by George Taniwaki

SEIU_775_purple FFlogo Wa2016Yes1501

I’m a libertarian by nature. (That’s libertarian with a small L, meaning I believe in government transparency and clarity. Please don’t confuse it with Libertarian with a capital L, which I associate with mindless anarchy.) Every two year, I dutifully check for my ballot and voter pamphlet (Washington has voter by mail). The number of items seems to be getting longer, especially voter initiatives.

Here is my method of deciding how to cast my ballot on voter initiatives. First, I start skeptically. Most voter initiatives are funded by political extremists who do not consider the consequences of adopting their pet idea. But I do my online research, checking analysis produced by hopefully reputable and unbiased sources. Ultimately though, I usually vote against them.

This year in Washington, there a really bizarre ballot issue. It is Initiative Measure No. 1501. “Increased Penalties for Crimes Against Vulnerable Individuals”

This measure would increase the penalties for criminal identity theft and civil consumer fraud targeted at seniors or vulnerable individuals; and exempt certain information of vulnerable individuals and in-home caregivers from public disclosure.

Should this measure be enacted into law? Yes [ ] No [ ]

How could anyone be against this? We want to help seniors, right? Well, it’s not that simple.

A convoluted story

There is a very complex story about this initiative. It involves a union, an antiunion think tank, and the U.S. Supreme Court. Initiative 1501 is sponsored by the Service Employees International Union (SEIU) that represents healthcare workers that work in nursing homes or provide in-home care. Washington, like most states, requires certain workers, such as nurses, to have a license in order to provide services to the public. About one-third of all service workers in the U.S. require licenses. In many cases, these workers are also unionized.

Enter the Freedom Foundation. This antiunion policy group is headquartered in Olympia, Washington. It was founded by Bob Williams, who was formerly with the American Legislative Exchange Council (ALEC). You may have heard of ALEC; it is a corporate funded lobbying group that writes model legislation (which obviously is designed to further the goals of its corporate clients) which it then provides to state legislators to review. The legislators can then submit the bills for approval into law. The Freedom Foundation provides very similar services.

In 2014, the U.S. Supreme Court ruled 5-4 in Harris v. Quinn that an Illinois state law that allowed the SEIU to collect a representation fee (union dues) from in-home healthcare workers wages was unconstitutional. The reasoning was that the fee violated the First Amendment rights of the workers to not provide financial support for collective bargaining.

After the ruling, the Freedom Foundation complained that the SEIU was not doing enough to inform its members that they did not have to pay the representation fee in order to belong to the union. Though a public records act, it sued the union and the state, won, and started to send communications to members encouraging them to stop paying the fee.

Since a Supreme Court ruling covers the entire U.S., not just Illinois, the SEIU realized that it was very vulnerable to attack by the Freedom Foundation or other antiunion organizations.

Now the initiative makes sense

In Washington, the SEIU proactively sponsored Initiative 1501 as a direct attack against Freedom Foundation. The SEIU wants to avoid having to release the names, addresses, and phone numbers of its members (or having the state reveal these either). Initiative 1501 does this by saying that in-home caregivers are a protected class, like seniors or vulnerable individuals, that the state and the union cannot release personal information about.

After all that research, the story starts to make sense. This is a battle between two parties that a libertarian like me dislikes. But more transparency is better than less. So I will vote no. Sorry seniors and vulnerable individuals, you will have to rely on existing statutes to protect you.

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by George Taniwaki

Check out this proposal I recently saw on Elance, a popular job board that matches consultants like me with small businesses that are looking for help. The spelling, grammar, punctuation, and line breaks are all copied directly from the website.

Bussiness Ideas for a startup

Sales & Marketing > Research & Surveys

ElancePostProfile

I need someone to come up with some business ideas for a start-up business.
However the ideas MUST be validated to show that it is profitable.
you must prove to me somehow that atleast 3 people are willing to pay money for this idea.
the proof should be strong and show that people are genuinely willing to take the effort to pay for the idea and are not just participating in wishful thinking.
you can do this validation any way you like, there are plenty of creative ways you can do it. and you don’t have to take anyone’s money.
a quick and rough example is pretending you have a product in limited numbers.
ask people if they like the product. if they do ask them to pay for it.
when they are trying to pay for it tell them you have run out.
and then show me the proof
now this is a just a quick and rough example but you get my idea.

