Amazon’s fast shipping Prime service gained more than 10 million members worldwide while Amazon.com saw nearly 60 percent of its consumers shop for the holidays via mobile devices, cementing its status as the mobile retailer to beat in 2015.
The brand recently unveiled a slew of new features to its Prime service that likely added to the surge in sales, including Instant Video, the Kindle Owners Lending Library, exclusive streaming content and unlimited photo storage for Prime members in Amazon Cloud Drive. Its recently released Prime Now mobile application aims to revolutionize mcommerce by promising users one-hour delivery in select Manhattan locations.
“The local shopkeeper’s last connection with their neighborhood loyalist was immediacy,” said Gary Schwartz, president and CEO ofImpact Mobile, New York. “Amazon Prime is attempting to reintroduce that high-touch delivery service to the online shopper.
“Amazon knows that its one-click check out drives impulse purchase; however, it also know that ultimately what will allow the company to dominate Main-Street shopping is the ability to close the loop on this experience.”
Leading with mobile
Amazon discovered that mobile shopping gained traction and popularity as consumers completed shopping tasks later into the holiday season, prompting more than half of Amazon.com purchases to be made via mobile devices.
The Amazon mobile application also experienced double the holiday sales in the United States.
The ecommerce retailer’s peak shopping day for mobile was Cyber Monday, while Black Friday took the top spot for mobile shopping’s most rapid growth.
Amazon offers a streamlined 1-Click checkout process to facilitate impulse buys
Amazon’s Prime service aims to be one of the premiere fast shipping programs nationwide, and provides a convenient way for time-strapped consumers to shop on-the-go and feel secure in knowing their orders will arrive in time for holidays or special occasions.
“While Amazon discusses drones with the FDA, services like Prime Now rely a good old-fashion hustle,” Mr. Schwartz said. “Amazon is attempting to reposition itself in the market as a just-in-time storefront.
“Like an Uber XL order, the order is trackable, gamifying and rewarding the Prime member.”
Prime Now unveiling Although the Amazon Prime Now mobile app only became available to consumers on Dec. 18, it is poised to offer Amazon a head start on mcommerce in the first quarter of 2015. Prime Now enables users to browse through tens of thousands of products within the app, and make an immediate purchase
The Prime member is then given the option to pay $7.99 for one-hour delivery or select free two-hour delivery.
Orders can be tracked directly from the app so that consumers can watch as the package nears its final destination.
Prime Now is set to raise the bar for other mcommerce apps
The plethora of features that Amazon boasts to its consumers, which also include Prime Music, Amazon Elements, Prime Pantry and early bird access to specific Lightning Deals, entice a variety of audiences but ensure that the brand makes a strong imprint on mobile users.
With more than 10 million new Prime members and plans to roll out Prime Now to more cities in 2015, the retailer must maintain its customer base to cement its status as a leader in the mobile space.
“Amazon’s goal over the next year needs to be out-maneuvering more nimble shopping startups and in-store clienteling,” Mr. Schwartz said. “Tactically, this is all about speeding up the clock from the commerce click to the door knock.”
Final Take Alex Samuely is an editorial assistant on Mobile Commerce Daily, New York
Alex Samuely is editorial assistant on Mobile Commerce Daily, New York. Reach her at email@example.com.
Loyalty is a much-used (often abused) word in the world of retail. Merriam-Webster defines loyalty as “a strong feeling of support for someone or something.” Clive Humby, co-founder of customer science company dunnhumby and one of the leading minds on the topic, would likely stress the abused aspect.
Back in October 2014, Mr. Humby delivered a speech suggesting that retailers have forgotten what loyalty is really about. He went on to review a specific retailer program that he called a “waste of time,” concluding that the system was broken.
As much as I respect Mr. Humby for his many accomplishments, we didn’t need him to tell us that the entire loyalty system is a waste of time and money. From the outset, loyalty programs, especially those run by supermarkets in the U.S., have been ill-conceived and poorly run, if loyalty really was the goal.
It isn’t that anyone planned it that way — the initial objective was to create loyalty through the use of shopper data, providing relevant and personal offers to frequent shoppers based on history and analytics. But a couple of things got in the way as programs were launched.
