Arnold Waldstein's Blog

As Naked Wines CEO Rowan Gormley puts it…”Some businesses just couldn’t exist without social media.”

Certainly Naked Wines is one of those. It’s a refreshingly disruptive idea for the online wine business, creating a community empowered value chain from the vineyard to consumer. The results are large discounts, next day convenience and a true partnership with the winemakers.

Most social commerce solutions today are global brands or e-businesses layering in a social component, usually through Facebook to add traffic to an established business model. Interesting, but a bolt-on and rarely social at their core. Naked is decidedly different.

Naked Wines DNA is social by design

Naked Wines uses social media as an intrinsic design element to create something new and unique to the needs of wine buyers. There are Facebook fans and Twitter followers aplenty, but this is not an add-on to the big social networks. It’s an open web community with a referral-based economy and customer funded investments in their own supply chain of mostly artisanal vineyards. Socialization is tied to the commerce model itself, not an extension of Facebook ‘Likes’.

What wine consumers want, and what Naked Wines seems to have tapped into, is a community that is based on personal referrals, a social relationship with the producers themselves, resulting in significant discounts and a sense of control. They’ve skirted the legacy wine distribution and ratings system hierarchy by creating their own customer-driven system.

Most online wine clubs are based on discounts and remainder sales. Naked Wines is different. It starts with the concept of community that bridges both consumer and winemaker. The community chooses the wines, invests in the winemakers and sets the discount sales price. All with a bias towards the artisanal winemaker.

It started with a decision do something completely different

Per Rowan, CEO of Naked Wines, back in 2008, a group of 12 friends left Virgin Wines in the UK to do something brand new in the wine business. They had three guiding principals which are still the keys to decision-making today:

1. Create a virtuous circle, where customers helped winemakers who in return helped the customers
2. Be “Naked”–Be completely transparent (beyond the point of comfort) to the customers and the winemakers.
3. Have the fastest cheapest delivery in the UK (£4.99 for next day)

The Naked Wines concept

The service is remarkably simple as a general concept.

Invest in independent wine makers and get preferential treatment. Commit to buy early and get better prices. Then wrap these two age-old concepts in a social community, with complete transparency and you start to get Naked’s social commerce model.

How it works

Angels are ‘investors’ and the core of the model. It’s a really simple process. They ‘invest’ only £20 a month. In exchange, they get a 33% discount off list price plus next day delivery. Angels also choose the wines that get sold—through tastings, something seen or heard about and as part of a ratings group.

Kind of like a democratic inventory control by club members and very close to a pure referral-based model. You don’t have to be an Angel to purchase from Naked, but discounts are not as steep.

Angels today invest between £600k and £800k a month. This supports the winemakers that sell wine through Naked. The funds are multipurpose–from a salary for the winemaker to purchasing grapes and barrels to covering the winery and dry goods costs. The Angel fund is the currency for the model and acts as a community bank for the entire chain of supply and demand.

Wine economics are messy and ripe for a change

Approximately 30% of the cost of a bottle is for making the wine. As much for taxes and the remaining big chunk for marketing and distribution. By pre-buying the wine before production, 25% to 65% of the cost is removed. This is where the margin for the business and the discounts or the customers comes from.

The winemaker is bankrolled to produce the wine, guaranteed a per bottle price, profitable at a lower cost and motivated to socialize with the buyers on the site to stimulate sales. At it’s best, wine is made and sold at a profit with little or no risk.

A smart twist is that the winemaker can sell the same product through traditional markets. The higher price by comparison with Naked’s price, further accentuates the value of Naked’s community model. Clever marketing at its best.

Community basics

Naked Wines website intertwines community and commerce. Social referral systems and reviews, ‘those who liked that, liked this’, access to the winemakers, and an open discussion on quality, likes and appraisals. Where else do you see a return policy that says…if you don’t like it, just return it. And if you have less than five bottles of the order left, just give it away at no charge. Wallmart this isn’t!

Marketing to date has been almost entirely “STL” or Share the Love. No cost viral loops through word-of-mouth, Facebook and Twitter.

Check out their online community. I would join for certain if I lived in the UK.

Some business metrics

Rowan shared some general numbers with me. Since launch, just less than two years they’ve recruited 100,000 new customers in the UK. They are on track to do about 1.7 million orders bringing in £9m sales in 2010. Their goal is triple in size in three years. Really impressive stats.

