Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”     Ronald Reagan

June 13, 2006

A New Paradigm Replacing the Old

by Brad Warbiany

The other day, I was visiting der Eidelblogger, 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.


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11 Comments

  1. [...] A New Paradigm Replacing the OldLiberty Papers, CA - 32 minutes ago… District. He made an offhand point, about using FTD.com to buy flowers, which got a tad under my skin. … thing. FTD doesn t sell flowers. … [...]

    Pingback by FTD » FTD - Elektrim may sell PTC stake to DeTe, Vivendi objects — June 13, 2006 @ 7:54 pm
  2. In fact, Brad, I was already quite aware of how FTD works. They’re a broker — an arbitrageur of information. I’m not sure why my post affected you that way, because after all, people have the choice to use FTD or local florists. However, there are some like me who are willing to be “overcharged.” Remember my entry on imperfect information? Sometimes it’s more costly to acquire perfect information than relying on what you already have. In my case, ten dollars is cheaper than surfing websites and making phone calls. I’d rather pay FTD to find someone for me, so that I can get back to more profitable things. And in the end, $40 for a dozen delivered roses (which everyone in my friend’s office oohed and ahhed over) is about what I’d have paid anyway from the local shops.

    CitySearch is ok (I mainly use it to see upcoming events), but Zagat definitely still has a place. Consumers still trust the information enough to buy it, even with the common knowledge that many free websites also attempt to rate establishments. Remember that the survey started in New York City, so here (I can say “here” since I’m at work) it’s a source of pride to have a “Zagat Rated” sign in your window. “Rated 4.3 out of 5 on ____.com” isn’t the same.

    Comment by Perry Eidelbus — June 14, 2006 @ 9:20 am
  3. [...] A New Paradigm Replacing the OldLiberty Papers, CA - 17 hours ago… arrangements, they don t deliver flowers, and they don t own any flower shops. … for a $50 arrangement, tacks on $10-20 in fees, plus a $10 delivery fee, and … [...]

    Pingback by FL Real Estate » Blog Archive » Flower Delivery - Herald news … 100 years ago — June 14, 2006 @ 12:40 pm
  4. As a local florist who has for years railed against the overpriced floral order transfer systems (OTSs), your post has really hit a bell. Your analysis is ROTM, and should be required reading for anyone looked to send out-of-area floral orders. The search engine has sucked any value the OTSs once had, and everyone would be far better off by just bypassing them.

    You mention CitySearch, but far better is Google Local or Yahoo Local…at those sites your are guaranteed to find REAL local florist, not those pretending to be local florist who actually are wire service order gatherers trying to skim the profit from your order.

    Thanks for the read!

    Comment by mark e — June 14, 2006 @ 1:08 pm
  5. Mark, not everyone would be better off. Have you ever considered that some people value our time more than money, or that another $10 won’t matter if we’re in a rush? I myself wouldn’t have time to look through Web listings to find your shop. Someone with my schedule is going to check FTD.com and 1800flowers.com at most.

    If something is really “overpriced,” then why do I still pay the price asked? As Walter Williams said, only unreasonable people pay unreasonable prices. I am far from an unreasonable person with my money.

    Comment by Perry Eidelbus — June 14, 2006 @ 5:48 pm
  6. Perry,

    I like Walter Williams…think he is a smart guy, but you take him out on context. Your basic thesis is correct, the only right price is what someone is willing to pay for it. But didn’t Barnum say “there’s a sucker born every minute”? Do you want to be that sucker?

    IMO, if the effort of typing “florist 32901″ in your google search bar and then clicking on a local florist is SUCH a hassle and worth 30-40% of your hard earned money, go ahead and blow it. BTW, I got some great looking land down here in Florida for you to look at when you have the time…

    Comment by flowers in 32901 — June 14, 2006 @ 7:40 pm
  7. Great post! As a local florist, we’ve been saying this same thing for years. One correction–FTD no longer monitors its members for quality. That ended years ago, so you really are better off looking on your own through CitySearch.

    Additionally, at one time, FTD started a second network called VNS (the Value Network Service). Bob Norton, then CEO of FTD, referred to these members as the B-team, who perhaps didn’t meet FTD’s quality standards but wanted to have some of the benefits of being an FTD member. Several years ago, the VNS members were all made full fledged FTD members and VNS was disbanded. This roiled a lot of good FTD florists, who left the network.

