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There are some things that simply cannot be solved with an online FAQ. And if you have a question that needs to be answered or a technical problem that needs to be resolved, that likely means you need to call into a call center. Demand at many call centers should be relatively unaffected — or even boosted — by the ongoing pandemic. The call volume at an ISP’s tech support has to go up as more people are working from home and every hiccup in their connection becomes clear to them.

Unfortunately, call centers are not great places to be during a pandemic. Management has an incentive to pack agents like sardines. Business Insider had an article about a South Korean call center which had a significant Covid-19 outbreak and whether you got sick was really determined by where you sat. That seems to suggest that call center agents should just be allowed to work from home. As Vox explains, many firms have tried that (One nation, on hold, May 13).

Many call centers have scrambled to send thousands of customer service representatives to work from home for the first time, a process fraught with logistical and technical hurdles. Others have continued to tell employees to come into the office — which they can do, since call centers have been designated as an essential service — but at reduced numbers. A growing number have seen workers get sick with Covid-19.

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A short follow up on Gad’s post from earlier this week on Uber’s interest in Grubhub. There’s a blogpost on The Margins about pizza arbitrage via Doordash (Doordash and Pizza Arbitrage, May 17) that has gotten some attention this week. In a nutshell, the story concerns a pizza shop run by the author’s friend who discovered that (a) Doordash had posted the shop’s menu and started placing orders without telling the pizzeria and (b) Doordash had posted the wrong prices. Wrong as in Doordash was selling a $24 pie for $16. So if the pizzeria owner were to have an accomplice order ten underpriced pizzas through Doordash, he would quickly pocket an extra $80 relative to selling the same pizzas to a real customer. Since Doordash was doing this on their own, that would be $80 of Doordash’s finest venture capitalist supplied cash.

It’s a fun read and worth checking out if only to enjoy the line “Was this a bit shady? Maybe, but fuck Doordash. Note: I did confirm with my friend that he was okay with me writing this, and we both agreed, fuck Doordash.” But there is also an interesting analysis of whether Doordash and its ilk have a feasible business model.

How did we get to a place where billions of dollars are exchanged in millions of business transactions but there are no winners? My co-host Can and my restaurant friend both defaulted to the notion “delivery is a shitty margin business” when discussing this post. But I don’t think that’s sufficient here. Delivery can work. Just look at a Domino’s stock chart. But, delivery has been carefully built as part of a holistic business model and infrastructure. Maybe that’s the viable model.

After the start of this pandemic, my friend actually launched in-house delivery at one of his restaurants. He said he’s starting to get a sense of the economics and explained he’s starting to get a sense of the volume required per location to make the economics reasonably work. That’s what is so odd to me about third-party delivery platforms. The business of food delivery clearly is not intrinsically a loser. Domino’s figured it out. Every Chinese restaurant in New York City seemed to have it figured out long before any platform came along. My friend is figuring it out.

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The Verge had an interesting article “Facebook will pay $52 million in settlement with moderators who developed PTSD on the job”

The article documents the details of the settlement and the situation leading to it,

“Each moderator will receive a minimum of $1,000 and will be eligible for additional compensation if they are diagnosed with post-traumatic stress disorder or related conditions. The settlement covers 11,250 moderators, and lawyers in the case believe that as many as half of them may be eligible for extra pay related to mental health issues associated with their time working for Facebook, including depression and addiction.”

The moderators were hire, through consulting firms, after the 2016 elections when Facebook was criticized for failing to remove harmful content from the platform. 

Multiple interesting aspects can be learned from this case (before I get to the PTSD aspect). Still, the most important one is the sheer number of moderators needed to moderate content for a tech-driven platform.  

Three key assumptions are driving this situation:

  1. Facebook is not a media company, but a platform, and in that sense, it cannot and should not police content. That was the initial point (and still to this day, the legal point) Facebook was making.
  2. If it tries to police anything (and it clearly polices some content by virtue of showing us some and not showing us other content), it should be done algorithmically. Why? Machine learning is better than humans.
  3. Humans, if can actually do that work, will deem it as non-scalable, which is antithetical to anything Facebook (and I should say, anything Silicon Valley).