Many web apps would be happy to simply have 100,000 active users, not to mention paying customers in that time frame.

I really like this model. Bold. Unique. Socially powered at its core. Born out of a love of wine, a belief in the small winemaker and a leap to give the community control. A simple idea but not trivial to pull off. It’s never easy to take a big principal and make it executionally natural and easy-to-use. Naked Wines is on to something here and the economics speak for themselves.

Wrapping up

Naked’s business model becomes more efficient and more profitable as it scales. To meet their goal of tripling in size means supercharging the viral loop. Funding advertising I bet as well. And increasing the pool of vineyards and Angels multiple fold.

The challenge for Naked will be getting larger and still being community driven. Scale is the unchartered territory of all community commerce plays and no-one knows how big a community can get and still function. But they certainly have lots of room to grow.

My completely unverified crystal ball says that niche geographical communities or a franchise model with central warehouses and next day deliveries are coming in other areas and countries. There is no shortage of areas that would relish having community-driven commerce around artisanal wines.

If I’m right…and who knows…I hope that NYC is next.

I love big ideas that deliver value, disrupt the status quo and put power and choice in the hands of the consumer. And I really love the idea of ordering discounted wines from artisanal vineyards recommended by friends that show up with no fuss on my doorstep, the next day.

Everyone loves a bargain.

But social buying is more than Crazy Eddie with a modern twist and an added viral loop. The formula for success lies somewhere in the intersection of value, local orientation and an e-commerce system grounded in social behavior.

Successful discount and coupon aggregators have long understood that people love a great deal if it’s easy to find, is limited in availability and is simple to buy. What the social buying services added to that winning formula was the local loop, a service merchandise orientation and social incentives.

What is social buying?

Whether you call this social buying, collective buying or group buying…it’s all the same. This is an opted-in, deal-a-day local marketplace for services fueled by value and scarcity, and powered by community dynamics.

How does it work?

The core value is the daily local deal of course, but social behavior and scarcity creation come in two main flavors

1. Threshold buying as defined by Groupon

Epitomizes group buying (i.e., ‘group’ in Groupon). The deal has a threshold of participants that have to purchase for it to be good. If interested in the deal, you Share and Like and Tweet and reach out to your networks to fill the threshold.

Great deals and clever gameplay, including Groupon Bucks virtual currency makes this hold together.

2. Incentive buying as defined by LivingSocial, DealOn, BuyWithMe

Convince your friends to buy and your cost goes down. Or you get your product for free. Virtual currency incentivizes the referral process in most cases.

Same core value as the threshold approach. Terrific deals, incentives (LivingSocial DealBucks; DealOn Dollars) and gameplay drives community involvement.

These formulas seem almost too simple. But they work for both consumer and merchant alike.

My take on why social buying works:

1. Value of the deal

The deals must have significant savings on either trendy or expensive basic service items. 45% off flights of wine at new wine bar. Personal training for 50% off. Or a $400 dental exam and cleaning for $49.

Add must-have or been-thinking-about-that or never-thought-I-could-afford-it items with can’t-not-do pricing and scarcity… and it is hard to not jump on this.

2. Local matters

Forget geo-targeting as a trend as it has real utility in this model. The reason why social selling works in dense urban areas is convenience and immediacy.

This will go further as they begin to target by neighborhood, but even as a start, making sure the spa or dentist or gym is close drives the immediacy and personalization of the deal.

3. Social incentives and community orientation

This is word-of-mouth viral marketing within the context of a community-oriented and networked world.

Whether it is the threshold or the incentive mechanism, people want to share a great deal especially if it is something they can do with friends. Add Twitter and Facebook to this mix and bang…it’s just sharing fun stuff with friends, but on social media steroids.

4. Customer centric presentation

Never underestimate clear design. The daily deal-a-grams are the height of simplicity, focus and ease-of-use.

They are about you completely. No corporate baggage here. The deal is the why. It is impossible not to know how to share and transact if you have ever used a digital device. Add easy-to-understand videos and smart FAQs and there is simply no need for technical support.

Social buying is the most perfect example of social commerce that I’ve found so far and the cleanest use of social marketing in an e-commerce model either on Facebook fan pages or on the open web.

