Category Archives: Disruption

Why 2014 will finally be the year of online grocery

Live music at my local Whole Foods

Live music at my local Whole Foods

This article originally ran on on Jan. 16, 2014. 

Some people go to bars or clubs on weekend nights. I go to the grocery store. I love to mosey through the aisles, looking for new snacks, picking up five apples before I decide on the right one. I’m apparently not the only one. On a recent Friday night at the Whole Foods (WFM) in Cambridge, Mass., I encountered a pair of musicians, on flute and classical guitar, playing lovely melodies near the wine and cheese section. Clearly, the natural foods chain believes a lot of people see food shopping as entertainment.

Recently, however, disaster struck: I ran out of oatmeal. I realized it would be much easier to order a six-pack of Quaker Oats on (AMZN) than to make an extra trip to the store. I was even willing to eat (shudder) cold cereal for breakfast two days in a row while I waited for delivery. Thus, my pantry entered the Internet age.

My pantry is not alone; 2014 could be the year of online grocery. Traditional brick-and-mortar chains should be worried. The fact that AmazonFresh expanded to two new cities in 2013, after six years operating only in Seattle, is just one cause for concern. Currently, 3.3 percent of total U.S. grocery spending—a $500 billion industry—is online, according to a report from Brick Meets Click. It could reach 11 percent by 2023, a growth rate of nearly 13 percent per year.

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How Clay Christensen predicted Android’s ascendence (in 2003)

I’m re-reading The Innovator’s Solution, Clay Christensen’s landmark 2003 book, because I’m going to be working at Innosight, the consulting firm he founded, beginning this fall. This morning, I realized that he predicted precisely what has happened in the smartphone market: the initial success of a product like the iPhone, produced by a vertically integrated firm, followed by the ultimate ascendence of a phone with a modular architecture – components that can be made by different companies. I’ll start by summarizing his theory, and then describe what this means for the iPhone, iPad, and Apple as a whole.

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Are printed books here to stay? In a word: no.

Will e-books completely replace printed books? In the Wall Street Journal this morning, Nicholas Carr argues that they won’t. He notes that the growth of e-books slowed to 34% in 2012. Granted, some CEOs would sell their souls for a 34% growth rate. Sales of e-books, furthermore, have surpassed sales of hardcover books and are treading on the toes of paperbacks. But Carr also cites a survey that found that 59% of adults have “no interest” in buying an e-reader. His explanation:

Readers of weightier fare, including literary fiction and narrative nonfiction, have been less inclined to go digital. They seem to prefer the heft and durability, the tactile pleasures, of what we still call ‘real books’ — the kind you can set on a shelf.

There are two reasons I believe he’s wrong.

First, it is entirely common for an old industry to last for years — sometimes decades — after the invention of a new technology that will ultimately displace it. James Utterback cites numerous examples in his classic book, Mastering the Dynamics of Innovation. The gas lighting industry hung on and even reached new peaks of innovation in the years after Edison commercialized his electric lighting system. Similarly, the original ice companies, which harvested their product from New England lakes and ponds, actually reached sales peaks after mechanical ice-makers began their ascent. In both cases, fans of the old technology likely wrote whimsical editorials about the tactile pleasures of old-fashioned methods.

Second, young people simply don’t have the same attachment to printed books. People who grew up reading printed books will naturally be reluctant to switch to e-books, particularly for serious reading. In college, I engaged with non-fiction books by writing in margins. When I wanted to refer back to an earlier page, I found it by flipping through the book, looking for a note I knew I had made in a certain corner of a certain page. As a result of this training, I learn best from printed books. But students today are learning to learn in entirely different ways. They take electronic notes, make electronic highlights, and are perfectly comfortable searching for a page instead of flipping to find it.

To be sure, there are functional benefits to traditional books, in addition to the ability to take margin notes. When a book sits on a shelf, I remember that it’s there, and I may pull it out for reference (say, once every five years). Other people will see the book, and perhaps be impressed. Furthermore, if there is a map or a cast of characters laid out in the beginning, and I need to flip back frequently (as with the great novel Wolf Hall), a printed book is superior to an e-book. These functional benefits will keep printed books in existence for a few extra years, even after superficial tactile pleasures have become passe.

Printed books may be here to stay as a collector’s item, much like records today. Ultimately, however, the benefits of e-books far outweigh those of traditional books. E-books are less expensive to publish, less expensive to buy, and easy to obtain in minutes from almost any location. An entire library can painlessly fit in your pocket or purse. And I love the sample function. Reading a sample gives me a much better sense of a book than I could get by flipping through pages at my local bookstore. If I’m not compelled to keep reading by the end of the sample, I’ve learned to abandon the book.

This presents a major societal challenge: right now, anyone can check out a book at the local library for free, and used books can be bought for a few dollars or even a quarter. A transition to e-books will make it harder for low-income people to find books to read. We will need to manage this problem, perhaps by creating inexpensive e-readers that libraries can rent out to patrons instead of physical books.

How can traditional retailers compete with same-day delivery?

These days, I buy so many products online that I’ve actually memorized my credit card number — something that hasn’t happened since I was planning my wedding. But there is one market that online retailers have yet to penetrate: the market for emergency purchases. If I run out of toothpaste, I’m still going to walk around the corner to Rite Aid.

That’s starting to change. Amazon is offering same-day delivery in 10 cities. Currently, prices are steep, and you have to order early in the day, but the service will likely get cheaper and better over time. Wal-Mart is testing the service as well. So is Google, which could leverage its network of Google Street View drivers to deliver products. eBay Now, which launched last year in NYC and San Francisco, uses couriers to deliver thousands of products to your door in less than an hour, for $5 per delivery. Startups like Shutl and Postmates are using similar courier-based models, while Uber might leverage its network of drivers to deliver packages as well as people.

For now, most consumers will use these services only for bigger-ticket items, when it’s worth paying an extra $5 or even $15 for same-day delivery. I’ll probably still rely on Rite Aid for my toothpaste. But that may not last. Brick-and-mortar retailers need to consider how to react, and they should be particularly worried about Amazon. Shutl and eBay deliver products from traditional stores — as of now, they’re potential partners for retailers, not competitors. Amazon, however, bypasses retailers altogether.

So how can retailers compete? They need to consider what “jobs” they can do better than online retail, as Clayton Christensen and Max Wessel outline in their recent HBR cover story, “Surviving Disruption.” Here are a few ideas:

  • Entertainment. Trader Joe’s, Whole Foods, and even Costco have created an entirely new reason to go grocery shopping: because it’s fun. I get the same pleasure from going to Whole Foods as I do from going clothes shopping. I get to browse and discover new things in a warm and inviting environment. New and interesting products stimulate my creativity, as I think about how I could use them. I also get to spend quality time with my husband. Amazon offers incredible convenience, but it doesn’t offer fun — at least, not yet.
  • Destination products. One secret of the success of Trader Joe’s is its focus on products that you can’t get anywhere else. The only way to get same-day delivery of TJ’s amazing Vegetable Panang Curry is to get it from Trader Joe’s.
  • Community connection. A recent article by UPS suggested that small businesses can compete by offering consumers a feeling of “real.” The article suggested “re-conceptualizing limited selection as personal curation of products … or even taking customers on ‘consumer safaris’ to see where products are made.” I would also suggest using check-in services like Foursquare to get to know  customers, reach out to them, and build relationships. This is, of course, more relevant for small businesses than large retailers like Best Buy.

And if you can’t beat them, join them. One same-day delivery service is trying to capitalize on the consumer desire for “real.” In the UK, Hubbub offers same day delivery of goods from local, independent stores.