Desired Skills

Business Analysis, Direct Marketing, Internet Marketing, Market Research, Craigslist

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Well, geez, if I had a great idea that I knew I could sell, why would I want to work for you?

Below is one of the proposals this post received as a response:

ElanceResponseProfile

I have led over 300 clients to “leap over” their competition and become the # 1 dominant most successful business for their niche in their market….

Skills

GREATLY INCREASING SUCCESS FOR MY CLIENTS

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All I can say is that these two entrepreneurs are simply made for each other.

by George Taniwaki

Two announcements made yesterday seem to point to a cosmic convergence, or at least a law and economics convergence. First, is the death of Ronald Coase. The other is Microsoft’s plan to acquire the mobile handset business of Nokia.

Ronald Coase 29 December 1910 – 2 September 2013

Why are there firms? Why doesn’t everyone just work for themselves and contract out their labor to each other whenever and wherever it is needed? Conversely, why doesn’t everyone work for a single large employer that tells everyone what to do and produces everything that consumers want to buy?

The answer to this question of firm size is the basis of a branch of economics called the theory of the firm. Theory of the firm sounds like a single idea. But actually there were many competing explanations regarding why firms exist. The most important contribution is by Ronald Coase, a British economist who taught at the University of Chicago who proposed that the ratio of internal transaction costs to external transaction costs drove firm size.

In 1937, Mr. Coase published a paper “The Nature of the Firm” in Economica which outlines his is ideas about how in certain cases transaction costs can be reduced by replacing a market driven  contractual relationship between a buyer and seller with an internal non-market relationship. (Also called insourcing as opposed to the current controversy about firms getting smaller by shedding operations in a practice called outsourcing.)

All transactions involve a contract, either explicit or implicit, written or verbal. Complex contracts often require expensive lawyers who consider possible contingencies and carefully define the outcomes. In addition to legal costs, contracts have to be monitored and enforced to ensure both parties get what they expect in the relationship. The more complex the task, the more complex and expensive the contract is likely to be over its lifetime

Much of the effort in using a contract is to ensure that all risks are explicitly defined and divided between parties. This effort can be eliminated if the parties join into a single firm. Then the risk where one party’s gain is another’s loss can be shared.

We  live in a world with many sized firms, so thinking about two extreme cases posed at the beginning of this blog post may seem silly. But they lead to important questions. What factors determine the size of a firm? What is the “ideal” size of a firm? Given that we see lots of firms of different sizes, is the current distribution of sizes “efficient”? If not, what should we do, if anything, to help owners, managers, and workers “right size” their firms? Finally, can we predict the effect of technological and social changes on firm size?

These are important questions worth investigating. And all of them can be analyzed using the framework first developed by Mr. Coase.

In 1960, Mr. Coase again used transaction costs to develop a framework to study the problem of externalities (the failure of the market to capture all benefits or costs of a transaction, such as pollution). He showed that if the resource being impacted (such as clean air) could be well-defined and protected as a property right, and if transaction costs were low, then rights owners could bargain for use of the property. Further, he showed that it didn’t matter who owned the property rights initially. As long as all parties bargained fairly and rationally, the utility maximizing outcome would prevail.

It is on the basis of his groundbreaking work on transaction costs that Mr. Coase was awarded the Nobel Memorial Prize in Economics in 1991.

Coase

Figure 1. Ronald Coase in 2011. Image from Wikipedia.org

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Microsoft and Nokia, better together?

How big should a mobile computing firm be? The biggest firms in the market today are huge. How should a firm profit from the mobile computing market? Should it make its software and hardware available only in combination like Apple with iOS and iPhone? Should it make software and license it to a small set of select vendors, like Microsoft with Windows Phone? Or should it make software available to all comers including itself, like Google does with Android?

Well, it’s pretty obvious that the licensing strategy for Windows Phone has not worked. The only licensee of volume is Nokia, and that is about 3.5% of the market. Handset manufacturers were not willing to pay the estimated $10 per handset fee for it. Instead they licensed Android for free, plus an estimated $5 per handset patent royalty to Microsoft and Apple. (Given that Android has 12 times the market share of Windows Phone, that means Microsoft makes most of its mobile computing revenue from Samsung and other makers of Android phones.)

Now Microsoft has announced it will acquire Nokia for $5 billion plus $2.1 billion to license its patent portfolio. What explains the belief that the performance of a combined Microsoft + Nokia will be superior to Microsoft and Nokia as independent entities? Ronald Coase would probably say that using transactions cost analysis is a good place to start.