It’s the last part I want to focus on, so why did Facebook resort to humans? The fundamental dichotomy that has usually been discussed in the tech sector is Bits vs. Atoms.  Atoms are the physical assets of a business, such as inventory, property/infrastructure, and people. Bits are digital or otherwise intangible assets, including software and intellectual property. In my scaling course I discuss the “Scalability paradox”: in an attempt to become more scalable firms, tend to rely on tech solutions (and in that sense, Bits), even in a situation where technology is premature in addressing a vital aspect of the service, in many cases slowing their ability to scale and enjoy these key benefits. 

Why do I think technology is premature here (I know… machine learning)?

“In the settlement, Facebook also agrees to roll out changes to its content moderation tools designed to reduce the impact of viewing harmful images and videos. The tools, which include muting audio by default and changing videos to black and white, will be rolled out to 80 percent of moderators by the end of this year and 100 percent of moderators by 2021.”

The fact that technology is going to be rolled (slowly) with the ability to mute and move the content to black and white shows

  1. How little technology can do
  2. How good humans are in tricking these systems, so human judgment is actually needed to do a good job.

So, it’s clear: the solution is a mixture of humans and technology. The question is, how can you reduce the complexity of the task, reduce the need for human intervention, and increase the predictability. Astonishingly, most of the inroads were in providing straightforward tools to minimize the impact, post-trauma, rather than reducing the likelihood of encountering the trauma.

So why is Facebook even engaging in this, after claiming all these years that it’s not a media company and that algorithms are superior to humans: Trust is an existential threat to FB. And this is the scalability paradox for Facebook.

The New York Times, as well as many other outlets, wrote over the last week that “Uber Said to Be in Talks to Acquire Grubhub.” 

The New York Times continued with the subtitle of “A deal would unite two large players in food delivery as more people order in meals during the pandemic.”

This has nothing to do with the pandemic (but also has everything to do with pandemic).

On the one hand, the trend was evident even before COVID-19: people order more food, and restaurants are moving a larger volume of their sales to online platforms. A new phenomenon emerged over the last few years: Dark Kitchens (the term used in the UK) or cloud kitchens (US-based). These are restaurants without a storefront or a seating area. While still early, the emergence of these cloud kitchens is just the beginning of a much broader trend: we will see more efficient value chain from kitchens/restaurants to homes through a decentralized distribution system, powered by these online platforms such as Grubhub, DoorDash, and ClouldKitchens (a VC run by the founder of Uber).  

What we see in the acquisition talks between Uber and Grubhub is also a continuation of the consolidation of this industry. It is clear that the competition among these online platforms is extreme at this stage, and it is evident that the perception among them is that in order to be financially viable, they need to have a significant scale, potentially dominating the entire market.  

However, while this market has some of the hallmarks of a winner-takes-all one (strong network effects, and homogenous customer preferences: we all want availability and fast delivery), it also has many features that counter that (we don’t mind multi-homing, being on multiple platforms, and restaurants prefer being on various platforms). So, while we will most likely not see a winner-take-all situation, scale is going to be a significant driver. We already see consolidation: Amazon invested in Deliveroo, DoorDash acquires Caviar, among other deals.

So, is this even remotely related to the Coronavirus? Uber just fired 20% of its employees. It hasn’t had one profitable quarter, and things are looking pretty grim with the uncertain Corona return to normalcy (even though, I am pretty optimistic about it, as I share here). Since food delivery has been demonstrated to be counter-cyclical to the transportation part of the gig economy but has some positive externalities (same drivers, for example, same customers), this has the potential to be a very positive way to address this volatile time, with significant upside even beyond that.

We have had a number of posts over the years on retailers filling ecommerce from brick-and-mortar stores (see, for example, here and here). From the perspective of inventory management, treating what’s in the stores and whatever is in a fulfillment center as one giant pool of inventory makes a lot of sense. In theory, there is no reason to turn down a web order just because the fulfillment center is stocked out if the needed item is sitting at some mall. The reality, of course, is more complex since picking and packing at a store is going to be more costly than doing the same work at a dedicated facility. Additionally, there is the question of how taking items to fulfill online orders impacts in-store customer behavior.

