InformationWeek 500: Innovation Spurs Business Growth

Royal Caribbean Cruises, The Wet Seal teenage clothing chain and United Stationers demonstrated how innovation in the use of data analysis, digital services and social networking can drive growth, even in a recession. All three presented before 350 attendees at the opening session of the InformationWeek 500 Conference, which got underway Monday at the St. Regis Hotel at Monarch Beach in Dana Point, Calif.

Bill Martin, CIO of Royal Caribbean, said his firm has designed two cruise ships on an unprecedented scale with a heavy investment in embedded digital services to enhance the customer experience. The Oasis of the Seas is a 223,000-ton ship capable of carrying about 6,000 passengers in 2,700 rooms. The firm's previous largest ship was 140,000 tons. In a slide showing relative sizes, the Oasis of the Sea, or its soon to be delivered sister ship, Lure of the Seas, appear twice as big as competitor's new vessels.

The construction of the ships drove Royal Caribbean's earnings down to $.75 per share in 2009, but as the investment nears completion, earnings will be restored to the $1.89 level, Martin said. A key to their prospective profitability is the amount of digital customer services built into the vessels. Passengers, as they board the ship, will obtain a unique room key identification card backed by a high-resolution image of themselves that will admit them to activities and result in charges to their account. Boarding the ship is a 15-minute experience, accomplished by customers using one of 90 check-in stations, to allow customers to start enjoying their cruises sooner, said Martin.

The ship is designed as two tiers of cabins rising on each side of the ship, with an open, central area down the middle. It includes a basketball court, rock climbing, downhill snow slope, ice skating rink, swimming pools and water sports, a solarium and a Central Park board walk complete with trees and other greenery and adjoining restaurants in the center of the ship.

On such a large vessel, it would be easy for parents to lose track of their children, so a Wi-Fi network was included to power a bracelet worn by the children moving about the ship on their own. When the parent wants to know where a child is, a query is sent via iPhone and a transponder on the bracelet responds. The response is picked up by a nearby locator station and that location is broadcast back to the parent's iPhone, showing up on its screen, Martin said. Likewise, members of groups can stay in touch with each other via the iPhone location system. "The iPhone application was one of the easier things to deploy," noted Martin. Rent for two iPhones over a week's cruise at $35.

Passengers are also assisted by 300 digital signs scattered around the ship that tell people attendance levels at various activities and restaurants. By consulting the signs, passengers self-regulate their use of facilities. They rarely walk across the ship to attend a restaurant that is already full. "A subtle result is that there are no waiting lines," said Martin. The signs also help passengers find facilities they want by producing a map from where they've made their inquiry to the sought after destination. They can also get a map on how to get back to their cabins.

Customer activity data is collected by the ships point-of-sale systems, and uploaded for analysis to shore-based data warehouse systems. By the next day, the shore systems have come up with recommendations on how to market to various individuals and groups onboard and coupons or special offers are made in" one-to-one marketing in their cabins."

Photos are taken of individuals as they engage in activities and composed into a book, as opposed to a photo wall with thousands of individual photos, as was used previously on the Royal Caribbean line. Passengers, who used to have to hunt for photos of themselves on the wall, now go to a library of books to select the one that has photos of themselves, built through an image recognition system that matched the photos taken to the customer identification photo already stored. The new format "drives revenue for us. They're much more likely to buy. People don't want to throw away pictures of themselves that they can hold in their hands."

Customers also sign digital liability waivers for activities they are about to engage in versus the paper waivers that used to be collected and stored for legal purposes, resulting in 4-5 boxes of paper from each cruise. "They're all gone away now," said Martin.Shawn Keim, director of systems development at Wet Seal, illustrated how his firm has made use of Facebook and other social media to win new customers. Wet Seal is a rapidly growing online and brick-and- mortar retail chain for 15-19 year olds. Over the past year, it has gained 695,000 adherents to its Facebook page, which includes a number of interactive activities. The Wet Seal Facebook site page fans to design outfits, mixing and matching preferred clothes together and commenting on other designs. Wet Seal decided to try to engage its young customers in their preferred medium and rely on them to keep the content fresh. "We could pay an agency $1 million a year to keep the content on our site fresh, or we could let them do it," Keim noted.

