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Parsing New Vine Pt. II: It’s the Software, Stupid!

It seems the car accident has been cleaned up and traffic is back to moving at a normal pace after last week’s New Vine Logistics closure. The mouth agape panic coupled with “they sucked anyway …” schadenfreude has now given way to a collective, “Hmm ... what happens next?”

News reports indicate that Inertia Beverage Group has stepped in with bridge debt financing to get New Vine Logistics (NVL)  operational while they do the equivalent of estate management for the deceased.

“Sheesh, they owed how much to FedEx?”

“Goodness, Uncle Bob invested how much in ’02?”

Winston Wolfe from Pulp Fiction probably had the easier job ...

The Wines & Vines article practically reads like magnanimous customer charity on the part of Inertia, but there’s more to it, methinks.

As much as I would like to think this is about the wineries immediately impacted in the abrupt closing, I really think it’s still about Amazon.com and the NVL software.

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In addition, in the interest of full disclosure, I should note that I worked for Inertia from September of ’06 to February of ’08 – it was an inestimable 18-month rollercoaster ride that included about 150,000 air miles, and the attendant challenges you sign-up for when working for an early stage company supported by what I affectionately refer to as OPM – “Other People’s Money.”

I’m proud of my accomplishments in that brief time. We put the Direct-to-Trade program operationally in place, paid for Hinman & Carmichael San Francisco Giants season tickets 5X over by double-checking compliance issues, and booked the first business through the system while signing up almost 50 wineries, all while working with finite resources (read:  a powerpoint slide deck). 

Never did go to AT&T Park, either. 

Context aside, I need to further note that while I am still friends with a couple of the folks at Inertia, I have NOT talked to anybody about the New Vine Logistics situation.  My opinions hereafter are precognitive and based on circumstantial logic. 

Logically, I would say Inertia wants to work with Amazon.com in a big way.  Logically, I would say Inertia cares more about the NVL/Amazon.com relationship and the NVL software than they do anything else related to NVL, including the customers and the facilities.

Amazon.com getting into the wine business has the opportunity to radically change the playing field in online wine commerce.

As noted at several sites, Amazonwine.com is in alpha testing using the NVL software platform.

Now, mind you, this whole “Amazon.com gets into the wine business” thing didn’t turn up overnight.  Nor did Amazon.com happen to choose New Vine Logistics without doing some industry due diligence. Ahem, read into that what you will, it’s not anything you couldn’t hear at Boon Fly Café over breakfast.  But, Amazon did some due diligence and having NVL assets now gives Inertia a chip to play and a relationship to build upon.

Amazon.com working directly with wineries is a threat to a company like Inertia, without their involvement, a completely different ball game than a wine.com (a retail play) or americanwinery.com who sells essentially on consignment.

NVL has a back-end platform.  Inertia has a front-end platform.  Amazon.com can bring customer scale, using their own front-end, in conjunction with the NVL back-end platform.

If Amazon.com gets in the game in a big way would anybody buy direct from a winery web site, Inertia’s bread and butter?  Uh, no, just like we don’t buy books straight from the publishers.  Fundamentally, that would be a threat to the Inertia business which is predicated on winery sales volume through their software.

The Inertia acquisition of NVL debt and assets squelches those risks.

For further food for thought, note that, according to TechCrunch, Inertia CEO Ted Jansen is noted as an “angel investor” in Snooth, effectively also hedging his bets in the other prevailing business model for online wine commerce, which is essentially a search-to-tasting note-to-retail commerce mechanism.

So, Inertia and/or Ted Jansen has the Inertia business of a winery selling directly to a consumer, the software assets for NVL and a relationship with Amazon.com selling wine to a consumer, a stake in Snooth, and for good measure the Direct-to-Trade platform which can also benefit from NVL infrastructure.

That’s what you call an Octopus playing baseball with four gloves.

Last week I wrote that the value in New Vine Logistics, from Amazon’s perspective, wasn’t the customers, it wasn’t the facilities, it was the software.

That still holds true today given a lot more disinfecting sunlight.

So, was I wrong last week when I speculated that Amazon.com might be bleeding out NVL?  Who knows, I don’t think anybody truly knows what Amazon.com is thinking, but it appears that they are proceeding into the wine business and the process of going through the bloody mess to learn the truth in the court of public examination won’t be necessary.

With apologies to the wineries who have unnecessarily been injured in this fracas, I have to note – unfortunate though it may be, In my opinion, I was fundamentally right—it’s the software that has the inherent value, and not the immediate revenue or customers.  Nor is it the wine shipping facilities, which will likely be spun out to another purchaser.

