Requiem / Paean for a Dot-Com Darling

It’s a tale that unfolds more than we care to count, but is heart-wrenching to see nonetheless.  We’ve seen it many times: a young star meets with great success early on.  Their ascent is met with many accolades and kudos.  Then, they fall from grace.  Scandal; missteps; a change in public sentiment.  No matter how hard they try, they can’t reverse their fall from the great heights.

Sock puppets and search engines

yahoo pets.comI’m talking, of course, about Yahoo!, the once-revered icon of the late 1990’s dot-com era.  Two young Stanford grad students, Jerry Yang and David Filo, unleashed on the world an indexing service that would help navigate journeys on the increasingly congested “information superhighway.”  In this context, Yahoo! was nothing short of revolutionary.  Even its silly name seemed to capture the slightly irrational, but very fun, mood of the time.  This was when “burn rate” was a proxy for a company’s growth prospects, Herman Miller chairs and foosball tables represented credibility, and Jack Welch could get upstaged by a sock puppet as a company spokesman.

I have fond memories of that era: it’s when I moved to Chicago, fell in love with the woman with whom I just celebrated 11 years of marriage, and arrived at the very satisfying answer to the Frequently Asked Question, “what the hell are you going to do with a History and French degree?”  It’s why I still have a great deal of affection for this Sunnyvale company, even after the Microsoft acquisition debacle, the dustup over Carol Bartz ignominious departure, and the Scott Thompson resume kerfuffle.

Having logged time at two financial services companies, I was obviously a big fan of Yahoo! Finance.  There were two services, however, that capture the era well.

Yahoo! MailWashington University alums will recall standing in line waiting for the sterile “green screen” terminals to check their “Pinemail” in the Olin Library.  I quickly tired of the clunky interface I used to check my email after leaving St. Louis, and abandoned my “@wustl.edu” account for a Yahoo! one.  Granted, I am on the whole underwhelmed by Yahoo! Mail, given their glacial pace of introducing upgrades, and the fact that their integration with Outlook is a joke.   However, my Inbox is an ever-evolving scrapbook, a digital collection of moments I’ve shared with friends, family, and professional connections.  It’s why even though I have a Gmail account I’m still not parting with my Yahoo! account.

Geocities.  Facebook, Twitter, YouTube, and Instagram have found a captive audience in folks looking for exposure – sometimes a little too much, as in the case of the “oversharenting” moms and dads examined in The Wall Street Journal.  It wasn’t always this easy.  I hate pulling out the “in my day” card, but you had to sort of know what you were doing in the late 90’s to publish content.  Geocities was the middle ground between Facebook and WordPress, that offered some primitive drag and drop tools for building and maintaining Websites.  Through Geocities I was able to share pictures with relatives in India, develop a Web portfolio to show hiring managers that a liberal arts grad could write code, and acquire a minor following from folks interested in sound clips from Goodfellas (one of my all-time favorite flicks).   Geocities has unfortunately gone the way of Delicious, Briefcase, and other sunsetted properties.

Holding out for a Hero (or a Good Product)

Ashton Kutcher was recently tapped to play Steve Jobs in an upcoming biopic.  At time of writing, if we were to associate a celebrity with Yahoo!, it would unfortunately be the likes of Lindsay Lohan or some other misstep-prone, washed up train wreck.  I’m holding out hope though.  Few seem to recall that the Apple of today was very much like Yahoo! before Jobs rescued it from the brink in the late 90’s – incidentally, while Yahoo! was riding high.  To win over the hearts and minds of customers and investors, Yahoo! needs to completely reinvent itself like Jobs did with the iPod, as opposed to half-baked, poorly executed attempts at innovation such as Livestand, and now Axis.

I’d like the next chapter of  the Yahoo! story to unfold like the amazing scene in Limitless when Eddie Mora shakes off the cobwebs, gets to work, and starts kicking some serious butt.  It would be nice for Yahoo! to replace “LiLo” with Bradley Cooper as the star with whom they are identified.  As talented as he is, however, I’m not sure Cooper could pull off the Jerry Yang look.  There’s always Eddie Murphy.

