What will your Smart Phone do next?

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Pandora Reflection

To the members of the board

I just wanted to follow-up with you after Tuesday night’s consulting presentation to provide my feedback and recommendation.  While our company has been operating for several years and we are still in the red, I felt the consultants provided us with several good options for the future.  First and foremost I would say that selling the company is not an option.  While the consultants’ estimates would provide a net benefit of roughly $35MM, this is not why we started the business and I don’t feel like now is the time to exit. 

Now, moving away from that approach, the consultants’ provided three very viable options for the business.  First, a mobile app that would cost a mere $0.99 for consumers to download – costs for this project would estimate $350k per year for developers and search engine marketing expenses.  However, based on the number of smartphone users and existing Pandora users, the net benefit to the company would be $2.0MM in Year 1 and nearly $2.5MM in year 2.

Another option for our company would be a tiered pricing structure which would have a net benefit of $1.5MM in Year 1 and $3.3MM in Year 2.  The issue that I am wrestling with in this option is the fact that we may lose some of our loyal customers.  While the fee to listen for more than 40 hours is minimal, some customers may not want to pay and would just stop using Pandora.

The final recommendation of the consultants was the use of Audio ads.  This option provided the highest benefit to the company at $4.2MM in Year 1 and $6.3MM in Year 2.  While current Pandora customers do actually like the advertising we provide which is unobtrusive, I feel that audio ads would be a good addition.  Like the consultants suggested, these could be short 15 second clips that are played after every 15 songs.  These ads could be done in such a way that customers may not even notice that they are being played.

My suggestion would be to implement a mobile Pandora app and the use of Audio advertising.  After we go forward with these options, we could further look at the tiered pricing structure.

Thank you for your time and please feel free to reach out to me if you have any further questions and/or comments.

Deidra

Harrah's case reflection

To the members of the board

After last Tuesday night’s presentation by the consulting team, I would say there were some good suggestions made with regard to possible upcoming projects for the future. The first thing to mention is the 62% return on investment that we have received on our current IT investments in our data warehouse and closed loop marketing. The next step for our company is to move into the digital age with an online reservation system. While there is no additional capital needed to implement this project, there is a monthly fee of roughly $25 plus $5 per room that is booked. This will take away from our room charges; however it will make it much more convenient for our customers.  Also, if we find this to be successful bringing in more traffic to our hotels, we may be able to pass this charge along to customers in the future.  There is no real investment to be made with this project, but something that will help to improve our customers’ experience.

Another investment for the future would be to spend roughly $50k on a new enterprise server to enhance our data analytics.  A new server would provide for instant saneness checks on customers, as well as faster and customizable analytics.  Our current system has served us well, but is quickly becoming outdated.  An investment now to enhance this system will be beneficial.

The last suggestion made by our consulting team was to leverage our existing data warehouse and data mining expertise to try and market to those outside of the Total Rewards program.  The upfront cost with this project is minimal at roughly $1,000 for a mailing list to 25,000 consumers.  The marketing offer would be for $210 (a combination of chips and dining) per customer.  Assuming 12,500 accept the offer (50% response rate) it would cost $2.6MM.  Now on the benefit side, assuming 30% of those that respond are “quality” customers spending $1500 per year at Harrah’s, that brings in an additional $5.6MM in revenue for a profit of roughly $3MM.  This project would also be maximizing our existing ROI as it is leveraging the data warehouse that is already in place.

It would be my suggestion to move forward with all three of these projects in order to enhance the capabilities that we already have and to try to gain more quality customers at each of our casinos.

Please feel free to reach out to me with any follow up questions that you may have.  Thank you for the time to review this project with you.

Deidra

Opening Pandora's Box

Problem/Issue Statement

In December, 2007, Tim Westergren, founder and chief strategist of Pandora was stuck at a crossroads; he was struggling to balance the interests of investors while staying true to his dream for Pandora.  At the Company’s current growth rate, they were going to run out of cash by the end of the following year.  Westergren had a big decision in front of him – should he take a more conservative path, pull back on growth and raise just enough money to stay afloat for long enough to reach an exit; or should he go full throttle through viral growth and exploit the first mover advantage, raising a more significant amount of capital with the hopes of a possible future IPO?

Situation Assessment

Westergren and two friends began Pandora with the Music Genome Project, a music discovery engine to help connect listeners with artists.  Each song that was entered into the music library would be dissected by analysts to determine its “musical DNA.”  This was how the Pandora team would be able to determine what music listeners liked and recommend future titles/artists based on each individuals preference. 

Pandora began as a back end music recommendation engine for the likes of AOL and Best Buy, but in 2004, after receiving some additional financing, the Company changed strategies and became Pandora.com, an internet radio service that allowed users to state their preferences and find similar music that they may like based on those preferences. Internet radio had growing popularity, in January of 2007, Pandora.com had roughly 5 million registered users (5 million according to Exhibit 3, however it would appear to be more like 6 or 7 million from the text). 