The first problem was getting shoppers to use the cards in the first place. In the 1980s, when the first programs kicked off, a card was the only way to track shopper behavior. From those first cards to the now ubiquitous key tag, the act of being tracked still takes effort from both shopper and retailer. Card use was made a requirement for sale prices to drive use, as the only way to get actionable data was to have a minimum of 70 percent of shoppers use the card every time they shopped. This was the first hole in the dike because for most consumers the card just became a way to get the sale price.
That would have been satisfactory if other benefits had followed, but for most they never did. However, one of the big surprises for retailers was the amount of data they were collecting on shoppers. The average was a gigabyte of data per store per week. Without a clear plan of how to mine that data, and what to look for, much of the budget for loyalty programs ended being spent on storage.
Next was the issue of consumer privacy. Groups such as CASPIAN made a point of demonizing all card programs. The retailer response was often to give a shopper a card without any information tied to it, missing the point entirely. Once a major barrier to loyalty programs those concerns now seem quaint in a world of NSA tracking and GPS-enabled mobile devices. Consumers have overwhelmingly voted in favor of giving up some personal data in exchange for deals. But once again, those deals never materialized for most.
But here is the biggest problem with virtually every loyalty program currently in place: they are focused on driving loyalty via better values for the shopper. That is an admirable goal, but it’s not one that will necessarily increase loyalty. Whether these programs deliver on that goal is beside the point. It’s just buying sales and is only slightly more evolved than a paper coupon.
True loyalty is having people line up to buy your product and pay a premium to do so. There are very few “non-luxury” brands that fit this model, e.g. Apple, Harley-Davidson, and maybe Starbucks. Those are brands that don’t focus exclusively on the high-end market but still sell all they can make at the price they set. That is true loyalty, and it can’t be bought.
I believe that’s what Clive Humby was getting at. Loyalty isn’t a program you execute; it’s a benefit that your true believers offer to you for delivering a superior product and experience that they feel is worth the price.
Purchases Boomerang Back to Retailers, Costing Them Dearly;Returns Are a ‘Dirty Business’
Updated Dec. 26, 2014
The holidays may be over, but returns season is just getting started.
Ill-fitting sweaters, the wrong Frozen doll and unwanted accessories will be heading back to U.S. retailers, many in the same boxes they came in.
More than 20% of returns happen during the holiday season—about $60 billion in merchandise, according to Optoro, a logistics provider.
The U.S. Postal Service handled 3.2 million returns in the two weeks that followed last Christmas and said there will be even more this year. United Parcel Service Inc. expects to handle four million returns the first full week of January, up 15% from two years ago as online sales continue to grow.
“Returns in the e-commerce segment are a more important issue than they are in the typical retail channel, representing a larger percentage of overall sales,” said Mike Glenn, president and CEO of FedEx Corporate Services, on a recent call with analysts.
FedEx Corp. said it doesn’t provide projections.
Returns may be a boon for delivery companies, but they are a costly for retailers. Best Buy Co. estimates that returns, replacements and damaged goods represent about 10% of revenue and for the year cost the electronics retailer $400 million. The chain is trying to reduce those losses by selling more so-called open-box inventory online and at its stores around the country. Hudson’s Bay Co. , which owns Saks Fifth Avenue and Lord & Taylor, has tried to encourage customers to return products to its stores, so it can try to land another sale in the process.
“Returns—it is just a dirty business,” said Frank Poore, chief executive of logistics platform CommerceHub, which connects manufacturers with major retailers to fill online orders.
The returns line at a Best Buy store in Wilkes-Barre Township, Pa., on Friday The Citizens’ Voice/Associated Press
Last January, some retailers were surprised by the high number of returns, said Bala Ganesh, retail-segment marketing director at UPS. Mr. Ganesh said some retailers had as many as 30 trailers full of returns sitting outside their distribution centers waiting to be processed.
Adding to the complication, retailers never know exactly what they have on their hands, he said. “It’s like Christmas every day, because they have no idea what’s in the box.”
Retailers differ on their methods for dealing with returned merchandise. Some have dedicated distribution centers to handle the flow, consisting mostly of online purchases. There, trained employees determine which goods can be recirculated and rehabilitate those items. As much as 70% of the returned merchandise can be suitable for resale, according to Steve Osburn, a supply-chain consultant with Kurt Salmon.
