CH1 - The Revolution is Just Beginning: Pinterest Case Study

1. Why does Pinterest view Google as its primary competitor?

a. Pinterest view’s Google as its primary competitor because most people use Google to search for
what they are looking for. Many people use Pinterest to get ideas or inspiration, even when they don’t
know exactly what they’re looking for. Pinterest wants to be the place that people go to when they are
searching for ideas, and they are slowly becoming so. I use Pinterest when I want to see lots of images
and different ideas. Google images isn’t always the best quality. Many things that are Pinterest can also
be searched for on Google, so that’s a big reason why they’re a competitor.

2. Why does Pinterest focus on the smartphone platform when it develops new features and
products?

a. The majority of Pinterest’s traffic activity is originated by mobile devices, considering that most of its
activity comes from mobile devices, it makes sense that they focus on the smartphone platform when
developing new features and products. When you’re on Pinterest on a mobile device, you can constantly
scroll through images without ever having to leave one page. Most people use smartphones instead of
desktops nowadays, so Pinterest wants to focus on what people are using the most. Users can also
purchase items through Pinterest using the mobile app. It saves lots of time.

3. Why is copyright infringement a potential issue for Pinterest?

a. Copyright infringement is a potential issue for Pinterest because the users post pictures from other
people without any kind of permit. This is causing Pinterest some problems, furthermore, they are having
similar issues with videos posted from YouTube and similar sources. Sometimes pins have to be deleted
because they belong to someone who didn’t want them use publicly. I’ve had this happen with a couple
pins on my page, they simply delete the pins and nothing else happens so I don’t think it’s a huge deal.
Most of the pins are put online to be used and shared by everyone.
 Case Study – Programmatic Advertising: Real-Time Marketing

1. Pay a visit to your favorite portal and count the total ads on the opening page. Count how
many of these ads are (a) immediately of interest and relevant to you, (b) sort of interesting or
relevant but not now, and (c) not interesting or relevant. Do this 10 times and calculate the
percentage of the three kinds of situations. Describe what you find and explain the results using
this case?

0% of the ads were relevant and interesting to me, 20% were sort of but not now, and 80% were not
relevant or interesting to me. The opening page of a web portal has ads that are general and lack any aim
for a particular consumer. I didn’t see any ad that is immediately caught my attention. However, I did see
some ads of the websites that I have visited before. For example, I have shopped on express.com and
the very first big banner ad was from express.com saying they have 40% sale going on. Yahoo also put
some random ads about downloading Adobe or buying healthy snack from Kellogg. I have never visited
their sites or searched for these things but they would still show on the website. Those didn’t get my
immediate attention too.

2. Advertisers use different kinds of" profiles" in the decision to display ads to customers.
Identify the different kinds of profiles described in this case, and explain why they are relevant to
online display advertising?

Profiles are built by recording of behavior of consumers online, and gathering information about their
interests, age, gender, location, preferences, etc. This makes it possible for advertisers to choose from a
very large list of profiles, to determine the relevance and target the specified profiles. For advertisers who
use online display advertising, using banner ads pop-ups and such.

3. How can display ads achieve search-engine-like results?

Display ads can achieve search-engine-like results by capturing the interests of individuals through
the instance of searching and using display ads relevant to those searches. With the use of tracking soft
wares suck as beacons, web bugs, cookies, and flash cookies, it enables advertisers to obtain profiles of
consumers. The profile is the information regarding the online behavior and characteristics of consumers.
To be specific, the product pages, services, and the search engine keywords used are constructed as
profile information.

4. Do you think instant display ads based on your immediately prior clickstream will be as
effective as search engine marketing techniques? Why or why not?

Instant display ads based on prior click stream will sometimes be as effective as search engine marketing
techniques. There are some disadvantages of using click stream behavior, where information may not be
relevant for the advertisers to use. Prior click stream behavior is defined as recording of consumer
behavior in the short term. Users leave a click path that shows the route to where they had navigated on a
website. For example, a user may click on a clothing store website, and then clicks on an electronics
website. This information is not enough for researchers to analyze the reasoning for their behaviors.
However, it may also pose an advantage because it allows marketers to send messages to the intended
party. It also increases the chances of a positive engagement by each user.

