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.

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.