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.

Making video easy…is hard. But it is starting to happen and adding a new dimension to socialization on the Internet.

On the social web and on Facebook, the trend towards sending and sharing video is growing at enormous rates. Internet TV viewing in the US alone has increased more than 50% year over year. But there is a difference between sharing a video on YouTube, viewing a concert on Facebook through Ustream and what innovative startups are calling social video.

The social aspect of video is blurring the boundaries between real life and real experiences online. But more interesting, it is letting people connect with celebrities, brands, politicians and leaders in a powerful new way. This is the game changer.

The state of art for socialization around video today is in three buckets.

With YouTube, you capture a video moment, upload it and share it by sending it around. Fun stuff and we all feel good when we get comments like ”Looking good” or ”Great vacation” or “Can’t wait to see you.” Similar to a video post on your Facebook wall. While richer content than a photo, not really that different.

With the streaming companies like Ustream, Livestream and JustinTV, we are finally getting events and shows delivered digitally to us on our laptops and phones inside of Facebook. It’s cool to watch a show, comment on the wall, or Tweet out what your thinking to your friends. Similar to Social TV. Their goal is to create a virtual living room or concert hall around the shared experience. The event is streamed, the comments are to your friends via chat. This is less about changing socialization than about changing the delivery from analog to digital.

The third, more embryonic and more interesting is what is termed social video and is finding a home on Facebook.  In the spirit of full disclosure, I am an Advisor to Vpype, a social video startup. Social video, from Vpype’s application, lets an individual or a brand or businesses create a video conversation with their friends or fans on Facebook. You use your Friends Lists and Event Manager to decide where and when, you broadcast live and share the broadcast channel with your audience who can ask questions, interact and shape the content of what you are presenting or talking about.

So social video is a two-way, one-to-many shared channel of communications where the broadcaster interacts live, unscripted with their audience. The entire event is saved, shareable and reviewable. The content of this video conversation is the combination of the broadcasters video and the viewers’ comments. The sum of both defines the experience. Think of a live TV show with an audience that interacts freely with the host.

OK…so we have a live two-way channel between brands and fans. It’s authentic because you can see the broadcaster. It’s real because it’s live and free flowing. And it’s more intimate and compelling because it’s personal. Yes, this is where real life and real conversations online start to come together.

But the game changing power of this comes from something special that is only available on the social web. And that is connecting with stars (from your local politician to a movie star) in real time in a personal way. Think for a second about Twitter and one of the many reasons why it’s so powerful. You can message Ashton Kutcher or John Mayer and potentially get a response back from them in seconds. For millions this is beyond a wow experience. This could also be Gavin Newsom, Mayor of San Francisco, your Senator, Yankee baseball slugger or your local celebrity chef.

With social video, this connection between brand and fan could become a video conversation on Facebook from a Fan Page or a personal profile. With these celebrities talking to their fans or customers through their Fan Pages directly.

Vpype’s Live Broadcaster is pioneering an interactive video conversation application for Facebook brands and businesses. I will do a follow-up blog post on early beta testers for Vpype as they come online, which include a Hollywood Screen Writers Pitch Contest, Evangelical Ministers, Auto shops, DJs, virtual online assistants and one public company planning on doing its Earnings Call via the social video product.

This is what is starting to happen on Facebook. Having a cloud-based architecture, a global massive audience that grows by 500,000 a day and a proven model for friending and socialization makes it a natural. Not to mention monetization from its advertising model. I’ve blogged on this here.

Today, social video is a conversation defined in a video and gravitar-based chat environment. Voice channels and split screen (Larry King-like) environments are being tested now. And with 4G networks within reach, the paradigm will go mobile for broadcasting as well as interactive video chatting.

It is still early days for this dream but it is really starting to happen. It’s empowering for all of us to be on the brink of another chasm-leaping breakthrough in technology and behavioral change.

As much as I’ve embraced the social web and Facebook today, this leap is really something to get excited about.

I’ll be online broadcasting and trying this one out.

This is off character from my usual posts but advice that I use for myself often and with friends and clients.

And the truth is that we all need to get unstuck to some degree more often than not. Whether your 18 or 80, searching for a job or making a huge funding decision. Parts of this work for everyone at times.

