Ah, Cyber Monday. For those of you not in the United States, the day after Thanksgiving (so, this past Friday) is known as Black Friday – the first day of the annual holiday shopping binge, and the day on which many merchants enter the black for the year, earning their profits in the remaining days between now and January 1st. Cyber Monday is the other consumerist bookend to the weekend. It’s the day people return to the office, fire up their computers, and pull out their credit cards to continue shopping online.
It’s a strange tradition, but here we are.
Cyber Monday — and online retailing more generally — has its roots in the mail order business. Or looked at another way, it is the mail order business, with a new-fangled catalog. I was thinking about this evolution of mail order on a recent trip to Chicago, where I lived for many years. I found myself with a few minutes on my hands and a nice view of the city’s skyline, rising improbably from the astoundingly flat Great Plains. The skyscraper was invented in Chicago, I think mainly because the landscape is so flat (if there are no hills, well then we’ll build some). Anchoring the southern half of the skyline is the iconic, boxy structure formerly known as the Sears Tower. The Sears Tower was once the tallest building in the world and a testament to the influence of a great icon of 20th Century retail.
Just north of the former Sears Tower is another Chicago retail icon, albeit one that is long instead of tall. This is the former Montgomery Ward Catalog House, a 2 million square foot structure stretching a quarter of a mile along the Chicago River. The Catalog House, recently converted to condominiums, was occupied by Montgomery Ward for nearly a century. Two administration buildings, vast structures unto themselves, sit just across Chicago avenue completing a corporate campus of sorts in the midst of the city.
Montgomery Ward has long since closed its doors, and Sears has ceded its once dominant position in both the marketplace and the skyline, its great tower now renamed by its currently owners.
Once upon a time, Sears and Montgomery Ward disrupted the retail industry by combining catalog sales, generous return polices, and rapid shipping (made possible through huge warehouses in Chicago, the central hub of the US rail system). You could order anything from Sears, up to and including an entire house, which would show up on a rail car ready for assembly (these houses were quite nice actually, and there are home buyers even now who seek out Sears Houses).
But both icons have been disrupted by Amazon, their empires having diminished into suburban office parks (in the case of Sears) or vanished altogether (in the case of Montgomery Ward).
So, how did Amazon outflank them? By doing the hard parts of catalog retailing better.
The hard part of the mail order business is building massive warehouses and putting in place an infrastructure and back-end processing systems that can ship anything anywhere in a few days. The hard part is to build a trusted brand and a household name. The hard part is building a customer database extending from the Atlantic to the Pacific and beyond. The hard part is building relationships and supply contracts with thousands of manufacturers.
The easy part is putting a catalog online.
Just think about it for a moment. Sears did just about everything Amazon does now, minus the website, over 100 years ago. Instead of the Web, they used a catalog, which in the late 1990s could have been converted to a website for peanuts relative to what Sears was spending on catalog distribution, warehousing, bricks and mortar stores, marketing, and other ongoing costs.
When the Web came along in the mid-1990s, Sears already had all the infrastructure in place to ship a vast array of inventory anywhere in short order. They invented this business model. They disrupted other retail businesses with using more-or-less the same strategy a century earlier. All they had to do was translate their catalog (once known as “The Consumer Bible”) to the web.
Amazon, by contrast, had to build warehouses, build back-end processing systems, hire and train staff, develop a logistics strategy, build relationships and put in place agreements with suppliers, build a brand from scratch, and market to customers they have never before interacted with and convince them to use a credit card to purchase things online (a novel concept at the time that many customers were wary of) with a business they have never heard of. Oh, and they had to build a web site.
So how did Sears falter? (I’ll leave Montgomery Ward aside as by the mid-1990s they had a number of fatal problems with their management unrelated to the emergence of the Web).
It’s tempting to just say Sears didn’t understand the Internet, but that is not the case. Sears, after all, developed Prodigy with IBM in the 1980s. They did, in fact, know more about the Internet and the emerging Web than just about any other retailer. What they did not understand was the business they were in. They continued to cling to the wrong core competency (retail stores) while their online business remained secondary.
Sears thought it was in the catalog business and, more recently, in the retail store business. It was not. It was, and remains, in the retail sales and distribution business. The mechanisms of sales and distribution may change over time, and keeping ahead of those trends is the key to remaining successful.
Keeping with the Chicago architectural motif, one might visit the Mercedes dealership at the intersection of North Avenue and Interstate 90/94. It was built on the site of one of the largest Blockbuster stores in the city. Blockbuster, of course, failed to understand that it was in the video distribution business, not the video store business. When DVDs came along, Netflix realized that, unlike bulky tapes, DVDs could be cheaply distributed via the US mail system, with orders placed online. Add a generous return policy and rapid shipping (sound familiar?) and you’ve got a disruptive business model on your hands. By the time Blockbuster woke up and began a reactive strategy, it was too late.
Netflix was itself in danger of rapid obsolescence as the heyday of the DVD has proved short-lived, with video distribution rapidly moving to the web. Netflix, however, understood that DVD rentals is not the business it is in. As CEO Reed Hastings recently put it, “We are very proud to announce that by every measure we are now a streaming company, which also offers DVD-by-mail.”
Of course, there is a lot of potential competition for streaming video (Comcast, Google/YouTube, Hulu, etc.), so Netflix’s success if far from assured, but they are out in front of the trend and making headway instead of sitting in bankruptcy court or selling their DVD-by-mail business for pennies on the dollar.
There has been a lot of focus on core competencies in both business and not-for-profit organizations over the last two decades. Identifying core competencies and focusing on them relentlessly is supposedly the key to success. And 99% of the time, this is probably great advice. However, it ‘s also important to know what your real business is. Because if your core competency is shipping DVDs, or managing retain video stores, or distributing catalogs, that is not going to do you much good if the market changes around you.
The lessons for STM and scholarly publishers are at once obvious and opaque. STM and scholarly publishers moved their content, submission systems, and business models online over a decade ago. No one missed the shift to the web in this industry. But just as Sears understood the web but faltered in shifting its focus, anchored as it was to suburban shopping malls, I think there is a more subtle lesson here. STM and scholarly publishers are in the business of validation, communication, and dissemination of scientific and scholarly information — not the “publishing” business. In fact, I wonder if such a monolithic entity can be said to exist any longer. What do trade books or consumer magazines or newspapers have to do with STM and scholarly information? Does the fact that these various disparate information vehicles used to all utilize printing presses tie them all together in any meaningful way? Are there skill sets that transfer? Common business strategies? Common audiences? Or are these all very different industries that have an common production ancestor? And does this distinction matter?
I think it may. At least in terms of focus. Thinking of what many of the readers of this blog do as “publishing” (and all its associated industry and technology baggage) may cause one to lose focus on the real work: supporting the information and career needs of customers (scientists, physicians, engineers, scholarly, and librarians). It’s a subtle and perhaps overdrawn point, but one that I think is worth pondering as we collectively order our holiday gifts on Amazon and iTunes and Zappos today.