"Facebook has become one of our highest upstream traffic drivers to www.WetSeal.com," Keim noted. When the company launches a campaign for a particular line of clothing on Facebook, "we get a much better turn out" in customer response than via advertising or more traditional media.

The company's Facebook site includes a virtual runway where several girls may shop together over an iPhone application, exchanging chat, describing what they like and making sure they don't overlap a friend's color or style of purchases in their own, said Keim.

This month Wet Seal will launch a Wet Seal social networking game, allowing participants to win discount coupons or receive special offers. The firm has hired one of its frequent Facebook commenters as an intern to monitor the comments of other teens on the site and alert the company when something is drawing negative comment or otherwise going wrong. "If they don't like something, believe, they'll tell you," said Keim.

Facebook users of the Wet Seal page "have a 40% higher conversion rate" into buyers, then non-Facebook users, said Keim. Likewise, in repeat visits, they tend to buy multiple items, "leading to a 20% higher average transaction," he added.

Formulating and executing a social networking strategy takes time and commitment and often doesn't yield immediate rewards, he warned. It took six months for the iRunway application to gain any traction with iPhone users; now it's downloaded 2,500 times a week. "Social viral-ity is a difficult code to break," he noted. Nothing much may appear to be happening and then suddenly a great deal activity is having an impact on sales.

Keim practices some guerilla warfare to get his social networking ideas accepted by top executives. He had executives equipped with iPhones "to let them get some direct experience of the mobile, social networking user." When he knew teenage daughters of executives, he emailed them that they needed to get their dads to invest in more social networking applications from the IT department to bring shoppers like themselves to Wet Seal stores and websites.S. David Bent, senior VP and corporate CIO of United Stationers, took the unusual move of buying a software company, MBS Development, and kept it as an independent business unit to supply his firm with back-end ecommerce systems that fit its business model.

United Stationers is a distributor of products from 1,000 manufacturers, serving as intermediary between makers of paper products and janitorial suppliers and the 25,000 resellers who supply businesses. It has a 100,000-product catalogue and Bent noted that office supplies have now become the second largest category of online ecommerce after Amazon.com.

United Stationer's largest reseller is Staples, producing $600 million a year in revenues. A total of $9.8 billion in office supplies is bought on line each year now, compared to $24.5 billion spent on Amazon.com merchandise of all sorts. Although Staples accounts for the largest piece of United's $5 billion in revenues, it still gets the majority of its revenue from small resellers selling to small and medium-sized businesses.

As United Stationers saw online business in office supplies growing, it realized many members of its small reseller base would not be able to keep up unless United supplied them with online services that could modernize their order taking and other business processes. Until it acquired MBS, the main selling tool it offered resellers was a paper catalogue with the reseller's brand on it.

MBS built backend systems that provide software as a service order taking, cross-manufacturer item aggregation and order fulfillment. The resellers buy the software as a service from United and link their websites to its backend systems. It added its Orbit Point system as a software-as-a-service host for additional services, such as marketing, customer service, delivery logistics, accounting and other IT services. United's largest resellers buy its software to run on-premises as well, he said.

The hosted software as a services systems produced by MBS "blew away our expectations," Bent said. Recently, 250 resellers banded together and bid against Office Depot, which had held a federal government office supply contract for 14 years. Three weeks ago the association won the contract, he said. Office Depot's previous dominance had been based on online information and ordering systems that the smaller firms, until now, hadn't been able to match.

The MBS systems from United are more complicated than simply capturing orders. Describing what's in inventory required connection to United's 67 distribution centers and linking information on products from many different manufacturers to fulfill a single order. United was in a position to do it, but the small resellers could not.