In the 1980s, Microsoft made an enormous amount of money realizing that it could sell its operating system software to many hardware manufacturing firms with little or no customization. In the desktop computing era, Microsoft paid for nearly all the research and design for desktop computers and charged it to manufacturers as part of its license fee for Windows. These licensees competed mostly on price and ended up with slim margins. What R&D they did pay for was focused on improving supply chain management and manufacturing efficiency. Almost nothing was spent on new computer designs or user experience.

Apple guessed wrongly that people would pay a premium for computers where the software and hardware worked together better and were a joy to use. They didn’t.

Keeping software and hardware as separate firms made sense for Microsoft. All the profit was in software and there was little innovation or value added in hardware.

Then in the late 2000s, mobile computing took off. Unlike desktop computers where size, shape, weight and design are not particularly important, mobile devices are all about pushing the technical limits of computing while fitting it into a handheld package. Apple, which already had an experienced design staff and a CEO who prized good design, immediately had a hit with the iPod and later the iPhone.

Microsoft revamped its mobile OS (was called Windows Mobile, now called Windows Phone) but had difficulty finding licensees that could create phones with compelling designs. One solution is to include a subsidy to the hardware manufacturer to pay for improved software and hardware integration. But contracts to guarantee innovation are hard to write and nearly impossible to enforce. Thus, Microsoft (and Google) found itself in a difficult position. How can a manager at a software company make hardware innovation a priority at its licensees? One solution is to insource it.

Horace Dediu has an excellent blog post that asks, Who’s buying whom? He states that firms are the sum of three values, resources, processes, and priorities (RPP). He says that, “When one company buys another, it’s the equivalent of one set of RPPs trying to engulf or swallow another set of RPPs.”

It is pretty easy to see that when one company buys another for its resources (people, plants, patents, store locations, customer lists) or processes (workflows, algorithms, supply chains) that it wants to incorporate them into its existing infrastructure.

However, Mr. Dediu states that acquiring another company’s priorities is different. “A company typically only has room for one set. If there are conflicting priorities, they need to be sorted out else the company can end up in a state of internal conflict and dysfunction. So if you’re acquiring a set of Priorities, it’s likely that you’ll have to discard your own… So, in a way, an acquisition of Priorities is almost a reverse acquisition.”

Microsoft has stated its intent to make devices central to the user’s experience. By buying Nokia and making Nokia become the new face of Windows Phone, it would definitely reinforce that priority. Farhad Manjoo on Slate Sept 2013  states it even more forcefully. He says the purchase of Nokia will kill Microsoft’s software licensing strategy, including for Windows.

SymbianWMWP7USMarketShare

Figure 2. Ownership share of mobile phone OS for Symbian (Nokia’s old mobile OS), Windows Mobile (Microsoft’s old OS), and Windows Phone (Microsoft’s new OS for which the largest licensee is Nokia). Image from Wikipedia.org

Disclosures: George Taniwaki is a graduate of University of Chicago’s Booth School of Business. He has been employed at Microsoft both as a full-time employee and as a contractor. The opinions expressed in this blog post are his own and do not reflect those of either organization.

by George Taniwaki

Last week I had two small electronic devices fail. I tried to fix them both and failed. Here’s a short description of my attempt to fix the first one, a USB KVM switch. Along the way I ponder the role of industrial design and intellectual property rights in China.

I have two computers, a desktop PC and an iMac. Rather than have separate keyboards and mice, I share them and toggle between the computers using a KVM switch (the abbreviation stands for keyboard, video, and mouse). My setup is shown in the photo below.

Monitors

Figure 1. My home computer setup, the KVM switch is on the desk, above and to the right of the keyboard

Last week the KVM switch quit working (after only a year!). I opened it up but could not see any loose connections. My guess is that the clock chip failed. Clocks are cheap but so is a new KVM switch. So rather than spend time and money trying to debug and fix this device I bought a new one for $9.50 on Amazon.

When it arrived, I noticed it looked just like my old one right down to the fact that the button on the switch was slightly off-center (see photo below). The only apparent difference was the printing on the case and the UPC codes.

KvmOldExtKvmNewExt

Figures 2a and 2b. The front of the old KVM switch on left, new one on right

A UPC code consists of two sets of 6-digit numbers. The first 6 digits is a unique identifier for a given manufacturer. Each manufacturer is then able to assign the next 5 digits to products as they wish and then calculates a checksum to assign as the last digit.

