EXCLUSIVE INTERVIEW

Elbowing Into the Set-Top Scene: Q&A With Blockbuster CEO Jim Keyes

Blockbuster on Tuesday threw its hat into the increasingly crowded ring of set-top boxes with the announcement of a deal with hardware maker 2Wire. Blockbuster’s system will bring video directly to viewers’ televisions on demand via a broadband Internet connection.

The move follows similar offerings from competitors. The Web-connected hardware comes months after chief rival Netflix came out with a set-top box manufactured by Roku. However, Blockbuster’s system draws video from the Web differently, it charges using a different pay structure, and its catalog will be different from Netflix’s. In fact, Blockbuster’s system more closely resembles that of another company that’s been rattling the DVD rental industry as of late: Apple.

The E-Commerce Times spoke with Blockbuster Chairman and CEO Jim Keyes about the launch of the set-top box and the direction in which the company is headed.

E-Commerce Times: Why is Blockbuster launching OnDemand using 2Wire’s Media Point Digital Player?

Jim Keyes:

First of all, Blockbuster, the new Blockbuster, is very different from the perceptions of the Blockbuster of old. We were Blockbuster Video, which invokes images of VHS video tapes. Really, that was never Blockbuster. Even in the days of VHS tapes, it was about convenience — convenient access to entertainment. And when VHS tapes went away and were replaced by DVDs, Blockbuster was transformed and modified its offering to DVDs. When DVDs became available by mail, Blockbuster transformed again and offered DVDs by mail.

Well, the customer is changing again, and technology is allowing more convenient access to entertainment in many ways. It is perfectly natural for Blockbuster to evolve again — and we have one more time transformed ourselves and our brand into Blockbuster OnDemand to provide the highest level of convenience now — access to thousands of movies from the comfort of your living room.

ECT: How quickly do users have access to their movie? Is it within a few minutes or is there a substantial download time?

Keyes:

Of course, as with all services, it will depend on the bandwidth for your home, but in the average household, faster than it will take to pop your popcorn, your movie will be ready. … We’re using a process called “progressive download.” You might have heard a lot, read a lot, talked a lot about streaming capabilities. Well, we think progressive download is a higher form of streaming for the following reason: It really comes down to quality and a quality viewing experience. The reality is that even if a home has sufficient bandwidth, that streaming requires always-on connectivity. Download needs only a one-time connection. And the challenge with streaming is, if you don’t have that pure continuity and strength of bandwidth, the viewing experience could be everything from a snowy screen to an interrupted movie. …

Another key point of differentiation is the titles. Once again, we’re going after quality versus quantity. You see other services that advertise 20,000 titles, and there are a couple of things here. One is a question of counting. If you count every episode of every television show, you could easily add to your title count. We’re more interested in offering high-quality content and the newest movies, which is very similar to the way people use our stores. About 80 percent of our business is new releases in our stores. We expect the same demand to be there online, so we have the newest releases available on video and on demand. So “Dark Knight,” for example, will be available through Blockbuster OnDemand. For competing subscription services, it could be two to three years before a movie like “Dark Knight” should be available on those boxes.

ECT: So there’s no subscription with Blockbuster OnDemand?

Keyes:

Correct. We’re doing it purely on an a la carte basis. Now we’re offering some unique deals to our customers. For example, they are able to get the box free of charge if they pre-pay for the first 25 movies. So the (US)$99 entry cost is really a prepayment of the first 25 movies, and you get the box for free.

ECT: How long are the movies available? Is it just for a single viewing, or do you have it for a span of time, or [is it] yours in perpetuity?

Keyes:

As with other services, you have the opportunity to buy or rent. To rent the movie, you would pay anywhere from $1.99 to $3.99. You are then able to store that movie for 30 days, and once you begin viewing, you have 24 hours to watch the movie as many times as you like. …

ECT: If you don’t opt for the $99 deal, how much does the device cost?

Keyes:

For this first go-around, that’s the only way we’re going to sell it.

ECT: So with cable, satellite TV and other services like [Verizon] FiOS offering on-demand movie viewing, what stands out for Blockbuster is that you offer newer releases?