Then in March 2007, the Copyright Royalty Board instituted a major increase in royalties to be paid by internet radio stations for streaming music during 2007 – 2010.  Westergren felt that the new rates would “kill all internet radio stations, including Pandora.”   In response to the CRB, Westergren sent a letter to all listeners requesting their help and asking them to sign petitions to urge Congress to take action to save internet radio.

Here is a snapshot of the music industry as a whole in 2007:

• CD’s were quickly becoming a thing of the past, prices were increasing and consumers were less willing to spend money for an entire CD when all they really wanted was 1 or 2 songs.
• Radio – while still a mainstay medium was seeing declining trends due to satellite radio and other emerging technologies of the time such as digital devices (iPods) and internet radio.
• Satellite radio was going through a transformation with the potential merger of XM and Sirius after both companies had a combined loss of $6B.
• Digital music had the highest trends with digital sales nearly doubling in 2005 and downloads projected to grow at compound annual growth rate of 16% by 2011.  Rather than buy entire CDs, consumers could go to iTunes and purchase individual songs for just $0.99.

Recommendation

Looking at the landscape of the music industry, if Westergren and his team are able to raise sufficient capital, I feel that the risk is worth the reward of “putting the pedal to the metal” so to speak.  The industry is in the midst of transformation, listeners are no longer buying CD’s and they do not seem to be happy with their existing radio offerings.  More and more people are switching to satellite radio and why not then switch over to internet radio and to a “station” that has such a broad offering of music with customizable stations.  We are moving into a digital age where consumers want to be able to customize as much as of their consumption as possible, why not offer customizable radio?

Presentation

My presentation to potential investors would emphasize the current state of the music industry and the declining trends in other mediums.  It is important to point out all of the things that people are currently unhappy with in the current environment and point to ways that Pandora resolves these issues.  A lack of “good music” on the radio?  Pandora provides customized stations based on user preferences.  Unhappy with current advertising on your local radio station?  Pandora advertising is almost discrete in nature and very non obtrusive.  Don’t want to pay for satellite radio?  Pandora is a free service; all you have to do is register.  It would also be important to show in the presentation, the increasing trend of registered users to the Pandora site as well as Pandora’s impact on the overall market.  Musicians/Artists are pleased with the exposure that they are able to get on Pandora as opposed to the lack thereof on local/satellite radio.  Pandora also complements retailers with links to purchase songs if users like them – say you like the latest Bon Jovi song, you can buy it for only $0.99 on iTunes.  It is reported that 34% of registered Pandora users actually spent more money on music after switching over to Pandora and finding new songs or artists that they liked and wanted to hear on their iPods as well.

Harrah's IT Gamble

Dear Mr. Harrah

In response to your request Strategic IT Consultants would like to review with you some lessons learned regarding your data warehousing/mining and business intelligence/analytics achievements over the past couple of years.  As you are well aware Harrah’s has been very successful in its implementation of a data warehouse, customer loyalty program (as well as further enhancements to the same), and closed loop marketing.   These combined efforts resulted in a 62% internal rate of return on investments in information technology, 14% revenue growth in same store sales and increased frequency of visits by customers.

Along the way, the first lesson to be learned is that sunken pirate ships and roller coasters may not be the best investment in a casino’s customers.  While some other Las Vegas casinos were spending millions of dollars on frivolous items as previously mentioned, Harrah’s invested in a data warehouse which was used to support its customer loyalty program and closed loop marketing efforts.  While extravagant items may bring people to your casino, it may not bring them there to gamble – as you are aware, visiting a casino and gambling at a casino are two different things.  You want to attract those customers that are going to keep coming back while continuing to gamble.  It is important to continue enhancements to the data warehouse while possibly integrating a more dynamic analytical tool to further evaluate customers and what they would possibly prefer in the future.

Another lesson to be learned is with regard to marketing.  Rather than using “Harrahisms” and extending offers based on perceived future gaming worth, the closed loop marketing allowed Harrah’s to learn what types of marketing campaigns provide the highest net value.  Thousands of experiments can be done with results evaluated and analyzed to provide feedback into which campaigns provide a higher relative value.  For instance, $60 in chips was better received than $30 in chips, a free room and steak dinner for two at the Tunica casino.  It is important for Harrah’s to continue this research and find which campaigns are best received in each of it’s geographies.

Closed loop marketing also assisted with cross-market penetration.  Viewing Harrah’s as a whole rather than as individual properties assisted with better marketing.  Harrah’s cross-market play more than doubled from 1997 – 1999, during a time when billions of dollars were being spent on luxury casinos in Las Vegas.

Harrah’s has learned a lot on its journey about its customers and the casino industry and should continue to build on this knowledge base.  First and foremost, Harrah’s should continue to invest in its customers, knowing your customers, having the largest client database in the industry has served you well; continue to enhance the workbench and data warehouse to capture as much information as possible about customers in order to enhance marketing in the future.  In that vein, Harrah’s should continue to run experimental marketing campaigns through the closed loop process.  Cross market play is an important part of revenue and being able to increase this two-fold in two years is significant.  Geographic marketing based on which casinos customers have visited in the past and trying to gauge where they may be interested in going in the future could increase this revenue even more.

