Final part of Why is e-commerce such a hot area in venture capital now?: New Models

Below is a set of models that are wetting VC’s appetites. I do a quick outline of a few. Because of the aforementioned changes and drivers in the market, the below models can be executed with enticing economic and/or behavioural models. It’s no longer through some shopping cart software and selling ‘x’ items. You now can sell playing to new or different behaviours . Again, it’s no longer about the ‘if’ you can sell, but the ‘how’ you sell.

[Note: I assume for all of the below models that CAC vs. LTV is an issue, so rather than be redundant I don’t mention it. If there is some miraculous mechanism within the model that should drastically mitigate the ‘k factor’ and thus CAC, I’ll mention it. Otherwise, just assume that in every model getting and retaining customers is a challenge.]

Let’s think about why people buy stuff ?

  • Urgency
  • Exclusivity/uniqueness/quality
  • Influence/Social Pressure
  • Discount/pricing
  • Convenience/discovery
  • Service/experience/engagement
  • Relevancy (ie personalized/customized)

The models address the above behaviours,  and  a few models , many of which have variations, have redundancy in how they are categorized.

Subscription
Problem: This model addresses convenience, engagement, personalization, and often discovery.
Ex: ShoeDazzleManpacks.com, StitchfixTrunkclubBirchbox, etc…

Overview: See my quick outline of this model here: E-Commerce: What are the most interesting eCommerce subscription businesses going on right now?

Whether its product sampling (ie Birchbox), pre-ordering (ie Fashionstake), or
convenience/discrovery (ie Manpacks.com, Stitchfix, & Trunkclub), subscription
models have interesting angles to play. Most employ some level of
personalization through a questionnaire, and then

Trunkclub just raise $11M , which is a testament to perhaps their 3.5K customers paying a lot for the service and thus implying good growth metrics …(assuming the VCs are right..hmmm….)?

A sub-note to this is ‘ShoeDazzle’ ,which has combined the personalization, convenience, and value proposition utilizing subscriptions and Kim Kardashian ;) …. They have pioneered the way for a new model that works extremely well.

Opportunity:
Love subscriptions! Predictable revenue makes scaling a lot easier(—of course
annualizing and collecting cash up fronts makes it even better). The ability to personalizing and capturing consumer tastes is very important since you are giving them a snippet of the inventory and hoping it will convert! You can also more easily manage your inventory with lower risk partly due to understanding the customer tastes as well as sizes but also because if one person doesn’t like something, you can send it to someone else.

Plus, we all like to get packages in the mail :) . Net-net this makes a lot of sense and there are quite a few of these popping up.

Challenges:

  • This requires the right segment of customers and merchandising is KEY. If you get the products wrong, you margins drop from the shipping costs .
  • If you are relying on your packages or sample to drive re-engagement online , your economic model needs to account for this , and you need to figure out interesting ways to re-engage the consumer who is examining  the items offline that you don’t know.
  • If you don’t know your customer well, you will fail since they have a smaller selection from which to choose and you are spending money on shipping.

Curation & Personalization: 
Problem: Addresses discovery and influence.
ExEverlane, Ahalife,  One Kings Lane (leverages curators to a degree), all of which are angel or VC backed.

While retailers inherently ‘curate’ items based on their merchandising, curators serve a public role of not only identifying the products that they like and add to the store but also what’s relevant to you. Oprah Winfrey was one of the first to take this to a new level with ‘My Favourite Things’.  You also see celebrities endorsing products all the time.

However, these sites pool interesting people together to better select items. Thus, these curators are those with influence either because they are celebs, influential/active on social media channels,  you can identify with them from a style/taste perspective, or it’s relational (i.e. friend, etc..)

Many sites including subscription models and curated sites need to understand you to better supply you with an item. Thus, many are taking inventory (pun intended) of you! They ask questions about your tastes based on photos or get your measurements to resolve the infamous fit problem (Bombfell is trying to resolve the fit issue as well as Zoora—both new startups).

These concepts will be overlaid on many models and can stand on their own. Again this helps you find better products that are suited for you!

Opportunity:

  • Because they are incorporating ‘influencers’ into the model, the have better opportunity to gain traction.
  • Utilizing personal information to suggest and match products to a person has limited downside! Again, discovery/personalization is a huge opportunity.

