Y2K10: Part Two: late 90’s tech effect on wine ecommerce

“After studying the potential impact of Y2K on the telecommunications industry, health care, economy, and other vital sectors of our lives, I would like to warn that we have cause for fear. For the failure to address the millennium bug could be catastrophic” … Senator Daniel Patrick Moynihan

The Last Year of the Century

At the end of the 1990‘s the top story wasn’t about the significant advancements in technology but rather about a programing decision made decades before. Y2K was a hydra like story spreading its tentacles into all recesses of media throughout the word. It became the world’s most famous bug. It really wasn’t a bug, but a memory saving programing decision of using two digits instead of four for a date. The solution was a simple BIOS update, and by Jan 1, 2000, to a world-wide collective sigh of relief it was a non story. 1999 had been a very busy news year: President Bill Clinton had survived impeachment. John Elway won his second Super Bowl title in Denver then retired. Lance Armstrong came back from testicular cancer to win the Tour de France. J. K. Rowling, a Scot writer’s first novel ‘Harry Potter and the Sorcerer’s Stone’ hit the top of the New York Times best seller list. The US Women’s Soccer team won the world cup and Brandi Chastain’s picture made the covers of Time, Newsweek and Sports Illustrated. The New York Yankees won their second straight World Series title. Mark McGuire hit 65 home runs and Sammy Sosa hit 63. Tiger Woods won 8 tournaments including the PGA and was named AP Male Athlete of the year.

But the big stories, not withstanding Y2K, were still in tech. Both Nordstrom and auctioneer Sotheby’s decided to create unique ecommerce divisions, with significant investments from Benchmark Capital and Madrona Investment Group funding Nordstrom.com and Amazon as the primary investor in Sotheby’s. Merrill Lynch launched it’s online brokerage after Paine-Weber’s late summer launch and Morgan Stanley’s folding Discover Brokerage online trading unit in-house. In November Nike began to take orders for customized shoes, following this practice from P&G,  Levi’s and Maidenform. District Court Judge Thomas Penfield Jackson found that Microsoft used monopoly powers to stymie competition. The forecasted dotcom bubble didn’t pop, but just got bigger and bigger. 200 net businesses had IPOs in 1999, double the combined total of the previous four years. From April through August net stocks declined on street talk that the bubble wasn’t sustainable. But a end-of-the-year rally restored value to the stocks, and on the desk of federal regulators awaiting approval were 16 new internet mutual funds. The words IPO, burn rate and VC entered the everyday lexicon, and billionaires were created through mergers and IPOs. 29 year old Atlantan Jeffery Arnold became a paper billionaire when his then obscure website WebMD merged with Healtheon, an internet service that connects doctors, patients and insurers over the internet. With all this news, and all of the Y2K panic in the press, the late 90’s provided some key developments that either directly or indirectly provided the philosophical foundations for the movement towards wine business ecommerce.

Google

In March of 1996, after meeting as Stanford computer science grad students, Larry Paige and Sergey Brin start to work on a web crawler called BackRub, developing a PageRank algorithm to convert backlink data as a measure of page importance. Search engines at the time ranked results on the number of times the search term appeared on the page. Paige & Brin were convinced that the pages with the most links to them from other relevant web pages would be the most relevant and produce better results. Inspite of impressive and innovative technology Brin and Page were grad students struggling for attention and financial support. In August 1998, cutting their pitch meeting short, Sun co-founder Andy Bechtolsheim wrote a $100,000 check made payable to Google Inc. The original BackRub had been renamed Google, based on a play-on-words in reference to the math term googol, and was registered and incorporated on September 4th, 1998. At the time Google was located in Susan Wojcicki’s garage in Menlo Park. By June of 1999 Google announced a $25 million dollar infusion of capital from Sequoia Capital and Kleiner Perkins Caufield & Byers. This idea of organizing the googol of information available on the web, making it universally accessible to users would have a profound impact on ecommerce and on the dissemination of wine product information.