Make no mistake, this Inertia/NVL/Amazon.com thing isn’t about the here and now – it’s not about a winery shipping a club shipment this week – it’s about the future of direct-to-consumer wine business.

Amazon gets what it ultimately wants which seems to be a monogamous date to the dance without a long-term commitment and Inertia gets what it wants which seems to be a hedge against whichever direction the online wine market shifts.

My guess is that while there may be some sore customers in the short-term, in the long-term this winnowing and re-trenching will prove to be a good move for Inertia and the industry.

*Disclaimer –I do want to note that I realize this post is entirely speculative.  I’ll buy a round of drinks if I end up being wrong, money I don’t think I’ll have to spend, but this is my opinion without any first hand knowledge.  This NVL/Amazon.com thing will turn out to be significant and the core aspect of this shakeout.  Take it for exactly the $0.02 cents its worth.

* Note* The Amazon.com wine glass photo is courtesy of winecast.net

*Update* - Tom Wark from Wark Communications, PR counsel for Inertia Beverage Group notes in the comments that Ted Jansen is not an investor in Snooth.  I took attribution for that “fact” from a Tech Crunch article dated January 16, 2009.  In the same article, it is mentioned that Ted is an Advisory Board Member for Snooth, as well.  The TechCrunch article is linked from the Snooth web site under the Media section, without apparent correction to the record.



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Posted in, Wine: A Business Doing Pleasure. Permalink | Comments (14) |


Comments

On 06/08, Josh wrote:

Your speculation is always valuable.

One quibble: do you really think that if Amazon is successful people won’t want to buy wine direct from a winery anymore?

The reason folks don’t buy direct from a publisher is because, well, who gives a rats ass about the publisher? The didn’t create the content.

The reason folks often times don’t buy from the author, is because the author can’t give a price that beats Amazon.

So anyway, I think folks will continue to purchase from winery websites, provided they can offer something that Amazon can’t (small wineries for example) and that their price is competitive (which it will be in most cases).

Agree? Disagree?

Great post Jeff.

On 06/09, Jeff wrote:

Thanks for the comment, Josh.

I think, generally speaking, when online wine sales are more prevalent and less incremental, aggregation is going to be the model.  We’ve seen it so many times before in virtually every other category.

Now, this isn’t to say that wineries won’t sell direct, but if I were a winery and I had to place my own chips, I would bank on an Amazon.com channel far surpassing direct from winery sales by a large revenue clip.

This opinion doesn’t account for allocations, clubs and brand ambassadors, just the general wine buying population at- large.

When you have an abundance of sku’s, as wine does, people want to shop.  They are searching for Pinot Noir, a Wine.com entry pops up (or an Amazon.com entry in the future)—and they browse based on price and reviews.

Google search “Buy Pinot Noir” to see what I mean.

Maybe it’s Capozzi, maybe it’s Selyem, but most aren’t coming at it predetermined.

Thanks again, Josh!

Jeff
http://www.goodgrape.com

On 06/09, John Kelly wrote:

Jeff - good post; I don’t think you will be buying that round of drinks.

I’m looking forward to seeing the Amazon play ripen, but IMO it’s not ready to pick yet and won’t be for a while. I have too much OPM tied up in the business to pay too much for the first iPhone or beta test IE8 for MS. Again.

We have offered online sales of our wines through our own website since 2004. Internet-direct still accounts for the smallest fraction of our sales, albeit with the best margin. Our online customer service experience is OK, but it’s not SHOPPING in the sense that one can shop at Amazon or Zappos.

The people that buy direct from us online for the most part have already tasted our wines in the real world. Fewer have been intrigued enough from reading my blog or seeing us on Facebook to order online, but mostly our ancillary online presence brings people to Sonoma rather than directs them to buy through the website.

I see sales through Amazon as a distinct channel. I’m not sure how much brand-building this channel will do for us, and I wonder how much Amazon is going to want to charge for access to their system. Is our wine just “content” in their model? [Note that one could substitite any of the other players for “Amazon” in this paragraph.]

On 06/09, Larry Chandler wrote:

Wineries don’t have to sell all their product through Amazon. And the price they receive from Amazon is less than half they can get by selling the wines on their own websites.

Once a winery has a website, the incremental costs of maintaining that site are minimal, or can be if they switch to an open source platform such as WordPress which will have additional ecommerce functionality over time.

I think the Amazon wine shop, should it be successful (or even start up) will actually open up and legitimize the online wine sales category.

