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It wasn't too long ago that many analysts and investors were exclaiming that television shopping networks were dead, as everything is now just a click away. Anything a consumer could find on television could be found on-demand at popular e-commerce websites like Amazon.com (Nasdaq: AMZN ) , Blue Nile (Nasdaq: NILE ) , or eBay (Nasdaq: EBAY ) . As a result, shares of the two prominent television shopping networks HSN (Nasdaq: HSNI ) and Liberty Interactive (Nasdaq: LINTA ) , which owns QVC and has a stake in HSN, both traded below $2 near the end of 2008.
While some still believe that television shopping won't be around forever, it generated a record $200 billion of revenue in 2010. Both HSN and QVC have recovered and resurrected its brands by creating an interactive television experience and integrating its programs with online retail, but HSN has gone even further. It may seem far-fetched, but HSN is taking aim at the e-commerce giants through social innovation and crowdsourcing efforts that could disrupt the entire online retail space.
Innovation that is anything but quirky
This month, HSN announced a partnership with upstart social innovation and product development company Quirky. Quirky brings together millions of consumers, innovators, and entrepreneurs, pooling their ideas and suggestions to make new products or improve existing ones. The partnership will allow HSN's immensely loyal community of viewers and users to help create ideas for products or content, and even get a cut of the profits if they are heavily involved in the process. HSN launched a monthly show with Quirky on Saturday that features innovations and products that have been crowdsourced through the partnership, as well as interviews with inventors and merchants.
Crowdsourcing is hardly a new concept, but far too few companies, especially larger corporate types, have been able to integrate this type of customer feedback into their business model. One notable exception is Procter & Gamble (NYSE: PG ) , whose Connect + Develop program now accounts for more than 50% of its product initiatives.
Building an advantage
For HSN, crowdsourcing is just one valuable tool the company has used to innovate and take share from its competitors in a cutthroat retail industry. HSN has been at the forefront of social media innovation as it has attempted to build this community and draw a younger generation of customers. The company uses media such as Twitter and Facebook, and its new application for Apple iPads allows viewers more on-demand interaction while viewing HSN programs or ordering products. Additionally, HSN's YouTube network has hosted almost $40 million in video downloads since 2006.
The company's focus on building a younger customer base while also maintaining its loyal longtime viewers is important in building a competitive advantage that it can boast over bricks-and-mortar stores, as well as online retailers. Product makers and merchants want their products on television. Getting product distributed through traditional distribution channels is obviously important, but product usually sits on store shelves for very long periods of time without generating any buzz.
Do you think the Snuggie would have been a huge hit without the infomercials and television generating the hysteria? Many under-the-radar product and gadget makers would essentially give away product if it meant getting a spot on HSN. Just about anyone can get a product on Amazon or eBay, but prime television time is scarce and generates sales fast.
A growth story?
This is what makes HSN's social media initiatives and partnership with Quirky so important and potentially disruptive for the industry. The more eyeballs HSN has, the more effective its initiatives will be and the greater its bargaining power over its vendors. In addition to giving its viewers an opportunity to create ideas, the partnership with Quirky creates funding for entrepreneurs as well as an opportunity to make their product an overnight hit much like the Snuggie. It is a win-win partnership for everyone involved.
HSN'S recovery from the recession has been led by its innovation and social media initiatives that have created a new genre of integrated television shopping. It is a promising story and one that investors should follow. HSN's balance sheet is still a bit sloppy with more than $315 million in debt, but it should be manageable if the company regains its steady growth -- something that could be on the horizon.