It’s like a hybrid of dynamic direct (e)mail and geo-targeted advertising. It’s smart marketing, clever adoption of social tools and an acknowledgement that commerce is a natural offshoot of community.

In social commerce, the customer is the winner

The social buying phenomenon has made discounts the new list price and the consumer wins every time.

What I like is that this has taken the idea of a consumer-centric world and made it real. And it has taken the concepts of social design and used them craftily for smart social marketing implications around e-commerce.

The consumer, and to an arguably slightly lesser extent, the merchant, are the winners in this model.

Looking ahead to the coming brand shakeout

It’s still early days for social buying…but maturing very quickly. And already the market seems overcrowded and slightly commoditized.

The mega dental deal I missed on Groupon 3 weeks ago, I just bought from TIPPR this morning (seriously!). This is great for me as the consumer of course, not so for the would be discount brand.

This commodization is a warning sign for the Groupon’s and LivingSocial’s and countless others. They need to both continually innovate, but more so, find brand value and recognition for themselves…and quickly.

My guess is that I’ll soon have a personalized deal dashboard or deal feed. Or more likely, one of my bookmarked shopping or info sites will feed all the deals to me under a brand that I have a long standing and trusted relationship with.

Like social commerce as a larger category, the social buying discount model is just getting started but I’m certain that it is here to stay. It’s just too good for the consumer.

The real question is whether the first movers and pioneers will win. Whether Groupon and LivingSocial will survive the brand shakeout and be where I find my deals a year or two out.

Sometimes the first mover wins…but in tech innovation, being the pioneer isn’t usually the same as being the winner.

Hitwise numbers reported last week by Barry Levine in Sci-Tech Today, indicated that for the first time, Facebook not Google was the dominant driver of traffic to the Internet.

He captured this fact in a great phrase: Facebook is now the center of gravity for the Internet.

This is really a significant shift. No longer is search what drives the majority of internet users to launch their browsers in the morning, but it is now replaced by the need to go to our Facebook pages, visit and get our information from our communities. And undoubtedly hang out online longer and be social.

Is the big change here that we choose social over search? Obviously the numbers don’t lie and now Facebook leads as the driver of online activity. But this goes deeper and speaks to how we are finding information online and from a different vantage point. I’ve blogged on the shift to the power of our networks here and the wisdom of the community here.

Think about Facebook for a moment. We choose our friends, populate our communities and determine the content of the Facebook Newsfeed we see. For myself, the Newsfeed is my principal information source for many topics. New post by Fred Wilson…there. New post by friend Mark Essel…there. What’s new in the wine world…there. Tech news, art news, world views, silly points of views…all there in the feed from trusted folks I’ve chosen to allow into my community.

Most every topic that I’m interested in is in my feed when I log in for my first click of the morning and many times during the day. This personalized channel doesn’t miss much and it is constantly changing as I join clubs, add friends and post myself.

This information and news is all in-network, all referral, all from trusted sources that I allow to be displayed. With the new numbers from Hitwise and the astounding fact that 500,000 a day are joining Facebook, I’m presuming that the majority of people on the web daily are doing the same thing. Determining their communities, getting information from friends and doing just what I do. Which is in essence personalizing the information they see and adjusting the filters of who they trust.

The big question for me is not why we are there or what we are doing. But where does the search function live and what does it look like moving forward? Certainly with communities as the majority base, search can’t remain extant from those communities, with importance and popularity determined externally.

We search for information. It’s a natural state that drove us to Google originally. For data. For dictionary understanding. For all the stuff that inspires our imagination. Our hunger for facts.

Search is essential but importance ranking or popularity of information shouldn’t be determined impersonally. My community should be determining link popularity, not the open web and keyword densities.

Great questions are starting to surface:

-Where is the search function going to live? Are we going to have to leave the community and go elsewhere to get answers?

-Is the search mechanism itself going to start taking the preferences and the value of the community into consideration on what is trusted or more important?

-And is search going to be a function of Facebook? Of Google? Something completely new like Hunch? Or a hybrid?

It seems that the numbers from Hitwise are stating a priority. And that priority is community. Likewise, it’s logical that social and community search are the next steps. We simply require that our communities become the new filters.

To me these are the critical questions that the shift from Google to Facebook dominance raise.

Search we must have but personalized and community filtered and centered it must become.

