For e-commerce and buying/selling of goods, a seller wants to identify ‘what can I sell today, most profitably (in the most efficient means possible), to the most amount of people (market opportunity), and how can I get a lot of people to buy
(experience to get conversion)’?
There are many models out there that will be able to get some legs due to the infrastructural changes that give e-commerce sites better ways to scale their distribution, ultimately improving the economics.
Thanks to Gilt Groupe, RueLaLa, One Kings Lane, the rest of these Private Sale Sites and Group Buying and Daily Deal Startups, the renaissance of interesting e-commerce companies and thus VC interest in this area has begun.
Greylock Partners’ James Slavet, delineates some of the reasons in his TechCrunch article ‘How E-Commerce Got its Groove Back ‘.
[Coupons vs. Flash Sale Note: I want to make the distinction between GroupOn or anyone implementing deals versus private/flash sale sites. The former are just marketing/advertising companies with new ad units and the tools and distribution to convert ads into transactions. Private sale/Flash sale sites actually merchandise and hold or at least consign inventory. Inventory creates a whole new dynamic around how you operate and your economics, which is a key, fundamental difference in ecommerce versus these other marketing companies. If you don’t really touch the inventory, you are just a marketing company (not to totally overstate this claim). Retailers who only use brands that drop-ship create a gray area for this. Thus, that said, some components of my response below blurs the line a bit. HOWEVER, daily deal sites— whether you want to bucket them as ecommerce, advertsing/marketing companies, or something in between–have produced externalities and direct implications to make commerce attractive once again. ]
I’ve outlined below :
- Privates Sales Sites Reinvigorated eCommerce – 1) the model 2) market drivers
- The current landscape and shifts in the market dynamics
- Market drivers that may propel a few of the changing models forward
- Some of the models that are gaining traction or have opportunity
- Enablers to longer term innovation
Why did Private/Flash Sale Sites Reinvigorate eCommerce Investment?
First Flash Sales & Private Sales is a means to move inventory that garnered enough traction to be companies in themselves. So, let’s first define the parameters to examine what was different to drive their success and thus capital investments.
The key innovations : moving inventory quickly thus less inventory risk
or higher sell-through and getting massive consumer adoption in a short amount of time (relative to their incumbent traditional ecommerce sites). Often times, these sites sell before they buy ( aspect of the strategy employed in drop-shipping).
[Note: You can get a full overview of the Gilt model from Matthew Carroll’s answer: Gilt Groupe: How does Gilt’s business model work? ]
Model: Short-term sale of high quality or often high end goods with limited inventory seemingly available. The combination of the following made this approach innovative:
1. Time frame
2. Luxury goods
3. Limited Supply
1. Cash cycle/Inventory risk
2. Fulfillment technology
These concepts are all utilized in brick & mortar establishments, but the
combination online was yet to be seen.
- Experience: These guys actually make shopping fun & addictive! These sites were able to create a great customer experience from showcasing the items to creating a habit–like tuning into your favorite TV show at the right time (that is pre-Hulu, OnDemand, and DVR). People get excited to go to one of these sites at noon or whenever the new inventory goes on sale. There is also a sense of urgency due to a combination of limited supply AND time that motivates buyers . You know it would go fast, which is unlike traditional online sales that you typically have a decent amount of time before the sale ends or inventory runs out
- Product: Gilt and a lot of the private sale sites were able to get access to luxury items. Selling luxury goods online was (and to a degree still is) rare. This is for quite a few reasons that I won’t get into now. Yet, getting ‘access’ to this type of inventory that could be sold online was actually quite new. [ At the end of the day, the product, especially, for discretionary items, are purchased due to the product quality rather than a ‘need’. So, having quality merchandise was also a key factor].
- Data Accessibility, Collection, & Analysis : For a lot of e-commerce sites, you would not know who would be on your site browsing until the person put in his or her payment info or perhaps had logged in. Private sale sites require login and thus know your buying habits/patterns . If you abandon your shopping cart, they know who you are and what you abandoned. RueLaLa even added a button so that you can automatically purchase it if they get more available. Thus, they have better data than the average e-commerce site because someone actually logs in. This is in addition to their sneaky tactics of being ‘invite-only’ or ‘private’ to get consumers excited to give up their email address.
- Decreased Inventory Risk: Not all of the sites employed the consignment model, where a site could give back anything they did not sell, but they at least were better structured to take limited amounts of inventory available. Other sites do not touch or pay for the inventory until it is sold to the consumer. However, this was a great way to decrease their inventory risk. Gilt ultimately holds some inventory and fulfills, but they minimize the risks . Because there is limited supply, the sense of urgency and impulse shopping that these sites incite also move inventory faster than traditional sites. Thus, there is decreased risk in initial financial outlays/cash flow as well as holding inventory.
- Fulfillment: In drop-shipping, a retailer sells an item without touching the inventory or making any financial commitments. However, if you want to control customers’ experience, you have to actually touch the inventory at some point. So, these flash sale sites utilize aspects of this concept and evolved managing inventory risk. They either did not touch the inventory until it was sold or it was held and returned if it was unsold. In each model, the former especially, new operational issues arise. You get your order , which includes multiple brands’ products, thus you need to efficiently get those items from the brands and then fulfil (pick, pack, and ship) the orders.