The two switch boxes shown above had different manufacturer IDs and different product IDs, indicating they were made by different manufacturers.

This intrigued me. Both KVM switches are made in China. This made me wonder about why the UPC codes don’t match. Some possibilities I came up with:

  1. One company reverse engineered (i.e., brazenly stole) the other’s design for the KVM switch (even given the poor reputation Chinese companies have for respecting intellectual property, this seems unlikely)
  2. One company made the original design and licensed it to the other (seems unlikely, once the first company did all the work to line up suppliers why would it want to help a competitor enter the market?)
  3. Both manufacturers licensed the design from a third company that only does design and lets others manage the supply chain and manufacturing details (given the low-cost of the item, this seems an unlikely product category for a successful design firm)
  4. Between the time I purchased the first KVM switch and the replacement, the company changed its name, was acquired, or changed its manufacturer ID and product ID for the switch for some other reason (this seems most likely)

I was a bit concerned about the reliability of my new switch. If it has the identical circuit design of my old switch, it might fail prematurely. So I opened up both KVM switches to see the circuit board.

KvmOldIntKvmNewInt

Figure 3a and 3b. The circuit board of the old KVM switch on left, new one on right

Surprise! They are not identical. The new one has three chips compared to four for the old one. And some of the chips are smaller. These smaller chips in the new switch have more pins (indicating higher complexity).  Fewer chips should make it more reliable (hopefully). Both have a 12MHz clock chip (which is the full bandwidth speed for USB 1.0 specification). Both have an identification mark of MT-201UK-CH which indicates they were both designed by the same firm.

Someday, if this KVM switch fails, I might buy one that supports HDMI video connectors. Then I will have the left monitor dedicated to Windows, the right monitor dedicated to Mac and the center monitor toggle between them along with the keyboard and mouse.

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Go back to the photo in Figure 1. Notice that the image on the monitors on the PC are much bluer than the image on the Mac. I’m a color printing expert and I’ve futzed with the white point and color balance on both machines and can’t get them to match. Why is it so hard to profile and calibrate monitors?

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Part 2 of this story is posted Aug 2013.

All photos by George Taniwaki

by George Taniwaki

I was driving on NE 8th Street in Bellevue last Saturday. As I was approaching 156th Ave. NE, I saw two of those ubiquitous sign spinners on opposite corners. I missed the light, so I had time to see that they were both advertising that the nearby Haggen Northwest Fresh was closing and everything was 30% off.

This is an unfortunate end to a misguided attempt by Haggen to compete with Whole Foods. Here’s the story.

When I moved to Bellevue in 2000, there were several supermarkets in my neighborhood. The closest is a small QFC, part of the Kroger chain, located inside the Crossroads Shopping Center, just north of the food court. Cater-corner to it was another small supermarket, an Albertsons. (I say “was” because it closed within a few months after I moved in and was eventually replaced by an Ace Hardware and a Bartell Drugs.)

A few blocks north of that is a Trader Joe’s, a chain that specializes in a small selection of fancy foods at low prices. Another few blocks north of that was an Uwajimaya, a local Asian food chain. (It moved a few years ago. More on that later.) A few blocks west of the Trader Joe’s is a Fred Meyer, another Kroger chain that sells a variety of department store goods and groceries. A few blocks north of the Fred Meyer (on the same street as Uwajimaya) is a Safeway. In addition, there are lots of small convenience stores and ethnic food stores in the neighborhood.

Supermarkets

Figure 1. Map of east Bellevue showing locations of largest grocery stores from 2000 to 2013. Map image courtesy of Microsoft, logos courtesy of respective firms

There’s no shortage of places to buy food in east Bellevue. That’s why I was very surprised in 2001 when Haggen announced it was opening a big TOP Food and Drug just north of the Crossroads Shopping Center. Haggen is a regional supermarket, headquartered in Bellingham, WA.

Prior to the opening of the TOP store, I bought most of my groceries at Fred Meyer or Safeway. They were farther from my home than the QFC or Albertsons, but had a better selection of private label goods (aka store brands) and a bigger selection of fresh produce.

When the TOP store opened, I immediately switched to it. But I am not a loyal shopper. I shop for groceries every few days and will pull into a store whenever it is convenient (based on direction I am driving, time of day, etc.). Thus, I continued to occasionally shop at the other stores.