Other retailers liquidate entire trailers without checking their contents, auctioning the load off to bidders who in turn might sell items to pawn shops and flea markets. That often recoups only cents on the dollar, experts say. Seasonal goods, such as decorations or Christmas-tree ornaments, are nearly worthless after the holidays.
Liquidating merchandise, which has been the conventional method, is falling out of favor. “Retailers are really losing their shirts on it,” said Tobin Moore, Optoro’s CEO. “As the returns rate increases, more retailers are paying attention to it.”
Optoro has made a business out of online returns, serving as a platform on which retailers can resell returned items online.
Founded in 2008 as a drop-off store for items sold on eBay Inc., the company came up with a way for retailers to scan in a product, describe its condition and resell it in some cases for close to the full price online.
The delivery giants are trying to get in on the business too. FedEx said last week that it was acquiring Genco, a major player in the returns-logistics industry, which processes more than 600 million returns items each year. UPS is building out its return-services offerings for retailers, including such options as asking customers to specify their reason for returning an item so they can print out a label routing it to the appropriate destination. For example, a defective item might be sent to the manufacturer.
Returns policies are critical in driving purchase decisions. In a recent survey of 5,800 U.S. online shoppers, 82% said they were more likely to complete purchases if free returns via a prepaid shipping label or an in-store option were offered, according to comScore Inc., a data-tracking firm that conducted the study for UPS. About 66% of consumers now review a retailers’ return policy before making a purchase.
In addition, 62% of consumers said they had returned an item bought online in 2014, compared with 51% in 2012.
About 45% of retailers now offer free returns, according to an audit by consultant Kurt Salmon.
The return rate for online purchases is about three times as high as for items bought in stores, where shoppers can try on and test their choices. UPS’s Mr. Ganesh said that some high-end apparel retailers have return rates as high as 50%.
Alicia Carothers, a 29-year-old attorney in Panama City, Fla., said she tries to order clothes online only when she knows her size, but that doesn’t always work out. “Sometimes I get it in and it is too see-through or way too flowy,” she said. She said she returns online purchases frequently.
Owners at Country Club Prep, an apparel retailer with a primarily online business founded in 2012, said free returns are an important part of their retail strategy. In fact, the company’s customer-service reps encourage customers to order two sizes, and return one.
The holidays are the real crunchtime for returns, said co-founder Matt Watson. “If you don’t manage to sell them in season, they might not sell at all.”
Changes in Technology, Attitudes and Costs Spark Revival of Manufacturing in U.S.
Dec. 24, 2014
Peds Legwear has begun making socks in Hildebran, N.C. that will be sold at Walmart stores early next year. The facility had long been idle before Peds acquired it.
HILDEBRAN, N.C.—Eleven years ago, Michael Penner shut down Richelieu Group’s three hosiery plants inCanada after concluding they couldn’t compete with Asian imports. Richelieu became a designer and marketer of socks made by contractors in China and other countries.
“I had sworn off manufacturing,” said Mr. Penner, 45 years old, a native of Montreal who is president and owner of the company, recently renamed Peds Legwear. “I didn’t think it could be brought back.”
Earlier this month, at a long-idle plant it acquired here in Hildebran, Peds began production of socks that are to be sold at Walmart stores, starting in March. So far, Peds has invested about $8.5 million in the plant, including the purchase of 90 blue-and-gray machines from Lonati SpA of Italy that resemble a bank of blinking computers lined up in six rows on a shiny wooden floor. Mr. Penner expects to invest another $15 million to expand capacity at the plant if other retailers join Wal-Mart Stores Inc. in buying the socks.
Changes in technology, attitudes and costs reversed Mr. Penner’s course.
The Lonati machines knit yarn into tubes and then add a toe seam, combining what were separate processes and helping Peds halve the number of production workers needed.
“You cut out a whole department” that used to sew the seams, said Mark Bess, a senior technician at the plant. “That’s what makes us competitive with China.”
The technology has been around for decades, but has improved markedly in the past few years, Mr. Penner said.
