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A New Paradigm Replacing the Old

The other day, I was visiting der Eidel blogger, who was discussing the rising rents and impending demise of New York’s Flower District. He made an offhand point, about using FTD.com to buy flowers, which got a tad under my skin. I commented on his post, but there’s a lot more to be said.

The best man in my wedding spent several years working for FTD (along with one of it’s subsidiaries, Flowers All Hours). Since we regularly chat about business, and the various business models our companies followed, I have a more-than-rudimentary understanding of how FTD works. Thankfully, he’s moved on to greener pastures, so if I illuminate people as to how their business works, it’s no skin off him.

So let me make sure everyone, off the bat, understands one thing. FTD doesn’t sell flowers. They don’t make flower arrangements, they don’t deliver flowers, and they don’t own any flower shops. They are only one thing: an order fulfillment service.

FTD is a network. They work with individual florists, and when someone from, say, Massachusetts wants to send flowers to a friend in California, they contact FTD. FTD takes their credit card info, for a $50 arrangement, tacks on $10-20 in fees, plus a $10 delivery fee, and sends the order to one of the florists in their network. They don’t particularly care if the florist is wonderful or simply adequate, they’re just looking to pass along an order and get their commission. As a consumer, you’re getting a $50 arrangement for $80, but since you don’t know the florists in California, you know you’re getting an adequate product, but without having to know the reputation of the florist you’re working with. Of course, FTD constantly has to monitor their florists to make sure they don’t short their orders, since it’s rare that someone who’s receiving flowers knows the difference between a $40 and $50 arrangement. And the individual florists have ample reason to try to game the system, because they’re spending boatloads of money to be a member of the FTD network, and want to ensure it generates a positive cash flow.

Well, that business model may have made sense a few years ago, but with new information, it’s much better to simply cut out the middleman. Why use FTD, for example, when you have CitySearch? Instead of placing an order for adequate flowers using FTD, knowing for a fact that I’m being overcharged, a quick search of local florists on CitySearch can provide reviews, ratings, and an assurance that other consumers have been happy with that florist’s products. I know that instead of the adequate, overpriced arrangement I might get through FTD, I’m likely to get a spectacular and properly-priced arrangement from a florist that is trying to impress a potential repeat customer.

Five years ago, before the internet had reached its current level, FTD was an indispensible tool in sending flowers to someone across the country. Now, it’s a wasteful middleman who serves no purpose. It will take a couple years for that message to reach down to the average person like me, who– without having a friend in the business– wouldn’t have had a clue about the flower industry, but it is something that can easily change over time.

But flowers are just one facet. To see where the flower industry might end up in several years, we should look at the current travel industry. 10 years ago, if you wanted to go on vacation with your family, you’d look around for the best travel agent in your area, set up an appointment, and let the travel agent book and organize your trip. These days, however, I doubt that a single one of the readers of this blog has done so for a trip they’ve made in the last year. If they have chosen to do that, I’ll bet they’ve looked back on it with at least a small bit of regret, assuming they’ve actually done some research on their own since.

Years ago, the only way that someone could reasonably keep on top of travel deals and knowledge of destinations would be to make it a full-time job. Travel agents were a necessary middleman in the business. If I wanted to travel to, say, Montreal, I could look around at the library and bookstores for Montreal travel guides. I could call around to all the airlines to find who had the best fares, call all over the place for the best hotel deals, and then call all around to find out the best rental cars. I might spend several days compiling all this information before making a decision. Or, I could simply pay a travel agent a small fee to take care of it. I may spend a small amount of time talking to friends and coworkers to find a reputable agent, but beyond that, it’s just not worth it to do the rest of the research on my own.

These days, though, all the information a travel agent has is at my fingertips. I have a host of different web sites I can use to find the best airfare, car rental, and hotel deals, complete with pictures, ratings and reviews, and much more information than a travel agent of 10 years ago could have dreamt of. To say that the internet has empowered individuals is the only apt description, because it has given laymen the power that only professionals once had.

This scenario is being played out in far more places. Nobody needs a Zagat guide when they have a myriad of sites for restaurant reviews. Purchasing maps is slowly phasing out, with the advent of online point-to-point directions and the lower costs of GPS navigation systems. Even such things as retailing are feeling the pinch, as a greater number of items are being offered online, and a greater number of people are self-selling items through services such as eBay. The old paradigm, where local businesses acted as gatekeepers to information, is imploding. Information is both expanding and becoming more accessible at an ever-increasing rate, to the point where the cost of information– in many areas– is simply zero.

Does that mean that travel agents and FTD will disappear in the near future? No. Travel agents are still more efficient at booking vacations for large groups than the internet. For example, my company is doing a trip later this year, and to pile the work of organizing dozens of people strewn all over the country to get them to the destination onto one admin is absolutely insane. For the moment, at least, those sorts of arrangements work better with someone who is used to arranging group discounts and group trips. Likewise, for the moment, the ease of FTD is still preferable, to most people, than the hassle of searching CitySearch to find a highly-rated florist who can provide a great product, regardless of the cost savings which might follow.

But these things are changing. Just as travel agents for personal vacations and the Zagat guide are simply obsolete, services like FTD will become so soon. The world is changing quickly, and the only way to prosper is to see which way it’s headed.

Posted By: Brad Warbiany @ 7:06 pm || Permalink

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