Clearly the biggest value of NVL to Inertia is their software, but while Intertia provided funds to keep NVL on life support for the moment, the final chapters in this sorry saga have yet to be written.

On 06/09, St. Vini wrote:

John Kelley echoes a point I made recently, that internet sales are still infinitesimal for all but a few.  Buying over the web just isn’t (yet) the experience that people want for wine.  Lose the direct connection to the consumer (via Amazon or any other intermediary) and you start to become just another brand competing on price alone.

As with Larry’s point, I’ve seen an Amazon/NVL contract and he’s right, many wineries are better off (margin-wise anyway) going it alone.  The Amazon/NVL margins were no better than wholesale but with more administrative hassle!

V

On 06/09, .(JavaScript must be enabled to view this email address) wrote:

Great thoughts Jeff. If the Inertia DTT model ever flies its success will be due in large part to your groundbreaking efforts. I’ll have a lot to say about New Vine and Inertia at some point, after the smoke clears. As a past employee of both I believe I’ll be able to distill some of your thoughts. Great work!

On 06/09, .(JavaScript must be enabled to view this email address) wrote:

Jeff:

One clarification to your post: Neither Ted Jansen, nor Inertia Beverage Group, is an investor in Snooth. Inertia does have an affiliate partnership with Snooth, whereby Inertia feeds content into their site, and Inertia has intentions to continue that relationship.

On 06/09, Jeff wrote:

Tom,

As PR counsel for Inertia, thank you for the clarification.

I updated the post to reflect your comment. 

I do, however, have to note that Snooth links to the TechCrunch article that I cited—the article names Ted Jansen as an “angel” investor (commonly understood and known as an individual investor) and an Advisory Board member as CEO of Inertia.

Regardless, thank you for clarifying the TechCrunch reporting and my subsequent attribution.

Jeff

On 06/09, Lloyd Benedict wrote:

Jeff—

Not sure where your research came from but AmericanWinery does not even come close to a consignment sale. 

In actuality when NVL took inventory into their fulfillment center, specifically to sell through a program e.g. wine.amazon.com, that is so close to consignment its scary.  The winery is unloading wine to someone to sell for them…consignment is defined as “property sent to an agent for sale, storage, or shipment.” 

As for AmericanWinery, the winery is not designating certain inventory for sale and we never touch the wine—-at every point in the system it is clearly marketed and compliant with a winery direct (DTC) sale.  Im not sure what you mean by “essentially” but in all reality AW is not even close to being a consignment based model….

Great post, just wanted to provide some clarification.

Cheers,

Lloyd
Founder, AmericanWinery.com

On 06/09, Jeff wrote:

Lloyd,

Thanks for commenting.  Perhaps “consignment” isn’t the correct word choice. 

Maybe a “finders fee” model under “consumer aggregation” is better.

I dunno.  My intent wasn’t to confuse, just convey a reference point as the mention of American Winery was very tangential to the point of the post.

Thanks for stopping by and apologies if I created any confusion.

Jeff

On 06/09, Jill wrote:

Jeff,

Great post, though I’m confused on one point (you’ll have to forgive me for being dense): how are you distinguishing back end from front end with regard to NVL and Inertia? Obviously you’re noting a fundamental difference but I don’t know exactly what you’re getting at.

Thanks!

Jill

On 06/09, Jeff wrote:

Hi Jill,

What I mean by front-end v. back-end is, by analogy, the equivalent of your web site versus your accounting system.

You see your web site as presented to customers, you can manipulate the content, but the accounting and nuts and bolts happens behind the scenes (likely with a different piece of software).

Inertia is a front-end, customer-facing piece of software.  The NVL software is back office.

two different functions, both equally important—particularly as it relates to Amazon because they don’t need the front-end piece, but they obviously need the back-end piece.

Having both gives Inertia a powerful proposition. 

Jeff

On 06/10, .(JavaScript must be enabled to view this email address) wrote:

As Lloyd pointed out, AmericanWinery is not a consignment model.  But Amazon (and any other “three tier direct” model) is based on this model.  Which, according to this (http://www.abc.ca.gov/trade/Advisory-Third Party.pdf, top of page 3) doesn’t appear to be Kosher.  What a mess.

On 07/17, Philip James wrote:

I saw our name mentioned!

Tom’s right, neither Ted, nor Inertia are investors in Snooth. Ted, and prior to him Paul Mabray, did hold advisory board positions at Snooth. And some of our advisors, although neither of the aforementioned people, are investors. Thats where the confusion sprang from.

Apologies for any misunderstanding.
Philip


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