544 --> 01:02:47,460
Zara said, no, no, no.

1499
01:02:47,460 --> 01:02:49,027
We're not playing that game.

1500
01:02:49,027 --> 01:02:49,860
Let me ask you this.

1501
01:02:49,860 --> 01:02:54,280
When's the last time you saw
a Zara advertisement on TV?

1502
01:02:54,280 --> 01:02:55,630
It doesn't exist.

1503
01:02:55,630 --> 01:03:01,150
When's the last time you saw
a Macy's one-day sale on TV?

1504
01:03:01,150 --> 01:03:02,870
Once a day.

1505
01:03:02,870 --> 01:03:05,280
Entirely different business
model, same industry.

1506
01:03:05,280 --> 01:03:06,170
Zara is amazing.

1507
01:03:06,170 --> 01:03:08,160
I want to finish off
these with Gillette who's

1508
01:03:08,160 --> 01:03:10,210
absolutely just fantastic.

1509
01:03:10,210 --> 01:03:12,530
Gillette, right here
in Massachusetts.

1510
01:03:12,530 --> 01:03:14,360
You see them on your
way to the airport.

1511
01:03:14,360 --> 01:03:17,530
This is the company that created
the concept-- they created

1512
01:03:17,530 --> 01:03:20,190
the first ever disposable
razor, which is a fantastic

1513
01:03:20,190 --> 01:03:21,887
concept, back in the '20s.

1514
01:03:21,887 --> 01:03:23,470
They then decided
that they were going

1515
01:03:23,470 --> 01:03:25,300
to stay at the cutting
edge of technology.

1516
01:03:25,300 --> 01:03:31,810
Gillette has over 1,000 patents
just around the Mach3 razor.

1517
01:03:31,810 --> 01:03:34,930
They have thousands of patents
within their entire portfolio.

1518
01:03:34,930 --> 01:03:39,420
And they will not start
creating a new razor

1519
01:03:39,420 --> 01:03:43,760
until almost a patent life
has expired on the existing

1520
01:03:43,760 --> 01:03:44,810
razors on the market.

1521
01:03:44,810 --> 01:03:47,560
They do not want to
compete against themselves.

1522
01:03:47,560 --> 01:03:48,910
They've created this mechanism.

1523
01:03:48,910 --> 01:03:50,590
It's absolutely mind boggling.

1524
01:03:50,590 --> 01:03:52,550
We get the Mach3
razor as a [? base ?].

1525
01:03:52,550 --> 01:03:55,180
It comes off the assembly
line in the United States.

1526
01:03:55,180 --> 01:03:57,350
If you go to other countries,
especially developing

1527
01:03:57,350 --> 01:03:59,310
countries, they're
getting the razor

1528
01:03:59,310 --> 01:04:03,360
that was hot here five years
ago because they realize

1529
01:04:03,360 --> 01:04:05,650
that they can sell it
for a third of the price

1530
01:04:05,650 --> 01:04:07,140
in large quantities.

1531
01:04:07,140 --> 01:04:09,750
Those countries can't
afford the Mach3.

1532
01:04:09,750 --> 01:04:12,060
But they can afford the one
that was five years ago,

1533
01:04:12,060 --> 01:04:12,950
eight years ago.

1534
01:04:12,950 --> 01:04:15,227
And they're buying
them by the millions.

1535
01:04:15,227 --> 01:04:17,310
And in addition to that,
they created that concept

1536
01:04:17,310 --> 01:04:19,430
of the razor-blade concept.

1537
01:04:19,430 --> 01:04:22,069
It's essentially,
you've got the razor.

1538
01:04:22,069 --> 01:04:24,110
All you have to do is just
keep buying the blades

1539
01:04:24,110 --> 01:04:25,026
and buying the blades.

1540
01:04:25,026 --> 01:04:27,360
And they can charge whatever
they want for the blades.

1541
01:04:27,360 --> 01:04:30,630
Or you have to start fresh
with Schick or somebody else.

1542
01:04:30,630 --> 01:04:35,620
So it's a fantastic concept
of high quality, patents

1543
01:04:35,620 --> 01:04:37,880
there in order to
maintain their position

1544
01:04:37,880 --> 01:04:43,060
within the marketplace, and
also customer stickiness.

1545
01:04:43,060 --> 01:04:44,490
We gave them this pretty razor.

1546
01:04:44,490 --> 01:04:45,150
It's beautiful.

1547
01:04:45,150 --> 01:04:46,100
It's got metal on it.

1548
01:04:46,100 --> 01:04:47,230
It's got nice colors.

1549
01:04:47,230 --> 01:04:49,105
They're just going to
keep buying the blades,

1550
01:04:49,105 --> 01:04:50,980
buying the blades,
and buying the blades.

1551
01:04:50,980 --> 01:04:53,120
So it's a fantastic series
of different business

1552
01:04:53,120 --> 01:04:54,544
models within one.

1553
01:04:54,544 --> 01:04:55,960
Other ones we're
all familiar with

1554
01:04:55,960 --> 01:04:57,550
are great groups
like Kickstarter,

1555
01:04:57,550 --> 01:05:02,410
PayPal are really leveraging
the whole P2P revolution.

1556
01:05:02,410 --> 01:05:03,990
It's absolutely
amazing what you see.

1557
01:05:03,990 --> 01:05:06,470
Craig's List is a
fantastic example of that.

1558
01:05:06,470 --> 01:05:09,600
Their website is about as
sexy as the Google page.

1559
01:05:09,600 --> 01:05:11,430
There's really nothing
attractive about it.

1560
01:05:11,430 --> 01:05:13,660
But it's an incredibly
successful business.

1561
01:05:13,660 --> 01:05:14,920
We talked about Dell.