The answers to these questions are unknown as yet… but they are interesting and important and will change the online experience as they work themselves out.

The cloud is one of the great equalizers for companies doing global business.

Whether its Amazon’s EC2 or another service, building your offering in the cloud is a game changer. I’m not talking about the obvious upsides of storage, scalability and the beauty of having both without sunk capital on servers and infrastructure. I’m thinking about marketing and the leveling effect that the cloud has across geographies and computer owners.

Facebook’s new plateau of 350M users prompted me to look at this from a distribution and marketing point of view.

Facebook users by country.

1. United States                    94,748,820

2. United Kingdom                22,261,080

3. Turkey                               14,215,880

4. France                                13,396,760

5. Canada                              13, 228,380

6. Italy                                   12,581,060

7. Indonesia                          11,759,980

8. Spain                                    7,313,160

9. Australia                              7,176,640

10. Philippines                         6,991,040

(numbers from “Social Media Matters, Building Brands on Facebook”)

Turkey #3, Indonesia #7 and the Philippines #10 are the ones that catch the marketers and business modeler’s eye. Surprising high user numbers in countries that have low computer penetration.

When you match this list against the top 15 countries for PC and computer penetration per capita, Turkey, Indonesia and the Philippines don’t show on the list at all. These countries, as expected fall into the ‘Have Nots’ as regards to computer ownership. No surprise here but just checking.

The ‘why’ of this is simple actually.

If you stick all the computing power and storage in the cloud, and make your client-side download tiny or nil your market becomes infinite in concept. Yes, this can be costly to initiate, and surprisingly hard to set up and difficult to manage but possible if you are motivated enough to figure it out. Your users have PCs in ‘Have’ countries, phones and netbooks in ‘Have Less’ countries and in places like Turkey, Indonesia and the Philippines, some combo of phones and an Internet Café culture. So putting the weight and smarts in the cloud and little to nothing on the client side, lets your value be found and used regardless of the PC footprint. Likewise, an almost global market.

This is not true Democratization of access as it costs and separates out those without capital, but for Facebook and a host of other services and applications, this creates a one-world flattened marketplace.

I’ve been ranting for a while that marketing in today’s world, is not about add-on campaigns or line items, it’s about thinking through how to discover your market with the product or service itself, from inception. Whether for Facebook this was forethought or afterthought is irrelevant as it is the reality of their success.

Cheaper smart phones and netbooks will drive folks out of the Internet Café’s possibly to park benches and coffee shops across the world but the reality remains the same.

Draw three big circles: Global. Mobile. Social. And where they intersect is one universal market.

The cloud is the glue that can make them work from San Diego to Bangladesh to wherever if the offering is compelling enough. I like this. A flattened world engenders democratic access, at least in concept. As a marketer and businessperson, this is a powerful and empowering realization.

The challenge of building social communities within the enterprise has for a while seemed to be the next great frontier to conquer. So when Salesforce.com announced Chatter as the intersection of social media and CRM within a secure enterprise environment, I anxiously jumped on the demo materials to see if Marc Benioff could deliver something game changing.

Chatter is impressive. Photos, chat, link sharing, groups…and all this tied into your CRM system and happily existing in the cloud. You can interact with your co-workers; integrate CRM into a pictorial interface. It’s a clever social design makeover for the dark and productivity numbing design of most intranets and CRM systems that we’ve all been forced to use.

I would call what Chatter is doing clever social design; Salesforce calls it social collaboration. Congrats to them. Well done.

However what Salesforce.com focused on with Chatter is only one dimension of the social graph—that is the dynamic GUI and usability, but they halted sharply behind the most critical factor, that of personal empowerment and control. It’s an impressive attempt that will improve productivity and flatten the workflow no doubt, but it’s one-dimensional and at the end feels like work, not a community.

In fact, Chatter seems like a parallel community to the one we socialize in, in Facebook or MySpace or Twitter. Familiar somehow with all of the needed buttons to push, but intentionally unconnected to our personal real networks and lives. It by definition creates separation.

Imagine Facebook with no external plug-ins. Or better, Facebook, with all of your ‘relevant’ groups and external plug-ins and filters selected by company policy. Or Disqus with someone else at the controls deciding which comments stay or go in your portal and who has the permissions to post on your blog.

