140505 MG.docx

140505 MG.docx

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140505MG

140505MG

E-commerce

Same-daydreamers

Onlinefirmsareplungingintosame-daydeliveryagain

May3rd2014 | SANFRANCISCO | Fromtheprintedition

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Whenwesaynow,wemeannow

WHENveteransofthelastdotcomboomnamecompaniesthatepitomisetheexcessesofthelate1990s,theyinvariablyincludeWebvanandKintheirlists.Bothpromisedtomakeiteasyandcheapforpeopletoordergoodsonlineandhavethemdeliveredswiftly.Andbothfailedspectacularlyaftertheydiscoveredjusthowharditistomakemoneytryingtodeliverontightdeadlines.

Now,threeonlinegiantsthatsurvivedthedotcombustaretryingtosucceedwherethosetwofirmsfailed.Amazonisleadingthecharge.IthaslaunchedAmazonFresh,asame-daydeliveryservice,inSanFrancisco,LosAngelesandSeattle.“Placeyourorderby10amandhaveitbydinner,”itboasts.Theservice,whichoffersaselectionofover500,000itemsincludingperishablessuchasmilkandeggs,deliversitswaresingarishgreenvans.

Inthissection

∙Returnofthebigdeal

∙Heavymetal

∙Anewwrinkle

∙Whenitvereins,itpours

∙NewTube

∙Arevolutioninthemaking

∙Theglassprecipice

∙Same-daydreamers

∙Adventuresintheskintrade

Reprints

Relatedtopics

∙Google

∙LosAngeles

∙Seattle

∙SanFrancisco

∙Onlineretailing

GoogleandeBayareinthevanguardtoo.GoogleShoppingExpressofferssame-daydeliveryintheSanFranciscoBayArea,asdoeseBayNow,whichisalsoavailableinChicago,DallasandNewYork.Thetwofirmsareinpartnershipwithbigretailchainsandsmallerlocalshops,whichholdstockthattheycantapinto.

DeliverystartupssuchasInstacartandPostmatesarealsoworkingcloselywithretailerstoavoidthefateofWebvan,whichsquanderedafortunebuildingitsownwarehouses.Instacart,whichfocusesongroceries,reliesonfreelance“personalshoppers”whousetheirownvehiclestocollectanddelivergoods.AnInstacartsmartphoneapptellsthemwhichshopstovisit,whattopickupandwheretotakeit.Workingoutdeliveryschedulesandroutesis“areallychallengingdata-scienceproblem”,explainsApoorvaMehta,thefirm’sbossandaformerAmazonemployee.

Sofa-boundshoppersnowhaveaplethoraofoptions.InSanFranciscoandLosAngeles,Amazonoffersa30-dayfreetrialofAmazonFresh,afterwhichcustomerspay$299forayear’smembership.Membersgetfreeshippingonordersofmorethan$35.InSeattle,thereisnoannualfee,butordersworthlessthan$100incurcharges.GoogleShoppingExpress,whichhasamuchsmallerselectionofwares,isofferingasix-monthfreetrialwhileitdecideswhattocharge;andInstacartgivescustomersvariousoptions,includinga$3.99feefordeliveryinlessthantwohoursandanAmazon-like$99annualmembershipthateliminatesfeesonordersworthmorethan$35.

Yourcorrespondentplacedorderswithallthreeofthebigonlinefirms,andeverythingturnedupontimeandingoodcondition.Therewereonlyminorhitches.HisGoogleordercameintwoseparatedeliveries.AnditwasdifficulttofinddetailsonAmazonFresh’swebpageofhowadissatisfiedcustomercouldavoidincurringthe$299feeattheendofatrialperiod.（Amazon’scustomer-servicedepartmentrepliedpromptlywhene-mailedaskingforanexplanation.）

Mostcompetitorsinthesame-daybusinessarefocusingoncitieswithlotsofrichconsumerspreparedtopayfortime-savingservices.Butturningaprofitwillstillnotbeeasy.AndrewSchmahlofStrategy&,aconsultingfirm,saysasurveyof1,000Americanonlineshoppersitconductedlastyearshowedmostwerereluctanttopayanywherenearenoughtocoverthecostofspeedydeliveries.Thatmayexplainwhyotherretailershavebeenhesitanttoenterthebusiness.

FirmssuchasGoogleandAmazonmaybewillingtolosemoneyondeliveriesifthedatatheygleanaboutpeople’sshoppinghabitsletthemaimtheironlineadsmoreeffectively.AmazoncouldalsouseitsvanstodeliverpackagesthatitcurrentlysendsthroughcourierfirmssuchasUPS.Thee-commercegiantiscertainlydoingwhateveritcantomakeswiftonlineshoppingeasier.ItrecentlyunveiledtheDash,awand-likedevicethatletscustomersbuildtheironlineordersbyscanningbarcodesonemptypacketsorjars,orbyspeakingintothewand’sbuilt-inmicrophone.Thetrickwillbetoturnsuchtechwizardryintomagicalprofits.

PovertyinIndonesia

Mutedmusic

ThepoorarebenefitingrelativelylittlefromIndonesia’sgrowth

May3rd2014 | JAKARTA | Fromtheprintedition

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Manufacturingwouldpaymore

“JALANAN”,adocumentarybyaCanadiandirector,DanielZiv,tellsthestoriesofthreebuskerswhoplaymusicforsmallchangeonclapped-outbusesinJakarta,Indonesia’ssprawlingcapital.Oneofthem,Boni,livesinasewerthatrunsbeneathoneofthecity’sswankiestshoppingmalls.Thefilm,whichrecentlyopenedinJakarta,isapoignantreminderoftheglaringgapbetweenrichandpoorinSouth-EastAsia’slargesteconomy.