Keyes:

We think that long-term, Blockbuster’s pointed advantage will be the quality of content that we have. This is our business. Every other competing service — whether it’s FiOS, Amazon, whether it’s Apple — the aggregation and delivery of movies in the most convenient fashion is not their core business. It’s a sideline. This is our bread and butter. It’s what we do every day, to acquire the best movies and to aggregate the largest library of movies. So the advantage that we have had for years in the store, we expect that to continue as we move into the digital world.

Randy Hargrove, Blockbuster corporate PR: That’s not to say that this set-top box will be our only entry, right Jim?

Keyes: Right, we will have other offerings expanded from this capability. We’ll be able to put the same capability into a Blu-ray player. We’ll go into DVRs (digital video recorders), game consoles, etc., just as others are doing to make the same capability available through other devices.

ECT: I’m glad you mentioned that, because the top of the TV seems to be getting really crowded.

Keyes:

We’ll be able to fix that. I think one of the most natural solutions is the same capability put into a Blu-ray player. The reason that is going to be an excellent feature — and we’ll have that capability by the first quarter next year — basically you unplug your old DVD player and plug in your new Blu-ray player.

For the foreseeable future, the practical limitations of bandwidth are going to make it very difficult for anyone to deliver Blu-ray-quality high-definition content digitally. We think using the store for your Blu-ray, or our online service to get Blu-ray by mail, combined with the added convenience of being able to pull up standard- or high-definition — if you’re willing to wait the extra download time — on your box, we think the natural combination will let the stores and the technology complement each other. …

ECT: This isn’t the start of an effort to shift to a strictly online model?

Keyes:

No, not at all. Again, the strategy of Blockbuster is convenient access to media entertainment. What you find is that different use occasions call for different methods of delivery. … So whatever your convenience needs for entertainment, you’ll be able to turn to Blockbuster. The advantage, though, that I have as a customer, if I have one account, I don’t have to keep pulling out my credit card. I don’t have to keep subscribing to different services. If I want media entertainment — movies or games — I go one place — Blockbuster. They know who I am, whether I’m online, in the store or a subscriber by mail.

It’s an advantage no one else has. You can’t go down to your Netflix store and exchange a movie if you wanted to see something else. You can go to your Apple store, but you can’t get a movie. So this is a very different approach that leverages the Blockbuster brand across all channels of distribution.

And an important element of the OnDemand offering is that now we have completed the offering, with Blockbuster able to go in-store, by mail, vending and kiosks, download to your PC and now finally at home.

ECT: Do you have plans to roll all these up into a single subscription service?

Keyes:

Perhaps over time. We are looking at subscription offerings, but candidly, the vast majority of our customers prefer new releases, and while we think subscription packages will be interesting, they will through necessity, because of the studio requirements for different windows, those will be older movies. And we think that subscription will lend itself … to perhaps kids’ movies and other specific genres, but we are more excited about the demand for a la carte capabilities.

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EXCLUSIVE INTERVIEW

B2B Funding Firms Banking on Embedded Finance

accounting and finance

Embedded finance is on the rise in both the business and consumer payments markets. Analysts project its revenue will reach $1.91 trillion as adoption expands by 2028.

This steady acceptance is opening fintech operations to a wide range of marketplace opportunities. At the same time, it is forcing banks to morph their traditional catbird seat domain in doling out loans and bill paying services to partnerships with a variety of e-commerce platforms. This disruptive transition spans industries catering to both business-to-business and business-to-consumer transactions.

By integrating a financial task or function into a business’s infrastructure, embedded finance streamlines access to financial services such as lending, insurance, or payment processing. It does this without redirecting the customer to third-party destinations.

The embedded finance concept took root years ago with money handling operations such as PayPal and Stripe. Users could conveniently pay bills and deliver money to individuals and companies without individually handling such matters through their banks or postal services.

Banking as a Service

Finance platforms called banking as a service, or BaaS, are becoming an integral part of online transactions for both individual consumers and businesses. A dual industry is developing around the two processes.

