Follow up on two short sells I recommended

It is not difficult to make predictions in a down market. In May  I made calls on two stocks, CROCs Footwear and Ruby Tuesday Restaurants. They both had just released their Q1 earnings and I made a call by spending some time with their 10-K and their proposed strategy. While 3 months is a short time to check back, a quick view of their current market prices justify the short call.

RT is now trading at $5.8 down 21%  from $7.35
CROX is now trading at  $8.25 down 30%  from $11.81

Compared to this S&P 500 is at 1283.6 down 8.1% 1397.68.

So not all weakness in these two stocks are due to market downturn. Motley Fool's Tim Hanson called Crox attractive at current prices. But given  the red flags in their accounting it is good to stay out longer.

Capitalism Is Still the Right Approach To Address Poverty

Who will have the bigger impact on addressing global hunger poverty?
A philanthropist who writes checks or the captilast responding to market forces?

What will add value to those at the bottom of the pyramid? 
Charity or Business Operations?

If you have $100 discretionary income for charity budget, what would you do with it?
Subsidize someone volunteering their time in a 3rd world country or invest in a profit maximizing organization that is developing products and services for the same market?

I will side with the second option for the questions above. There is no question that the value creation comes from business development. I have talked before what Nokia and P&G have done to add value to those at the bottom of the pyramid. Now, it is an information services firm,  Thomson Reuters with its Market Light, price information delivery system.

The New York Times reports on Thomson Reuters'  new service in India to serve the poorest of farmers. This is a for profit service that delivers commodities market data to farmers through their mobile phones. 

[Thomson Reuters] has been testing a program called Reuters Market Light for several months in Maharashtra, India’s third-largest state, about the size of Italy. The state is one of India’s prominent agricultural centers, with farmers growing onions, oranges, corn, soybeans, wheat and bananas. But the farmers’ business suffers from the difficulty of comparing prices from one market to another.
“We kind of saw that there was a clear market inefficiency,” said Mans Olof-Ors, a Reuters employee who had the idea for Market Light three years ago. “The farmer would decide which market to travel to, then would just sell to that market. So there was no competition between markets.”

Gas Station owners are not raking in the dollars

Sometime back I wrote about the gas prices and the gas station owners. From a simple math I did, I computed a margin of less than 5 cents a gallon that cost $3.50. If the customer paid in cash, the gas station earned additional 7 cents per gallon.

The Marketplace reports that the situation just got worse for gas station owners with gas now selling for $4.50-$5.00 a gallon.   The credit card charges are set at a fixed percentage of 2% on the transaction but the gas station owners do not mark up gas at a fixed percentage. The retail price is marked up by a fixed dollar amount, 10-12 cents. With gas price at $4.50, the credit card charges come to 9 cents, for a meagre profit of 2 cents per gallon.

It is a tough business to be in.

How Can I Create a Public Book List

I want to create a simple crowd-sourced book list. I do not want to write code, define User Interfaces or design the schema. I want all this to be hosted and be free to me. Here is what I want to do with it:

1. When you go to the website, it will display top 10 books and recently added books
   
2. For each book it will show the title, author, the link to Buy, a count of number of people reading it, used added tags, and comments
3. Anyone visiting the page will be able to add to the count, add tags, add comments. It will be spam proof.
4. Anyone can add a book as well. When you type in words in title or author and click add, it will first search the database of added books and list the matches. It will also search amazon.com and list the matches. Each listing will have a Add Now button and a Buy Now Button.
5. There will be a search box.
6. There will be a tag cloud on the side bar.

Now would somebody make this happen?

Kindled My Interest

Finally I saw amazon.com's Kindle in use today. I still did not get to touch it or play with it. I saw some someone reading it on BART. This is also the first time I ever saw anyone using Kindle in public. I was a little surprised by it size, I shouldn't be. It is almost the size of a paperback. While the amazon.com gives its specifications and posted many pictures it somehow did not stick until I finally saw one. (The photo is a UG content from amazon.com)

amazon.com was sold out on its first batch of Kindles. Now you can order one. You can buy it only from amazon.com. This direct sales approach does impact market uptake, but I wonder if this is a deliberate strategy by amazon.com than a oversight, at least in the early stages. They may not want the whole world to buy the version 1.0 of the product, and may have much cooler things coming up. They may also not want to price the product for the mass market and would want to wait until their costs go down. I think amazon.com will go for the market share with the version 1.2 of their product.

While amazon.com may not yet want to capture the wallet share of people who are not willing to buy at current price levels it should try and capture their mind share now, preparing them for the next revision. It should provide a few Kindles, loaded with books, to university and public libraries, to expose people to this amazing new second coming of books. If people are exposed to Kindle, it should not be from isolated sightings but through no cost immersion experience.

I look forward to amazon.com donating a few Kindles to Haas's Thomas Long Library.

If you are dying to buy me a gift, please do buy me a Kindle.