Social media per Wikipedia defines itself as ‘many to many’, ‘dialogue vs. monologue’ and ‘content consumers vs. content producers’. Salesforce and the folks who write this are of a like mind, but both are narrow definitions and missing the point. Their definitions are offshoots of the dynamics, not the dynamics themselves.

Social media, like the communities it spawns, are about personal control, empowerment and in a strange way freedom. It is about the democratization of the community members themselves. Whether on Facebook or participating in blog communities, the most important factor is your sense of control and the community dynamics that this engenders. You decide who your friends are. You filter and group and rank people, feeds, topics and content. You choose and define the world you function in.

And here’s the thing that struck me. Chatter allows Twitter feeds and even selected interactions with Facebook. But it appears to filter that information and decides for the individual and community what info is germane to work and what is personal. And from the descriptions in the literature, it allows information in, but generally, not out.  There are corporate filters that mine your networks to make you ostensibly a better worker.

Social media and our networks have changed the world. With my networks I can reach back across 20 years of work and personal interactions and access vast amounts of data and information from people that I already have a trust relationship with. I ask and I give things back. This makes me unbelievably productive and makes my value in some ways a correlative of the breadth and vitality of the networks I create around myself over time.

Two truisms jump out at me.

First, why would I or any individual within a corporation allow restrictive mining of my personal networks when I don’t control the filters? You are selling your personal contacts without giving them the ability to opt out. Seems just wrong on every level.

And second, if you believe in the innate power of the social graph, it is unnecessary to worry about controlling your employee’s socialization. If you hire great employees and empower them to thrive, you need not be concerned with them spending their work time socializing. In fact, you encourage it. You will realize that X% socialization be it online or at the water cooler, drives productivity through the roof. This is an old truth that is true online as well.

Social design is the tactical design language that adds dynamic dimension to information architecture and flow. And Chatter, if I understand its announcement promises, will break some new ground. But it is only a singular dimension and stops short of enabling a real community where employees bring with them the power of their own networks and reputations and connections.

This is a big step forward. But no matter how clever the social design, nor how empowering it is within the company, till it entrusts people to use their own networks and trusts them to be the arbiter of their own socialization, it misses the bigger point and the greater upside.

The announcement last week that True Ventures, a VC in San Francisco funded the 20 x 200 art site based in NYC under the moniker of the ‘Democratization of Art ‘, is a step forward in the disruption of the internet to traditional business models.

Put aside the interesting fact that a San Francisco VC funds a NY based art startup. It’s the idea of Democratization that strikes a chord with me as this is the concept that I believe underlies the marketing and business changes that the internet is demanding.

The art world and the world of galleries and limited editions is all about exclusion. It’s about creating scarcity and value through limiting access to both the artist and the buyer. The former by the scarcity of representation that can provide a market and the later by price. This is the world that Jen Bekman at 20 x 200 is turning on its head and True Ventures and a handful of visionary angels are funding. In the very still and aloof world of art, this is a very rash and important move. Throwing away the obscure and hidden pricing model of the gallery world is audacious and empowering to the rest of us.

The True Ventures post describes the importance of the idea: ‘…the potential of Jen’s vision to leverage the Internet to lower the velvet rope to the Art world and make collecting accessible to everyone.”  It is a huge idea and will reverberate throughout the art world. Jen Bekman’s formula: (Limited Editions x Low Prices) + The Internet = 20×200 is not limited to photography alone and I’m sure she is thinking to the limits of this formula.

The internet has already set the groundwork for a global democratized market, it is just taking some time to see it and bold folks with big ideas to muscle change into existence.

The list of transformed businesses grows daily. Hybrid and online distribution channels have pounded the stranglehold of retail chains. Cloud based shopping carts and back end warehousing from Amazon and others has removed the barriers to selling hard goods for small businesses. The music, real estate, news, car businesses to name just the obvious, are changed, some with ease others still in pain.

The change in the art world that 20 x 200 is heralding speaks to me personally as art is important to my life. I’m reading the Sunday New York Times, looking at my limited prints of Margaret Bourke-White on the wall and checking out the galleries and art shows in the city. The essential nature of art and the importance of creative expression hasn’t changed, it has just begun to expand and become more accessible and more democratic. Jen Bekman and folks like 20 x 200 are pioneers in making it happen. Thanks for doing this.