2. Distribution/Marketing Innovations
- Email : Email was actually under-utilized as a channel to sell goods with the exception of DailyCandy & Thrillist. Private sale sites leverage email extensively , which if people even ‘open’ an email are much more likely to buy. Additionally, it’s not about a ‘spammy email’ but rather good content. Flash sale sites incorporated better content into their email marketing, not to the extent as companies like Betabrand or Ahalife, but they took it up a notch from the traditional ecommerce sites. Additionally, because it truly was a limited time offer, it is exciting to open the email because each day it’s new versus the stagnant inventory in traditional stores.
- Initial Exclusivity: The ‘invitation only’ concept caught on because people always want to get into ‘the club’. This created some initial buzz , and thus got consumers excited to give out their email addresses.
- Social Media: Because these sites were able to leverage social media channels , they were able to accelerate their growth faster. There is currently a lot of noise , but identifying new channels early on that cater to your demographic has a potential for a huge win.
- Referral Programs: Because of social media channels, referral programs were augmented. They figured out how to create viral loops much more effectively and the right incentives to increase their subscriber base.
- Market Dynamics & Psychological Shift: At the time of the economic downturn, the obvious discount combined with a sense of urgency magnified the adoption of these sites. There was in fact a fundamental shift in the way people think about shopping. Buying ‘full price’ for a Gucci handbag has become in a way embarrassing (somewhat overstated) because the conversation has shifted from ‘look what I bought’ (implying a luxurious, pricey item) vs. ‘look at the deal I got on this’. The bargain hunting mentality has become the paramount of shopping status. Plus, the market opened up where not only the 1% could buy Prada but now the 2% could 😉 .
3. Investing in Models not Technology
- Technology as an Enabler not a Solver: I want to acknowledge, that the success of the ‘private sale’ sites are actually not from ‘technological innovations’ but rather distribution innovations, which , sure, you can argue are technological to a degree. Yet, these are about bringing people together or easily promote versus using technology to solve a hard algorithm. That is also why you see the proliferation of sites beyond just Gilt & RueLaLa—a low barrier to entry ‘IF’ you can get access to the inventory, which is really the barrier to entry (it’s a relational barrier that can be overcome versus a lot of the other problems have infrastructural or technological barriers) . With private and flash sale sites, these are actually fairly easy to start but hard to scale.
- Implication: Thus, a lot of the current investment strategy is not due to technology but either from distribution or some under leveraged model both of which can be augmented by channels that allow for better promotion and distribution (ie FB, twitter, blogging, and perhaps closer attention to email—not necessarily true anymore).
Overall, the new model for selling was able to identify new ways to decrease capital intensity than traditional e-commerce and gain distribution quickly. Thus, despite a lack of technological innovations, these sites were able to prove economic attractiveness worthy of VC dollars.
Current Landscape & Drivers:
Below I describe the landscape and some of the drivers as well as large problems that need to be solved making the current time in the market attractive for creating interesting ecommerce or related companies and attracting VC investments .
1. Market Dynamics
- Well-Founded Hype: So , these private sale sites and the daily deal sites got investors’ attention. With huge success in these markets brings a lot of followers. Success or traction gets money. With a lot of followers, you can have more companies being formed in which you can potentially invest . So, now that a few have proven that there’s lots of money to be made and new companies being formed in e-commerce, VCs are interested.
- Disregarding eBay and perhaps AMZN: This is a large enough market for a lot of players to succeed. It’s not a company like Google where winner takes all (Google has technological barriers to entry vs. relational barriers). Thus, despite the early fears about eBay and Amazon being the only dominate players, there are new sets of problems and consumer demands that can be addressed. For instance, eBay’s experience sucks and the ability to get discovered is tough–not to mention the fees; hence, Etsy came about. Amazon is highly utilitarian and is more about price than an enjoyable, leisurely shopping experience. Thus, you probably go to a different website for clothing or even aspirational items. You also won’t find certain brands on eBay or Amazon due to certain rules brands put in place in how and where they are represented online–if you do find them, it’s most likely without the brands’ permission or it’s second-hand. Also, if you don’t know what you are looking for, the browsing experience is dismal for either. eBay’s X.commerce initiative is a question mark at this stage, but the discovery and experience problems still exist . Additionally, X.commmerce will enable other companies to have better ease getting into the game leveraging the tools and community rather than eBay fully competing with them.
- Economy: Well this is quite volatile, but bargain hunting or discounting is not going to go away any time soon. The middle market is evaporating. Thus, one must tread carefully with the average consumer, whom is not so ‘average’ anymore. This drives more people online to buy because they can often find better deals online where it’s easier to shop around or find a coupon. We’ve also started to see Collaborative Consumption and rental models that decrease the cost of buying because products either have been used before or ownership expires. Additionally, you have lots of people unemployed, so new models can leverage these people to either execute work or harness these people more cheaply to actively sell or market in exchange for discounts/deals or other incentives . Stay at home mums will be looking for ways to make a buck and ideally do so at home and thus online. With the competitiveness within eBay, all of those 25M sellers, might be looking for new channels to get a leg up on selling.