Meanwhile, average manufacturing wages in the U.S. have risen less than 2% annually over the past five years, while those in China have about doubled since 2008, according to official data. Though health-care costs have boosted overall American labor costs, the gap between the U.S. and China is narrowing. The least-skilled workers at the Peds plant get between $10 and $11 an hour.
Dana Brittian is seen “boarding” socks at Peds’s Hildebran plant. Andy McMillan for The Wall Street Journal
More important to Mr. Penner is that offering a U.S.-made sock got him more shelf space from Wal-Mart, which is trying to reduce its heavy reliance on imports. Making the socks in North Carolina also allows Peds to avoid 14.6% import tariffs, cut shipping costs and respond faster to shifts in demand. The yarn that Peds use is made by FilSpec Inc. of Sherbrooke, Canada, at a plant in North Carolina.
For similar reasons, other sock makers are investing in the U.S. Renfro Corp. of Mount Airy, N.C., has upgraded plants in Tennessee and Alabama and increased its U.S. production, though the bulk of its products is still made overseas.
In January, Hanesbrands Inc. of Winston-Salem, N.C., plans to add 75 workers to a plant in Mount Airy that makes athletic socks, bringing the total there to more than 300.
The Mount Airy plant knits the socks, which are then sent to a Hanesbrands plant in El Salvador that handles the sewing, dyeing and packaging. Hanesbrands says it can use a Made-in-U.S. label because the yarn is U.S.-made and the knitting is done in the U.S.
Though El Salvador has the advantage on labor costs, electricity costs in Mount Airy are less than a third of what they are in El Salvador, Hanesbrands says. Having plants in both places also provides a backup in case of disruptions.
Gildan Activewear Inc., based in Montreal, is expanding yarn production at plants in North Carolina and Georgia at a total cost of $350 million over three years. Some of that yarn will be sent to a Gildan plant inHonduras that makes Gold Toe and other types of socks. Using U.S.-made yarn allows Gildan to ship the socks into the U.S. duty free under the Central America Free Trade Agreement.
The American Apparel and Footwear Association estimates that imports account for more than 80% of Americans’ purchases of socks, pantyhose and related products, a market with annual retail sales of about $7.7 billion. Recent U.S. investments by Peds, Renfro and others will only modestly reduce that reliance on imports.
Employment in U.S. hosiery and sock mills totals about 8,600, one quarter of the tally for 2001. The U.S. sock-making industry has shrunk so drastically that its trade group, the Hosiery Association, disbanded in 2013.
Some producers are still heading overseas. BSN medical GmbH of Germany is moving production of compression stockings from Rutherford College, N.C., to Reynosa, Mexico.
Mr. Penner is a recent convert to U.S. manufacturing. In 2011, he bought the Peds brand and leased the idle factory in Hildebran when the former owner, International Legwear Group, went into liquidation. At that point, he wasn’t thinking about making socks in the U.S. His goal was to get a brand, warehouse and marketing team that would help him expand sales of imported socks in the U.S.
One of the Hildebran warehouse workers suggested Mr. Penner should listen to a Bruce Springsteen song, “Death to My Hometown,” about marauders who “destroyed our families’ factories.” The song “planted a seed in my mind,” Mr. Penner said. In mid-2012, Mr. Penner asked Wal-Mart executives if making socks in the U.S.would be a good way to expand sales at Walmart stores.
Wal-Mart’s enthusiasm for that idea was the tipping point, Mr. Penner said.
The Hildebran plant, which now has about 60 production workers, eventually could supply 30% to 40% of the socks Peds sells world-wide, Mr. Penner said.
The socks made in Hildebran are relatively simple. The yarn comes pre-dyed, so the plant doesn’t need to have a dyeing department.
The company’s GrowingSocks line, for infants and children, requires more complicated production processes, partly because the socks are multicolored and feature imagery, such as heart and animal shapes. That makes it harder to automate the manufacturing, so the socks are still made in Asia. “We haven’t cracked that code yet,” Mr. Penner said.
It started 18 years ago with one man hawking one shirt, a guy trying to persuade elite football players that it was simply better – that it would make them better.
Today, Under Armour (UA) is a $15.2 billion company run by that same guy, stalking the legacy giants of athletic gear, a made-in-America global brand that boasts one of the fastest growth records in consumer products and among the best stock performance in the market.