1562
01:05:14,920 --> 01:05:16,570
They built their
entire success around

1563
01:05:16,570 --> 01:05:18,060
the just-in-time concept.

1564
01:05:18,060 --> 01:05:21,240
We're going to build a computer
exactly the way you want it.

1565
01:05:21,240 --> 01:05:24,820
In addition to that, you've got
the one day, one deal business

1566
01:05:24,820 --> 01:05:25,750
model.

1567
01:05:25,750 --> 01:05:27,410
We're all familiar
with our inboxes

1568
01:05:27,410 --> 01:05:30,290
full of Living Social
and Groupon and all

1569
01:05:30,290 --> 01:05:31,187
these other groups.

1570
01:05:31,187 --> 01:05:33,020
In addition to that,
you've got other groups

1571
01:05:33,020 --> 01:05:36,280
like Priceline, which I think is
a phenomenal model, and really

1572
01:05:36,280 --> 01:05:37,379
unique advertising too.

1573
01:05:37,379 --> 01:05:39,670
They've taken an approach,
unlike a lot of these groups

1574
01:05:39,670 --> 01:05:42,160
here who you never see on TV.

1575
01:05:42,160 --> 01:05:45,020
Priceline has taken the approach
of using somebody like Shatner

1576
01:05:45,020 --> 01:05:48,450
or other people that basically
get them excited about-- you

1577
01:05:48,450 --> 01:05:50,560
set your price,
you're in control.

1578
01:05:50,560 --> 01:05:51,836
And some of us love that.

1579
01:05:51,836 --> 01:05:52,960
Some people love Priceline.

1580
01:05:52,960 --> 01:05:55,830
I have friends that use
Priceline all of the time.

1581
01:05:55,830 --> 01:05:56,940
Some of us just jump on.

1582
01:05:56,940 --> 01:05:58,190
And we just go to expedia.com.

1583
01:05:58,190 --> 01:05:59,556
And we book our hotel.

1584
01:05:59,556 --> 01:06:01,180
Or we go to the new
one, Hotel Tonight,

1585
01:06:01,180 --> 01:06:02,710
which is my favorite
app, especially when I'm

1586
01:06:02,710 --> 01:06:04,120
going to different cities.

1587
01:06:04,120 --> 01:06:06,770
You jump onto Hotel Tonight,
entirely different model.

1588
01:06:06,770 --> 01:06:11,260
They only list hotels after
12:00 in the afternoon.

1589
01:06:11,260 --> 01:06:15,140
They cut these special deals
with the hotels for that night.

1590
01:06:15,140 --> 01:06:17,530
So you wind up staying
at fantastic places

1591
01:06:17,530 --> 01:06:20,330
because they knew at 11:55
they had availability.

1592
01:06:20,330 --> 01:06:22,140
They released the
rooms to Hotel Tonight.

1593
01:06:22,140 --> 01:06:26,550
Hotel Tonight kills hotels.com,
another one, that day.

1594
01:06:26,550 --> 01:06:29,261
It might not be the way to
book a seven-day vacation.

1595
01:06:29,261 --> 01:06:31,510
But if you're looking for
two nights in New York City,

1596
01:06:31,510 --> 01:06:32,310
it's phenomenal.

1597
01:06:32,310 --> 01:06:34,930
It's all on your app,
not on the website.

1598
01:06:34,930 --> 01:06:37,020
You can't even do
it on the website.

1599
01:06:37,020 --> 01:06:39,180
Uber's another fantastic
example of that.

1600
01:06:39,180 --> 01:06:41,890
Instant gratification,
car-service quality,

1601
01:06:41,890 --> 01:06:46,120
not a taxi cab, all
web-based, all app-based.

1602
01:06:46,120 --> 01:06:49,670
So to summarize, value
proposition, market segment

1603
01:06:49,670 --> 01:06:52,080
and value chain are really
understandings that you

1604
01:06:52,080 --> 01:06:55,577
have to have in this area of
developing a business model.

1605
01:06:55,577 --> 01:06:56,910
Where do you sit in the network?

1606
01:06:56,910 --> 01:06:58,570
Exactly where are
you on the field?

1607
01:06:58,570 --> 01:07:00,440
And revenue generation
and margins-- those

1608
01:07:00,440 --> 01:07:01,330
are two different things.

1609
01:07:01,330 --> 01:07:02,990
You have to think about
what's important to you.

1610
01:07:02,990 --> 01:07:04,781
Are you going to be a
high-margin business,

1611
01:07:04,781 --> 01:07:05,290
low volume?

1612
01:07:05,290 --> 01:07:07,740
Are you going to be a
high-revenue business

1613
01:07:07,740 --> 01:07:08,684
and low margin?

1614
01:07:08,684 --> 01:07:10,600
Or are you going to try
to do what Apple does,

1615
01:07:10,600 --> 01:07:12,237
which is a combination of both?

1616
01:07:12,237 --> 01:07:14,320
Where do you fit within
the competitive landscape?

1617
01:07:14,320 --> 01:07:16,320
And of course, the stage of
development of your company

1618
01:07:16,320 --> 01:07:16,980
is critical.

1619
01:07:16,980 --> 01:07:21,400
Where are you within that
particular growth cycle?

1620
01:07:21,400 --> 01:07:23,720
And always remember
that success consists

1621
01:07:23,720 --> 01:07:25,180
from going from
failure to failure

1622
01:07:25,180 --> 01:07:26,845
without a loss of enthusiasm.

1623
01:07:26,845 --> 01:07:27,720
And I'll close there.

1624
01:07:27,720 --> 01:07:28,920
Thank you all.

1625
01:07:28,920 --> 01:07:30,625
[APPLAUSE]