Books On BART Monday

Inside The minds: The Insurance Business (I am reading this)
Insurance For Dummies (I was not reading but someone else was)
The Story Of B
Phantom in the night
The Serial
Eat Pray Love - Elizabeth Gilbert
Five Quarters of the Orange
A Village Affair
Unnatural Exposure
The Terror
Montessori Today

BART Writes Back

I sent BART the suggestion to I made in a previous post on user generated book lists. I used their simple contact form. I was surprised that someone read it and sent in a more than a canned response like " we will consider".

it sounds to me like it's a user-generated BART best seller list of sorts?
it would be cool to tie-in with a local, independent bookstore to keep it
Bay Area. We're actually launching some BART imixes along with another
initiative (but without the social input)

as you probably realize, we often have to make a distinction between "need
to have" and "nice to have" when we consider projects from a time/resource
point of view. This seems like it's more on the "nice to have" part of
that continuum, but we're definitely adding it to our development list for
consideration.

we really appreciate your thoughts -- thanks for contacting us

The message is not fundamentally different from the circular file response but I know that they spent more than few seconds on it, parsed it and understood it. This is refreshingly different.

Here is an Idea For Borders Bookstores

Since May I have been commuting on BART, the Bay Area Rapid Transit system. One thing that struck me is the readership on BART. I am surprised by the number of people who read and by the titles. As you might have noticed I started posting the titles I see from my Blackberry, mostly as a note to self.

But this is a great opportunity for two entities, BART and Borders.

As the ridership increases, the trains become more crowded and delays proliferate BART will need a way to engage its riders. Would it not be great if BART created a website of book lists of books seen on BART? As a low tech, low cost effort it could be a simple digg like page to which people add books or add their count to existing books. If they want to get fancy, they could install bar code scanners in key stations, people just swipe their books and presto it will get added to the book list web page.

Borders which is facing store closings and suffering losses just canceled its deal with amazon.com for its web offering and started doing its own web channel. It would benefit from in two ways if it did this project for BART hosted the lists at its expense. The PR on this project , and the sales from adding a "Buy Now" button next each book listing. In fact Borders can then make this generic and let anyone create public book lists, they stand to benefit from the Long Tail.

If these two choose to do it, I would make one additional recommendation: make the site public with no login requirement. The latter would simply kill it.

Customers Dont See It As Their Job To Ensure You Make A Profit

There is an interesting 40 year old Harvard Business School Case on selling contact lens to chickens. The key question in that case is how would you price it? The lens cost pennies for pairs of 1000s. Anyone who did not consider the value to the chicken farmers was taken to task by the professor. While the cost is relevant, the right way to price is based on the value creation to the customers and how much of price rent they expect.

Peter Drucker calls cost based pricing as one of the Five Deadly Business sins.

Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top. And then, as soon as they have introduced the product, they have to start cutting the price, have to redesign the product at enormous expense, have to take losses -- and, often, have to drop a perfectly good product because it is priced incorrectly. Their argument? "We have to recover our costs and make a profit."

This is true but irrelevant: Customers do not see it as their job to ensure manufacturers a profit. The only sound way to price is to start out with what the market is willing to pay -- and thus, it must be assumed, what the competition will charge and design to that price specification.

The cost gives you the basis, so you know you can't price any lower than that. But when your sales team know the cost they may pressure you to keep dropping the prices to generate sales. They are incented to close sales and will resort to trade commissions, especially near end of quarters to make their quota.

In his recent post, Seth Godin says, "You're not selling a commodity unless you want to." If you forget this and yield to the temptation of market share and the sales team pressures you will be committing the deadly sin.

Trying To Stand Out Among The Airlines

Jay Leno, in his monologue, scoffed at Airline unbundled pricing.

At the rate they are going, in an emergency they will ask us to swipe a credit card before the oxygen mask drops out. Oh listen to this, a SouthWest airline plane landed in Phoenix with one its wheels on fire. If they are going to bill us for every little thing under the sun, may be they should give us some discount, like when the plane is on fire.

Unfortunately for SouthWest, it is the only one not charging extras but it got the bad PR. In fact
SouthWest is aggressively going after the price unbundling by other airlines. All their messaging is now focused on "No fees". But when every airline but SouthWest is charging extras, does it help to be the one who does not? There is a pubic tendency to look at the Airlines as a collective, so it is not a good strategy for SouthWest.

More books

Killjoy
Ellen Foster
Geek Love
Work and Life Strategies
Three cups of Tea
Creating the Perfect Life Mentally
Saving Fish From Drowning
The Cornerstone of the Gospel
The Time Machine and The Invisible Man - H.G. Wells
The Amazing Power of Deliberate Intent
--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books on BART Friday

Power down
A book by Orson Scott Card, starts with X
Cluster - Piers Anthony
The Bourne Betrayal
I Left My Back Door Open
The United States Of Arugula
What God Hath Joined Together
Fugitives

--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books on BART today

Bitch Reloaded
The Last Promise
The Amber Spyglass
Spanish to English Pocket Dictionary
--------------------------------------
Deliver now! Improve iteratively!
www.IterativePath.com

Books: What People Are Reading In BART

1. Simple genius
2. Psychology of selling - brian tracy
3. Strategy and the fat smoker
4. When We were Orphans
5. Harry Porter and Prisoner of Azkaban
6. The Acquitaine Progression - Robert Ludlum

I created a simple list on Squidoo. Go head and add your selection there.