2. Decreased Capital Intensity:
- Development Costs: This applies broadly to startups. It has become substantially cheaper to test new models and get up and running. This is thanks to a lot of the ecommerce software, various SaaS tools, and AWS . Testing using current tools and infrastructure enables more models and approaches to be easily tested with limited initial investment. You also have much better tools to facilitate ecommerce. Shopify, Bigcommerce, & Magento among many other companies are making online storefronts much more engaging and exciting. The cost to get this built and have a beautiful design is inexpensive relative to preceding tools. Additionally, they’ve created marketplaces and communities around their products. So, accessing new tools, and tool vendors distributing those tools are more cost effective for everyone . Thus, leveraging APIs has made a huge difference in integration both in time and money. While not limited to ecommerce obviously , Software-as-a-Service (SaaS), has enabled people to cheaply build and test their stores with limited commitment and get the benefits of updates and new features that are automatically pushed to their site . Integrating these various tools and data sources is actually extremely important in ecommerce more so than for other types of online businesses because of the supply chain. There are so many moving pieces from POS all the way back through the ERP to vendors/suppliers and then the vendors/suppliers to their manufacturers and warehouses. This looks different since supply chains can have many different parties and stakeholders involved in many different combinations.
- Decreased Inventory/Merchandising Risk: Newer models such as the aforementioned flash sale sites are providing ways to mitigate the inventory risk. This is either through pop-up shops, shorter selling windows, deals, etc.. Beyond just the deal mentality, subscription services add an element of personalization to hopefully only show and even send a subscriber relevant items. This decreases inventory risk because you understand the tastes of your buyer much better , there is a decreased likelihood of returning an item because it’s just a pain in the ass for us lazy folk, or because you are seeing an item in person. Additionally, sites are getting product or merchandising feedback from consumers prior to buying large lots of the item. This offers better insight into what will actually sell. Rather than relying on ‘buyers’ who edit the assortment for their consumers, these new sites are creating larger breadth of products to preview before making those selections. Quirky (company), Made.com, Moxsie,ModCloth, etc…. actually leverage voting and feedback via their sites, twitter, facebook, tumblr, etc… before producing or buying items. Even collaborative consumption and rental models (while the latter initially capital intensive) offer new ways to either not hold inventory or create different economic models.
- Better CAC: You can get viral before you even launch. Getting distribution is much more cost efficient than previously due to all the various ways to share and engage with people. Thanks Facebook. Thanks Twitter. Thanks all the other Social Mediachannels. Below, you can see broadly that referral economics are extremely valuable. Fab.com has an amazing referral program and was able to just completely kill it within their first month because they were able to get people signed up before launch . These guys are quite Fab 🙂 ! Nice work, Jason Goldberg and the Fab.com team!!! Also see: How Did X Get Traction?: How did Fab.com get 200,000 signups before launch?
Apple’s consumer worth
- Supply Chain: Innovations are happening to decrease capital costs , but I get into this in more detail later.
3. Consumer Psychology:
- Social Acceptance: No longer is there the issue, IF people are going to buy online but what/how/with whom. We are past the psychological and trust issues in the earlier days of ecommerce. Now, it is much easier to develop that trust due to secure payments, general standards, general market education/acceptance, design, etc… The market is not in the education phase but online shopping is becoming a part of our daily psychology of how to consume goods. People are even purchasing stuff through their cell phones including large ticket items like cars. Now we want an experience or something exciting beyond just ‘buying’.
- Deal hunting mentality: ‘Discounts’ and ‘deals’ will stick around for awhile. This is now becoming an expectation versus a luxury both due to the proliferation of deal sites as well as the volatile economy that has yet to really recover. Thus, in order to create value, brands and retailers will need to become more creative in terms of how they position themselves. Daily deals & flash sales have also driven more people online to actively engage in ecommerce thus accelerating adoption. Even SMBS are now more aware and gaining better exposure to technology as a byproduct of the outreach from the deal sites. Here is a good HBR article on adaptive pricing
- Design/UX: This is under appreciated but is actually a crucial element in e-commerce. You have ‘transactional’ (i.e. less experiential shopping excursions through Amazon—where people typically shop due to price or utility) . However, an interesting or pleasurable shopping experience has been rare to find on the web. The focus and emphasis on design has only recently taken shape. This is one reason why a lot of brands had not engaged in e-commerce as extensively as one would expect. They need to represent their brand well, and if the medium cannot communicate a brand’s philosophy and potentially compromise its integrity, a brand will most likely not utilize that avenue. This historically was one of the factors for brands staying away from actually having an online presence (this combined with concerns around seeming ubiquitous and thus less ‘exclusive or scarce’). If they get online, the whole world not just a few block radius will see them. Thus, online risks could substantially damage a brand, so the adoption has been relatively slow. Beyond the brand, sites are making sites much prettier and aesthetically appealing as well as functional. New forms of buyer engagement is taking form . It is no longer browse and buy but rather consuming, creating, and sharing opinions, content and media that surrounds a shopping experience.
4. Data access, data collection , data integration….
Retailers and brands have a lot of data offline and now online. Accessing this data by better collection tools for ecommerce, or tapping into existing external or internal data by leveraging 3rd party tools is starting to become more possible and cheaper. VCs are going to be very excited about companies that utilize all the data that’s out there to better optimize shopping.