Challenges:

  • Merchandising awesome stuff will always be a challenge but achievable.
  • Tracking , tweaking, and leveraging the influence will also be important but is doable.
  • As a pure curated e-commerce site (not subscription or flash sale), there is no sense of urgency, so they might need to incorporate some other element to incite people to buy to improve conversions.
  • Identifying the most relevant personalization factors and getting that right is also a challenge. For instance, people don’t always know what they want or if it’s a size issue, there might be some human error.

Consumer Merchandised Shops:
Problem: Companies using crowd sourced merchandising are trying to decrease inventory risk and increase selection opportunity by getting feedback on goods prior to them being stocked . They are also creating engagement, which is a hidden problem.

Ex: Moda Operandi, ModClothLOOKK (formerly Garmz),  Moxsie, Fabricly, FashionStake, etc… 

These companies bring the designer to the consumer without the merchandising or editing of the retailer. Thus, consumers can decide what to buy. This increases consumer engagement and connection with a store because they feel like they are 1) getting what they want 2) making an impact . MO addresses this by selecting couture items while Fashion stake (which has iterated/pivoted a few times) to incentivise ‘pre-orders’ .

  • Voting:This has become a popular feature across e-commerce stores to better merchandise or get feedback on their inventory. It also creates engagement with the consumer, which enables a better experience.
  • Contest: Older company, Threadless, but I’ve seen more of these companies popping up beyond just t-shirts. People can submit designs based on parameters the ‘contest’ maker sets and then within a certain time frame, items are voted on and then selected for production or other reward.

Opportunity

  • Decreased inventory risk: This decreases your risk of what you think the consumer will like because you are actually getting their input. You have real data to work with and can make better decisions based on this. Thus, this should lead to higher inventory turns.
  • Engagement: Because people are offering their feedback, they have a sense of purpose or ownership over the process, especially if it gets chosen. Thus, even though it’s a small stake in the game, they are still a part of the process and have made a contribution.
  • Social & Influence: Depending upon the mechanics of the voting or contest,  people want their ‘candidate’ to win, and thus will most likely try to get others to vote too. So, people are more likely to not only just share it but try to influence people to vote too.
  • Anticipation: You get a sneak peek of a product, so now you want it! This creates some excitement. If you create some other barriers to access or incentives like limited production, first in line get X, or discount to pre-order (ie apple effect ), this can have a powerful impact.


Challenges

  • Design by committee: Too many cooks in the kitchen can make the item a hot mess. Also, this will result in more ‘average’ vs. fashionable items. Thus, the way you ‘score’ results and who you pay attention to whether it’s the majority or based on a buyer profile/value (i.e. think someone who votes but never buys) will be the challenge. This of course can be actually measured and adjusted over time.
  • Fashion cycle: Trends typically follow the S curve just like start-ups. So, by showcasing ‘fashionable’/contemporary items too early can put you ahead of when the market is ready to adopt. Thus, the retailers are ‘anticipating’ what will be trendy before consumers are ready for it. So, your tastes may change in 6-9 months even depending upon the celebs who are the typical tastemakers or some other shift. For this reason, showcasing a product too early to the wrong audience could have false data. Yet, with this model, these companies will probably be within trend vs. the innovators and have shorter production cycles, that at least align the taste to production gap but still worth mentioning.
  • Flipside of Social Fashion- Influence can be false , for instance, if you get your friend to vote just so you can buy something, but your friend might not actually want it. Thus, even though this helps identify ‘what’ merchandise to add to the assortment, the companies still have to decide the ‘amount’ to order. Additionally, the nuanced wrinkle with fashion is that people want a ‘unique’ item . I don’t buy stuff that I know my friends have, and so sometimes people might not want others to get in on the action (personally, I think this is somewhat marginal–perhaps an issue with the 13 yr old girls but still a point to note on shopping psychology).
  • Pre-order incentives: If you actually want to consumers to ‘pre-order’ like Fahsionstake that completely reduces your inventory risk (depending upon your return policy)
  • Fulfilment: However the challenge will be on the cost/fulfillment side due to cut to order vs. pre-order. Fulfillment and production need to happen at a faster pace also increasing the cost.


Access to New Inventory–International Commerce:
Problem: Addresses discovery , uniqueness, & international trade.
Global- Ex: Cecilia Pagkalinawan ‘s StyleTrek, Exclusively.in 
Some ecommerce stores mix in international brands, but few if anyone has been able to dominate or be a large player as a retailers  dedicated to buying international brands and reselling them online to a new market (at least that I’ve seen in the US).

