Christmas Tree Arbitrage Redux

Does the fact that you are on the corner mean that you can corner the market?

Previously, on Christmas Tree Arbitrage …

Since our 2016 article on Christmas tree arbitrage opportunities in local markets, we added the backstory of supply & demand based on planting and harvest cycles affected by prior recessions. This year, we peal back two more layers of the onion: the entry of e-commerce into the market, and the temporal aspect of pricing.

Decades ago Christmas tree shopping in New York was simply a story of street corner competitors. Then came the chain stores, like Whole Foods and Home Depot. And now, enter stage left the biggest player of them all: Amazon. Yes, this season e-commerce is in the Christmas tree market.

Amazon is testing a new thesis on tree shopping: delivery to your door trumps walking to the corner. Aesthetic items used to be squarely in the “try before you buy” category, which only brick and mortar can provide. But our consumer behaviors continue to evolve with the proliferation of e-commerce options, and Amazon thinks the time is now to give e-trees a try.

As Christmas tree prices have remained somewhat elevated following last year’s shortage, Amazon’s pricing of $109 + free delivery is actually a steal! Whole Foods is playing an even more competitive pricing game (likely riding the Amazon wholesale cost advantage), with pricing starting at $35 for a 6-foot tree on Black Friday Weekend. Compare this to the guy on the corner selling $120 trees, and it may be worth the extra avenue of carrying making your husband carry your freshly cut pine – and it’s an excuse to walk off the turkey!

But perhaps you want to optimize for distance walked more than price, and are interested in supporting tree farmers directly. In that case, you can also save some money by buying your tree from your corner vendor in mid-to-late December, rather than early December, when tree demand is highest.

Personally, even at ~20% off, I’m not convinced that buying a Christmas tree blind is a better experience than bundling one up that I’ve examined, checked the moisture levels of, and chatted with a farmer about. I want to know the sustainability policy of his or her farm, and that my tree is locally sourced, 100% organic, free range, cruelty free, and fair trade. I want to be reassured that it had a loving upbringing with a good family. And even if Amazon got all that right, if they are really serious about the e-tree game, I’d want a generous return policy, so that I can order three trees in different sizes, compare them, and return the extras.

Happy tree shopping!

Has Amazon become eBay? The new normal for e-marketplaces

There’s a market place with real-time bidding, where all the suppliers with identical products vie to sell their goods to a group of buyers, all with varying willingness to pay. Which market am I speaking of? Is it the stylized market place from Econ 101, the modern financial markets, or today’s primary e-commerce model? In fact, it is all three.

We’ve heard of regression to the mean with stock prices. The past decade has witnessed a regression to the mean of economic models. The difference between the market places academics describe and the ones financiers and commercial platforms implement has rapidly evaporated. In sum, the world has become eBay. 

The great irony in this turn of events is that eBay is one of the few markets where the auction model failed. Although eBay was a classical market, with multiple people selling identical or equivalent items, buyers did not want auctions. So why did eBay’s core model fail where so many others have since succeeded? Two words: buyer experience.

The Wharton course selection process followed a similar arc to that of eBay. Selecting your lineup for the semester used to be the stuff of day traders’ dreams. Speculation and back door deals were required to accumulate enough points and make the right trades to get your dream class lineup. But with the time and energy vortex it created for students, professors decided to swap in a simple system of ranked preferences, that students could set and forget until their course schedule was determined. Both the old and the new systems were based on economic theories, but the new one worked for everyone at a dramatically reduced cost. The selection process went from weeks of game theory strategizing to days of just choosing which courses you were most interested in. Similarly, eBay’s Buy it Now option made it so that you could literally buy peace of mind, knowing that your item was on its way. Now that’s exactly what buyers do 80% of the time on eBay.

Where eBay failed to deploy a streamlined buyer experience to auctions, e-commerce giants and financial markets have succeeded. They ensured that just because they make their markets competitive, doesn’t mean they need to be a hassle. And all with one weird trick: making the sellers compete, not the buyers.

Jet.com was the first e-commerce player to dream the dream of emulating financial markets: one price to rule them all. Jet aggregated all sellers of a single item under one listing, hiding the buyer and just showing the best price. The computer does the comparison for the shopper, bringing them one step closer to a two-click purchase. Amazon quickly riffed on this, showing a list of other sellers for a given item alongside that seller’s user rating. And the bandwagon effect was unleashed. Specialized sellers like Newegg, which formerly focused on technology products, have deployed the same tech to sell across categories, aggregating sellers and drop shipping inventory for a seamless user experience. Other markets are not far behind the curve. Technology has made it so easy to adjust prices that the bidding for hotels and airlines on aggregators like Kayak and Priceline is continuous.

All fields of technology-based commerce appear to be converging to an economists dream: a series of real-time auctions. But is the economists’ dream everyone’s dream — do we want the whole world to be a real-time auction market place? No doubt there is a dark side to a system evaluating actors primarily on price competition. Amazon’s opening the floodgates of international vendors to the U.S. has created a whole underground economy of fake reviews for low quality knockoffs, for example. In other areas, considering price alone has resulted in a number of negative externalities, such as the rash of taxi driver suicides in markets Uber has taken over. As eBay has taught us, without keeping an eye on consumer experience, no market model is sustainable. And as Silicon Valley has taught us, forgetting that these systems affect real people can cause social dislocation. Time will tell how consumers vote with their clicks. 

 

Google’s revenue model does not support free ideas

A few months ago I decided to pop the hood on the massive machine that is Google AdWords, to explore what success it could bring to someone who is not trying to sell something. And what have I learned $250 and several support team calls later? A few things.