These BaaS platforms enable digital banks — and even non-banks — to build various financial services into their online transactions, exclusive of product purchases. They operate with back-end banking functionality; whereas the broader category of embedded finance is more of a front-end access to financial services.

Together, the two are tied to the digital marketplace and the efforts to simplify and streamline financial services for consumers and businesses alike. Though embedded finance and banking as a service appear similar, they differ slightly in that BaaS is needed to deliver embedded finance.

Invoice Factoring

One of the new trends in shaping B2B payment strategies, especially for non-financial companies, is the shift toward invoice funding, or factoring.

This solution is not a loan but a financing strategy where a company sells its invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company then owns the invoices and gets paid when it collects from the invoiced customers, typically from 30 to 90 days.

FundThrough is an AI-powered invoice factoring platform with a big presence in the process of embedded finance in B2B payments. The company provides funding for a business based on the size of its outstanding invoices.

Online B2B transactions have three components — suppliers, buyers, and the platforms they use. Each component has its own set of needs that must be met to ensure a smooth payment process for all involved, according to Amanda Parker, chief growth officer at FundThrough.

An essential requirement for buyers is contentment with sellers’ payment methods and how their suppliers provide those services. Where suppliers are concerned, customer remittance intervals and delivery processes tend to vary by industry — and selling to B2B enterprises that have unreasonably long or inconsistent payment cycles can negatively impact the cash flow of suppliers, Parker noted.

Embedded finance, the larger umbrella category, encompasses all the different components of finance in the traditional sense. Embedded finance strategies can be built into whatever workflow that makes sense, explained Parker.

“It can be used right inside the workflow connected to a purchase of an item, a transaction, creation of an invoice, for example,” she told the E-Commerce Times. “It also includes embedded banking, embedded payments, lending insurance, you name it.”

Embedded Finance Unwrapped

The E-Commerce Times further discussed the inner workings of embedded finance with Amanda Parker. Following is that part of our conversation.

What more is involved in the process of embedded finance?

Amanda Parker: It varies and includes a connection to the customer, so you have some kind of connection to the data source.

Amanda Parker, chief growth officer at FundThrough
Amanda Parker, Chief Growth Officer
FundThrough

Let’s take an example from one of our partnerships. We are connecting to the user’s company inside QuickBooks for getting information on what their company is, what it does, as well as a level of identity verification.

We are doing something called KYC, which is “Know Your Customer,” so we are asking the user a series of questions or asking for a series of documents to confirm their identity.

Then we confirm that the transaction they are requesting is legitimate, the relationship that they have with the business on the other side is legitimate, and that their bank account details are legitimate.

So those are kind of the components. It is verification, confirmation, and then sending the funds required through various banks.

How does this process work for other use cases?

Parker: Our bread and butter is lending or invoice finance. In general, embedded finance has tons of other use cases. You have B2C, tax or business-to-consumer contacts, and you have payments insurance. This is the exact same but in a B2B context.

So, for us, the use case might involve suppliers that want to get paid immediately. Now they can do that beside any workflow; whether a transaction, invoice, or purchase is happening.

How does this process benefit consumers or is it more a benefit for businesses?

Parker: We focus on businesses, but for consumers and everybody it is the seamless integration they gain so they do not have to leave their workflow. It is far more convenient and automated.

You are not using six different systems to try to get something done. You can now do everything inside one system. So, if you think about the way that finances have leveraged or changed over time, consumers can essentially buy anything online.

But B2B is a very fragmented system. So now, embedded finance is taking over into B2B to apply that same kind of frictionless experience that consumers have online to a B2B context.

What factors are driving the transition to embedded finance?

Parker: Frictionless experiences at the consumer level have always led the way. Now that is coming through to businesses.

Another key thing is as millennials take over more of the workforce, they typically get frustrated with systems and workflows.

Integrated payments and lending are really unlocking a lot of new business models for software companies. This vastly improves the experience to make it a more consumer-like experience but in a business-to-business context.

How is the adoption of embedded finance progressing?

Parker: We see a growing number of estimates for the global embedded finance opportunity. [Reportedly] embedded finance will reach a $7 trillion value globally in the next 10 years.