- Retailer: The biggest challenge of a retailer is leveraging its data into actionable items, which historically has been challenging because there is a lack of knowledge around the following:
- Who the customer is
- Buying habits or tastes outside of the retailer
- Pre-purchase data (ie ‘in the store’ or things in the shopping cart that do or don’t convert to sales, etc… )
- Customized/personalized incentives/deals to up sell, come into the store, etc…
Data is still siloed in these old systems and is very difficult to extract or
integrate, but companies are starting to unlock this data . TellApart is
for example, is tackling customer segmentation and ‘data-driven’
marketing /re-targeting. They identify the most lucrative customers and
help retailers target their marketing dollars towards them versus low-value
- Brands: For brands, accessing any kind of data has been a challenge since most of the historical data has not been shared by retailers (or at least very little has) in addition to being able to leverage that information across retailers based on customer demographics. In fact, most retailers that have large amounts of data still use EDI , making it fairly costly to provide sales reports to their brands. Thus, there is a huge lack of visibility into sales let alone real-time data. Brands have lower traffic if they have a website (many of them are just now getting web presences let alone e-commerce shops–mind boggling for all of us techies but true).Thus, they don’t have very good data from their sites either and are typically less sophisticated than retailers since they have more aspects of their business on which to focus.
- Connecting the Dots: Generally, there are HUGE opportunities if a company can plug into the back end of the supply chain and push forward, BUT in terms of timing, there is higher likelihood that something more disruptive will come from the consumer side (as usual) due to the slow moving nature of the enterprise and having to integrate with their systems or the sales cycle associated with business sales. Thus, the innovation will need to deal with the data (consumer, retail, brands, etc..) that is out there—and there is quite a lot! Now that product data and personal data is out there, we need to bridge the gap . Companies like ShoeDazzle employ surveys to get some level of personalization, but this is just scratching the surface. With all the tech talent and data out there, someone is bound to make the recommendation engine more ubiquitous and cross-channel and cross-vertical. You have companies like Polyvore, Svpply, Pinterest, Lyst, and Fancy where consumers are curating their tastes in different ways. So, now there needs to be a way for companies to leverage that information in an actionable manner.
- Large Problem: Across the web, no one has solved this problem—not even Google (for products that is). People are developing more content around products beyond just the description, which is helpful, but finding products is still really tough. Googling a product is useless, especially, since brands use different terms than consumers to describe a product (ie using the ‘cloud’ as a color is not the same or discoverable as ‘white’, but many brands and retailers do not get this SEO factor). Going to your favorite online retailers is your best bet, but if they are too extensively merchandised such as Amazon or Zappos, you are screwed. Endless.com has some of the better filtering experiences , but it is still hard to find exactly what you want within a retailer let alone across the web. The Paradox of Choice plagues us all and with an overwhelming amount of stuff on the Internet, we can get frustrated and exhausted trying to consume. Additionally, those with the best SEO will win even though they might not have the exactly right product you are looking for–you will probably just give up. Discovery is a HUGE problem. New angles on this challenge will gain traction , for example, ModCloth and Etsy have created great experiences to discover unique stuff. New companies solving discovery will emerge.
Due to this conundrum, there are a lot of prospects to solve the discovery issue and a lot of data to work with–not just search terms but leveraging personal elements (demographic, history, likes/social media conversation), social/influencer data, and better product information.
Models described below address this challenge in both technical and non-technical ways.
- Curation: Typically, you discover stuff by browsing stores. Creating highly curated stores will make discovery more inviting. Sites like Ahalife and Everlane use interesting people/personalities that people can identify with and these people to a degree curate their stores . The older version of this was CSN stores or NetShops, which created super niche stores and bought the niche’s domain names to help with search. The newer version of finding interesting, indie products may include adding content (to help with search) and adding personalities for a consumer to identify with and who help source the goods among many other mechanisms.
- Social: Shopping in the offline world is inherently social. You see this with ladies shopping in groups, getting opinions from friends or stylists/salespeople,discovering new items from friends or the sales people, and showing off your latest purchase to your friends. This helps for people to discover new items from trusted or relevant sources–other people with the same tastes or people you trust. With the explosion of everything being social, there are easy channels and adoption these social shopping habits. These behaviors have sparsely been mirrored in the online realm. So, there is opportunity to innovate drastically.A few examples include Pose , which allows you to get feedback from friends, or Snapette that allows you to capture, share, and discover products out IRL, which start to mimic these behaviours. Sneakpeeq uses game mechanics to encourage online sharing of wants and purchases. Yet, there is still ample opportunity to increase the ubiquity of these tools.
- Influence: Beyond just feedback or sharing, there is , of course, there is the influence or ‘trend setting’ factor. This concept is nothing new..
In 1905, Richard Sears sent boxes of his company’s mail-order
catalogues to his best customers in Iowa and asked each one to
distribute them among friends and neighbours. Mr Sears collected the
names of those who received the catalogues and, if they purchased an
item, rewarded the “inﬂuencers” with a gift, in the form of a stove,
perhaps, or a sewing machine.
However, now there are better channels and mechanisms for influencing. Anyone from friends to bloggers to celebs play their influencing role. Influencers are influential in certain circumstances. For instance, friends are not always the influencers in buying fashion since you might have different tastes, and rather celebs or bloggers might be those that sway your purchasing decisions. While some people love Yelp, I hate the 4 star default. Traditional reviews and recommendations on products/services no longer have influence on my decisions (I know I’m not the only one either), thus, new ways to get insights from various influencers that matter to you will arise. I know of a few startups tackling the ‘review’ and influence problem in a few different angles. Ultimately, different profiles and people have different levels of influence on the type of product or service and on the information you are extracting from them.