For these distinctions and how they were achieved — and for the way the company has turned potential setbacks into wins in 2014 — Under Armour is the Yahoo Finance Company of the Year.
The squishy retail sales trends of 2014 were a mere rumor for Under Armour, whose revenue and operating profit are on track to climb more than 30%, accelerating from their 2013 pace. Its share price has soared 62.5% this year. And Under Armour’s strong branding efforts, deeply rooted in its sports-performance heritage, earned it Marketer of the Year honors from Advertising Age magazine.
CEO Kevin Plank, that guy who came up with that shirt in 1996 that stayed dry under football pads, says, “These things don’t happen out of nowhere. There were a lot of years preparing for this.”
Speaking in a model retail store on Under Armour’s six-building industrial-urban campus on the Baltimore waterfront, Plank recalls: “Sporting goods, which is where we entered, was this pie – and there was no room in the pie. So we decided, in order to break in, we would make our own pie.”
After finding takers for his pioneering moisture-wicking shirt among some college and pro football players, he expanded in a methodical but ambitious way into other performance garments – ones that kept an athlete warm, or cool, or feeling strong thanks to their compression fabric.
The company took two years to enter the shoe business, starting with football cleats and adding one sport category per year for five years. Its women’s line, once an afterthought, has expanded impressively from almost nothing in 2004 to more than $500 million this year. Total full-year company revenue will top $3 billion for the first time in 2014.
Over the past four-and-a-half years, Under Armour is one of only four companies in the Standard & Poor’s 500 to post at least 20% sales growth in each quarter. Since coming public in late 2005, revenue and earnings growth have averaged more than 30%, marking one of the elite growth stories of the past decade.
Historical Stock Prices for Under Armour, Inc. (Weekly adjusted closing price from 1/5/10 – 12/15/14)
Since its IPO, Under Armour stock is up a phenomenal 1,022%, compared to the merely amazing 408% gain by Nike (NKE), the global blue chip in athletic goods — which Plank repeatedly refers toonly as “our largest competitor” in a way that conveys suppressed competitive passion toward the $83.6 billion market-cap incumbent.
While its consistent growth trajectory from startup to the near-ubiquity of its UA logo might make Under Armour’s path appear effortless, this year began with a global controversy that threatened to undermine the brand’s very essence as a performance booster.
Yet the fleeting controversy failed to compromise the brand broadly. The Notre Dame and Naval Academy football teams signed on to be outfitted by Under Armour, giving the company claim to both “God and country,” as Plank has put it.
The company also bid hard over the summer to sign NBA MVP Kevin Durant to an endorsement deal when his contract with Nike lapsed, offering a reported $250 million over 10 years. Nike ultimately re-signed Durant after agreeing to structure a contract that could reach $300 million. The duel was a telling statement that Under Armour has aggressive ambitions to target the top in every category it’s in, but also reinforced its status as the hungry up-and-comer.
Plank embraces this image, seeing it as the core of the Under Armour brand, which he says means, “underdog, go get it done, find a way” – sounding plenty like the intense locker-room motivator in the original Under Armour “Protect This House” ads.
Winning with women
The company’s boldest gambit of the year, though, might have been its attention-grabbing “I Will What I Want” marketing campaign focused on accomplished women overcoming doubters and challenges.
“We launched as this big, bad American football company,” Plank says, and as the key back-to-school season opened, “we tell the world that our brand was about a ballerina.”
That would be Misty Copeland, of the American Ballet Theater, whose commercial focuses on her defying doubters who said she had “the wrong body for ballet.” Another viral ad followed, starring model Gisele Bundchen going through a grueling kickboxing workout.
I Will What I want marketing campaign on display at Under Armour’s NYC retail store.
The women’s business, led by workout clothes, has certainly benefited from the broader trend of gym wear serving as always-on attire, with yoga pants in some sense becoming the new jeans. Yet Under Armour has lately outperformed even Lululemon Athletica (LULU), the company most associated with that look.
Aside from the women’s business, which BB&T Capital Markets sees rising to more than 25% of revenue over four years, shoes and foreign markets are the key opportunities for the next phase of the company’s growth.