craigslist

In 1995 former IBM and Charles Schwab computer programmer Craig Newmark decided to jump into the conversation with the community of users on the WELL and in the Usenet by contributing information about events in San Francisco to an email list of friends. Through word-of-mouth the increasing number of visits to the site became numerous enough to require a list server, majordomo, which required a name. Craig wanted to call the site ‘sf-events,’ but was persuaded by friends to call it ‘craigslist.’ The site was built on conventional open source LAMP architecture, and has changed little graphically since it’s inception, which even by 1996 standards is very basic, with the last visual upgrade completed in 2001. The idea behind ‘craigslist’ is that everyone is included…”the net is everyone’s printing press.” Because the volunteer managed list was user generated, people started listing for sale or help wanted ads. This started to become chaotic and Craig stepped in changed this from being a hobby to being a real company. By 1999 the site had been incorporated and Craig hired Jim Buckmaster to be the ‘dude.’ Craig is a believer in providing the list as a service to ‘a centerlized network of online communities, featuring free online classified advertisements.’ The idea of free classifieds has affected newspaper and news organizations by repurposing classified advertising that was a main source of print medias’ revenue stream. With the move of news, information and advertising to online media, newspaper have diminished power to influence or control consumer choice.

Amazon and eBay

As 1999 came to an end, ecommerce was being celebrated as the engine that would drive the economic boom of the new millenium. Amazon.com founder Jeff Bezos was named Time Magazine Person of the Year. He was 35 years old and as a result of the recent IPO was now worth $10 Billion. Not bad for a former Wall Street techie. In 1994 Jeff quit his day job, and drove across country stopping here and there to write his initial business plan, then launched a new retail business model out of his garage in Seattle. His vision of cyber commerce wasn’t singular, in fact it was a vision also held by eBay’s Pierre Omidyar, founding Auction Web in 1995, soon after rebranded as eBay. These were revolutionary times in the world of retail. Not since the 1890’s when Sears & Roebuck started as a mail order company and then grew into the largest retailer in the US by the mid-20th century had retail seen so much innovation. A tipping point towards a new channel, a new paradigm had been initiated. The entry and success of both Amazon and eBay gave credence to the ecommerce channel with consumers, and Amazon’s investment in Virtual Vineyards/Wine.com help to create an awareness of wine ecommerce with both wineries and consumers.

The Cloud

Prior to 1993 the only way to navigate the web was limited to FTP, Usenet and Gopher, excluding the technologically challenged. In 1993 Marc Andreessen and Eric Bina who as University of Illinois undergrads were funded by the High-Performance Computing and Communications Initiative to write the script for Mosaic, the web browser that made the web relevant to the public. It was the first killer application that took the web from a niche technical arena to mass market appeal. Mosaic made the web accessible to the general, non-scientific public for the first time. Although Mosaic was not the first browser for windows, that was Tom Bruce’s Cello, future additions of Internet Explorer were based on Mosaic code. The release of Mosaic resulted in a dramatic increase in the growth of web usage in a short period of time, expanding within the general populace and outside the closed corridors of academia and research institutions. By 1994 Marc Andreessen left NCSA and with Jim Clark the founder of Silicon Graphics founded Mosaic Communications which was rebranded as Netscape Communications. Just 4 years later in November of 1998, AOL initiated the purchase of Netscape for $4.2 Billion. In September of 1999 Andreessen and three associates from Netscape founded Loudcloud. By utilizing Opsware, Loudcloud introduced the idea to clients the idea of cloud computing. The term ‘cloud computing’ was first coined and defined by Emory University Goizueta Business School professor Ramnath Chellappa. In the jargon rich world of the computer industry the term cloud computing has become a phrase to describe information stored and processed in the ‘cloud’ world of the Internet. Cloud computing refers to remote scalable virtualized data or software programs available to authorized users over a computer connection, but for the most part it is a simplification of a complex infrastructure. Basically it’s information stored and processed on remote servers and delivered back to your computer screen through your web browser. As a user of cloud computing you don’t have to own the servers or grid functioning as host to your software programs. Cloud computing utilization billing usually follows the public utility model, pay for what you consume. This helped to change the idea of software from Software as a Product (SaaP) to the idea of Software as a Service (SaaS), as first experienced by most business in 1999 with the launch of the cloud based SalesForce.com CRM. Cloud computing rationalized the cost of entry for any company wanting to launch an ecommerce web site.