Behavioral incentives (eg BJ Fogg‘s persuasive technology, Dan Ariely’s Predictably Irrational examples , or in laymen’s terms ‘Game Mechanics‘ ), are driving ways to improve engagement and influence within the shopping realm. Beyond the monetary incentives of deals or urgency with flash sales, there are many other types of influence to incite purchases. Some examples are offering new ways to engage with more content and media surrounding products, point systems, sharing, which get you vanity, monetary, or entertainment rewards. Alternatively, influence can come from buying because it’s from trusted sources (people and stores), other people with whom you identify are sporting those goods, it’s personalized, it’s showing up at your doorstep, it’s a better visual or engaging experience etc. A few companies are creating platforms to shepherd influencers to promote items. This model has been seen time and time again in various forms. This can be from influence as a special person such as a celeb (ie Kim Kardashian and Shoedazzle to BeachMint) or ‘host/peer pressure’ whether the Tupperware party and other Multi-level Marketing (ie Stella & Dot or Chloe & Isabel) , which are structured in ways to promote and incite people to buy (previously highly deal oriented). Curation, social , and influence all help with not only the discovery but engagement and distribution of goods to relevant people online.
Supply Chain Drivers
Below are other innovations happening more broadly that will enable new models to take hold and decrease capital requirements.
1. POS & Payments:
Point of Sale Systems (POS) Micros has dominated the high end of the market, but the market is highly fragmented and many businesses still use just the cash register or have local systems that aren’t hosted.
- Hosted POS: I absolutely love Square, Inc. and am in complete belief that it really will revolutionize the way business is conducted! However, Square focuses on the payments piece and has some other POS features, but there is still opportunity for more sophisticated systems including Vivonet, Revel Systems, POS Hero, and many others to capture some of the mid-market. The fact that the cash register has had hardly any innovation or at least the innovations have been un-adopted is mind-blowing ! It is the most crucial aspect to a business and yet there has been limited improvement in the experience and technology that actually has been adopted. There are a number of companies who have made valiant attempts at getting retailers to adopt their hosted POS systems in addition to their local terminals. eBay is also bringing Paypal offline as part of their multi-channel strategy , so this will also play a part in advancing how we transact.
- Insight: Having better information on retail inventory in real time and knowing this information , potentially across industries (ie benchmark against the industry as a whole) or just being able to have better insight into what is happening with your business in real time will help many businesses become much more efficient in managing their inventory , merchandising and for business as a whole.
- Multi-Channel: Extractinand analyzing data is extremely painful, especially, for smaller shops! So, how does this relate to eCommerce? Well, if a B&M store currently wants to sell online or via a mobile device, they have to actively manage their online and offline merchandise, which can get messy really quickly since your online store has no insight into what’s being sold in the store!
A few challenges a store owner would have to overcome include:
- Merchandising each channel separately
- Avoid selling an item online that is actually out-of-stock
- Painfully manage inventory/order reconciliation
Most companies that have the distribution and are at the heart of the information, such as POS, do not necessarily have the incentive to invest in the new opportunity of local search but would rather continue to invest their existing business.
- Enterprise :Even larger brands are disconnected online and offline. Their systems don’t talk to each other. Buying online and picking up in store creates massive pain (this is also a fulfillment issue which I get into below).
However, just having insight into what items are in-stock is tough for
larger brands/retailers let alone small B&M. New POS systems, which
have their heart around payments and the cash registar , will help to
create more transparency between these entities . For larger brands, it
gets more complicated due to their complex enterprise systems, but when
they need to become competitive and create a seamless multi-channel
strategy for their consumer, they will be pushed to identify new tools. Milo.com worked on this problem, and is now extending the effort as a part of eBay & X.commerce. For the smaller, highly fragmented B&M
stores, new POS systems are the first step, but it will take time for
them to deal with some of the logistical issues involved in
Good answers on this topic on Quora: Is there a reason merchants use a typical POS terminal instead of Square? Brian Roemmele has some great answers about the company work reading!
Shipping and the whole supply chain is one reason people shy away from commerce. Shipping is expensive and complex. There are a few great Quora answers that get into the complexities and issues around this , so I won’t rehash. Below are not neccessarily new innovations (a few companies are) , but these tools will ease the pain for eCommerce companies.
- Shipping Software : However, companies are enabling easier fulfilment. This decreases the cost , risk, and pains of the process . So, more companies can get started faster, cheaper leveraging some new tools . Companies like Shipwire (connect with Nate Gilmore ) are enabling better fulfilment. You can also read about What are some good pick/pack/ship fulfillment competitors to Amazon? Companies like Shipworks, Stoneedge, Endecia makes it easy to generate shipping labels and connects you to a courier. uShip has created a marketplace to find couriers. Thus, all of these companies make fulfilment much easier. However, with mobile technologies for communication, and local fulfilment there are a lot of challenges and gains to be had in this part of the value chain. Matthew Carroll addresses fulfillment here: Logistics: Do private sale sites like Gilt Groupe and RueLaLa handle fulfillment in-house or do they outsource it? [ He has other great answers def worth reading!]
They have a global network of warehouses to make the storage and fulfilment process more efficient.
