Reinventing Facebook or Amazon for Quebec is a bad idea

It’s a topic we’ve been hearing a lot about ever since Alexandre Taillefer talked about wanting to create a Quebec-based counterpart to Amazon.

He has the best of intentions, a strongly-felt passion for the health of Quebec’s economy and he’s right when he says that it wouldn’t actually cost the province all that much. But the problem isn’t financial. In my view, while his proposal generated hearty applause from members of the Retail Council of Quebec, real life is something else entirely. Here’s what I think the real challenges will be, in the two main industries most affected by these two proposals.

The network effect

For a web guy, Taillefer’s instincts surprise me more and more. Is he not familiar with the network effect? It’s the principle that the value of a network is defined by the number of people it contains. Facebook is an eloquent example. Even if a competitive network arrives on the scene with more compelling functionality, Facebook is where people are, and that’s where the value lies. When you think about it, Taillefer’s most well-known project, Téo Taxi, doesn’t respect this principle either. Let’s take the opposite example: the more people there are who want to take an Uber, the more drivers will get behind the wheel. On the other hand, with Téo, the reverse is true. For each additional fare, an additional car needs to be bought (in time). Let’s just say it’s not a very flexible, web-like model and it shows. I love Téo and the Quebec entrepreneur in me always opts for Téo before Uber, but it’s not always easy to get a Téo in a reasonable time frame, given that the volume of cars on the road doesn’t necessarily correspond to the demand.

Now, getting back to a Quebec Amazon, shoppers turn up because that’s where the deals are, it’s where the merchants are and it’s where the manufacturers are. It’s the biggest store there is. And as David Grégoire AKA Mister Ecommerce, explains quite well, a marketplace with that kind of network effect is pretty hard to compete with. Especially when the platform can also be used by merchants themselves to distribute their products.

Retail and the media

Although these two industries are very different, they also have similarities, especially when we compare the way they’ve reacted to the technological changes of the past 15 years. Taillefer seems to think that players in these industries are open, organized and coordinated in their approach to the transformation required to confront the challenges of a digital world, when in fact the opposite is true.

The main players in these industries have all, to a certain degree, been in denial of digital for the past 15 years. Something I’ve often said is “today’s revenue is the enemy of future revenue.” When things are going relatively well, we don’t think about investing and sacrificing for the future. But Amazon has been doing just that by sacrificing profit for more than 20 years now.

This enormous sacrifice in terms of short-term profit demonstrates Amazon’s deep understanding of the network effect.

Retail 

Companies attempting ecommerce in Quebec have been late putting together an online presence that makes sense, an exhaustive online offering and more. Twenty-year-old consumers have never known a world without Amazon, and by now they have deeply ingrained habits that would be impossible to change. Shopping on Amazon is one of them, and buying directly from manufacturers is another.

It’s important to understand that certain merchants already have a strong presence on Amazon, even if they aren’t shouting it from the rooftops. A major Quebec retailer confided in me that he uses Amazon as part of his discount sales strategy, and leave prices higher on his proprietary sales platform. That way he doesn’t dilute his brand with constant sales, but uses the power of Amazon to sell volume. They don’t talk about it publicly because the optics wouldn’t be great, but at least they’ve found a place for the platform in their digital strategy.

Media

The same holds true for media. Of Quebec’s two main papers, only one has had an online presence worthy of the name for the past three years, and I still hear about major players in radio, magazines and TV who “give away” digital ads when traditional ads are bought. Not what I’d call a sacrifice! Along the same lines, every week I see major media outlets with huge sales teams that are ill-equipped or poorly trained to deal with digital, and that don’t have a strategy to promote their inventory on digital platforms. And today, the competition isn’t other Quebec media outlets. It’s Facebook and Google.

My view of the industry, unfortunately, is that of a lot of scared people running in all directions, who aren’t doing much to change things. Nearly 20 years later, I think that if these two industries really wanted to reinvent themselves, we would have a lot more success stories to look at.

Small and agile, big and complacent

It seems clear to me that right now, smaller models are adapting better. Big groups seem more set in their ways and less likely to get organized to confront the changes required by a changing world.

A good media example is V Télé, that does a lot with a little and fights for its digital revenue. A concrete example is the presence of an adblock detector that prevents content from being displayed when a user has an adblocker turned on. The major players in the US and Europe have all more or less understood this, but here our biggest companies seem happy to give up that 5-10-15% of their digital media revenue (depending on the adblocker adoption rate in their respective markets). Examples are abundant when you look at even more modern publishers that also have smaller structures.

In ecommerce, it’s even more obvious. There are countless big players who either have no ecommerce on their sites, or who offer fewer products online than in store, or a lower quality offering. I’m thinking in particular of the example of a major hardware chain. On the other side of the spectrum, we’re seeing lots of smaller, faster, more agile companies create inspiring ecommerce experiences with even larger product offerings than what they have in store and fast efficient service. These companies are succeeding in attracting customers they would never get with a strictly local, brick and mortar approach.

Is sharing resources realistic?

I also question the ability of Quebec’s biggest players to pool resources to compete in an environment where the level of understanding and acceptance of the issues at hand is so unbalanced, and where there is a willingness to collaborate with Facebook and Amazon, but not with rivals within the province. If it’s hard for these companies to make moves internally, imagine mobilizing these mastodons to move in synch with each other and with other, smaller players.

Government intervention? For delivery, yes!

Taillefer wants the government to get involved. I think I’ve been clear on the fact that the government won’t be able to do much to facilitate collaboration between the different players in the industry. For the delivery infrastructure though, there’s a lot they can do. Far be it for me to get political, but right now Canada Post is slowing down the implementation of a truly effective delivery system in Canada, and by extension preventing a truly great ecommerce customer experience.

They’ve affirmed several times over the past few years that they are evaluating scenarios for delivering mail every two days, to be able to shift the company’s focus to the growing demand for package delivery. Unfortunately though, it doesn’t look like they’ll be moving forward with this scenario. So, bills will continue to be delivered every day, and delivery for ecommerce will continue to be so-so. Obviously, this seriously affects the development of ecommerce business, and while the rest of the industry is waiting for service to improve, Amazon is taking its volume to alternate transport companies that allow for same-day delivery (in Toronto and Vancouver) and next-day delivery (Montreal).

If the government is to play a role, in my opinion this is where it should be. It’s time for them to make an unpopular decision that will have a big impact on our industry.

In conclusion: accountability

Above all, companies need to roll up their sleeves and take responsibility for their own digital realities. Those who can see the benefits and those who’ve neglected their efforts complain that the country isn’t doing enough for their businesses. But to get there, you have to want it, and sometimes you need to stop doing inefficient things, and redirect your efforts to more up-to-date approaches. If I felt like these two industries had really tried to implement change, I would agree with Taillefer, but that’s not the case.

Put your resources and efforts into digital, and you’ll see that the future is a lot rosier than it seemed before. Digital presents incredible opportunities when you make the necessary effort and sacrifice. And if you want to show Amazon and Facebook who’s boss… use them to your advantage!