Opportunity:

  • Unique inventory is always something exciting! Merchandise is the differentiator of a store. Ubiquity results in commodity, so rather than be a store for convenience, having unique inventory creates a competitive advantage.
  • This is a broad market and with a large distribution opportunity.
  • This needs to happen. It is kind of crazy that the world is still very isolated in terms of getting access to international goods.

Challenges:

  • Scouting out products will be tough and hard to scale if you don’t have teams throughout the world. Though, there are solutions to solve this through the internet or just having a physical presence. The world is much smaller these days, especially with facebook and twitter.
  • Shipping/fulfillment has always been a challenge since you are not going to spend the money to import or ship 1 item to the US from Africa—just too expensive. They will have to hold inventory in this model , which always has risk but if they overlay it with voting or consumer engagement, they can mitigate that risk.
  • Tastes don’t always translate well across cultures. I was chatting with a Brazilian guy the other day, and they only buy locally due to the tastes within the country . While this is an anecdote, this holds true to a degree or at least the adoption curves are staggered.
  • Tariffs can be exorbitant ! I was chatting with a few of my customers who sell internationally but can’t tap into certain markets because the retail value after incorporating in the tariff cost will result in the product just not selling. Unless you can setup a factory within a country or depending upon the specific country’s laws, tariffs are a real issue that prevent export into certain countries.

Access to New Inventory- Local
Problem: This model makes supply or fulfillment convenient or satiates desire to support one’s community.
Ex: Aisle50, Ourtisan, Kreeya, LocalDirt

I am really excited about Aisle 50, a Y Combinator company that integrates online purchase with in store pick up. You can buy ahead for deals, and then pick up the items in-store, and they integrate with grocery store loyalty cards to track the transaction. This works well for grocery stores who are less likely to be out-of-stock of an item.

Ourtisan takes a marketplace approach while Kreeya is a store with local designers but can sell to whomever, and local dirt connects local produce with consumers.
Opportunities:

  • Defensibility- If you can execute, it’ll be hard for challengers to compete.
  • Market timing- The timing seems right or at least close to it. So, whoever figures out the best model could win !
  • Local massive, untapped– HUGE opportunity that hasn’t been dominated. Craislist, Yelp, and then GroupOn have penetrate the localsphere but have different models allowing plenty of opportunity to innovate and disrupt the local realms.
  • Groupon & Yelp- I’m highlighting the issues, but , hey, Yelp & GroupOn did it! Thus, so can others…

Challenges:

  • Local– The blessing and curse of the Internets is that it is globally. If you are looking for a local audience, it actually adds a lot of noise. There are ways around it much more now via geo-location, geo-searching, mobile, etc… This is really an issue if the only way to fulfill or the value of your product is to supply it locally. However, if the ‘local’ thing is just giving the startup a radius to start in, cultivate a community through focus, use it as marketing, etc… then it’s less of an issue.
  • Supplier tech-saviness– Adwords won’t work folks. Suppliers are not searching for ‘local market place to sell’. In fact, they still might not know what Google adwords is or have claimed their store or place on Google maps. For local dirt, or finding these local farms, these people are not online trying to figure out savvy ways of selling. They’ll go to farmer’s markets or work with local distributors . They might not have a website and use Yelp as their ‘web presence’. So, overcoming the reach and education piece is a tough challenge. Though, you might be able to find them on Facebook depending upon their privacy settings ;) … In retrospect, we can figure out if the market right now is timed well, but we’ll see…
  • Supplier Acquisition Cost- Because of the lack of online presence, you have to call them or even knock on doors, thus, making it expensive to acquire suppliers.
  • Scaling- With supplier costs and the nature of ‘local’ , scaling this model is challenging and potentially very costly. Additionally, in certain markets, various traits and strategies might not be transferable.  It works in one city, so how do you effectively replicate this in every other city vs. town etc… also holding your own against  inevitable competitors.


Access to New Inventory — Emerging Designers/Small Brands:
Unique Emerging designers/smaller brands both locally  globally OR P2P are being given tools to leverage the internet to sell their goods on a larger scale and more efficiently.
Ex: Ourtisan, LOOKK, Fabricly, Not Just A Label, Of A Kind, Asos, Crave
The incumbent examples are, of course, eBay & Etsy, but new market places are emerging such as Crave (company) for enthusiasts and other niches.

