Content Published Last Week

1. Wencor, Seal Dynamics, & Aerospace Aftermarket Distribution

2. Keywords Studios: Sales Process, Single Service BPO's & Competition

3. Hyperscalers: Cloud TAM

4. Spotify Podcasting: Megaphone, SPAN & Programmatic

5. HashiCorp: From Open-Source To Enterprise

6. Fever Tree Australia: Positioning & Distribution Strategy

7. Mainfreight vs Old Dominion: US LTL Comparison

8. Trustpilot: GTM Strategy & Network Effects

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Wencor, Seal Dynamics, & Aerospace Aftermarket Distribution

This interview is the penultimate in a series on the HEI / Wencor deal which covers the distribution business of HEI / Wencor. We've now covered the deal from all angles:

1. HEI / Wencor PMA synergies

2. Wencor PMA ABOM Strategy

3. MRO Synergies in the deal

4. Strategic Rationale of the acquisition

5. Seal Dynamics & Aftermarket Distribution

We walk through how Wencor won OEM exclusive supply relationships from Aviall and Satair. For example, Wencor recently won the distribution of Adams Rite, a TDG company. Why did it win the contract? It boiled down to 3 points: intimacy, transparency, and private label PMAs.

Firstly, intimacy. In simpler terms, we provide a dedicated program manager who will be your point of contact. This is particularly important for companies like Adams Rite, who are significant to Wencor. Unlike being one of hundreds or thousands of products a Satair program manager handles, you will have a dedicated manager. Secondly, we offer transparency. Every month, you will receive a report detailing all the different airlines and MROs we've contacted to promote your parts. You'll get feedback from these as well as from the Wencor MROs on how your parts are being used in the field, their performance, and how competitor parts are faring. Lastly, we discussed the private label PMA opportunities. This was the value proposition that allowed Wencor to secure contracts. As far as I know, Satair and Aviall haven't taken significant steps to counter this. - Former Wencor EVP

We will be publishing a new piece of research on the HEI / Wencor deal exploring the value of vertical integration across PMA, distribution, and MRO for HEICO.

Keywords Studios: Sales Process, Single Service BPO's & Competition

Keywords Studios, the largest BPO services provider to the video game industry, has seen its share price half YTD mainly due to fears of AI disruption. In a series of interviews, we will attempt to handicap this risk and better understand the durability of KWS earnings.

In our first interview, a former KWS competitor explores the BPO buying process in the industry, typical purchasing criteria, and the advantages of multi-service line BPO's like Keywords Studios.

If you look at single service vendors like 5CA, they would really focus all their marketing, all their efforts on that single service. So in terms of positioning, that would be an advantage. On the other hand, the significant advantage that companies like Keywords have is that if they already do business with the client in one service line, it would be relatively easy for them to talk to that same client about a different service line. Historically, in the gaming industry, there are also a lot of companies that appreciate the convenience of doing business with one vendor for different service lines. - Former Chief Revenue Officer at 5CA

While single service line BPO's have the benefit of (perceived) focus and expertise, Keywords has relationships with 24 out of the 25 largest video game publishers. These relationships are leveraged to cross-sell other services. The number of customers using multiple services has steadily been growing as KWS has expanded its offering.

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Screenshot 2023-08-22 at 15.30.47.png

In the coming weeks, we will explore KWS' acquisition strategy, the AI threat and the video game publisher's perspective in more depth.

Hyperscalers: Cloud TAM

This interview explores the famous Jassy quote that only 5% of global IT spending is currently on the cloud, leaving a huge runway of growth for hyperscalers. A Former CIO at a major CPG company explores why this spend may not move to the cloud.

One insight is that the cloud migration thesis for customers is shifting: it's not only about switching fixed to variable costs, but now the pitch is to access the innovation and analytics available in the cloud:

I believe that innovation is key, particularly in the data space where there's so much happening. To truly leverage this innovation, you need to move to the cloud. Traditional descriptive analytics are rarely done on-premise these days, unless you're a global bank or a government with a lot of legacy systems. For such entities, it's not easy to transition to the cloud, so they still run a lot of on-premise operations. However, in the last two or three companies I've been part of, we've moved to the cloud to leverage the capabilities of platforms like Snowflake, Databricks, or Azure Synapse. These applications allow for data ingestion, data pipelining, and analytics. For instance, generative AI and OpenAI are difficult to build on your own. It's easier to leverage the Microsoft ecosystem, especially if you already have a large footprint. - Former CIO at Global CPG company

The interview further explores how large enterprises are moving to the cloud and the potential TAM for hyperscalers.

Spotify Podcasting: Megaphone, SPAN & Programmatic

Last week's interview with a Former Gimlet podcast host discussed the flaws in Spotify's content strategy. In this interview with one of the Megaphone co-founders, we explore the workings of the podcasting ad tech ecosystem, the Spotify Audience Network (SPAN), CPM's, and on- vs off-platform monetization.