Now add to those concerns how shipping items from random locations impacts the logistics provider who has to collect and schlepp those packages. Apparently, FedEx has had enough and is working to rein in retailers shipping from stores (FedEx, Strained by Coronavirus, Caps How Much Retailers Can Ship From Stores, Wall Street Journal, May 14). Continue Reading »

The supply disruptions affecting some seemingly basic products have been fairly sustained. While it is now easier than it was at the start of the lockdown to fine, say, toilet paper and tissues. Other items continue to be hard to come by. Articles are regularly appearing offering one explanation or another for why [fill in the blank] still isn’t on the shelf.

Take, for example, disinfectant wipes. These are basically on every list of how to be safe during the pandemic. That led to a burst of buying in February and March and the likes of Clorox and Lysol are still trying to catch up. One consideration here is that in contrast to items like toilet paper wipes were not in every pantry before the crisis hit and they also aren’t that easy to make (Why Clorox Wipes Are Still So Hard to Find, Wall Street Journal, May 7).

Disinfectant wipes can’t be made as readily as hand sanitizer. The process combines fabric wipes with the cleaning solution, and the Environmental Protection Agency has in place criteria for cleaners to be considered effective for use against SARS-CoV-2, the virus that causes Covid-19.

And unlike toilet paper, which is ubiquitous in homes and businesses, only about half of American households stocked disinfectant wipes before the pandemic, Clorox’s Mr. Jacobsen said. That led to an even more dramatic demand spike as current wipe users consumed a much higher volume while new buyers sought them out.

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The Information recently published an interesting article on Instacart, Instacart Weighs New Financing That Would Boost Valuation by at Least 50%.

It starts with an expected, yet somewhat surprising in its magnitude, statistic:

“Instacart’s business has risen more than fivefold since last year, as millions of customers have chosen to order groceries for delivery or pickup rather than go to the stores themselves.”

The Shelter-in-Place, together with the extreme social distancing in some places and/or complete business shutdown in other places, has contributed to the fact that people not only stay home but stay at home and cook. Instacart has more locations, as well as more variety and optionality than Amazon which has contributed to the fact that the firm has increased its lead over Amazon.

But one question is looming, as it does for every business these days: Is this the new normal?

“One question is how many of Instacart’s new customers will become permanent after more businesses reopen across the U.S. A higher valuation might put pressure on the company to retain new customers to sustain its current revenue.”

I have been analyzing the online grocery competition in the US (and globally) for many years and one thing that has been surprising for me throughout the years was the slow pace of growth of this industry. While around 30% of the people have tried ordering online groceries, the market penetration (pre-COVID 19) had been around 2%: 2% of the dollars spent on groceries are done online.

This is a really small percentage, and even more so when compared to other online retail sectors. Why? As I discussed in earlier posts, one reason is that online shopping for groceries is not as convenient as it seems initially: the biggest cost of grocery shopping for most of us is actually going to the store, which means that it is enough that I need to go for one product, I might as well buy everything at the store. Outsourcing and trusting quality control to the picker is something most people are still reluctant to do. The second reason is that when it comes to groceries, people are much more price-sensitive (at least when it comes to paying someone else to do my shopping). Culturally, we are still hunters and gatherers.

How have these factors changed during the corona-days? The cost of going to do shopping has increased significantly: putting on face masks and baring the risk of COVID have changed the math altogether. We don’t want to pay someone to do our shopping and save us time. But we actually like the fact that someone else is bearing the risk for us.

How will it change post-corona? Clearly some people are going to realize the benefits and time savings of online groceries. More people have learned to cook, and how to be more efficient (or settle) for online grocery shopping so I definitely expect to see an acceleration in the penetration rate of online groceries, potentially justifying the new valuation. But will this be the new normal? I don’t think so.

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