Opportunity

  • Proven achievability: Etsy did it, so can someone else for one of the many other niches!  This helps discovery because the experience is bounded and thus easier to find what you’re seeking
  • Unique- People want interesting stuff. Thus, bounding the right niche to find interesting items is a win-win.
  • Seller Demand- Even though it’s relatively cheap to setup an online store, you still need traffic. Most  of these indie or small folk, don’t have good sites or get any traffic; thus, bringing them together makes sense.

Challenges:

  • Chicken-Egg-Marketplaces are always tough with the chicken-egg problem.
  • Niche-Finding a niche that is not too niche is important.
  • Fragmentation-Finding enough fragmentation- Identifying the right fragmentation and structural elements within the market are important and could make/break the product/market fit and opportunity.
  • Monetization opp- Figuring out a business model that does not hinder adoption but still can be financially successful is always an issue.

Collaborative Consumption :
Problem: Reusing and deriving value from goods already consumed/owned, enables individuals get value by getting rid of something or from unused, depreciating assets.
Ex: AirbnbGetable , GetaroundthredUP, Rent the Runway, Bag Borrow Steal,GetableChegg

These companies either hold or create a marketplace for renting items.

Collaborative Consumption describes the rapid explosion in swapping, sharing, bartering, trading and renting being reinvented through the latest technologies and peer-to-peer marketplaces

For high cost items, especially those that are ‘fashionable’ or ephemeral in
value, renting items makes more sense. Rent the Runway is killing it right now,
thus, I expect more angles on rental sites to arise. Rentcycle also raised $1.4M from Collaborative Fund, Andreessen-Horowitz, SV Angel , and others. Other obvious companies that have received accolades over the past few years include Airbnb and Chegg.
Opportunity:

  • Value-Pay 1/5 of the price for something you’ll wear once and then return it. Umm…hell ya—I kind of hack around current models to get to this… +1 !!!
  • Proven model- This model works offline and just has not been translated as effectively only (with the exception of eBay). Netflix and Chegg have done it but most consumer goods classes can be sold in this manner and have yet to .
  • Better eBay- eBay is too big , so creating verticals and niche focus is the way to go.
  • Niche– Better access for niche products is possible with the internet, and now people are actively searching for interesting items that they might want to rent for a short period of time. Unless you are a collector , niche often has inherent ephemeral characteristics–think occasions or events .

Issues:

  • Capital intensive (for rental)- This absolutely fills a large gap . However, this requires a lot of capital and inventory with depreciating value—think Chegg vs. something more salivating like Inkling! That said, there are rental companies for many types of businesses.
  • Financial Engineering- For rent models, because it is capital intensive, it quickly becomes financial engineering. You need to figure out the breakeven on a product , lifetime value and maintenance of a product and how this influences the value. You can get royally screwed if you do not figure out asset value and depreciation rate .
  • Chicken-Egg:On the P2P side, the chicken-egg problem is always an issue, so segmentation is important. You need to have relevant buyer/seller matches.
  • Using the System- Are people trying to cut the marketplace out or is there additional value in the market (ie trust issues addressed, etc..)? The transaction cost must address some issue where people will not want to go outside of the market.

E-commerce sharing model

Multi-level marketing:
Ex:  Stella & Dot ,  Chloe & Isabel (old school: Amway, Mary Kay, Avon,
etc…).

This model is due for a resurrection and S&D (Stella & Dot), which is backed bySequoia Capital (VC Firm) has been trailblazing the path! They are killing it—like absurdly so. They’ve received uncanny success as well as have massive market potential and lack of relative competition in a technological wilderness to be harnessed. Chloe and Isabel is backed by First Round Capital, Mike Maples and Floodgate, SV Angel, Founder Collective, Ashton Kutcher among other impressive angels. The barrier to entry is relatively low BUT scalability as with Gilt , RueLaLa, and private sale sites is tough. With PS, access to inventory is tough, with MLM this is the same issue whether it’s for wholesale or if you own the value chain, which most MLM leverage due to the economic model, there are still many challenges. The new instance is about high quality product that is affordable and to be purchased through a ‘better social experience’.

Challenges

MLM is tough for goods beyond small or low-weight products for a variety of reasons. First, to produce and fulfill within the time frame that MLM require, you either must have the inventory on hand or have the ability to manufacturer quickly. The latter meaning you will not be able to produce in China and thus in the US (assuming you sell here too) , and it will be much more expensive (ie lower margins or higher prices). Next, because you are showcasing ‘samples’ which are also more expensive to produce and distribute , it can get costly to scale effectively. Building out a salesforce like you do in a PS model is expensive, while for different reasons. That said, because of social graph and the ability to promote much easier, there is the possibility to employ this model more effectively.