PayPal and Stripe were leaders, particularly on the consumer side and e-commerce. Now we are getting on the cusp of explosion on the B2B side of things, which is very exciting. There is over $100 trillion of GMP (guaranteed maximum price) inside B2B. That is just kind of open for the taking.

I think you are going to see a lot more of that as players over the coming years come out and start to want to assist in that movement of those funds.

What is needed to encourage further adoption?

Parker: I would say one of the key things is bank adoption. More banks need to embrace open banking and banking as a service.

Application programming interface (API) architecture is ever evolving and getting better. A number of fintech players have come out to give the banks a run for their money. So, I think we will start to see a ton of innovation in that space in the coming years.

Why are some banks hesitant to come on board?

Parker: Banks really want to hold back that customer and hold that experience. They do not want their customers moving over to another experience. They want to try to service it all themselves.

Banks also have a big concern about security. But we invest in that now to ensure we give customers the best experience. Consumers are connecting their bank accounts to tons of different services. It’s in [everyone’s] best interest to ensure a secure and frictionless experience. That is one of the big areas where we hope to see continuing progress in the coming years.

Jack M. Germain

Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

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EXCLUSIVE INTERVIEW

Sweetwater’s Well-Tuned Marketing Is Music to Shoppers’ Ears

Sweetwater music store in Fort Wayne, Indiana

The Sweetwater Music Store in Fort Wayne, Ind. (Image Credit: Sweetwater)

Companies like Wayfair, Etsy, eBay, and many others in this troublesome inflationary era, struggle with an e-commerce reset as more consumers return to in-person shopping.

MasterCard has said that in-store shopping increased 10% in April, while e-commerce sales slipped almost 2% from a year ago. Even Amazon seems bruised with a 3% decline in online retail sales in Q1.

Amidst this back-to-store shopping trend, as large companies try to work through e-commerce mishaps, musical instrument and pro-audio retailer Sweetwater has seen an increase in online sales. The company attributes much of its success to top-of-the-line experiences both online and through its unique one-on-one personalized customer service.

The macro-economy is tough right now, and the pandemic created a ripple that will continue to disrupt for some time, according to Mike Clem, Sweetwater’s chief growth officer. Still, he sees plenty of headway for smart retailers who can win on personalization promotion, and value-add.

Mike Clem
Chief Growth Officer at Sweetwater

Retailers hear that strategy all the time lately. For Sweetwater, however, the approach has proven effective. When Clem started in 2003, Sweetwater’s website did $4 million in sales. Last year the company announced that it surpassed $1.43 billion in sales and facilitated 4 million orders.

“Sweetwater is fortunate to be in an industry that was accelerated by Covid. Many people picked up a musical instrument for the first time, or re-ignited a hobby, or invested in streaming and online performances. Now we are seeing those customers return to upgrade their instruments or buy more accessories. Retention is strong in [this] high-passion category of ours,” he told the E-Commerce Times.

Going Behind the Music

The E-Commerce Times discussed with Clem what other online retailers can learn from Sweetwater’s fine-tuned personalized marketing approach.

E-Commerce Times: Is Sweetwater’s impressive sales growth the result of its music-related product line and/or its e-commerce platform?

Mike Clem: A great deal of digital innovation fuels our growth, but the heart and soul of our company is actually a team of 600 “sales engineers.” They are the most highly-trained advisors in our industry with prestigious music backgrounds and incredible gear knowledge.

They are available to help customers shop online, by phone, SMS, or email. Then they stay engaged after the purchase to provide support and advice. This follow-up is what develops true relationships and helps to propel customers toward their musical goals.

What trends do you see evolving as the pandemic’s impact slows down?

Clem: I think we are seeing most categories beginning to normalize. Depressed categories like apparel are recovering — even surging — and elevated categories like home goods are pulling back from their peak. Many retailers had a surge of new customers during the pandemic and now is the opportunity to re-engage with them and create repeat business.

As more shoppers return to in-store purchases, what is the impact on e-commerce?

Clem: Many of us discovered great new brands as we pivoted to online shopping during the pandemic.