Case Study Questions

1. Why did Dick’s decide to leave eBay and take over its own e-commerce operations?

The cost of working with eBay was growing rapidly as Dick’s became more successful in online sales.
The fees eBay charged rose a percentage of sales even though it cost eBay no more to fulfill an
expensive order than an inexpensive order. Dick’s also wanted to customize its web operations to the
needs of its customers, in particular to develop an omnichannel business.

2. What is Dick’s omnichannel strategy?

Dick’s plans to use its physical stores as mini-distribution centers, fulfilling online orders from local and
regional customers from physical stores located nearby. The stores can also act as showrooms for its
goods, and customers could pick up online orders in nearby stores the same day.

3. What are the three steps in Dick’s migration to its new website?

Step 1 involves developing the new site and integrating it with their existing systems. Step 2 involves
moving its lesser brands to the new platform and continuing to develop the platform. Step 3 involves
moving its primary website, Dick’s Sporting Goods, onto the new platform.

4. What are the primary benefits of Dick’s new system?

Among the primary benefits are the ability to buy online and pick up in store and the ability to test different
pricing and marketing approaches by region. Other benefits include an improved search engine and
better analytics capabilities. Dick’s also hopes to achieve higher sales because multi-channel customers
spend three times as much as single-channel customers. Finally, the new system allows Dick’s to speed
up the innovation and development cycles of its online and physical store operations.

1. Why did Dick’s decide to leave eBay and takeover its own e-commerce operations?

As Dick’s Sporting Goods’ e-commerce was getting larger, eBay was getting more expensive too. There
were some problem doing business with eBay such as inflexible, flat charge from all the products despite
their sizes. In other words, eBay was charging same price for cheaper and smaller products and bigger
and expensive product. Also there was less flexibility and customization about using others’ system. So
that it was better for Dick’s Sporting Goods to build their own infrastructure.

2. What is Dick’s omnichannel strategy?

They wanted to keep their brick and mortar strategy; in other words, their physical stores. So besides
doing e-commerce, they will keep their physical stores and use them as both distribution center and
showroom.

3. What are the three steps in Dick’s migration to its new website?

First step was to build and complete the development of its e-commerce platform and begin integrating its
existing systems. Secondly, they begin moving its 2 of lesser brands, Field & Stream and Golf Galaxy
onto the platform while continuing the development of platform. Finally, they relaunches its flagship Dick’s
Sporting Goods site on the platform.

4. What are the primary benefits of Dick’s new system?

The new platform will pay itself in only 4 years of operation because it is saving at least $20 million each
year compared to using eBay. It also gives full freedom and control of its customer’s data and platform
design to Dick’s. Better data gives Dick’s better analyzing opportunity and understand their customer’s
shopping pattern better. Features of the new platform includes the ability to buy online and pick up at
store, the ability to ship from or to store.
 Case Study – Pandora and the Freemium Business Model

Q1: Compare Pandora’s original business model with its current business model. What’s the
different between “free” and “freemium” revenue models?

In the beginning Pandora tried to get music subscribers by giving people 10 free hours, then asking them
to pay $36 a month after that for the service. Of course no-one was willing to pay so much for a service
that they could get for free by switching on an FM radio (Laudon and Traver 103).

After that model failed they tried several other options until they decided to use the “freemium” model they
are using today. With a freemium service the basic service is available for everyone for free, but with strict
limitations in bandwidth and ads between songs which results in a lower quality listening experience
(Laudon et al. 103).

The premium service is priced at just $36 a year, 1/12 of their previous asking price. Three dollars a
month is much more easy for a consumer to justify. The premium service offers higher bandwidth songs
and no advertising (Laudon et al. 104).

Q2: What is the customer value proposition that Pandora offers?

Investopedia.com defines a value proposition as “A business or marketing statement that summarizes

why a consumer should buy a product or use a service. This statement should convince a potential
consumer that one particular product or service will add more value or better solve a problem than other
similar offerings.” (Investopedia.com) So I went to the About page on Pandora to find the value
proposition.

What Pandora does for its customers is provide access to music through the “Music Genome Project.”
This project was started by the founders of Pandora and offers a way to classify music so that similar
music by different artists will group together into what they call a personalized radio station (“About”).