After a few years, I noticed that the prices were higher at TOP than the other stores. But since it was close to home, it remained my primary store. However, the parking lot at TOP was not as full as in the past. Price sensitive shoppers were abandoning the store.

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The competitive landscape got tougher in 2004, when Whole Foods Market, a purveyor of high quality, high price groceries, built a large store near downtown Bellevue. This caused a lot of people to switch their purchases of meats, cheeses, and wines to Whole Foods. These are items that have high margins. This especially hurt a nearby competing store, called Larry’s Market, which ultimately led the entire chain to fail.

The space where Larry’s Market was became a Big 5 Sporting Goods store for a while, then was empty, and finally in 2011, Uwajimaya moved into part of the space. The remaining space was taken up by Total Wine, the biggest liquor store you have ever seen.

Uwajimaya realized that it was not a direct competitor to Whole Foods and could safely open a store across the street from it. In fact, the two stores are somewhat complementary. Also, even though Whole Foods in on a busy street, it is hard to get to. You can’t make a left turn out of the parking lot, forcing extra driving regardless of which direction you come from. Uwajimaya is easier to get to. Finally, Uwajimaya is one block from the Home Depot, a store I visit a lot. So I drive past the Uwajimaya frequently and thus shop there often.

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In 2011, Haggen received a large capital infusion from Comvest Group, a private equity firm. Comvest decided that the TOP location in Bellevue would not be successful unless it switched from competing on price (apparently, TOP stands for Tough On Prices) to competing on quality. Thus, they changed the name of the store from TOP to Haggen Northwest Fresh and spent what I estimate was over $200,000 to remodel the store.

The remodeling effort took about three weeks. During that time, the store was open, but was a chaotic mess. So I stopped going the TOP and instead shopped at QFC and Trader Joe’s, two store that I rarely visited in the past.

I came back to the new Haggen store after the remodel. The biggest changes were to increase the spacing between stands in the produce aisle to give it the look of a faux farmers’ market, expand the wine section, and add a big exhibit stand in the center of the store. To make space for all this, they cut back on the private label brands, the very items that I visited the store for.

The other change they made was an effort to brand each of the sections of the store with names. For instance, the fish counter was renamed Lummi Bay Market and the deli counter was renamed Dot’s Kitchen. The idea was developed by the Hartman Group a local consulting firm, that called it a “store within a store” concept. Unfortunately, there didn’t appear to be any budget to change the look of the counters themselves, the offerings, or training for the personnel. So other than the new signage, nothing appeared to have changed. It seemed a waste.

Apparently, sales at the remodeled store did not meet expectations, so they began mailing $5 off coupons to customers. This must have been very expensive, and counter to the new high price, high quality image they were seeking. Ultimately, I decided to continue to patronize QFC and Trader Joe’s and only rarely stepped into the Haggen.

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The remodel has been a disaster for Haggen and Comvest and led to the store’s closure. Hopefully, the company can find its footing and achieve success in its other stores. I liked the TOP store when it first opened and am sad it failed. The retail business is tough and is undergoing a revolution with companies like Trader Joe’s and Whole Foods taking the high-end, ethnic food stores catering to the immigrant population, and services like Amazon Fresh making inroads in the grocery delivery business.

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Several months ago a Walmart Neighborhood Market opened west of our house. It occupies the space of a failed Kmart store that had been empty for years. Then last month, a new Grocery Outlet opened just across the street from Crossroads Mall in what previously had been a high-end appliance store that closed during the housing crisis. Apparently, there are still people who think the grocery business is worth investing in.

A huge front-page story in today’s Denver Post features Love Hope Strength Foundation’s effort to sign up people to the bone marrow registry. The group hands out flyers as people drive into the parking lot of rock concerts (and other events) and then takes cheek swabs (later used to create an HLA profile) as they walk into the venue.

RobRushing

Rob Rushing of the Love Hope Strength Foundation at Red Rocks Amphitheater. Photo by Hyoung Chang for The Denver Post

I’m fascinated by the group’s motto of “Saving lives one concert at a time.” Here is an organization that has found a way to attract the young people who make the best bone marrow donors. It makes itself highly visible at rock concerts.

By doing so, Love Hope Strength generates publicity for its cause. Recruiting people at the event itself is very useful. But by doing it in a public venue it makes joining the registry a socially acceptable activity. And it does more. It generates interest in donating money and in becoming a volunteer. Finally, it educates the public about the important role adult stem cells play in fighting cancer and other diseases. Overall, this is a wonderful model to engage young adults in a healthcare related activity.