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Hold That Position: Can Lululemon Extend Without Breaking?

The yoga craze is getting everyone’s attention in today’s health & wellness-oriented culture – spawning yoga brands, if you can believe it.    Devotees to the yoga lifestyle know familiar names like Gaiam, Lucy, Prana, Shakti and Lotuswear, but the most recognizable phenomenon in yoga has to be Lululemon Athletica.  We’re not just talking about yoga pants and leotards.  Lululemon accessories are ubiquitous around Chicago.  On the local El train you’re more likely see  their purses among female commuters than brands you’d expect, like Coach or Kate Spade. 

After going public in 2007, Lululemon has rolled into the enviable position of media darling, with a market valuation above $10 Billion to the fascination of the Wall Street crowd…and it’s kinda popular with its customers as well.  The attention is great, but can it stand the scrutiny?

While some leading firms started with deep roots in yoga’s core philosophies and culture (Gaiam, for example, was founded in 1988 with a focus on teaching media and materials before evolving into a full-blown lifestyle company), Lululemon is one a number of industry leaders created by yoga newbies and converts.  Snowboard and surfing entrepreneur Dennis “Chip” Wilson founded the company in 1998 after his very first yoga class.  Ironically, the level of buzz and brand loyalty Lululemon has generated seems to be something that perhaps only could have been achieved by a “cool” outsider.  For all of its well-earned credibility as one of the first recognizable yoga brands, Gaiam’s image is often mired in the “new age” haze, and it’s easy to see why the company can’t connect with consumers as readily as Lululemon when you endure Gaiam’s prominently placed 3 minute informational video.  After watching it, I asked myself whether there is a word that means the opposite of “buzz”?  Gaiam’s website tries to educate you, while Lululemon gets right to the point with a website that pushes its exclusive wares the instant you arrive.

According to a recent Wall Street Journal feature, exclusivity is one of the key drivers that Lululemon has used to effectively reach sales figures that help it outpace established firms like JCPenney, as well as high-end juggernauts like Nieman Marcus in key metrics such as valuation and sales margins.  Lululemon accomplishes all this in part by going against modern conventions, including a very intentional orientation away from technical analytics and data mining of its customer activity, according to its Chief Executive, Christine Day.  Beyond its focus on offering quality products, the company does not just rely upon the illusion of exclusivity, it actually creates it by stocking limited quantities of popular items.

While a large part of Lulu’s strategy is getting the product right, an equally important part is keeping it scarce. The goal is to sell gear at full price and to condition customers to buy when they see an item rather than wait. “Our guest knows that there’s a limited supply, and it creates these fanatical shoppers,” says Ms. Day.  New colors and seasonal items get three, six or 12-week life cycles so stores feel fresher. Sheree Waterson, Lulu’s chief product officer, says a hot-pink color named “Paris Pink” that launched in December was supposed to have a two-month life cycle but sold out its first week.

This whole discussion sends my mind back to one of my favorite economics jokes, surprisingly enough courtesy of Jim Henson’s famed Muppets.  In the opening scenes Muppet Christmas Carol, Gonzo (in the role of the earnest Bob Cratchet) chides Rizzo the Rat for eating the wares for sale in his apple cart.  Rizzo’s classic response, “I’m creating scarcity…Drives the price up.”  (If you’re too impatient, just skip to the 3:30 mark.)  I guess what was true in this Victorian-era flashback remains true today.

Who’s to say whether yoga devotees will start feeling sore after being manipulated in that way?  Analysts and investors won’t be the only ones asking whether Lululemon’s “cultivated scarcity” can last now that it’s competitors and its customers are waking up to the secrets at Lululemon’s core.

Lululemon – WSJ Analyst Discussion

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