    I’ve interacted with hundreds of florists through the years, and there is a 1:1 correlation between quality of florist and quality of website. If it’s a good website, it’s a good florist. There are excellent florists out there without a website, but that’s a different issue.

    Comment by RJ Dudley — June 15, 2006 @ 2:40 am
  8. [...] The award for one-more-before-the-door goes to “A New Paradigm Replacing the Old< ” by Brad Warbiany at The Liberty Papers because I always read articles about how the Internet is changing everything, because I suspect that some things (like human nature) will remain constant despite the hype. I want to see if the writer is blowing smoke, or really digging. [...]

    Pingback by Kicking Over My Traces » This Week’s Carnival of the Capitalists is Up! — June 19, 2006 @ 5:11 am
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    Trackback by Blog Business World — June 19, 2006 @ 7:53 am
  10. Excellent reality check for those consumers who once thought of this brand as synonymous with flowers.

    While that had been true from 1910 till 1994 when it was A MEMBER OWNED and OPERATED Cooperative by the florists and for the florists, it then became a private FOR PROFIT ENTITY, and then RESOLD in 2001. The business model, then changed dramatically.

    As is the case with all MIDDLEMAN venues as they come in between the CONSUMER and the actual MANUFACTURER of the END PRODUCT, commissions are COLLECTED and subsequently DEDUCTED.

    In many (not all) cases, those commissions are hardly noticed or simply passed on to the purchaser in the form of a higher price.

    The anomaly with all MIDDLEMAN FLORAL ORDER GATHERERS is that, in addition to the service charges they collect directly from the consumer, they also KEEP a 30% commission, on average.

    Then, and when they try to subcontract those orders out to a REAL FLORIST who will actually HAVE THE FLOWERS and effect the final delivery, the filler only nets seventy cents ($.70) cents from the consumers original dollar ($1.00) and is given virtually nothing for their cost of delivery.

    At that point, this is where the consumer LOOSES since, if they originally invested fifty dollars in a floral gift plus a $11.99 service charge, plus applicable sales tax, the filling florist would only net $35.00 to do all of that work.

    And for that reason, most florists cannot afford to work on a NO PROFIT probable NET LOSS per order.

    For those florists who do, they opt for CURTAILING the orders. Despite the fact that are expected to fill those orders for FULL VALUE, more often than not, they fill those orders for the NET AMOUNT they receive after deductions.

    To add CONSUMER insult to injury, the filler florists, who must deal with their REAL COSTS OF MAKING THAT DELIVERY, go one step further, and deduct that cost ($10.00 on average) from the $35.00 NET, and the recipients wind up with a floral gift at a value of $25.00, or less than half the amount of what that customer had originally spent on their gift.

    It’s no longer just a matter of convenience when a consumer chooses to use a MIDDLEMAN FLORAL ORDER GATHERER rather than, search out and find a REAL FLORIST who will actually fill their floral order. In fact, it’s a matter of getting 100% of your value in both products and service, rather than getting RIPPED OFF.

    And by our own statistics, the CONSUMERS are becoming WISE to these MIDDLEMAN SCAMS, usually after having only been burned once. After which, they learn to use the internet to SEEK OUT and FIND a REAL FLORIST at a REAL ADDRESS in the REAL CITY who will both CREATE their FLORAL ARRANGMENT and personally hand deliver it into the nice warm hands of another human being.

    Lastly, we REAL FLORISTS do not send one of those FARM DIRECT DO IT ALL YOURSELF KITS.

    In the floral arrangement images depicted on our websites, WHAT YOU SEE is WHAT YOU GET, and not what it might look like, if you knew how to arrange flowers from a box using a FREE VASE which is TOO SHORT for them anyway, not wiothstanding the fact that, their flowers do not come with either FRESH FOLIAGE GREENS or other filler flowers to include Baby’s Breath.

    In closing, my message is simple! If you want REAL FLOWERS, seek out and find, A REAL FLORIST!

    I am a REAL FLORIST since 1969, and I approve of this message!

    Comment by John P Torpey — June 19, 2006 @ 9:04 am
  11. [...] A New Paradigm Replacing the OldLiberty Papers, CA - Jun 13, 2006… 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. … [...]

    Pingback by Travel Deals » Blog Archive » A New Paradigm Replacing the Old — July 3, 2006 @ 2:50 am

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