Historically, to build this out, it can be very expensive since you are building a salesforce. This has not been the core competency of CPG or any kind of company that actually manufacturers a good—think about the labor required to actually produce that item. Thus, to be the  force behind selling and diluting the focus on this can easily compromise some aspect of the brand . Hence (not for the most previous mention) but for plenty of other reasons this model has not been as broadly employed.

Opportunity

  • Initial traction & proven market: Stella & Dot has proven this out, and this has also been proven in the offline world with billion dollar companies (ie Amway 9.2Bn in revenue, Avon -9.31Bn market cap, etc…).
  • Economy: the economic situation is driving more people (in this case a lot of women) to become entrepreneurial or earn money on the side. I love these companies because they are enabling more people to be small time entrepreneurs.
  • Access to People: people can go beyond their immediate circles and tap into new consumer bases to sell .
  • Promotional Channels: there are more scalable, low cost promotional channels such as twitter, facebook, tumblr, instagram, blogging etc… to promote and sell goods.
  • K Factor:Referrals/social/a viral element is inherent in the model, thus, there is a good opportunity to scale.

Quick Example Models

  • Online+Offline: While traditionally this model requires offline selling, leveraging online  tools can bridge the gap between offline and the online experience . OR, there is even an opportunity to do this purely online.
  • Online Tupperware Party: There is also the opportunity to have ‘event-based’ selling or something comparable to pop-up shops. This leverages a sense of urgency to buy and almost creates mini-flash sale sites. This is kind of like an ‘online Tupperware’ party!

Market Size

Customization
Problem: Uniqueness, fit, personal taste
Ex: J. HIllburn , Zoora , Fitted Fashion, Solosso , Proper Cloth ( Founder – Seph Skerritt), Gemvara, Blank Label, Taylor Stitch
Overview:
Because the web adds a level of ubiquity to the presence of a product and brand, luxury brands need to find new ways to maintain their sense of rarity through customization. This is a bit more complex model. Historically you had Threadless or the white label Zazzle or Cafépress dominate this space.

New entrants such as high end brands like Prada is exploring this.

Luxury goods want to maintain exclusivity , scarcity, and uniqueness .

Opportunity:

  • Uniqueness- Thus, customizing items makes sense. You can create unique or ‘tailor made’ items for your customer. ‘Customized’ always has the value connotation because it is one of a kind.
  • Brand enhancement– This adds a new way to engage with a brand. You are creating a direct relationship with the brand because you have an impact on the product.
  • Traffic- Creating a new experience for a consumer will drive traffic to an otherwise low traffic site. If you can only get this offering on a company’s site, consumer have a reason to go.
  • Experience and Financials- Build-a-Bear is the best example of this. They have beem able to create an interesting experience where they actually get their customers to do the work and labor involved in creating the product; kind of genius! They make a commoditized teddy bear more expensive with lower costs to them because they cut out the labor and allow you to have a personal teddy.

Challenges:

  • What will it look like- Sometimes when I go to Cold Stone creamery to make my ice cream, something that in theory would taste good turns out pretty disgusting. Thus, I wish I just chose from a menu because someone else took the risk and figured out the right recipe. Even though you can preview the item before it’s created , there’s always that risk.
  • Effort– I probably will not go and always buy customized X partially because I’m lazy and want to buy what is already packaged.
  • Paradox of Choice- Companies need to make sure the number of choices is just right , otherwise, consumers get overwhelmed.
  • Expensive: This is an expensive model to execute. Thus, to what degree is it custom and how to the costs play into it. There’s a trade off or the consumer to pay extra for the customization, but if it’s just selecting a certain color in a certain place, this value might not be there. However, if the product is completely unique, I might be more willing to pay–but that is more challenging for a company to produce.

Direct to Consumer
Problem: Value, Unique, Fit/Personalization (a few), Control experience (ie vertical integration)
Ex: BetabrandEverlaneBonobos (company)Warby Parker, Nau, Eliza Parker

First producing a product is kind of tough , and then you have to think about retail and marketing to the consumer, which is also kind of rough. Few companies as a percent of all companies have been able to master the vertical integration. We see great brands like Levi’s, Gap, J. Crew, A&F, etc… Often companies will start off wholesale and then build out a consumer retail component. It used to be much more capital efficient that way for the following reasons:

Opportunity
Now direct to consumer has much more opportunities especially for newer brands.