How Shipwire works
- Drop-Shipping: Drop-shipping was a development that occurred earlier this decade and is an easy way for large manufacturers to get a lot more people selling their stuff. Sellers do not have to hold inventory but receive a lower cut of the item sold because the inventory risk is on the manufacturer’s side. Then, the drop-shipper (the manufacturer) will send the item to the consumer without the seller touching the inventory. Alternatively, once an item is sold, it can be then sent to the seller who packages in the way they want vs. the manufacturer. This is , of course, a better experience for the consumer and representation by the seller if there were multiple purchases from one store front. The downside is that the fulfillment will take a bit longer than if it went straight to the consumer. So there is the trade-off between time and experience. Even though drop-shipping is not something new, it’s getting wider adoption not just from manufacturers but also from retailers. Therefore, this is a driver for more ecommerce experimentation.
They automate the pick, package, and labelling process.
Kivauses game-changing automation technology for distribution centers that helps companies simplify operations and reduce costs while increasing strategic flexibility. Using hundreds of autonomous mobile robots and sophisticated control software, the Kiva Mobile-robotic Fulfillment System enables extremely fast cycle times with reduced labour requirements, from receiving to picking to shipping – all without conveyor.
These were founded back in 2003 and have been servicing anyone from Staples
to Gilt. It took them awhile to get some traction, but they are doing exceptionally well.
4. Manufacturing: 3D printing for prototyping
There are some great answer on this topic.
5. B2B eCommerce & Supplier/Buyer Relations
Discovery, communication, and transactions are still a many to many process with ample workflow redundancies… Back in the dot-com boom, B2B ecommerce was a hot topic and just like B2C eCommerce has yet to realize its full potential given people are still relying on spreadsheets or heavy systems.
Retailers : Let’s say you are a retailer just starting out… So, what are you going to sell? You decide you want to sell shoes, so what do you do and how do you get those shoes? You might know of some larger brands that you like and want to sell, some emerging designers, and perhaps some generic, non-branded items.
- Ordering from Large brands: First, you search for the large brand online. Easily you’ll come across the ecommerce site, but then you have to find the corporate site and navigate to the relevant contact. Most likely, it will be a generic number,which you’ll then have to navigate a phone tree to get to those who represent wholesale accounts. You probably won’t reach that person and will get an automated voicemail box telling you that they’re not accepting new account, or that you need to request a form by sending it to firstname.lastname@example.org, and then once you submit it to their blackbox, they’ll let you know. They won’t let you know, or in 6 months, you might get a note that they’ve rejected you. Yes, this is a slight exaggeration but actually true for certain brands. As you get smaller, it’s a bit easier to reach someone.
- Ordering from Small brands: For smaller brands, if they have a web presence–you’d be surprised at the number of brands just in the last few years getting websites–you’ll be able to find the relevant contact. Again, you’ll have to fill out a ‘new account’ form, all of which have the same information, but you have to re-fill it out for each account. They again decide based on other brands you carry, geography, and credit check (often can be addressed with more aggressive payments terms). Depending upon the size and type of brand, they’ll be highly concerned around to whom they sell (ie what other brands the retailer sells). Even if you already have your relationships established, you still need to manage your planning and seasonal buys , these relationships, orders, re-orders, shipping dates, etc… Right now the communication and ordering is most often is handled still with lots of paper, pdfs, and excel. Larger retailers still use Electronic Data Interchange, which is an antiquated painful and expensive system to setup and use–nobody ‘likes’ or is excited about EDI. Some brands have wholesale portals for re-orders and a way to download linesheets (wholesale catalogue) , lookbooks (marketing collateral), and order forms. For the retailer this is still painful because you have to do a slightly different process/format and order through a different system or process.
- Trade shows: Typically to see the latest lines in the most efficient means possible, you’ll go to a trade show. You’ll get to touch and feel the items and build the relationship with the reps and designers. It’ll cost anywhere from $200-$500 within the US to travel to a trade show, then you have to pay for a hotel for 3 nights ~$150-$500/night plus transportation around town or to/from the airport and then entertainment. . If you are from a boutique it can get overwhelming with 5,000+ brands and hundreds of thousands products. Larger retailers have categories that they focus on , so they can manage the process a bit better. However, 80% of your time will be spent on looking at your current relationships’ lines and maybe the other 20% at new items. This is assuming you are not exhausted. Some orders are placed at the show, but most of the orders are placed after the show once you’ve digested all the different items and can plan out your buy a bit better. Yet, you probably made notes all over the line sheets (~catalogues) and don’t necessarily remember everything or they did not have images ( just flat sketches) on the line sheet or the information did not necessarily match. There are ways to organize and track all of the product information and try to visually merchandising but for SMBs most tools are mediocre.
- Brands: Let’s say you’ve successful created some fashionable iPad case you want to sell. So you can and probably will setup an online store that will be direct to consumer. This will enable you to capture higher margins but also prove that consumers want to buy what you have to offer. Retailers might not take the risk your first season unless you have B2C sales or data points showing that there’s demand . They also will have reservations in your first 2 seasons whether you can actually fulfill and deliver on time.
However, direct to consumer is challenging . You already have to focus on the product development and supply chain. So, then trying to acquire customers is tough let alone the inventory risk and individual order fulfillment. Thus, you’ll want to get better distribution , decrease inventory risk, and more efficient fulfillment through wholesale sales.
- Distribution: You’ll then hire a sales rep or a showroom (multiple reps often representing multiple lines/brands that have a set of samples at their location). These reps will have existing relationships to whom they’ll reach out. It’s tough to find good reps and showrooms, and they can be fairly expensive 7%-17% (~12% avg) commission plus showroom fees ~$750/mo ($250-$1,000/mo) plus trade show fees $2,500-$10,000 for a booth.