A key part of the SPOT bull case is driving higher CPMs through SPAN and improved targeting capabilities. According to the executive, Spotify needs to remove friction in the programmatic buying process to attract brand agency dollars:

I firmly believe that programmatic will continue to grow at a faster pace than other aspects of podcast advertising. It's a preferred method for large brand agencies due to its efficiency and scalability. It requires less manpower and allows for audience-specific purchases. If programmatic is integrated into other tools used for buying, it becomes even easier. For instance, working with platforms like The Trade Desk to create a program can eliminate the need for insertion orders. Instead, agencies can set the parameters of their deal and purchase programmatically, which is a more efficient process. This method reduces internal work and presents an efficient opportunity for both parties. - CoFounder of Megaphone

But, in the long run, SPOTs 1P data could prove to be the asset that matters most:

There's very little first-party data in podcasting, apart from what Apple Podcasts and Spotify can see, as they are the two biggest players in the space. Spotify has access to information like credit card details and demographic data, which is accurate or very close to accurate. This data can be used in the future. I'm not sure how they're utilizing it now. A couple of years ago, they weren't using it for podcasting. But I'm sure they're interested in using it to provide a better tool for advertisers, which will in turn generate more revenue for publishers. - CoFounder of Megaphone

HashiCorp: From Open-Source To Enterprise

HashiCorp just announced its shift from open source to business source licenses. In this interview, a former sales executive offers perspective into what has driven HashiCorp's success with major accounts:

The simplest way I can explain it from my experience is scale and complexity. Scale meaning if you need to provision a VM infrequently...that's not a great fit. But if you go into an organization that makes money on custom apps that are public-facing, like Uber or Roblox, these companies have dynamic, large cloud and container estates that align well with the problems HashiCorp products solve. - Former Sales VP at HashiCorp

As companies' cloud strategy matures and they increasingly deal with complicated estates, HashiCorp could find it easier to articulate the ROI. The interview goes on to explore HashiCorp's typical customer, the Enterprise sales pitch for an open source platform, and how the company could benefit from increased governance and compliance requirements in IT.

Fever Tree Australia: Positioning & Distribution Strategy

Fever Tree Australia recently took back on-premise distribution and formed an off-premise distribution partnership with Remedy Drinks, a leading Kombucha drink. FEVR also plans to move production to Australia to prevent the long-lead times and high shipping costs of moving product from the UK to Australia.

We interviewed a Former distributor of FEVR in Aus to discuss the brand’s positioning, pricing, and change in distribution strategy.

One interesting insight was that FEVR is 4x as expensive per liter than Schweppes in Aus:

From a grocery perspective, Schweppes and Coca Cola mixes are about $2 a liter. Fever-Tree is at about $10 a liter or $9.50 a liter. Then you have local brands like StrangeLove that are about $10.50 to $11 a liter. So, there's quite a difference. The challenge we faced, especially when selling to grocery stores like Coles and Woolworths, as well as Dan Murphy's Coles Liquor, was the value proposition. All buyers globally are trained in the same way. They compare a product to its category. Fever-Tree really broke barriers in the early stages by providing an exceptional product that emphasized its origin and quality of ingredients. It's in a glass bottle and no expense was spared in creating the best expression of a mixer. However, we also charged accordingly. - Former FEVR Distributor, Aus

Even at such a price premium, it’s impressive that FEVR has grown rapidly in Australia. It then begs the question: if they can move to local production, reduce cost per unit, and take back a portion of the distributor margin, what does organic growth and gross margin look like in Australia in 3 years?

Mainfreight vs Old Dominion: US LTL Comparison

An interesting reminder on scale in LTL from studying Mainfreight’s expansion into the US where it now competes with giant ODFL: When you’re sub-scale in LTL, like MFT, you put the client at the service of your network. When you have scale and density, like Old Dominion, you put your network at the service of your clients.

If you're picking up a pallet with Old Dominion, they have approximately 330 terminals throughout the US. They are constantly consolidating lanes, covering both nationwide and regional areas... Mainfreight, on the other hand, picks up on a box truck and takes it back to their warehouse or terminal. They unload it and determine where it needs to go. They are more selective in where they pickup because they only service certain locations such as Atlanta, Dallas, Seattle, San Francisco, Chicago, Memphis, New York, and New Jersey. They take the pallet off the truck, put it on their dock, and then determine which truck is going to that location. For example, if they have a truck going to New York that leaves every Thursday and arrives on Monday, they will put it on that truck. This process is a bit slower. - Former ODFL Executive

Trustpilot: GTM Strategy & Network Effects

Trustpilot, a business review platform with a large UK and European presence, has seen slow growth in the US market despite a large addressable market. In this interview, a former senior sales executive explains Trustpilot's core value proposition that drives adoption for US businesses.

Trustpilot reviews are used in two main ways. One way, as you mentioned, is in the conversion funnel. Trustpilot widgets can be added to your checkout page. However, larger companies like Grubhub or WordPress don't necessarily need Trustpilot on their website. They're big enough that once you're on their site, they've done enough work. So, one place is on the website itself, the other place is in search results. - Former TrustPilot Sales Executive

This quote highlights how Trustpilot provides value by improving search rankings and conversion rates for businesses, which drives value for its B2B customers. However, larger brands may outgrow the need for Trustpilot over time as they become trusted by consumers.