  • CAC: As I mentioned earlier, getting access to consumers is somewhat easier because there are more, better and cost effective channels .
  • Better Retail Tools: It’s cheaper to create an online store that’s a bit slicker.
  • Production Costs: Production resource centers such as SFMade.org or urban manufacturing centers as well as 3d printing somewhat reduce the manufacturing cost and increase prototyping/development cycles (note that this is to a marginal degree now but will have higher impact when hopefully costs drop).
  • Decreased inventory risk: You can get consumer feedback prior to production.
  • Better margins: If you can do it well, there are better margins going direct to consumer. For instance, rather than producing something for $10, selling it wholesale for $20, and then retailer marks it up to $40, you can now capture $30 vs. $10 on a unit (ie 75% vs. 50% GM).

Challenges :
Most challenges are mitigated but generally are still challenges these guys will have  to face, but the examples mentioned have already overcome the below
issues.

  • Inventory risk: Holding your stuff has risks. So, either you need to make a small batch, which will be expensive due to the lack of economies of scale or you will have to take the inventory risk. If you take the inventory risk, you’ll have additional risk if it is seasonal or contemporary

             >  Larger orders : If you can produce in large batches, you have
better economies of scale.
             >  Cut to order: In this model , where you produce based on the
one-off or small orders, the margins are not great. Thus, larger
batches are more capital efficient.
             >  Order prior to production: In non- direct to consumer companies, 
you can get orders from retailers, prior to  production, which
decreases your inventory risk (putting aside  the recent volatile
nature of retailers going out of business, leaving  producers on the
hook and the limited factor financing happening  that can mitigate
this risk).

  • Focus/Resources: Most designers or small brands are just that– small group of people. So, it’s already resource intensive given the logistics involved in just producing a physical good from designing to sample production to the larger manufacturing to fulfillment. Thus, it would require a lot more resources to setup a retail store (B&M or online) and then actually
    finding and selling to customers! This is not to mention the cash flow
    cycle of manufacturing that typically looks like a sin wave from
    pre-production through fulfillment. Hence, it’s easier to focus your
    resources on what you’re good at and one aspect of the process.
  • Experience: If you are selling direct to consumer, you need a compelling reason for the consumer to come to your store. You might have an amazing product that just sells itself, but to get traffic you need a unique value proposition around the brand. The fact that it is exclusive through your store is great, but consumers want some level of variability. Thus, if your store is stale and not changing much, a consumer won’t have a reason to come back.

Media
Problem: This improves the SEO of a site for consumers to discover it; it enhances the overall experience that a consumer has and engages the customer in the experience.
Ex: Joyus.com, Daily grommet,  Lockerz
Tools: SellStage (Y Combinator company)

CONTENT to support the sales is vital right now. It’s a no-brainer. People consume content about and around products and brands before or as they purchase an item.  Video, for example, is an underutilized medium to enhance shopping. Infomercials are still successful and yet people haven’t heavily employed this online. This is not to say create a seemingly ‘spammy’ demo and limited  time offer but use media to get people to hang out in your store longer .  Tell the story of the brand or product and get people to connect! Bloggers have even started off with medi and shifted to monetizing their content, so create a ‘personality’ or ‘brand’ for your store or angle of ecommerce so that you’re more than just a store. V-hauling has also become a trend where teenage girls review their latest purchases on YouTube.

Beyond video, if you look at the different social media channels such as Tumbrl, Svpply, Instagram, Pinterst, Polyvore, Lookbook.nu, Chictopia, etc… , consumers are creating, grouping,  tracking,  sharing , and engaging with content about products and brands that they love even if the purpose of these channels is not intended for that purpose. Thus, brands/retailers need to figure out how they capitalize on the content created or figure out how to distribute, interact with, or package the information produced.

Opportunity:
Stats explain it all…

Zappos reports a 6% to 30% increase in sales for products with video. (ReelSEO, December 2009)

Visitors who view product videos are 85% more likely to buy than visitors who do not. (Internet Retailer, April 2010)

Retail site visitors who view video stay two minutes longer on average and are64% more likely to purchase than other site visitors. (Comscore, August 2010)

Retail sites with video increase conversion by 30% and boost average ticket by 13%. (L2 Specialty Retail Report, September 2010)

So, you get the point… Even though this is only video, other content will apply to this.

