Facebook’s Cryptocurrency, Nuro’s Delivery Robots, and the Clever Pricing Psychology of Amazon Go

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CRYPTOCURRENCY

Facebook has announced its plan to create an alternative financial system: “The effort, announced with 27 partners as diverse as Mastercard and Uber, could face immediate skepticism from people who question the usefulness of cryptocurrencies and others who are wary of the power already accumulated by the social media company.

“The cryptocurrency, called Libra, will also have to overcome concern that Facebook does not effectively protect the private information of its users—a fundamental task for a bank or anyone handling financial transactions. But if the project, which Facebook hopes to begin next year with 100 partners, should come together, it would be the most far-reaching attempt by a mainstream company to jump into the world of cryptocurrencies, which is best known for speculative investments through digital tokens like Bitcoin and outside-the-law e-commerce, like buying drugs online. …

“The project is being planned to address skeptics. The Libra digital token will be directly backed by government currencies like the dollar or euro, according to a paper describing the technology. So unlike Bitcoin, the best-known cryptocurrency, it will not fluctuate in value any more than real-world money, and it is not likely to appeal to speculators.”

PRICING

There’s an aspect of shopping at Amazon Go that you might not have considered: Because you can grab and bag your purchases and leave the store without even scanning them, “You have no idea how much you’ve spent. Without a checkout of any kind, you’re lured into taking and not counting the cost. You’re like a child in a candy store, abandoned by their parent and left to roam, raid and run on out. It’s a charming psychological maneuver.

“You’re in a hurry anyway, you satisfy your needs and you get on with your life. Did it cost $15 or $20? Could it have been $25? It doesn’t matter. Your haste is Amazon’s opportunity for a little more margin. In my case, the receipt for what we’d spent didn’t arrive in my inbox until at least 30 minutes after we’d left. Moreover, it only showed the total, not the itemized elements. It did, however, tell me we’d been in the store for five minutes and 38 seconds. To get the more detailed analysis, you had to go back to the app and check. And who’s going to do that?”

RETAIL

Restoration Hardware, now known as RH, is going all-in on brick-and-mortar and experience retailing: “RH’s strategy is to inspire, to show the life unlived. First, it did this with phone-book-sized catalogues, or ‘source books’ in company-speak. Now, it’s doing it with the massive stores, or ‘galleries.’ At the 90,000 square-foot RH in Manhattan’s Meatpacking District, there’s a wine terrace, a ‘Barista Bar’ and a rooftop restaurant ‘influenced by the great classical gardens of Europe.’ While Macy’s has its antique wooden escalators, the RG staircase is framed by 120-hand-blown crystals, an art installation writ large. Come for the $14 kale Caesar salad, stay for the $6,300 bathtub. Next year, RH will start renting rooms like a hotel and it’s considering renting the stores for weddings.”

The waiting rooms attached to auto-service departments are not what they used to be: “Today, you can get blackened chicken or grilled salmon on the lunch menu at Honda of Fort Worth, or a complementary workout at the fitness center attached to the Lincoln-Mercury/Land Rover-Jaguar store in Merritt Island, FL—assuming you wouldn’t rather play pool or watch a movie. This amenity-laden shift can be traced straight to dealers’ bottom lines. At the end of 2018, half a typical dealer’s gross profits came from the service department (including parts and the body shop), according to Patrick Manzi, senior economist at the National Automobile Dealers Association.

“‘Service and parts are very important to dealerships right now,’ Mr. Manzi said. ‘Cars are selling on the internet, and there’s more competition and more access to vehicle prices than ever before. Margins from selling new cars have been consistently on the decline, so dealers are focusing on service. They’ve realized they can help grow customer loyalty by standing out in the amenities.’”

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HUMAN RESOURCES

Nevada has banned employers from refusing to hire applicants who fail marijuana screening tests: “There are some exceptions. The law does not apply to firefighters, EMTs, employees who operate a motor vehicle, or those who, in the determination of the employer, could adversely affect others’ safety. If an employer requires a new hire to take a screening test, then the new employee has the right to submit to an additional screening test to rebut the results, the law states. The employer must accept that follow-up test, the law says. ‘As our legal cannabis industry continues to flourish, it’s important to ensure that the door of economic opportunity remains open for all Nevadans,’ Gov. Sisolak said. ‘That’s why I was proud to sign AB132 into law, which contains common-sense exceptions for public safety and transportation professionals.’ The law takes effect at the start of 2020.”

Volkswagen factory workers in Chattanooga, TN voted down unionization over the weekend: “A win for the union would have been historic. Foreign automakers, such as VW and Toyota, own 31 factories and produce nearly half of the cars built in the United States. None of those 31 foreign-owned plants have ever been unionized. Workers there are generally paid less than workers represented by the [United Auto Workers].”