A Very Simple Primer On Short Sales

This is a work in progress. So far I showed very simple transactions involving short sales and their impact on your balance sheet. Give me any feedback.

Pricing Your Air Travel

The Dallas Morning News gives us the run down of the different charges Airlines make these due to their increasing costs:

FEE SPREE

Airlines are adding fees and charges aggressively as they grapple with rising fuel costs.

AMERICAN AIRLINES

$5 to redeem a frequent-flier award online, up from $0

$6 for a sandwich or liquor,

up from $5

$15 to check the first bag (each way), up from $0

DELTA AIR LINES

$25 for booking a trip over the phone, up from $20

$100 for an unaccompanied minor on nonstop flights, up from $50

$100 for transporting a pet in the cabin, up from $75

UNITED AIRLINES

$25 to check a second bag (each way), up from $0

$150 to change a nonrefundable ticket, up from $100

OTHER AIRLINES

US Airways: $5 and up for a window or aisle seat in the first rows of coach, up from $0

Northwest: $50 for each bag weighing over 50 pounds, up from $25

Frontier: $100 to transport antlers, up from $75

SOURCES: The airlines; Dallas Morning News research

Unbundling Airfares

Southwest Airlines took a full page Ad in WSJ to air travelers about the added costs of all other airlines. The side by side comparison shows Southwest charing $178 flat and the other airline charging extras over over the same $178. The Dallas MorningNews reports:

The message is that "Southwest is not going to do that to their customers," said Melanie Mahaffey, senior manager at Southwest's advertising agency, GSD&M Idea City. "They decided to do this marketing push to show how they're different and not going to raise fees on their customers."

Southwest chief executive Gary Kelly says the airline wants credit for not charging for such things as changing a ticket or checking a couple of bags.

"It's not what customers want," Mr. Kelly said after Southwest's annual meeting May 21. "Nobody wants to be nickeled and dimed."

There are two points we can deduce from this

1. Southwest cost structure is so so low that it can still make a profit $178, even after providing all the usuals (free bags checkin, free soda ...). In other words, Southwest Bundled Price still makes money for them

2. Southwest by committing aggressively to an Ad strategy of speaking against all the fees and positioning itself as "nofees" gives up the option to every do unbundled pricing.

Either they expect their cost structure to continue if not improve or they rely on every airline doing unbundled pricing and transitioning to it without getting noticed. If it is the latter, then it does not make sense to differentiate themselves on this. So we should assume that they are continuously improving their operations and hence will keep their costs down.

It still look like they will be leaving a lot of money on the table if every other airline does unbundling.

Selling Kindle Books Below Cost

The New York Times reports on the eBook for Kindle pricing by Amazon.com. Most books go for $9.99 According to the report, most books are sold below cost, because the publishers sell the books at the same cost of print books.

Amazon sells most Kindle books for $9.99 or less. Publishers say that they generally sell electronic books to Amazon for the same price as physical books, or about 45 percent to 50 percent of the cover price.

The Kindle itself goes for $399, while the books are sold at a a lower price than print books. A model that very much resembles the iPod and iTunes songs pricing model. But Apple's strategy was to sell more iPods and the iTunes was just part of the ecosystem. Amazon on the other hand sated the change in the way books will be read in the future and made Kindle as part of its strategy to lead the next version of books. If Amazon wants to dominate the format it should have priced the Kindle at a lower price and charged a higher price (at least above the cost) to grab market share.

So why would Amazon price below cost? Conversely why would the publishers charge the same for eBook when they do not incur the same cost of physical books, like materials, labor , warehousing and distribution costs? The questions are related but the answers are not.

First the publishers see a very small uptake for eBooks while there are 100 million people who still buy physical books. The do not need Amazon's Kindle, but Amazon needs them. So they do not need to give a price rent to Amazon. They may be uncertain about DRM protection. Any sale they make on Kindle comes at the expense of the physical book sales (cannibalization), so they want Kindle sale to pay the same margin. They also do not want to discount the eBook for fear of the low price expectation creeping into physical books market.

For Amazon, I do not know why they do not do the Razor-Blade pricing. If they want to gain upper hand in the channel relation they should have priced Kindle lower than $399. The books on Kindle also provide value added features that are not available on a physical book, like search, font magnification for easy reading, convenience etc. So they should charge higher than $9.99 for Kindle books. The possible reason is that their margin on Kindle is already low and they can' cut further. On the other hand, they must be thinking that eventually they can convince publishers to cut their prices.

By some measures there are 10,000 Kindles in consumer hands. The next move will depend on how the Kindle's customer base will grow over the next 12 months.