  • SEO:Sugar Inc. has been successful building great content around e-commerce. This has helped them get in front of buyers without having to compete (even though they still do) on adwords and advertising.
  • Experience & Engagement: People want something different and before you buy, you might either want to read product reviews, see social recommendations, see influencer recommendations, watch a product demo, get insight on the story, etc… People are dying to connect with a product and a brand and will engage with content to do so. When you walk into a store, you expect or desire a certain experience, consumers are now yearning for some permutation of this online.

Challenges
I don’t have too many interesting challenges on this beyond typical e-commerce challenges. However, the ‘videos’ actually need to be quality.

  • SEO: While they’ll have a leg up on a lot of companies, Zappos still has 50K product videos that you need to compete with.
  • Qualtiy: just like any content, it actually has to be good! Content for content sake is meaningless and potentially alienating. Consumers need to derive value.
  • More than just video: This is one of those trends, that once everyone ‘gets it’ , everyone will have it. So, constant innovation versus relying on this is important. Again, quality can overcome this.

Shopping as a Game
Problem: Shopping online is boring and lonely, measuring your marketing, improving conversion
Ex: Lockerz , Sneakpeeq, To Vie For

The are many different models to make shopping entertaining. With 19M members, Lockerz incites you to do certain activities whether its consume a video clip  or listen to music or buy something. You earn points which can go towards lower prices. Sneakpeeq is quite sneaky… You can shop for in season items  from your favourite brands and get deals by taking a peek at the price. The price gets lower when you or your friends take a look. Once the price is at a point that someone looks, that person can buy and then it’s gone!  You get points and rewards (free shipping and other deals) for other actions on the site.

Opportunity

  • Some proof: Lockerz has 19M members. Beyond that metric and using the large amount of capital they’ve raised as a proxy for some credibility, I’m not sure of their metrics. However, again… 19M members is hard to ignore. Also, people buy lots of stuff within games! Even though this is different, gaming+commerce has some opportunity but just depends on the ‘rules’ of the game.
  • Pricing : After setting some margin buffer, it’s somewhat arbitrary. Price discrimination and optimization is possible online but rarely implemented.
  • K Factor: All of these add social elements to ensure there is some viral component.
  • Not just shopping: When you are out in the world shopping with friends, you are not just shopping, but it’s an outing. These are also trying to mirror aspects of that experience in the virtual context.
  • Data & Engagement: Brands can sneakily add in some marketing games or adver-gaming to get people engaged with their product and brand as well as get data on this.
  • Behavioral Psychology/Conversion: These guys are playing into the consumer’s psychology and creating new ways of impulse shopping. The ultimate question is how do you get people to buy something, they are test new ways to get conversion.
  • Context: Elaborating on the above point, historically, shopping online is highly utilitarian and in a very generic context/structure online. They are creating a new environment and thus new mind set of what and how you want to shop. Think about when you are at a baseball game, you might be pumped and want to buy a foam finger or panda hat, but perhaps if you’re in a shopping mall, you’d never buy something like that. They are changing the context and thus habits and proclivities for certain items.

Challenges

  • Wild West: It’s just an unknown and your guess is as good as mine until it’s
    proven. This is a new model and new approach, so we’ll have to wait and
    see.
  • Auction failure: On eBay even, more people buy at full price vs. auctions. Since eBay there haven’t been a lot of successful auction sites. The auction concept is one of the closest ‘games’ that’s had any legs or small success online.
  • Pricing: The game structure needs to be modeled out so that these companies actually don’t lose money on the items. I am giving them the benefit of the doubt on this one, but using ‘falling prices’ also means falling
    margins. So, they’ll have to make up for it in volume. Additionally,
    until they have volume, there is quite a bit of unpredictability I would
    guess. Once they get some traction though, I would imagine there are
    certain behavioral frameworks that can be modeled.
  • UX: This is a UX game just like gaming. Thus, just like games can be hit or misses, they have to test, test, test and optimize….

Personalization & Tastemaking: 
These are not ‘ecommerce’ sites but they surround the ecosystem and actually are creating something very unique—buyer profiles.
Ex: Pinterest, Polyvore, Fancy  Buyoshpere 

These are capturing your ‘tastes’, ‘interests’, and history (for buyosphere). Polyvore and Pinterest could be also categorized in the consumer merchandized section since they take an approach of leveraging consumer interests to either sell via affiliate (or not at all). Thus, it is slightly out of the scope of this , but there is still a commerce component to it just not with holding
inventory per se. Though, all of this data is very usable for merchandising and
selling the right goods to the right people!

