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Concept Arbitrage: Opportunities

Posted on Saturday, Jul 8th 2006

Looks like the Concept Arbitrage series has been hugely popular … I am thinking of doing a follow-on to the trends series, and will point to some opportunities I see that can be successfully replicated in India / by Indian entrepreneurs.

The first one that I saw this morning was an article in Business Week about VistaPrint. Now, you may not be able to access it because it is premium content. So here are some excerpts:

> By using Web technologies to standardize the piecemeal world of printing, VistaPrint is putting slickly finished products within the reach of small businesses. VistaPrint does that by combining online design tools for customers with sophisticated printing systems. This eliminates high-cost design and makes the most of every scrap of paper and dram of ink. The result: Prices that can be 80% to 90% cheaper than at custom print shops. Now, VistaPrint churns out 15,000 orders a day for 7 million customers and claims 80% of the online small-business printing market. “They’re transforming the business with a truly disruptive model,” says Mark May, an analyst at Needham & Co.

> It’s a classic case of using tech to create a market. Individuals and small businesses are often priced out of professional-looking printing. Graphic designers can run amok with customized borders and pricey paper, pushing up costs by several hundred dollars. The alternative for most is desktop printing. Founder and CEO Robert Keane’s business model is based on the idea that 90% of professional printing can be standardized.

> It’s tough to argue the point when a full sheet of print work rolls off one of VistaPrint’s $5 million-plus presses. The company’s software pulls together batches of similar jobs the presses can handle most efficiently in one run. That’s how postcards from different customers end up on one sheet of paper. And by cutting orders jigsaw fashion, there’s little waste. Local print shops, and even FedEx Kinko’s (FDX ), can’t match that efficiency since they address each job separately. Of course, with VistaPrint, shipping costs must be factored in. (Delivery usually takes about a week.)

> These innovations have made VistaPrint one of the best-performing initial public offerings. Shares of the Bermuda-based company, whose operations are run from Lexington, Mass., have zoomed 125% since the IPO last September. Analysts expect revenues this calendar year to rise 66% above 2005’s $117 million.

> If there’s a threat to VistaPrint, it’s potential competition from giants like Staples Inc. (SPLS ) or FedEx Kinko’s. The company’s 11 patents will slow down foes, but the real barrier to entry is the complexity of VistaPrint’s technology.

I would submit this technology problem is tractable. You have to check the patents and develop workarounds, but the opportunity is right in the sweet spot of India – both for Domestic and Export Markets. The market size is enormous. If you are a technologist, team up with people from the printing world, of which there are many in India.

This segment is a part in the series : Concept Arbitrage

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