STARTUPS

Domino’s plans to start delivering pizza in Houston with autonomous robots built by Nuro: “The company deployed its grocery delivery service in Houston in March. Nuro’s partnership with Domino’s initially will be limited to a single location and will begin in the fall. With a narrow frame about half the width and half the weight of a typical car, Nuro’s vehicles lack seats, steering wheels or room for human occupants. The company claims the narrow frame gives the vehicle more space to navigate around obstructions and a few more feet of safety buffer to avoid a collision if someone pulls out of a driveway suddenly or steps out from between parked cars. …

“Founded by two alumni from Google’s self-driving car project, Nuro says its goal is to ‘transform local commerce.’ After receiving a $1 billion investment from Japan’s SoftBank, Nuro has been eager to expand and has begun laying the groundwork for a variety of different services, from delivering food cooked in roving, automated kitchens to delivering packages, according to TechCrunch. The company says that as far as its team knows, its unmanned grocery service—which costs $5.95 per drop-off—is the first of its kind.”

FOOD AND BEVERAGE

Westvleteren, the world’s most sought-after beer brewed annually by 19 Belgian Trappist monks, is coming into the 21st century. “In order to stay one step ahead of those seeking to sell their beer at steeply inflated prices, the abbey has announced it is going digital. A website has been set up where customers can order their two crates, with priority given to recent and new customers. Drinkers will still need to come in person to the abbey’s shop nestled in Flemish farmland to pick up their purchases but they will avoid having to use a hotline that at peak times has attracted about 85,000 callers an hour. ‘The web store is therefore only accessible to consumers, not to professional buyers. We want to give as many people as possible the opportunity to purchase Trappist Westvleteren at the correct price,’ [says brother Manu van Hecke].”

MOBILITY

Scooter-shares are popping up all over US metropolitan areas. But according to Margaret Renkl of Nashville, they’re a step in the wrong direction. “[The] arguments in favor of electric scooters are nothing compared to the problems they cause. Let’s start with the least noxious: People abandon them in the middle of sidewalks, in doorways, at street corners where pedestrians are trying to cross. In a city dense with tourists, many of them drunk out of their minds, the introduction of more than 4,000 tripping hazards is not a civic boon. … The dangers to pedestrians pale in comparison with the dangers to riders. In a study conducted in Austin, TX, nearly half the people injured on an electric scooter sustained head injuries, and 15 percent of those head injuries were classified as ‘traumatic.’ Less than one percent of the injured riders were wearing helmets.”

OXFORD STRATEGIC ADVISORY’S DEALS OF THE DAY  

Sotheby’s, a global art business was acquired by Patrick Drahi, a French businessman for $3.7 billion. The company was sold for 3.6x revenue and 14.8x adjusted EBITDA. “The buyout could give a short-term competitive boost to Sotheby’s, which has often trailed behind its larger, privately held rival Christie’s International over the past two decades.”

M&A

Array BioPharma, a biopharmaceutical company focused on cancer treatments, was acquired by Pfizer a biopharmaceutical company that discovers, develops and distributes medicines for humans and animals, for $10.64 billion. The company was sold for 44.1x revenue.

Deja vu Security, a provider of information security research and consulting services to technology companies, was acquired by Accenture, a global professional services company.

VENTURE CAPITAL

Clockwise, a developer of a machine learning calendar assistant, raised $11 million in a Series A Round.

Collective Health, a developer of a cloud-based self-insurance platform, raised $205 million in a Series E Round. The post-money valuation of the company is $540 million.

MARKETING

Streaming platforms are changing the way companies develop targeted TV ads. “The streaming platforms, traditional pay-TV providers and third-party firms are giving advertisers access to robust technology and granular data about viewers, such as income levels, purchase history and web-browsing behavior. At the same time, unlike earlier stabs at targeted TV, marketers can use the streaming platforms to reach a larger and more geographically diverse group of people across the US. … As a result, companies are shifting more of their budgets from traditional TV to those streaming platforms and elsewhere, where they can craft marketing campaigns aimed at very precise demographics. In some cases, they also can rethink their campaigns on the fly and quickly make changes. ‘Traditional TV is awesome at helping us build awareness and getting our name out there, but it doesn’t offer us the ability to efficiently target people shopping for a car,’ says Seth Goldberg, vice president of brand marketing at Cars.com.”

E-COMMERCE

Investors have given Chewy, which just went public, a market cap of $14 billion even though the pet-food site has never made a profit (despite amassing $3.5 billion in 2018 revenue): “‘I couldn’t fund the business for the first few years,’ [CEO Ryan] Cohen says, noting that more than 100 investors passed on the opportunity. ‘And they were right. We were going head-to-head against Amazon, there was Pets.comwe know how that worked outand selling 30-pound bags of pet food and shipping it across the country isn’t the highest-margin business,’ he adds. …

“Cohen says he focused on putting cash back into the business to fuel its growth and keeping expenses in check. The goal was not to be forced to sell or go public just to keep the lights on. ‘It could’ve been profitable a long time ago, many years before, and ultimately it would’ve been a much smaller business,’ he adds.”

Question of the day: Would that have been such a bad thing?

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com.

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