Blogger

Blogging started in a very basic form, dating back to CERN when Tim Berners-Lee began listing sites as they came online. Most digital communities in the early days of the internet took the form of user moderated newsgroups. The first single user moderated group was mod.ber. Netscape followed this practice by running the ‘What’s New’ list of sites in June of 1993. The first modern version of a widely read blog was by Swarthmore College student Justin Hall. Although the site was highly personal, it was primarily a list of links that Justin found to be cool. His site was called ‘Links from the Underground.’ Dave Winer launched ‘Scripting News’ in April 1997, another frequently updated links list. Blogs were still lists developed by nerds for nerds, and for the most part out of the mainsteam of public awareness. A prime example is ‘Slashdot, news for Nerds, launched in September of 1997. Jorn Barger in his December 1997 ‘robot wisdom weblog’ site coins the term weblog. The first open community of bloggers were diarist posting on Open Diary which was launched in October of 1998. Peter Merholz coined the term blog in early 1999, shortening the term weblog which he called ‘we blog,’ then shortened to blog. At about the same time Brigitte Eaton started the first portal devoted to blogs. Brad Fitzpatrick launched the first open source blogging site Live Journal. And in July Metafilter provided the earliest blog archives. Also that July, Pitas.com launched the first free build your own blog web tool. But what we in the wine world view as blogging started with the release of Ev Williams scripted Blogger, a product that like Mosaic opened the internet to less than tech savvy consumers by blurring the lines between web diaries and weblogs, a distinction only important to the cognoscenti. Blogger was launched in August 1999, with an upgrade released in November 1999. Blogger was an overnight success, putting stress on the frequently crashing Pyra Labs Blogger server. But the cat was out of the bag. This was the beginning of the democratization of information, and the real start of user generated content, lessening over time the influence of traditional wine print media. The first wine bloggers that came to my attention were Alder Yarrow of Vinography and Tom Wark of Fermentation. It should come as no surprise that these are two individuals with tech backgrounds. In fact many of today’s wine bloggers have a tech backgrounds. Wine blogs have and will continue to change how consumers receive and access information.

Glass Half-Full

The path to wine ecommerce development is closely tied to the historical path of technology. Most of the development was done initially by educational or research institutions, but then fleshed out by entrepreneurs, people who could grasp the implication of the large and small steps. Going all the way back to Thomas Watson of IBM who bet his Father’s office machine company on the future of computers; or, Marc Andreessen who based on the work at CERN by Breners-Lee predated by the hypertext theorist, developed the first contemporary web browser that featured a consumer friendly graphical user interface. Or perhaps Jeff Bezos who gazing on a server bank visualized Amazon. Or a disparate team of Larry Page and Sergy Brin who saw a better way to map search engine technology. When a piece of new technology is released with a particular intent, i.e., the internet as a research communications tool, it can never be fully utilized until one of these visionary bootstrappers has the opportunity to put another brick in the wall of progress. Build it and they will come. To have your own vision of the future as a wine ecommerce manager, study the past to discover a better path to the present.

Note: Copyright © 2009 Think Wine Marketing® All rights reserved.

Y2K10 – Part One: a brief look back to the pioneer days of wine ecommerce

“What’s past is prologue” … Antonio, The Tempest, Act 2, Scene 1 – by William Shakespeare

The Doors of Perception

As I rub my eyes, to clear the fog of time, I can’t believe that we’re at the end of the first decade of the 21st Century. Wow! Just wow! It seems like I’m caught on this infinite loop of Einstein’s time-space continuum, no longer trapped by a third- dimensional existence, but wandering aimlessly through the strings of the stream, moving across the universe. Here’s yesterday, there’s tomorrow, but where’s today? Oops! Gone. Transitory. But it did exist? Right? It did. It does exist – however fleeting? Transitory like the existence of photons, neutrinos and muons created in the Farm’s particle accelerator. The fundamental particles in the standard model being the past, the particle zoo the present and the still undiscovered Higgs boson, the future.

