Thread by @mario_cibelli

Tweet storm III is about company HQ'd in Salt Lake City and a CEO that accomplished something nearly impossible. The outcome changed the way contact lenses were sold in America.

👁👁👓📞🩺🏔 (1/x)

It was a fascinating journey and I'll tell you up front that there are some interesting parallels between this company and modern day rule breakers such as Uber.

It’s a long story so I’m going to break it up into two or three parts over the coming months. I’ll do my best to tell it fairly & accurately.

Part I - A Rigged Market

What does it take to break a monopoly and distribute regulatory capture back to the marketplace? Oftentimes it takes a renegade upstart with nothing to lose that is crazy enough to give it a try. A purpose driven & focused organization that dies without a successful breakthrough.

In an existing regime, the established “rules” are intended to create failure for those seeking to break regulatory capture so in order to be successful, upstarts must pursue other strategies.

Such companies and their leaders need to push to the edge of the “rules” and beyond to attain enough critical mass so that a real conversation about appropriate regulatory oversight can begin.

1-800 Contacts (“1-800”) was HQ’d in Draper, Utah and pursued a simple business model. It sold replacement lenses via the mail through - you guessed it - its toll-free # and website.

Before the vanity URL, there was the 800#. I was attracted to direct sellers that used toll free #s in the late ‘90s and had a few successful “phone” investments - 1-800 JR-Cigar, 1-800 Flowers & Moviefone (777-Film).

Many of these 800# businesses were early adopters of using the internet to sell products.

The CEO, Jonathan Coon, started the business out of his dorm room in college after “acquiring” the rights to 1-800-266-8228.

I say “acquiring” since procuring the rights to valuable phone #s fell into a grey area where specialized brokers, for a fee, would facilitate transfers of digits between buyers & sellers.

As far as toll-free #s go, 1-800 Contacts was as good as they came. The product associated with the # couldn’t be easily referenced through another 800#.

The company owned other related toll-free #s such as 1-888 Contacts and with all relevant URLs secured it had effectively cornered the market for low customer acquisition cost channels for contact lenses.

What this really meant was that 1-800 had a significant portion of new customers that came in at zero customer acquisition cost. This was a tremendous advantage for the company versus competitors which allowed for significant reinvestment in brand and customer service.

1-800 would even draft off competitors’ marketing campaigns, receiving a boost to its business when others plowed money into ad campaigns only to trigger calls to its own easily recalled toll free #.

1-800 also did something else fairly contrarian at the time that turned out to be a great decision. It invested in its call center staff and had a goal of picking up every inbound call in less than two rings - no menu & straight to a live U.S. operator saying hello in 1.5 rings.

Not many pursued this high cost service model at the time. 1-800’s call center employees were trained to make the lives of their customers easier and there were more than a few stories about operators ordering pizzas for customers and sending flowers to funerals etc.

The company obsessed about great customer service and thus a strong niche brand of sorts grew out of thin air for a service that should have been largely brand-less. The CEO would talk about busy moms and how 1-800 would make one part of their hectic lives a little easier.

I'm convinced to this day that Zappos, in part, copied 1-800’s playbook and applied it to the footwear market.

I’ve been a 1-800 customer since 1999 and to this day I still call the 800# when ordering my contact lenses. A little secret is to ask them to match the best price of the competition which they always do. I don’t even look it up myself, they place me on hold and do it for me.

Given its numerous advantages, 1-800 was able to grow into a significantly sized business. In 1998 the company went public via McDonald & Co. with the shares trading under the symbol CTAC.

Early on, underwriters, especially for smaller companies, often have a lot of sway on which accounts get access to management teams. 1-800 was pretty tough to break through with but eventually we met the founder and started getting to know the team and business model.

The CEO was as young as they came back then. He was enthusiastic and full of energy and over the course of several calls and visits, we received a full history of glasses and contact lens distribution in the U.S.

There are a few occupations in the U.S. that benefit from a dual status of being part medical professional and part retailer. Veterinarians and optometrists (ODs) are two obvious examples.

Visits to ODs, especially in the past, often consisted of two distinct activities: the medical portion (exam/diagnosis/prescription) followed by the sale of products.

This naturally gives rise to potential conflicts of interest when the medical professional seeks the sale of the product associated with the prescription. It’s important to note ODs are not MDs - you can google this to learn more.

ODs in particular, with the support of the lens manufacturers, had created a virtual lock on the contact lens replacement market. There was little price transparency and a thorough lack of competition as alternative suppliers were difficult to find.

This is why OD’s never displayed prices for contact lenses in their offices - they charged what they could get.

As you can imagine, all this led to high prices and limited service for lens wearing consumers.

Interestingly the market for eyeglasses had suffered from similar dynamics at one point but had been altered by legislation in the late ‘70s that mandated the release of the prescription so consumers had a choice when deciding where to fill it.

This gave rise to superstores and discounters like LensCrafters, the founder of which - E. Dean Butler - was on the board of 1-800.

The framework of separating the medical exam from the retailing of eyeglasses worked well for American consumers but surprisingly these benefits had not been extended to the contact lens market despite the obvious similarities.

Additional but imprecise background and history from my memory will add context to the contact lens selling monopoly and the massive challenges that 1-800 faced.

Older fintwiters may recall a history of anti-competitive behavior from lens manufactures such as Bausch & Lomb, Ocular Sciences and Cooper.

Price fixing, limiting distribution, selling the exact same lens under different modalities and prices kept the group in the crosshairs of the FTC for years - this ultimately benefited 1-800.

Johnson & Johnson’s Vistakon subsidiary, which owned the acuvue brand, had a dominant position in the industry and somewhat uniquely had grown its business via direct consumer advertising. I believe it’s market share at the time was over 40%.

Certain manufactures sought to grow market share by aggressively limiting distribution of lenses to ‘doctors only’ brands & would penalize ODs that sold product out the backdoor to grey market buyers. These middlemen would in turn resell to alternative distributors such as 1-800.

Some of these manufacturers would sell the same lens under a multitude of different brand names so consumers would be tricked into thinking that the lenses could not be obtained from alternative suppliers like 1-800.

If that wasn’t enough the powerful American Optometric Association (AOA) was constantly attacking 1-800 and erecting barriers via state optometry boards to destroy their business model.

The AOA would support all sorts of arcane rules designed to prevent 1-800 from selling contacts and even large retailers, such as Walmart, from performing eye exams inside their stores in order to support its constituents.

Of course the AOA and ODs masked their disdain for alternative lens resellers under the guise of protecting consumers by regulating, via a prescription, what they considered to be a serious medical device. Plain and simple, this was, and still is, a ruse.

After the initial fit of new lenses in an office, there is absolutely no reason why replacement lenses need to be purchased from an OD.

Suffice it to say that the contact lens replacement market was about as rigged of a situation as you could find in America. It was heavily stacked against consumers and powerful vested interests loomed over it to preserve economic capture for the existing ecosystem.

Fortunately for American contact lens consumers there was Jonathan Coon and he wanted to change everything.

Having witnessed this battle playout in real time & watched other similarly conflicted markets continue in disfunction, I can say with 100% confidence that if it wasn’t for 1-800 & the herculean efforts of Jonathan Coon, that the lens selling cartel may never have been broken.

There should have been a book written about 1-800 Contacts & the fight it had to go through to offer a better deal for American consumers. The battle eventually made it all the way up to the White House and the President of the United States which I’ll discuss in part II.

(fin)