A new project to look at in the future would be enhancements for mobile devices and social media/networking.  Possibly create an app that could be used for Android phones, iPhones, iPads, etc that could replace actually having a loyalty card.  The app could be scanned in at slot machines or tables and customers could keep track of their loyalty rewards.  The internet is also something that is growing at a staggering pace.  It might be worthwhile to link the Rewards program to customers e-mail addresses.

Please let me know if you would like for my team to come in for a formal presentation. 

We look forward to hearing from you. Thank you for this opportunity.

Bombardier Reflection

Case: Bombardier:  Successfully Navigating the Skies of a Large Scale ERP Implementation

Members of the Board

I would like to follow-up with you after our presentation by the consulting team on Tuesday night.  The consultants had some interesting ideas and our management team learned some good information about the overall industry 12 step standard for ERP implementations.  My research had come across various “industry standard” practices, while the consulting team’s overall framework appears to definitely be more useful.

The consulting team presented us with 3 recommendations:

• Include function specialists in design and implementation activities with formal processes in place that can be based on a scorecard to show progress for both design and implementation. 
• Hire 3 full time subject matter experts (SME’s) with industry knowledge as well as an SAP knowledge base in order to remove IT consultants from the equation.  
• Either enhance the SAP features to accommodate our current specialized contract management process or standardize the contract management process to conform with SAP functionality.

I would agree that both the formal process and function specialists as well as enhancing the SAP features to accommodate the contract management process would be beneficial in our 3^rd round of implementation, I am a little hesitant with regard to the consultant’s second recommendation of hiring 3 SME’s to replace the existing > 400 IT consultants.  According to the consulting team’s presentation, hiring three SME’s would save roughly $130,000 annually, however I feel that more than 3 SME’s would be needed which would no longer make this option as cost effective as suggested.  While subject matter experts are probably something we should discuss in a little more detail as they are probably beneficial to the implementation, I feel that they would not completely take the place of the IT consultants.  This may be a good proposal, but I feel that we may need some more information and/or discussion around this topic before we could offer it as a true recommendation. 

One additional recommendation that I would have in addition to the above would be enhancements to training.  While the consultants felt that our training practices were acceptable, I feel that they could be adjusted after some feedback from employees at the Maribel and Saint-Laurent sites.  Similar to my initial discussions with you on this topic, a more generalized training before implementation may be beneficial with more specialized follow-up training sessions once employees have had the opportunity to use the system.  Feedback from several employees was that from the time they had training to the time they started using the system they had forgotten things.  It would seem that having more follow-up training once people are slightly familiar with the functionality would ease the transition along.

Thank you for your time and please let me know if you would like for me to set up a follow-up with the consulting team.

MS Project

Dear Lee Ann

I would just like to follow-up with you regarding our initial discussion of possible cost-cutting measures.  I was surprised to learn that all of the employees in the Investments Department have Microsoft Project pre-loaded on their laptops. 

While the program is a “nice to have,” at a cost of $442,493 (750 Investments employees * $589.99), this is not a program that is a “need to have” for all associates.   For those employees that are managing projects, the project manager should have Microsoft Project in order to manage the overall timeline of the project with dates for specific deliverables and necessary milestones for the project.   However, this should be limited to the project manager as this person will be responsible for keeping track of the project and making sure that tasks are being achieved within the specified time period.  Not all employees will need to monitor this level of detail of a project.  Also, not all employees are involved in projects of this nature.

It appears that all of our laptops are leased with the Microsoft Project software pre-loaded.   We lease our laptops for a three year period so the annual cost of the Project software for Investments is roughly $147,498 ($442,493/3 years).  We should work with our laptop lessor to see if we could reduce the cost of the laptops if we were to lease them without the software.   This does not necessarily help with money that has already been spent, but going forward this could save us money over time. 

As an alternative we could add Microsoft Project to our Marimba desktop management site.  Project managers could then log in to Marimba and request the software.  This approach will allow only those employees with a legitimate business reason to download the software. 

There are web-based alternatives to Project such as QuickBase for example but this is not necessarily any cheaper.  The most basic version of QuickBase costs $299/month for up to 10 users.  Assuming only 100 employees would require the application, that comes out to $35,880 annually ($299 * 12 months * 10) compared to an annual cost of $19,666 for MS Project ($589.99*100 = $58,999/3 years).   Also if we moved away from having Project pre-loaded on all laptops, the cost could be spread out over a 4 or 5 year period as opposed to just the three years that we lease our laptops for.

Overall, for project management software, I feel that Microsoft Project would be the best alternative however we currently have too many employees that have the software but are not using.  I was not even aware I had it, if we can find a way to limit the number of licenses, this could be a good route to cut some costs without it even affecting employees.