Party Like It’s 1999

As my mind’s eye clears, I start to recall many of the events leading up to the final days of 1999, both in wine and tech.  Behind this is the story of Y2K and the largely unnecessary BIOS updates, and all of the smoke being blown into the peak of the dot-com bubble, there was a perfect storm brewing behind the marriage of winery sales and marketing and tech that was launched with the release of the personal desktop computer by Apple and then IBM in the late 1970‘s early 1980‘s. The introduction and adoption of which led to some intended, but for the most part unintended outcomes. Although within the computer biz there are some of the largest market cap companies in the world, they all started as bootstrappers. HP started in a garage in Palo Alto, Fairchild Semiconductor as part of Stanford lab experiment, Microsoft by two Harvard drop-outs who bought a disk operating system from a Seattle computer shop and then licensed the software to IBM helping to launch the PC . Two more dropouts who met in a computer club  developed the Mac, based on concepts and designs originally developed at the Park by Xerox with no intention of ever releasing a consumer usable computer. In 1985 Quantum Computer Services, under the direction of Steve Case, launched Q-Link for the Commodore 64. And, by 1988 launched Apple-Link online services, and then PC-Link. In 1991 the name was changed to America Online, merging the two separate services.  AOL quickly became the dominant ISP generating significant income through their monthly consumer subscription model. By 1999 Time Warner’s Jerry Levin was in merger talks with AOL, and in January 2000 the historic $164 billion merger was completed. This all took place against the background of rapidly improving and innovative computer technology, and with the development of ISPs and telecommunication tools that allowed web access for increasing numbers of consumers, helping to transform what had been utilized primarily as  a research tools of loosely connected, disparate networks, originally known as the ARPANET, into what we now know as the Internet.

During this period, most of the Bay Area development in tech had geographically taken place on the Peninsula, South of San Francisco, along stretches of Hwy. 237, Zanker Road, Page Mill Road, Stevens Creek Blvd., DeAnza Blvd., the Lawrence Expressway and Homestead Road, not far from Stanford, aka-the (brain) Farm. However, in 1999, in an area in San Francisco known as China Basin, a then backwater area of empty warehouses, and now the site of AT&T Park, the home of the San Francisco Giants, offered cheap rents for start-ups in an area known as South Park. Just up Townsend Street, was Pyra Labs, where Ev Williams and Paul Bausch wrote the script for Blogger, and in buildings surrounding the China Basin area was Salon and a host of other web-tech companies in what was then a grim neighborhood. I remember going to a 1999 pre-opening Giants event at the under construction ball park, and noting the names of now long gone (i.e. Pets.com) tech start-ups on the sides of warehouses, and thinking that this would be a thriving community again. And it now is, with the development of biotech research centers, living spaces, retail development and restaurants. Twitter HQ is now located near South Park, and the neighborhood is once again the center of a new slate of start-ups.

WineShopper.com

With the development of virtual retail technology and the introduction of secure payment systems, and in a spate of healthy competition, the online ecommerce channel floodgate had been opened by Amazon.com and others, including many bricks and mortar companies. Margins in the ecommerce channel were lean for books, CDs, videos and electronics – from 9%-14%. Research and a few existing online wine sites revealed net margins of approximately 30%. College educated, affluent urban buyers were already buying a significant amount of goods online, matching the demographics of targeted wine consumers . On the surface this seemed like a natural line expansion for Amazon and others. Amazon partnering with the Kleiner Perkins Caufield & Byers invested $46 million (Amazon at $30M, and the Sand Hill Road boys $16M) in the online wine ecommerce marketing agent, WineShopper.com. But the task at hand was daunting. WineShopper had developed the Naxon Network, an automated distribution system meant to link and track the inventories of 250 major wine wholesalers. This was revolutionary at the time. The idea of online sales might have been on the radar for the few wineries left in Silicon Valley, but it was geek speak for most of the other wineries’ sales and marketing technology adverse late adopters. Adapting Naxon to this arcane and unconnected data field, obtuse due to the complete balkanization of state beverage practices, became a task that CEO Peter Sisson eventually found to be undoable. Wine, unlike books with uniform ISBN numbers without regard to the individual point of distribution, stocked by each distributor in each market had unique proprietary product coding systems identifying individual wine SKUs. A system that along with the arcane and fragmented State by State beverage laws eventually proved to be the undoing of WineShoper, even with what would later be identified as a talent laden start-up, including a name that in the next 10 years would become synonymous with digital initiatives for wine business ecommerce, Paul Mabray.