While growing nicely in Japan, Europe, China and South America, about 90% of Under Armour’s sales still come from the U.S. Never shy about setting lofty goals, Plank wants half of revenue to come from overseas one day.
A year ago, Under Armour bought MapMyFitness, a digital health-tracking app — the company’s first-ever acquisition. The service, with some 30 million members, works across a variety of devices, and will serve as a way for Under Armour to explore “connected fitness” without betting on the cutthroat hardware business.
Under Armour pays no dividend, but it’s hard to object to this given its breakneck growth pace and the high returns it earns on investing in the business. The company has gone to significant lengths to assure its clothing suppliers adhere to fair labor standards. And its use of an old Procter & Gamble (PG) facility as its headquarters shows great commitment to downtown Baltimore, helping to revitalize an entire neighborhood.
The Company of the Year judging
The Company of the Year is selected by Yahoo Finance editors, using a mix of quantitative and qualitative factors to recognize a prominent American company that has excelled on behalf of investors, employees and customers.
This is the third year we have granted this honor. The 2013 winner was Walt Disney (DIS) and the 2012 winner was Gap (GPS). The evaluation process combines one-year and long-term financial results; stock-price performance; strategic vision and brand esteem; good corporate citizenship; and a demonstrated ability to overcome challenges.
This year, Under Armour was awarded the title over a handful of other high-achieving, well-managed U.S. companies, including Home Depot (HD), Marriott International (MAR), Southwest Airlines (LUV) and Starbucks (SBUX).
[Under Armour sponsors the Rivals Camp Series of Rivals.com, part of Yahoo Sports. The sponsorship connection had no bearing on our Company of the Year evaluation.]
Running room – but beware stumbles
As successful as the company has been, there are at least two stark challenges ahead of Plank in the coming years.
One is Wall Street’s towering expectation for the company’s continued growth. After the stock’s upward charge this year, it trades for more than 70-times 2014 earnings and over 50-times the 2015 forecast. Under Armour’s average price-to-earnings multiple since coming public is around 35; Nike, a far more mature and slower-growing company, trades at 25-times fiscal 2015 profits.
A harder-to-quantify risk is that Under Armour’s brand might grow so powerful and ubiquitous that it, in a sense, undermines the underdog image it was built on. Perhaps only Apple Inc. (AAPL) managed to go from aggressive, maverick underdog to world domination without shedding much of its “cool” factor.
Plank, who was named one of the Best CEOs of 2014 by Tuck professor Sydney Finkelstein, is undaunted by the high bar set by Wall Street, believing that with Under Armour sales still only one-tenth of Nike’s, “there is a lot of running room for us.” Quite true. But expensive stocks often make investors intolerant of little bumps along the way.
Plank also doesn’t feel the company is close to having to worry about compromising the brand’s underdog ethos. Under Armour’s mission statement says, “Make all athletes better,” Plank notes, which means remaining focused on performance and not simply settling for becoming a fashion or “basics” brand.
Plank points to UA’s entry into shoes with football cleats in 2006, followed over the next four years by baseball cleats, training, running and basketball shoes. The company went from nowhere to number one in American football cleats in eight years, with a 35% share.
Can Plank possibly believe his company can work its way to the top of each category it enters? Quoting the movie “Predator,” Plank says, “If it bleeds, we can kill it.”
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That’s because the degree suggests a person steeped in finance and corporate strategy rather than in the digital-age arts of speed and constant experimentation — and in skills like A/B testing, rapid prototyping and data-driven decision making, the bread and butter of Silicon Valley.
Those skills are not just for high-tech start-ups. They are required now in every industry. And leading business schools are struggling to keep pace.
Mr. Pass is on the faculty at Cornell Tech in New York, where an innovative new program brings M.B.A. candidates and graduate students in computer science together. Meanwhile, across the country, colleges are adding new courses in statistics, data science and A/B testing, which often involves testing different web page designs to see which attracts more traffic.
Business plan competitions have become common. Students’ ideas usually have a digital component — websites, smartphone apps or sensor data — and prizes are up to $100,000 or more. Innovation and entrepreneurship centers have proliferated. Dual-degree programs, with a science or engineering degree added to an M.B.A., are increasing.