One of the most active areas in online advertising is local deals. And the biggest part of that market appears to be social network-driven, deal-based discount gift certificates (or paid coupons). There are several agencies that facilitate these deals, such as Groupon, LivingSocial, and a large number of other competitors. Below is a description of how the deals work from each entity’s point of view.

Let’s start by explaining the business model of Groupon and similar firms. They are advertising and promotion agencies that focus on small customer service oriented businesses. Groupon has thousands of sales people, designers, and copywriters located in big cities in the U.S. and several international markets calling on small businesses and selling gift certificate deals. In this sense, their efforts are similar to those of direct mail companies, newspaper advertising sales teams, and yellow pages publishers.

The client firm agrees to allow the agency to sell gift certificates to customers at a deep discount, typically half off, such as $15 for $30 worth of goods. The client also agrees to pay the agency a fee for handling the promotion, typically half of the amount collected from customers, so $7.50 for each $30 gift certificate sold.  In exchange, the agency guarantees a certain minimum number of customers, most of whom will be new, will accept the deal or else the deal will be cancelled. The client does not pay anything upfront for this promotional work, Groupon and its ilk only get paid as the gift certificates are sold.

On the promotion side, these agencies maintain opt-in email subscriber lists of consumers who are  interested in receiving daily notifications of deals that are relevant to them. The agencies use recruitment techniques to grow their subscriber lists as large as possible. They encourages social interaction among the members in an attempt to increase the number of participants for each gift certificate deal and to increase the number of gift certificates purchased by each member.

There are two common attributes of the deals offered. First is that a minimum number of purchases must be made or the deal will expire. This encourages members who like the deal and have accepted the offer to solicit their friends to also purchase the gift certificate. The other is that the deal expires after 24 hours or after a maximum number of certificates is sold. This creates a sense of urgency that encourages rapid purchase decisions.

Despite the tremendous growth of group shopping, not all small businesses have been happy with the results. Part of the problem is that small businesses are often not geared to handle a large surge in customers. They underestimate the effect of long waits on profitability and on customer satisfaction. They also don’t have the customer relationship management (CRM) programs in place to convert first time visitors into long-term loyal customers.

Below are a couple of videos that describe the problem. The first one is an AP news story about a nail salon that is overwhelmed when deal seeking Groupon customers crowd out the regulars. It makes what should be a pleasant relaxing experience into a stress-filled, impersonal exercise. The second video is an interview by blogger Rakesh Agrawal that appeared in TechCrunch and has become a viral hit.

GrouponAP

Groupon impact on Crystal Nails in Chicago. Video by Associated Press

GrouponPosie

Groupon impact on Posie’s Café in Portland. Video by Rakesh Agrawal

If you want a first-hand account, you can read a Sep 2010 blog post by Jessie Burke, the owner of Posie’s Café.

AmazonLocal Launches in Seattle

Earlier this year, Amazon made a small investment in LivingSocial, one of the social network, deal-based coupon providers described above. About the same time, Groupon, the largest coupon deal provider rebuffed a multi-billion dollar offer from Google and is expected to launch an IPO later this year.

Last month, and only a day apart, both Amazon and Google jumped into the coupon deal business. Google launched Google Offers in Portland, Oregon. Amazon launched AmazonLocal in Boise, Idaho. This week AmazonLocal expanded into Seattle, where I live. For now, it appears that AmazonLocal is merely wrapping its logo around offers sold by LivingSocial (see example below).

AmazonLocal

Example offer from AmazonLocal. Image from email

I’m not drawn to mob activity, so I’ve never bid on an auction item on eBay and have never participated in a coupon deal. But lots of people find this type of buying fun. All I can say is that growth at eBay stalled after expert buyers automated auction purchases by bidding at the last second, stealing away deals from novices. Bidding at auctions stopped being fun and became a job. eBay is still looking for a new business model to jump-start growth.

Incidentally, eBay is exploring group-buying coupons too. It is testing a website called Kuponan in the Philippines and Social Shopping in India. However, in the U.S., eBay has decided to partner with Groupon for now.

Facebook is starting a group buying service called Deals on Facebook. As you can see, the barriers to entry into this market are low, which is why I am surprised that Google felt it needed to buy Groupon and that Groupon’s IPO is so wildly anticipated.