The music is evaluated by professional musicians for genre, and then within each genre 200-500 different
data points are set for each song by the music professional. A function is used to identify the distance
between songs so that similar songs can be included in a customer's playlist. A user can apply additional
weights to promote or demote certain bands so they will play more or less often on their radio station.
This really is impressive technology that would be almost impossible to replicate by another company
(“Music Genome Project”).

Q3: Why did MailChimp ultimately succeed with a freemium model but Ning did not?

The case study claims that freemium works best when there is a very large audience for your service and
you can offer paid upgrades to make it worthwhile for people to pay to get the additional added value
(Laudon et al. 104).

MailChimp works as a free service because anyone that sends the same email to multiple people is a
prospective client. The light user might be someone sending out a church newsletter as an email every
week, with a volume of just dozens of emails. A high end user could be a corporations using the service
to send a hundred thousand emails to its customers and needing to track the conversion rate of the
emails, or now many of the people clicked a link in the email, and how many actually purchased
something because of the email (Laudon et al. 104).
Ning didn't work as a freemium service because not everyone needs to start their own targeted social
networking site. If you need something like that then you are willing to pay for the services up front in
order to get the features you need to grow your site (Laudon et al. 105).

Q4: What’s the most important consideration when considering a freemium revenue model?

This is really the most important part of the case study and the section where I learned the most about
what makes a business model a possible freemium candidate.

Large potential audience.

This is the most important thing. In order to grow as a business you need to attract many people, millions
of people, to your service. These free users are the pool of people you will be converting to paying
customers (Laudon et al. 105).

Low variable cost to add additional free users.

One of the amazing things about the Internet is that you can provide service to people at a cost
approaching zero dollars. You can do this with automation and by pacing the computing power you are
using to spread it across all the free users. If you have to buy a music license or a new computer for each
user you add, then you are not going to stay in business for long (Laudon et al. 105).

Easy to use.

Let's say you do attract people to your web site by the millions, in order to get people to use your service,
it has to be easy to use. You can't afford to have each new customer call customer support in order to use
your service. The service must work “out of the box” for each new user and walk them through every step
automatically. This is one of the things that Google plus did wrong. At first the service was very simple
and easy to use, but it rapidly grew in complexity until now I can't even see my own lists of posts anymore
and have no clue what 90% of the selections even are anymore (Laudon et al. 105).

Network effect helps to add and keep users.

If you can get your service spread by word of mouth, so that one person gets all their friends to sign up
too, and then it is very difficult to leave a site because all your friends and business associates are there,
then that is the network effect in operation. This is something that social media sites like Facebook really
key into (Cornell.edu “... in Terms of Network Effects”).

High customer retention rates.

It doesn't help you if you get a million people to try your free service and then never visit your site again.
You want to make your site “sticky” so that when someone visits the site it is so easy to use and offers so
much convenience that users keep coming back, keep using the service, and enthusiastically tell all their
friends about your site (Laudon et al. 105).

Value of service to customer grows over time.

Once people are on your site and using your service, you want the value of what you are doing for them
to increase over time, so that the longer someone is on your site, the more difficult it is to leave and the
more likely they are to use your site for their primary portal to the Internet (Laudon et al. 105).
Q5: Pandora’s stock (P) has dropped 27% since its initial public offering (IPO) in 2011. What
recommendations do you have for the Pandora management?

I hate to have to say this, but I do not believe that playing music over the Internet is a viable long term
business that can sustain itself. The license costs and bandwidth costs are just too high when you reach a
billion freemium users (Pandora Media 15).

I think that what they need to do is to position themselves as the alternative to the apple store on android
devices. By becoming a music store that only provides brief snippets of music they will eliminate both the
license fees and most of the bandwidth costs.

They can also license their music classifying database through a web interface to other companies that
have a need to provide music recommendations to their customers.

The patent they hold is a very interesting general method of using experts to classify items and then using
automation to see what is most like that item. This could be used for many other categories. Either by
licensing the technology to other people, or doing the tech in house and providing web service access to
the information (Glaser, “Consumer Item Matching...”).

Q6: Would you recommend Pandora’s stock to future potential investors? Why or why not?

Pandora is paying more and more for it's music licensing as it adds additional free users. At some point in
the future these variable costs will rise above the amount of money the company makes from advertising
and subscription fees and the company will have to convert as much of its existing user base to the
premium service as it is able to do so. Its ability to convert existing users to the premium only service will
determine the company's ultimate success or failure (Pandora Media 6).