Many of us bought items that we never would have considered buying online previously. Retailers that provided great experiences have an opportunity now to retain those customers and not see everyone retreat back to in-store purchasing.

How are the supply chain interruptions affecting the stability of online shopping?

Clem: Our supply chain continues to be significantly disrupted. We are finding success by focusing our website on items that are confidently available. We use artificial intelligence (AI) and humans to suggest alternatives.

This optimizes our advertising in the most disrupted categories. It increases our communication with vendors about the product demand we are seeing.

What are your most popular products?

Clem: We are the largest dealer for many of our instrument brands; guitars, drums, keyboards etc. But we are best-known for our expertise in recording and live sound technology for musicians, schools, churches, pro studios, home recording, and such.

One exciting category right now is audio equipment for online streaming and content creators, which exploded open during Covid.

Sweetwater Music Recording Equipment Room

Sweetwater Recording Room (Image Credit: Sweetwater)

Sweetwater has a large physical store in Fort Wayne, Indiana. Do you have any other retail outlets?

Clem: We have one flagship store on our campus in Fort Wayne, Indiana [pictured above]. It is a unique “destination” store because we have so much gear available for you to hear and compare in one location. We have nearly 50,000 items on display and in our warehouse. It’s over-the-top. Customers will drive from many states away for that experience.

Bass Guitar Room at Sweetwater Music

Bass Guitar Room at Sweetwater (Image Credit: Sweetwater)

What sets apart Sweetwater from music stores with many more physical locations?

Clem: We have worked hard to create the best online shopping experience in our industry with the most professional and knowledgeable experts all in one location, not fractured across many stores.

We win by providing the most value, by “wowing” our customers in every interaction, and by truly getting to know them at a personal level so that we can be a valuable partner on their musical journey.

Musical instruments are a prime example of products that consumers traditionally went to a physical store to try before buying. How has Sweetwater overcome that obstacle to succeed at e-commerce?

Clem: That’s right. It is often an emotional purchase. But it is hard to find good local stores that have a large selection or professional advice, especially for complex technology products.

We bridge the gap by offering great advisors and a ton of rich media to help you research. For example, we photograph most guitars that we receive so that you can examine it in great detail and choose your favorite one.

Sweetwater Music Guitar Photographer

(Image Credit: Sweetwater)

It also goes through a 55-point inspection process that ensures it is actually better quality than most guitars hanging on the wall at local stores.

Many of your products are quite large and/or heavy. Those must be costly to ship. What challenges and solutions can you share about your fulfillment process that allows you to remain competitive in terms of pricing?

Clem: Free shipping is table stakes these days. So, we are just deeply focused on operational efficiency. That involves things like optimizing our carrier mix, packing materials, intelligent boxing, and combining orders. We are also excited to be expanding into additional distribution centers to be closer to our customers with faster shipping times.

Sweetwater Music Distribution Center

Sweetwater Distribution Center (Image Credit: Sweetwater)

What does Sweetwater do to help minimize returns?

Clem: We have a very low return rate for three reasons. We provide a tremendous amount of rich online content to help shoppers research; we have experts available to help customers understand complex products and make sure it is right for their specific needs; and we provide free technical support after the sale to make sure everything is working for them.

Sweetwater invests heavily in marketing. How important is that to the company’s success, and which channels perform best for you?

Clem: We focus our marketing on awareness and acquiring new customers. Then we enjoy very strong retention because our team focuses on amazing experiences and nurturing relationships.

We have a sophisticated search engine marketing (SEM) program, and we are also finding great results with influencers and affiliate partners in our high-passion industry. Like many retailers, our current focus is to reduce dependency on SEM as the costs per click (CPC) continue to shoot up.

Your website has many video demonstrations and testimonials from professional musicians. Tell us what goes into that production and maintaining the relationships with vendors and performers.

Clem: We have worked hard to earn our reputation as the “research destination” in our industry. We have a large in-house team of experts and artists who research products and then produce custom descriptions, photos, spin photos, rich media, audio, and videos. Customers know they can find the most in-depth product information on our website.

More E-Commerce Tips From Mike Clem

Jack M. Germain

Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

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