Thursday, May 31, 2012

I Want USPS To Think Outside The Box

Recently I had to go to a consulate to get a visa and the consulate would only accept a USPS money order and a USPS pre-paid envelope. I went to a post office to get those. That particular post office decided to change their business hours that day to open late. I hurriedly drove to a different post office where two out of there clerks didn't know how to issue a pre-paid envelope! At personal level I never look forward to going to a post office. It invariable delays my schedule. I am met with unpleasant customer service and inefficiency everywhere. This is also true with some of the other services that I get but there's one major difference. I cannot opt out of USPS.

USPS anticipates to lose about $7 billion during the fiscal year that ends in September. They even have their own conference called PostalVision 2020 where they have invited technology thought leaders such as Vint Cerf and many others to honestly and seriously look at the issues they have. The agenda is to:
"Postal Vision 2020/2.0 is as much a movement as it is a Conference.  It is a forum for an open and honest dialog to better understand the future of postal communications and shipping, and what this means to those who regulate, supply and use mail.  It’s about sharing ideas and knowledge with the hope of sparking innovation and the creation of new successful business models.  It’s about asking each other lots of difficult questions for which there may be many answers to consider before finding those that serve the long term health of the industry and any particular enterprise."
USPS is broken at so many levels; they have short term as well long term issues to deal with and it is likely to get uglier before it may get better. Channeling Geoffrey Moore, USPS needs to retain their core and and redefine the context. Massive fleet of trucks, logistics, and outlets in all foreseeable locations is their core strength. Postal mail and other related services is their context where they are simply unable to compete because of shrinking addressable market (due to digital communication) and poor service design that applies the legacy mindset to solve today's and tomorrow's problems.

USPS should think outside the box. No pun intended.  

Here are some ideas/suggestions:

Deliver groceries: Remember Webvan? I loved their service during the dot com boom. One of the main reasons they went out of business is they had no expertise on logistics. Since then nothing much has changed in home-delivered grocery business. What if USPS delivered grocery to your home? What if they partnered with a local supermarket and took over their logistics business? This is a complimentary business model. The supermarkets are not in the delivery business and it's not economical for them to enter into the logistics business. This is also a sustainable business that helps the environment. The USPS trucks are on the road no matter what, but now they can take a few cars off the road. This may sound crazy but times are changing and it's time for USPS to rethink what unfair advantage they have over others.

Re-think mail delivery: It's perfectly acceptable to me if I only receive my mail every other day. In many cases, I am fine if I don't get my mail for a week at times. There's nothing time-sensitive about my mail. And with changing demographics, this is true with a lot of other people as well. Incentivize customers to skip mail by offering them discount on other services and have less trucks and less people going around the neighborhoods. This brings the overall cost down and opens up new revenue opportunities.

Double down on self-service: I know USPS is trying hard to add more and more self-service kiosks but they're not enough. Think like Coinstar and Redbox. I should be able to do everything related to USPS at the places where I can get milk at the 11th hour, money from ATM, and gas for my car. They really need to work hard to give people a reason to use USPS when people have much better alternatives to mail packages. Think of UPS, DHL, and FedEx as incumbents and leap frog them at places, using the unfair advantage that USPS has, where they can't possibly compete.

Rethink the identity: USPS doesn't directly receive federal tax dollars and it is expected to meet expenses from the revenue it generates. But, it's not that black and white. Even though USPS doesn't get any tax money it receives plenty of other money via grants and other special funds. It's neither truly a government entity nor truly a business entity. If USPS needs to be fixed it needs to rethink its identity and decide whether it's a complete public sector or a mix of private and public sector and how. Once that identity is set they can follow through on their revenue sources, cost measures, and building an ecosystem of partners. Mixed and complicated business structure introduces complexity at all the levels and prevents the organization to think and execute in a unified way.

Monday, May 21, 2012

Data Is More Important Than Algorithms

Netflix Similarity Map

In 2006 Netflix offered to pay a million dollar, popularly known as the Netflix Prize, to whoever could help Netflix improve their recommendation system by at least 10%. A year later Korbel team won the Progress Prize by improving Netflix's recommendation system by 8.43%. They also gave the source code to Netflix of their 107 algorithms and 2000 hours of work. Netflix looked at these algorithms and decided to implement two main algorithms out of it to improve their recommendation system. Netflix did face some challenges but they managed to deploy these algorithms into their production system.

Two years later Netflix awarded the grand prize of $1 million to the work that involved hundreds of predictive models and algorithms. They evaluated these new methods and decided not to implement them. This is what they had to say:
"We evaluated some of the new methods offline but the additional accuracy gains that we measured did not seem to justify the engineering effort needed to bring them into a production environment. Also, our focus on improving Netflix personalization had shifted to the next level by then."
This appears to be strange on the surface but when you examine the details it totally makes sense.

The cost to implement algorithms to achieve incremental improvement isn't simply justifiable. While the researchers worked hard on innovating the algorithms Netflix's business as well as their customers' behavior changed. Netflix saw more and more devices being used by their users to stream movies as opposed to get a DVD in mail. The main intent behind the million dollar prize for Netflix was to perfect their recommendation system for their DVD subscription plan since those subscribers carefully picked the DVDs recommended to them as it would take some time to receive those titles in mail. Customers wanted to make sure that they don't end up with lousy movies. Netflix didn't get any feedback regarding those titles until after their customers had viewed them and decided to share their ratings.

This customer behavior changed drastically when customers started following recommendations in realtime for their streaming subscription. They could instantaneously try out the recommended movies and if they didn't like them they tried something else. The barrier to get to the next movie that the customers might like significantly went down. Netflix also started to receive feedback in realtime while customers watched the movies. This was a big shift in user behavior and hence in recommendation system as customers moved from DVD to streaming.

What does this mean to the companies venturing into Big Data?

Algorithms are certainly important but they only provide incremental value on your existing business model. They are very difficult to innovate and way more expensive to implement. Netflix had a million dollar prize to attract the best talent, your organization probably doesn't. Your organization is also less likely to open up your private data into the public domain to discover new algorithms. I do encourage to be absolutely data-driven and do everything that you can to have data as your corporate strategy including hiring a data a scientist. But, most importantly, you should focus on your changing business — disruption and rapidly changing customer behavior — and data and not on algorithms. One of the promises of Big Data is to leave no data source behind. Your data is your business and your business is your data. Don't lose sight of it. Invest in technology and more importantly in people who have skills to stay on top of changing business models and unearth insights from data to strengthen and grow business. Algorithms are cool but the data is much cooler.