Graduate business schools have picked up the digital ethos of experimentation and new ventures. At the Stanford Graduate School of Business, 150 elective courses are offered; 28 percent of those did not exist last year.
“We’re responding to the best practices we see in the outside world like A/B testing and working with massive data sets,” said Garth Saloner, dean of the Stanford business school. “We’re adapting.”
So are the students. Once, students who had professional experience with computer programming were rare at business schools. Today, David B. Yoffie, a professor at Harvard Business School, estimates that a third or more of the 900 students there have experience as programmers, and far more of them have undergraduate degrees in the so-called STEM disciplines — science, technology, engineering or mathematics. “There’s been an extraordinary change in the talent pool,” Mr. Yoffie said.
Yet lately, many talented young people who might have gone to business school in the past are looking elsewhere. Applications to business graduate schools fell by 1 percent in 2013, the most recent statistics, reports the Council of Graduate Schools. By contrast, applications for computer science and mathematics graduate programs increased by 11 percent.
“Business schools are a legacy industry that is trying to adapt to a digital world,” said Douglas M. Stayman, associate dean at Cornell Tech.
Mr. Stayman describes the school’s M.B.A. program in New York as a start-up of its own, unencumbered by tradition. “Our starting assumption here is that a new kind of education is needed for managing in a digital economy, where speed and integration have to occur at a different level than in the industrial economy,” he said.
Cornell Tech, a partnership with Technion-Israel Institute of Technology, began with a relative handful of computer science students in 2013. The long-range goal of the new “applied sciences” school is to have 2,000 graduate students by 2043. But this is the first year for the M.B.A. program, in which 39 business graduate students share a third of their curriculum with 34 graduate students in computer science.
Their joint work includes projects for New York businesses including banks, hedge funds, larger technology companies and start-ups. They work in small teams, and typically design and write software programs for the companies. The emphasis is on making things rather than planning.
On Tuesday afternoons, the students gather for “studio” sessions, where they sit in circles of chairs, give progress reports, discuss problems and get critiqued by faculty and outsiders. Until 2017, when it begins moving to its campus being built on Roosevelt Island, Cornell Tech resides in one of Google’s buildings in downtown Manhattan.
The aim of Cornell Tech is to train what its faculty calls “entrepreneurial, technology product managers,” which are needed across industry as digital technology spreads.
The students selected are not typical of M.B.A. classes. About 75 percent have STEM undergraduate degrees, Mr. Stayman said, while the comparable share is about one third at Cornell University’s Johnson Graduate School of Management in Ithaca, N.Y.
Amanda Emmanuel, 28, is fairly representative of the business students at Cornell Tech. At Carleton University in Canada, she majored in computing and design, and she had summer internships as a software engineer for General Dynamics. But she also started her own fashion business, which used her software algorithms to create figure-flattering clothing designs.
Ms. Emmanuel came to Cornell Tech to burnish her business skills in a technology-rich environment. The Cornell program, which costs $93,000, lasts one year instead of the traditional two-year M.B.A. curriculum — another plus for Ms. Emmanuel.
“Saying you’re going to be out for two years can be a big drawback,” she said. “Some of the companies for the target jobs we’re looking for didn’t exist two years ago.”
Mr. Pass holds the title of chief entrepreneurial officer at Cornell Tech, and he leads studio sessions, critiques projects and acts as a coach. At Twitter, Mr. Pass was part of a huge commercial success and, afterward, he says he felt “realistic guilt,” holding a winning ticket in the lottery of start-up capitalism.
A graduate of Cornell, where he majored in computer science, Mr. Pass, 39, said he wanted to “give something back to the community.” Something he figured he could provide was perspective, including his belief in the need for a “balanced culture,” especially in tech companies and start-ups.
Engineers may be the most valued asset in business today, but the engineering mentality has its weaknesses, Mr. Pass noted. Engineers, he said, tend to be problem solvers, one step at a time, solving the problem in front of them.
“But the major business issue, especially for entrepreneurs, is often that problems are not known, need to be discovered or defined in a new way,” Mr. Pass said. “You need a more integrated, broader view of things.”
The M.B.A. program, he said, is trying to nurture people with those wider horizons, technical know-how and quick business reflexes — “a new pivot on graduate education,” as he put it.