The rules for using these are easy. Just ask and answer honestly and I guarantee you will have pieces of a plan to stumble forward with.

These work over a glass of wine with a friend. Or a few hours with a consultant making a business plan. Or as I use them often, as the nagging theme during a workout.

Four questions to drive action.

1. Do you know what you want to do?

Seriously. Be an entrepreneur and disintermediate the ad market? Find a job that is secure, pays the bills but drives social change? Make money while you blog about wine? Start another business on the side selling herbal supplements? Most people can’t answer this at all.

2. What are you passionate about?

Everyone needs to be able to answer this to do anything. And this really must determine what you do with yourself. This is who you are at your core. And usually what you are good at or determined to learn. This passion is what people hire or fund or follow or purchase from.

3. Do you have a network?

If you Google your name or set an Alert and nothing comes up, you need to seriously take pause. If you are interested in anything and want to do something with your interest, you’ve joined a club, commented on a blog, attended a Meet-Up, have a Linked In profile. If yes, you have the beginning of a network. And if no and all you do is call a recruiter, stop reading and get busy.

There are ways to build a network personally or for a brand, but to get started all you need to do is have interest and get moving.

4. Do you need to make money? How much? How quickly?

Can you self fund something and work at night to build a prototype pre seed investment? Can you afford to volunteer or earn minimal dollars to learn something about the industry you want to work in or change? Or are you starting from scratch?

For a entrepreneur without funding. For someone starting out in something new. For anyone building something new on the side. It’s going to take longer than you think. Without passion and a plan for support you won’t have the patience to endure. I’m certain of that.

I’m not a list maker by nature. But these four questions rolling around in your mind, on a whiteboard, put on a slide or squeezed into a spreadsheet define a direction.

For me these work and help out. Take what works for you.

I’ve been searching for someway to crystallize the sweeping changes that the social web is making in how we do business, develop new products and discover new markets. The concept of beta as a perpetual state of discovery and growth seems to capture this nicely.

In product release terms, beta is that state of ‘not-quite-done’ between a proposed spec and full functionality with some key customer acceptance thrown in. Usually the specs get reduced to eliminate bugs and meet sales cycles and then you start again.

Beta on the social web is always ongoing and a state of discovery where we are constantly moving forward to test our concepts and products against our developing market. And this concept is not just about products but extends to how we write our materials and discover our channels and markets. Beta is a state of being for how startups survive and grow in the face of unlimited unknowns and obstacles.

There is a synergy between the platform that new ideas are built on and the ideas themselves that speaks to this ongoing state of reinvention. The social web with its real-time data exchange and dynamic communications tools is building new solutions because…and I hate to say this…because it can. Flexible and inexpensive platforms, cloud-based architecture and mash-ups are enabling solutions that were unimaginable prior.

And on the other side, dynamic communications tools built on the same platforms provide community loops that fuel the conversations between developers and adopters that drive new growth and a constant state of new ideas.

A couple of examples jump to mind to illustrate this idea of beta as a state.

‘Slow roll’ is almost always the choice over ‘Big Bang’ for product rollout. On a social platform necessity and choice can become the same. Small companies can’t afford to build in isolation and create a market on launch. But more and more, even if they could, why would they? If you can have a flexible development platform and a community of early adopters, I challenge the wisdom of coming out bold before the users tell you you are ready. And by the time you have it right, the momentum is already there. Beta is the driver to always try and make it better.

Communities as focus groups for developing messaging and content are becoming a welcome norm. Many are writing books online, asking for input on presentations from the groups that are being presented to and questioning customers about product value in development blogs. Co-developing content with your community builds both rapport with your early market and a message that is already market proven. Our community platforms let us draft, share, gather feedback and iterate the message. This is a beta driven process and logical and continuous.

I’m a realist and the genius of companies like Apple who build in secrecy and have unlimited resources to market fall outside of this thought pattern. But for the entrepreneur and startup who are building from the ground up with only ideas and energy and chutzpah to make things happen, finding a model that works on flux is a good starting point to discover the value in the idea and the product.

For the startup, building on top of the social web and discovering a community is not a luxury but a necessity. And in the inevitable state of change that all startups work in, a state of constant beta is one way to think of a framework that allows for change as a solid building block to growth.