- Discovery: Going to trade shows gives you some visibility, but getting attention from buyers prior to and at the show is tough given their focus on new brands being a small percentage of their time at these shows. Also, sifting through all of the different brands/vendors at the show can be overwhelming. Buyers might miss shows or they are too expensive. So, you might have appointments at the shows and perhaps get some new leads. Regardless, your effort expended on larger accounts is comparable, especially with limited resources. Thus, the ROI on larger accounts is typically an order of magnitude larger, assuming you actually can get a buy and have production capabilities to fulfill the order. Smaller accounts are great to prove demand, work out operational kinks, and ramp production capabilities. Additionally, financial terms are better because they can and will bend to your terms versus you to theirs , as is the case with larger retailers who dictate terms. So, depending upon your financial an cash flow restraints and production capabilities, small accounts might be more beneficial. That said, efficiently getting access to buyers is time intensive, expensive, and inefficient.
- Communication: Once you get accounts, you’ll have to manage them , communicate delivery windows/order status, provide ongoing available to sell information for re-orders, and market to them on new lines. Many still use simplistic tools (excel, pdfs, paper,etc…) for managing this while others are implementing CRMs and other back end systems (in addition to their ERP) , and some have wholesale portals for buyers to login and view the lines and possibly place orders, but these are typically rudimentary systems for smaller brands or large enterprise systems that were built 5-10 years ago and are a pain to manage (note: I have a friend that has a Harvard degree working at Juicy Couture , and her job is matching POs/Invoices with 3 different systems. It’s a nightmare!).
- History/Market Timing: Above I laid out one example and more biased on the sales side rather than relationships with manufacturers and indirect inputs, but there are various structures and levels of vertical integration in the supply chain that face similar challenges of discovery(sourcing), communication/collaboration, and transaction . Over the last 10 years, there have been some improvements that can aid e-commerce companies. Back in the dot-com boom, Ariba software and Alibaba arose trying to tackle B2B e-commerce issue. Ariba focuses on e-procurement (ie maintenance, repair, and operational items for businesses–think business supplies). Alibaba built a B2B directory for sourcing goods from Chinese manufacturers and then built Alipay/Aliexpress to purchase goods directly from these suppliers. This was a trend back in those days with 1,500+ B2B marketplaces. However, at the time they were highly focused on indirect inputs and commoditized goods. At that time, there were issues around market timing/adoption. For goods that are slightly more sophisticated , there were more challenges in adoption given the nascency of the opportunity.
In certain verticals, there are solutions to reduce costs in various aspects of the supply chain. However, there is still plenty of opportunity for innovation in markets with slightly more sophisticated products and for smaller players who historically did not have the resources to access these tools.
That said, supplier portals and marketplaces have substantially reduced the cost for supplier sourcing, planning, PO/Invoice management, advance ship notice/bar code label generation, shipment communication, demand visibility etc…
Overall, below is a diagram of the value chain from an old yet still relevant Booz Allen & Hamilton report.
Example goals or value gains in most B2B ecommerce include:
- Improve transparency in where there’s information asymmetry
- Aggregate fragmented value chain
- Organize multi-step value chain
- Decreased sales & marketing cost
- Consolidate volume
- Reduce search costs
- Streamline process (approval, fewer ordering errors, transaction process, & possibly AP/AR)
- Faster cycle times (Reduced time for collaboration , management, communication)
- Improve production/delivery transparency and communication
- Better product testing
Shameless plug… because I saw how ridiculous and inefficient this process is, my co-founder and I created Sorced (company) (www.sorced.com )–to a degree non-China version of Alibaba. We are an online showroom (or B2B marketplace) enabling brands, sales reps/showrooms, and retailers to better discover, communicate, and transact with one another.
Technology is evolving faster than adoption in many instances. Many of the possible innovations will have to come from having access to the siloed data in businesses, which have a MUCH slower adoption curve than consumers. Therefore, the immediate opportunities will be in the B2C space. Longer term as more data becomes accessible , lots of innovation can occur (One previously mentioned example is local product search; think Milo, which worked hard to get into large retailers’ systems).
Brands and retailers have their website, possibly B&M store, mobile commerce, Facebook commerce, eBay, Amazon, and other channels and avenues to sell or get traffic. Multi-channel strategy is becoming complex because even though you need consistency across channels, each channel address different behaviors for the consumer. Thus, sorting through those objectives is key.
See Mobile Commerce: What is the size of the m-commerce market in the US? , but just eBay alone, expects to hit around $5bn in mobile commerce by the end of 2011.
Obviously, smart phones are enabling a new kind of engagement with location. Getting access to information on the go as well as employing that data with the current circumstance is quite meaningful. Getting consumers to engage to improve their experience will be important. However, the impetus to use your phone to interact with a product must provide value such as ‘price comparison’, discounts, data capture/reminders, etc… Yet, consumers still need to ease into this behavior or make the app as seamless with the current experience as possible. The phone is a powerful thing that can offer significant improvements in our lives, but again, getting buy-in from businesses is always tough as well as creating a great UX.
Retailers still need to buy into this, which is an easier sell than other technological innovations since it has real-time and obvious gains to get ‘foot traffic’. Yet, there are a lot of moving pieces for this to have high impact that will just take some time.