Indonesiahasgrownrapidlyinrecentyearsandlivingstandardshaveimproved.Onthebasisofpurchasing-powerparity（PPP）,albeitnottheupdatedfiguresdiscussed here,grossnationalincomeperheaddoubledduringthedecadeto2012,to$4,730.Theproportionofthepopulationlivinginpovertyfellbyhalf,from24%in1999to12%in2012.McKinsey,aconsultingfirm,haspredictedthatthecountry’s“consumingclass”ofpeopleearningmorethan$3,600annuallywilltrebleto135mby2030（again,onaPPPbasisandadjustedforinflation）.Thegrowingranksofconsumers,inturn,havepromptedaspurtofforeigninvestment.

Inthissection

∙Tippingthescales

∙Thetaxmanblustereth

∙Thedragontakeswing

∙Shocktherapy

∙Mutedmusic

∙Roundingdown

∙BiggerthanMarx

∙Corporatesardines

Reprints

Relatedtopics

∙WorldBank

∙Jakarta

∙EconomicInequality

∙Business

∙Economics

YetIndonesia’sgrowthhasbeenuneven.AccordingtoaforthcomingreportbytheWorldBank,realconsumptiongrewbyabout4%ayearonaveragein2003-10.Butforthepoorest40%ofhouseholdsitgrewbyonly1.3%.Incontrast,consumptionbytherichest20%grewby5.9%.Inotherwords,thericharegettingrichermuchmorerapidlythanthepoorare.At0.38in2011,Indonesia’sGinicoefficient,ameasureofincomeinequality,isinlinewiththatofotherdevelopingcountries.Butithasjumpedfrom0.29in2000.

Over3mmigrantsfromthecountrysidearriveeachyearinJakartaandothercities.Manyofthemendupwithjobsinlow-endservices,hawkingfoodbytheroadsideorsellingthingsfromhandcarts.Theyarepartofavastinformaleconomy,whichaccountsforsome70%ofGDP.Theyrarelyearntheofficialminimumwageandreceivefewgovernmentbenefits.

TheWorldBankestimatesthatlabourproductivityinIndonesia’slow-endservicesectorisaboutdoublethatinagriculture.Butitisstillonlyone-fifthofthatinmanufacturing.Inotherwords,povertyfallsaspeopleleavericefieldstoworkinlow-endservices,butitwouldfallmuchfasteriftheyweretofindjobsinfactoriesinstead.

ManufacturinginIndonesiaishamstrungbydecrepitinfrastructure,rigidlabourlawsandprotectionistpoliciesthatmakeitdifficultforitsfactoriestobecompetitive.EventhoughtheshareofIndonesia’slabourforceemployedinagriculturehasbeenindeclinefordecades,manufacturing’ssharehasnotchangedmuchatall,hoveringatabout13%.Andlocalmanufacturingremainsdominatedbytheprocessingofpalmoilandotherprimarycommodities.Incontrast,servicesnowemployabout44%ofthelabourforce,upfrom37%adecadeago.

Wideningaccesstothingslikewell-builthouses,cleanwaterandsanitation,alongwitheducationandhealthcare,mightslowlystarttosharetherewardsofIndonesia’srapideconomicgrowthmoreevenly.Indonesiahasincreaseditssocialspending.Ithasboldplanstointroduceuniversalhealthcareby2019,forexample.

Butgovernmentspendingisstillskewedtowardstherich.About20%ofthecentralgovernment’sbudget,or282trillionrupiah（$24.5billion）thisyear,goesonenergysubsidies.Cheappetrolbenefitstherich,whoarethebiggestconsumers,morethanthepoor.Itsqueezesspendingonpublicservices,too.AccordingtotheWorldBank,gettingridoffuelsubsidies,whilereformingtaxesandcuttingspendingoncivilservants,wouldallowthegovernmenttodoublespendingoninfrastructure,healthandsocialwelfare.Thatwouldbebetterfortheenvironment,theeconomyandespeciallythepoor.

Freeexchange

Corporatesardines

Howincumbentfirmspackmarketstodeterentry

May3rd2014 | Fromtheprintedition

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THEmodernhighstreetcangiveanoverwhelmingsenseof déjàvu.FanstrundlingtothefootballstadiumofTottenhamHotspur,ateamfromnorthLondon,passsixWilliamHillbookmakersonthemainapproach.Touriststraipsingalongahalf-milestretchof23rdStreetinNewYorkpassfiveStarbucksoutlets.InTokyo,7-Elevenboasts15storeswithinasimilardistanceofShinjukustation.Thecrushofchainstoresfrustratesthosewholikeone-offboutiques.Economistsfretforanotherreason:

firmsmaybecrammingmarketsinordertokeeprivalsout.

Oneofthefirststudiesofthewayfirmscompeteforspacewaspublishedin1929byHaroldHotelling,thenofStanfordUniversity.Heshowedthatfirmsfacetrade-offs:

locatetooneararivalandferociouscompetitionhitsprofits;edgetoofarawayandtoolargeachunkofthemarketislost.Sincethetrade-offwillvarybymarket,Hotelling’stheoryexplainedwhyfirmsinsomeindustriescluster,whileothersscatter.

Inthissection

∙Tippingthescales

∙Thetaxmanblustereth

∙Thedragontakeswing

∙Shocktherapy