Opportunity :
Few companies have been able to capture consumer tastes—odd and mind-boggling but true !!  I see ways of capitalizing on this, but I am not sure that they will. Tumblr, while highly tangential to ecommerce, has ironically been thrust into the mix within the fashion category. Recently there was an article about the massive upset about them not catering to brands who were utilizing this channel or whose constituents were quite ubiquitous across the platform. Yet, they kind of fell into it and thus did not plan to be a dominate force within fashion. Now, there are some backlashes and it’s unclear if that’s an angle they want to or should play. Thus, there is and has been demand for this type of platform but it has clearly been underserved.

Challenges:

Mos of these with the exception of Polyvore are not monetizing. So, of course, the economic model is always a good question and challenge without alienating their consumer base.

Marketplaces:
Ex: Storenvy, Crave, Zaarly,  Etsy—there are many more. 
However, these are taking all different shapes and forms.  Marketplaces make sense if you create the right buy/sell construct. I can rattle off about 20 different angles from vertical types to transactional models within this context; however, the success here lies in execution.

These are one of the hardest things to build because they require scale and the unpredictably network effort to add true value. Someone will get it right, but I’m not sure who is the next eBay , but someone will!!!

Opportunity:

  • Large: If you can do it, these can be massive opportunities.
  • Plenty of angles:There are plenty of inefficiencies in buying/selling goods and finding the right people.

Challenges:

  • Chicken-Egg-Marketplaces are always tough with the chicken-egg problem.
  • Vertical-Finding a vertical that is not too niche is important.
  • Incumbents: Yes, you probably still will be competing with eBay and Amazon.
  • Fragmentation-Finding enough fragmentation- Identifying the right fragmentation and structural elements within the market are important and could make/break the product/market fit and opportunity.
  • Monetization opp- Figuring out a business model that does not hinder adoption but still can be financially successful is always an issue.

Andrew Chen has a great answer that offers a bit of colour on structures of marketplaces: Why are the most successful internet marketplaces supplier-oriented and not buyer-oriented?

Hollywood meets eCommerce
This falls under the influence category but wanted to offer a few random unproven ideas. Celebrity endorsements are nothing new. Yet, they possibilities of ecommerce+hollywood are under utilized. Beachmint and ShoeDazzle have successfully been able to leverage celebrities to endorse their brands and concepts. However, it has been based on personal endorsements .

Yet, what if you had a Sex & the City store or an  Ashton Kutcher store? So, sure you can either go to SATC and find info about outfits etc… but to buy specific outfits is tough. Sometimes in magazines you’ll see the ‘actual outfit’ and then the cheaper version that they suggest but it doesn’t really come together. I have plenty of clothing hacks to mimic Carrie inspired outfits. Alternatively, you can use Stipple for celebrity outfits based on images you see of outfits you want to buy. Then celebs don’t have to sell out their personal brands, which becomes much more calculated because they can only have a few options since they don’t want to endorse everything and  whore out their brand. However, they play many characters that consumers fall in love with and want to mimic.   We might buy the trinkets that the movie franchises but you rarely see fashion that’s inspired by a movie or show. Movies and TV networks are typically focused on the entertainment vs. the e-commerce. so, they don’t emphasis or create a good experience to capture the opportunity.  Banana Republic just pulled off the Mad Men collection, which is great.

Yet, I would like to have an online store where you could have movie or show inspired outfits with perhaps the original version + the affordable version . When I’m watching something on Hulu it would be great if I could then actually buy some of the stuff that people are wearing. SeenOn, a Delivery Agent company, has built a private sale site for this.

The biggest challenges here are getting access to celebs then navigating the Hollywood politicking and then the large brand politicking.  Additionally if you have someone in a movie or show wearing Fendi, Fendi would get pissed if you showed the Forever21 or any kind of cheaper version of the outfit. There are lot so licensing issues to navigate as well. So, there are a lot of issues and concerns to navigate. That said, lots of money and opportunity are being left  on the table.

Last words…

If anyone is interested in talking e-commerce , let me know. I have lots of B2C and B2B ideas that I can’t pursue given my focus on my company but there are ample problems to solve and many new models that could be achieved.

Thoughts, feedback, rebuttals… ? Go for it…

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