To make an in-store experience meaningful, you need to incorporate the inventory and data into the app. I delineate a few later on that focus on product sharing (via photos+location+bar code, etc…) more than pure m-commerce. However, we still have some time before we get to foursquare level of success for mobile commerce.
That said, there is still a lot of opportunity to leverage data that exists on the web and bridge the gap between that and your local experience. Deals associated with product scans or gamification around getting you to scan items such as shopkick and the now dead Stickybits (reincarnated as turntable.fm).
That said… location sans the retailer can still create commerce opportunities. Other opportunities can include:
- Price or even product comparison which can leverage internet data, and we’ve seem tons of apps with barcode readers (ex. RedLaser ).
- Pre-order for pickup, require the cooperation of retailers until they have this capability on the web—this could just be a hack. Aisle50, a Y Combinator company, actually does an awesome job of the pre-order concept, but they are not using (or at least I don’t think are) using mobile yet—they should!
There’s been hype around ‘F-commerce’ for awhile but nothing has taken off yet , or at least in the form we thought. F-commerce will continue to be an obvious driver as a marketing and promotional channel, but something needs to change for it to catapult a new marketplace. This use of Facebook is very obvious! Engagement with customers, getting access to them and the data around their behaviours, and creating a conversation has historically been a challenge that Facebook has now removed.
Again, Amazon is about finding any product at the best price and purchasing efficiently (experience is less of a priority or reason for shopping despite the new redesigns that might shift this a bit). Whereas Facebook is about social discovery based on influence or engagement (news, promotions, contests, content, etc…)
Facebook on the other hand is also about discovery but more passively and accidentally. You might ‘like’ a page and see things in your feed or see a friend promote some product or brand. However, once you engage , you are probably going to travel to its website versus purchase within Facebook (I don’t have the metrics to support this—it’s anecdotal—so please correct me if I’m wrong). Also, what your friends like is not necessarily correlated to your tastes, so there are limitations that need to be addressed with using social sharing as a mechanism for taste identification. However, this is a great channel for brands to tap into because they are FINALLY getting access to data that they rarely if ever received from their retailers.
Facebook will serve as a platform for social shopping since it’s the centre of our social lives these days, but whatever tools they offer will have to be accepted and leveraged by brands and well received by consumers. This has recently begun with the X.commerce initiative that was announced a few weeks ago whether the Open Graph will be integrated into Magento, which has 100,000+ retailers using their software. Yet, Facebook failed or at least killed Deals back in August. Rather, Facebook needs to focus on engagement around brands , products, and the shopping experience. Deals had a number of things wrong with it , but Facebook’s new initiatives with X.commerce could drive the new social layer to become ubiquitous in ecommerce.
I’ve been following Payvment for awhile now, and they’ve recently released some interesting new products. These guys have enabled brands to easily create a store and make it easy for the consumer to shop within their virtual mall. Beyond just adding products to a store, brands and users are getting creative with how they use Facebook. Brands are leveraging facebook well , for example, Adidas’ ‘Pop-up’ shop. The immediate audience and high level of engagement enables these smaller and temporal campaigns to happen more effectively . This would get poor attention if they did it on their own website, because most brands don’t get a lot of traffic relative to retailers, and if they worked with a retailer
1) they do not get the full economic and customer data benefit
2) they can drive more transactions .
Facebook seems to be about using social cues and engagement to drive additional transactions as a marketing channel.
“ Status Updates for Sales Work Best – it’s news about sales events, not coupons that are the primary driver of fan engagement on Facebook. This is especially true for luxury retailers People buy then “Like”, not “Like” then buy – most likes come from people who have already bought the product, i.e. liking is a post-purchase activity. BIG implications for marketing – should your Facebook strategy be about customer retention and loyalty and not customer acquisition? Likes drive Sales (22 million of them) – Facebook has driven at least 22 million sales transactions in the US (22 million consumers have been driven to make a purchase because of a recommendation on Facebook).Overall 35% of consumers on Facebook are more likely to buy a product if it has more Facebook likes“
I had to add this on due to recent developments . Facebook has opened their Open Graph to integrate with Magento and GSI Commerce products. Facebook is expanding ‘liking’ into ‘buy’, ‘own’, ‘want’, ‘recommend’, or ‘review’ , which will segment your relationships with products/companies and augment the level of sharing. Paypal will now add easier ways for developers and merchants to use it for identity management, since this has become of paramount importance especially across channels and stores.
With the acquisitions of Milo and Magento, eBay is making an attempt to build out the 850K developer community and use X.commerce as the open commerce fabric to connect shopping regardless of the channel or means. Merchants and developers can engage in the ecosystem to better create the tools that catapult shopping into it’s next evolution.
This has the potential to really change the game since historically a lot of the tools used and build are difficult to integrate or build on top of. With commerce and the complexities of it, especially now that we are at the inflection point of multi-channel, this will enable easier development, scalability, and integration. This includes tools from business process to marketing to logistics to transactions etc… (ie transactions, payments, fulfillment, marketing, loyalty programs, demand generation, merchandising, vendor/partner management, analytics, customer service, product sourcing, etc…).
If eBay had launched this initiative prior to its acquisition of Magento, I would have been highly skeptical given the company does not have a developer-centric DNA. However, Magento has cultivate a strong developer community thanks to Roy Rubin and his team.