Additionally Pandora has never had a year where it has made a profit, and it has accumulated a lot of
debt from losing money every year of operation. It would take years of profitability before it could do more
than just pay off its backlog of debt (Pandora Media 15).

There has never been a business like what Pandora is attempting to do on the Internet. The business
model is unproven. A traditional radio station has decades of experience that investors could relate to in
order to evaluate how well the company is doing (Pandora Media 6).

So based on these three key facts, I would not recommend purchasing stock in Pandora.

Freemium

Giving away some products or services for free while relying on a certain percentage of customers to pay
for premium versions of the same product or service.

Free

No premium version. Content is completely free.but probably has advertising.

Customer Value Proposition

A business or marketing statement that describes why a customer should buy a product or use a service.
It is specifically targeted towards potential customers rather than other constituent groups such as
employees, partners or suppliers.

What is The Customer Value Proposition That Pandora Offers?

When customers upgrage to premium services, they get fewer usage limits, zero advertisement, higher
quality streaming music, and a desktop app.

Why Did Mail Chimp Succeed With A Freemium Model But Ning Did Not?

MailChimp succeeded because they gave away just the basics to entice the member to subscribe. They
also believed that their free clients E-Mail list would grow , and in turn, the client that used the free version
would pay for the enhanced product. Ning failed because they could not convert eyeball into subscribers
and the more free users they got the more it cost them.

Freemium only seems to work when the product is easy to use and has a very large potential audience,
preferably in the millions.

What Is The Most Important Consideration When Considering A Freemium Revenue Model?

If there is a very low marginal cost, approaching zero, to support free users.

Also if the business can be supported by the percentage of customers who are willing to pay, like
Pandora, especially when there are other revenues like advertising fees that can make up for shortfalls in
subscriber revenues.
Case Study

1: Find a site on the Web that offers classified ads for horses. Compare this site to
Exchangehunterjumper.com in terms of the services offered (the customer value proposition). What does
The Exchange offer that other sites do not?

Dreamhorse.com is a Web site that has a fundamental similarity with Exchangehunterjumper.com. But
Exchangehunterjumper.com services a very simple, easily use website that Dreamhorse.com doesn’t
offer. Exchangehunterjumper.com offers a very warm reaction that Dreamhorse.com lacks.

2: In what ways were social media effective in promoting The Exchange brand? Which media led to the
most increase in sales and inquiries? Why?

1. It has grabbed attention of potential customers

2. It has increased visibility of the brand

3. It has provided customer feedback and helped improve its services

4. Feedbacks of certified customers have validated the business.

Presence on facebook has been most successful in generating web traffic and leads. Followers of the
facebook page are greater than those on twitter or any other social media website.

3: Make a list of all the ways the Exchange attempts to personalize its services to both sellers and buyers.

1. It has a very strong presence on social networking sites. It has so many posts with pictures
providing real time experience to buyers and sellers

2. It has many videos on youtube

3. It has a link of show calendar on its website showing the dates on which horse shows are being
held.

Case Study

1. A site that is similar to exchangehunterjumper.com is Bigeq.com. The two are some of the top
competitors in the market for sites of this type. Typically, Bigeq.com will have more horses listed because
they allow users to post the horses on the site, whereas, exchangehunterjumper.com professionally
screens the horses to give a more accurate listing of the horses. One service
thatexchangehunterjumper.com offers is that all of the horses have videos attached to them which is
something that other sites do not offer. It also updates the horses on a regular basis which is something
Bigeq.com does not do.

2. ExchangeHunterJumper.com uses the following social media: Facebook, Twitter, YouTube, RSS
Feeds, and an iPhone app. The biggest increase seems to have come from Facebook although the
YouTube videos also appear to have had an impact also. Facebook probably worked so well because of
its viral recommending features (the Like button) and the ease with which word can be spread on
Facebook.

3.

· Works with individual sellers and trainers on the sell side to create effective ads, including photos
and videos.

· Develops a personal strategy for each horse (horses have personalities too!).

· Buyers fill out forms and expected budgets.

· Personal e-mail responses to buyer queries.

· Searching for suitable horses

· Making recommendations.