My last post revealed what Google provides its customers that it does not provide it’s product users. This second post walks through why Google’s whole infrastructure does not promote free engagement. Rather, in its decade-plus of internet dominance, Google has constructed an elaborate network of tools that first and foremost serve to extract money from users.  

Below is a summary of my experience, and what you might expect if you’re a customer outside of the e-commerce category.

Advisors think commerce, not engagement

“No, I have no commercial goals. My goal is to maximize engagement and views,” I shared in my AdWords on-boarding. I could almost hear my rep’s brain reporting “does not compute”. The momentum of our discussion lost steam as she realized that indicators prominently featured in Google Analytics like lifetime value, acquisition, and e-commerce performance were not relevant for me. As the length of the tutorial session increased, the relevance of advice seemed to decrease. I chalked the untargeted advice up to a roulette serving me up a time-crunched newbie. In that respect, the inconsistency of advice across advisors was not surprising. The second rep I spoke with advised me to cut many of the peripheral terms I’d added in the co-build with the first advisor. “Maybe people searching for avocado toast aren’t just on-target millennials – they may really want a recipe,” he reasoned with me, and I was swayed. He spent time leafing through my blog to understand my unique goals, gaining street cred points as he went. Yet in recommending that I re-organize my blog to look more like a media company to improve click through rates, he still anchored back to the commerce world. 

I got the impression that each Support Team rep had there one or two tricks that they focused on for non-commerce people, e.g. adding a “+” in front of keywords to broaden the applicable search pool. While it is nice to be able check your key words and tagline concepts with someone better versed in the ins-and-outs of online marketing, none seemed to have the mental flexibility to conceive of how best to promote a non-commerce site.

The AI isn’t optimizing for engagement either

After the little lesson in avoiding mutually disappointing clicks, this became the lens through which I evaluated the AI suggestions for keyword additions – which all were equally missing the mark. It wanted me to add keywords like “best reads of 2017” when my book reviews are selective deep dives. Based on the advice of AdWords human employees, I dismissed most suggestions as “cheap clicks” that did not consider quality. I also kept getting promo pop-ups for new functionality that had no clear value added – which gave me the feeling of *shrug*.

It’s not all on Google

Advisor #2 did give the savvy advice that the most important thing to watch is behavior. How long do users stay? Which pages do they visit? How quickly do they leave? Looking more carefully at behavior has shown that practical posts – like the WageWorks maximizing post and the Deep Work summary – have drawn the most attention. Insightful as this nugget was, it’s the same lesson that has led me to pull the plug on the campaign. All for the simple reason that Google didn’t seem to be driving people to me in a sticky way. Of course it’s my job to make the content worthwhile. And it is also Google’s job to find those needles in the haystack that want my content. At least that’s what they claim to be selling through “targeted” advertising.

While I have enjoyed a nice spike in RSS subscribers since last winter, the lull preceding this occurred during my posting hiatus and picked up before my AdWords experiment.

Yes, I did get a few more clicks than without advertising.

When I cut my ad campaign spend by two-thirds in March, the number of users fell by only about half, and my loyalty rate actually increased.

As visits from AdWords clicks remained under a minute on average, I saw some growth in the number of repeat visitors (the light grey segment). This suggests that my most engaged visitors are finding their way back organically.

So I’m going to revert to the old fashioned way of advertising – word of mouth. 

Learning that I can’t benefit from AdWords unless I’m trying to sell something taught me a larger lesson:  the magnitude of influence that Google has had on creating the system of commerce that defines the internet. Rather unlike the original utopian vision of the internet serving to democratize knowledge, the structure of today’s internet clearly favors certain business models over others; the internet supports the lucrative websites, not the thoughtful ones.

The Slow Shipping Movement

Had it really only been five days? It had felt like aaages (and by ages, I mean at least a week), as I wondered where my special edition collectable bobble head set was. And then it dawned on me, this company must be part of the Slow Shipping Movement! After all, why do I need those bobble heads in two days? Slow Shippers know customers will appreciate items more once they arrive because of the delayed gratification.

Like the Slow Food Movement, Slow Shipping gets you to appreciate where your products are coming from, the “ingredients” of what are being shipped to you.

I wrote in my gratitude journal that evening, still awaiting my package, that I am grateful for all the hands that have touched this unique product, to deliver it to my shelf.

Can Walmart beat Instacart?

It’s been fascinating to see Walmart level up from bargain bin to bleeding edge, as they entered the e-commerce race against Amazon. Their acquisition of Jet.com and expansion into e-grocery delivery were only the start. Their latest announcement left me beaming with hope for the future of online grocery shopping, as they step up as that someone to save me from my Instacart woes. This is Star Trek level next horizon tech, deployed for our shopping delight. Drum roll please….select your own produce via 3D imaging!

Okay okay, this may not sound as thrilling to you who have no trouble getting to a supermarket any given day. But if you’ve lived in an urban supermarket desert before, you know exactly what I’m talking about. You’ve tried FreshDirect and gotten a bruised $2 tomato. You’ve tried the Instacart route, where they had 90%+ accuracy on your first order, but your second order was half missing or substituted with “equivalent foods”. SPAM IS NOT HAM! GRADE A EXTRA LARGE EGGS ARE NOT THE SAME AS ORGANIC FREE RANGE VEGETARIAN GRASS FINISHED EGGS! AND DRIED CRANBERRIES…well, actually, those are all the same.

I think we all want food to taste good and not be wilted and on its way out when it arrives to our kitchen. When the patent clears and the tech is rolled out, I will be there to test it out, in the hopes that it is the harbinger of a brave new grocery world.