Virtual Vineyards, oops Wine.com, oops Wine.com/WineShopper.com, oops Wine.com by eVineyard, oops Wine.com

Peter Granoff and Robert Olsen had been operating the wine ecommerce site Virtual Vineyards for three years when in 1998 they partnered with Lionstone International out of Lake Forest, IL to increase their reach and points of distribution in the US wine market. A speed bump was hit in March of 1999 when the State of Massachusetts sued both Virtual Vineyards and their shipper FedEx. Although the suit was eventually dismissed, the points presented in the suit have in fact as yet been resolved.  In June of 1999 a combination of VC-financing was sourced from New Millennium Partners LP, GE Capital and MediaOne Ventures. Three months later in September of 1999, Virtual Vineyards acquired the name wine.com from the by then struggling online retailer. Bill Newlands was brought in as the new CEO as co-founder Robert Olson took a step back from day to day leadership. Co-Founder Peter Granoff continued as the public face of the wine.com. With the rapid evolution of the company, the now named wine.com announces TheWineryShops@wine.com, greatly increasing their selection of imports and mico production wines from California. A influx of $50 million represented at the time the largest capital infusion into any online wine ecommerce platform. A series of quick partnerships were announced, signing agreements with Bloomberg.com and Microsoft eShop. However, expenses greatly outweighed revenues as sales of just $9 million resulted in a 1999 operating loss of $20 million. In these halcyon days of the dot-com bubble, this was a company with a business model, reasonable burn rates and, my god, revenues. All was well. Or so we all thought.

Merger, Merger, Takeover

As the decade turns, wine.com continues to sign on partner affiliations, first with WeddingChannel.com and as the exclusive online wine merchant for PBS cooking programs. And here you thought that the current KQED wine club was a new idea. Wine.com also announced an agreement to be the ecommerce channel for Gallo of Sonoma. In June 2000 wine.com and the Wall Street Journal announce an exclusive strategic alliance with wine.com functioning as the exclusive ecommerce merchant for the WSJ’s firstonline wine offerings at wine.wsj.com. By August WineShoper.com recognized the futility of their model and merged with wine.com, operating under the name of the latter. Rounding out FY 2000 wine.com partners with Realbeer.com to offer beer through the wine.com portal. Then in October 2000 acquires the European Wine Exchange (EWX) a German based B2B-B2C ecommerce site. In December wine.com launched  possibly the first mobile wine ecommerce site on the AvantGo ISP. However, all was not well. The burn rate approached unsustainable levels, and the by now bridge loan investor, Menlo-Park based Sand Hill Capital pulled the plug and negotiated the sale in April 2001 of the merged entity wine.com/WineShopper.com to eVineyard, which then relaunched wine.com  as ‘wine.com by eVineyard.’ (to be continued)

What the Point?

There are, for sure, lessons to be learned. It’s great to be a pioneer in any industry or business segment, that is if you can duck the “slings and arrows of outrageous fortune.” While the rewards may be potentially great, so are the risks. It has been said that timing is life, but that the right timing = success. Some of the ideas introduced more than 10 years ago were perhaps, based on limited infrastructure build and low bandwidth strictures creating a then clogged pipeline which limited wide consumer adoption, then too early too succeed they are now being refined and reintroduced. The wine ecommerce effort, in spite of the ruling coming out of the landmark Granholm v. Heald case, still has an uphill but not sisyphean climb. Byzantine state regulations and protectionist legislation fueled by short sighted, intransigent three-tier wholesalers continually block significant progress. However, a new field of visionaries (and a few pioneers) dot the wine ecommerce universe these days. There has never been a deeper concentration of experienced talent at the top of the wine ecommerce pyramid. Some of the battles have been won, but talent and experience alone will not win out. Each individual player in our highly independent and fragmented wine industry must at some point pick up their ecommerce tool kits and travel the digital pipeline and ensure their brand(s)’ success through the strategy of channel diversity and  chose to ‘make wine work online.’

Note: Copyright © 2009 Think Wine Marketing® All rights reserved.