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E-commerce Landscape 2012

J
joshyang
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U.S. E-commerce Landscape & Trends
                                     February 2012




Josh Yang
jyang@mba2012.hbs.edu          Harvard Business School
twitter.com/joshhyang    Independent Student Research



                                               Confidential
Executive Summary (1 of 3)
•   The U.S. e-commerce market is big ($200B+), getting bigger (9% CAGR through 2015), and still early (only
    9% of total retail)
    ‒    Market growth has been driven by consumers becoming increasingly Internet-connected and credit
         card holding, and these consumers being increasingly open to purchasing online

•   As the overall e-commerce market has expanded in dollar value, e-commerce start-ups (e.g., niche
    retailers, service providers) have started to command large enough addressable markets to become
    sustainable businesses
    ‒    In the last two years, several new business models have garnered VC attention and begun to scale
         (e.g., group buying, flash sales, subscription, online brands)
    ‒    Consumers have shown a newfound willingness to test new e-commerce business models (see
         ShoeDazzle, RenttheRunway, Gilt Groupe), but these are primarily wealthier consumers
    ‒    The only new e-commerce business model that has gained significant traction with the mass
         consumer is group buying

•   There is are still several avenues to creating new opportunities for in e-commerce business
    ‒    New business models are still being born – personalization companies like Trunk Club and online
         brands like Warby Parker continue to bring offline models into existence online
    ‒    There is also room for companies to clone or apply existing business models to new product
         categories, and/or target to different customer segments (e.g., low-end vs. high-end, male vs.
         female)
    ‒    Start-ups often take existing business models and apply a marketing pivot or alternate strategy

                                                                                                               2
Executive Summary (2 of 3)
•   However, e-commerce business models that don’t provide real long-term value to consumers will likely
    meet consumer disenchantment, churn, and end up as just a passing trend



•   In general, the newer business models that have emerged (e.g., subscription, C2C marketplaces, flash
    sales) tend to be focused on impulse purchases
    ‒    Although planned purchases make up the majority of retail spend historically, older companies like
         Amazon and Wayfair seem to have locked up planned purchasing on the web, as this revolves more
         around search and catalog layouts than email digests
    ‒    Impulse buying has taken off targeted at those with more to spend, but the problem here is that
         these purchases generally have higher rates of regret after purchase (i.e., more returns and/or churn)



•   Two newer business models that are less reliant on impulse purchases are online brands and crowdsourced
    demand
    ‒    Online brands are simply new brands that have chosen online as the marketing channel of choice
         over offline – barriers to entry in online brands includes the expertise required to build a vertically
         integrated supply chain
    ‒    Crowdsourced demand start-ups (e.g., Modcloth) also rely less on impulse purchases, as do social
         bookmarking start-ups like Pinterest, where users create product wishlists for “buy later”



                                                                                                                   3
Executive Summary (3 of 3)
•   As more eyeballs move from PC to mobile, mobile e-commerce will become very important, and the
    experience today is still in early stages

    ‒    Currently, few e-commerce companies are focused on mobile, leaving consumers to browse e-
         commerce sites on browsers or download one app per retailer that actually has one

    ‒    There is critical distribution problem for mobile e-commerce, too, as consumers must download
         one new app for each retailer

    ‒    Start-ups tackling the space include Coffee Table, TheFind Catalogue, and Google Catalog, but they
         are very basic preliminary products



•   Finally, the proliferation of social networks in recent years could potentially open up opportunities to
    create inherently social shopping experiences online; however, this opportunity has yet to be cracked

    ‒    Most of the social commerce activity occurring today are Facebook pop-up stores and
         Twitter/Facebook buttons embedded on e-commerce product pages

    ‒    Some companies also use the social graph to make referral programs easier

    ‒    However, no clear class of scalable, defensible start-ups has come out of social commerce yet




                                                                                                               4
Agenda

•   E-Commerce Market Overview

•   E-Commerce Innovation Cycles

•   Appendix
     – Key E-Commerce Themes

     – Mobile E-Commerce Overview

     – Social E-Commerce Overview




                                    5
The U.S. e-commerce market is big ($200B+), getting bigger (9%
    CAGR through 2015), and still early (only 9% of total retail)
               U.S. E-Commerce Market (2009-15)
               $B
               300                                                                                                  279     CAGR
                                                                                                            259            (11-15)
                250                                                                         240
                                                                            218
                                                            197
                200                         176
                             157
                150
                                                                                                                            9.1%
                100
                 50
                   0
                           2009A           2010A           2011F           2012F           2013F          2014F    2015F
    Total U.S. Retail
    (Trillion Dollars)
                            $1.9T           $2.2T           $2.2T          $2.2T           $2.4T           $2.4T   $2.5T    3.8%
E-Commerce as % of
                             8%              8%              9%             10%             10%             11%    11%
       Total Retail
E-Commerce as % of
         Total Retail        11%            11%             12%             13%             14%             15%    15%
 (excluding grocery)

    Source:      Forrester, US Online Retail Forecast (Feb 2011)
                 (http://www.forrester.com/rb/Research/us_online_retail_forecast%2C_2010_to_2015/q/id/58596/t/2)

                                                                                                                                6

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E-commerce Landscape 2012

  • 1. U.S. E-commerce Landscape & Trends February 2012 Josh Yang jyang@mba2012.hbs.edu Harvard Business School twitter.com/joshhyang Independent Student Research Confidential
  • 2. Executive Summary (1 of 3) • The U.S. e-commerce market is big ($200B+), getting bigger (9% CAGR through 2015), and still early (only 9% of total retail) ‒ Market growth has been driven by consumers becoming increasingly Internet-connected and credit card holding, and these consumers being increasingly open to purchasing online • As the overall e-commerce market has expanded in dollar value, e-commerce start-ups (e.g., niche retailers, service providers) have started to command large enough addressable markets to become sustainable businesses ‒ In the last two years, several new business models have garnered VC attention and begun to scale (e.g., group buying, flash sales, subscription, online brands) ‒ Consumers have shown a newfound willingness to test new e-commerce business models (see ShoeDazzle, RenttheRunway, Gilt Groupe), but these are primarily wealthier consumers ‒ The only new e-commerce business model that has gained significant traction with the mass consumer is group buying • There is are still several avenues to creating new opportunities for in e-commerce business ‒ New business models are still being born – personalization companies like Trunk Club and online brands like Warby Parker continue to bring offline models into existence online ‒ There is also room for companies to clone or apply existing business models to new product categories, and/or target to different customer segments (e.g., low-end vs. high-end, male vs. female) ‒ Start-ups often take existing business models and apply a marketing pivot or alternate strategy 2
  • 3. Executive Summary (2 of 3) • However, e-commerce business models that don’t provide real long-term value to consumers will likely meet consumer disenchantment, churn, and end up as just a passing trend • In general, the newer business models that have emerged (e.g., subscription, C2C marketplaces, flash sales) tend to be focused on impulse purchases ‒ Although planned purchases make up the majority of retail spend historically, older companies like Amazon and Wayfair seem to have locked up planned purchasing on the web, as this revolves more around search and catalog layouts than email digests ‒ Impulse buying has taken off targeted at those with more to spend, but the problem here is that these purchases generally have higher rates of regret after purchase (i.e., more returns and/or churn) • Two newer business models that are less reliant on impulse purchases are online brands and crowdsourced demand ‒ Online brands are simply new brands that have chosen online as the marketing channel of choice over offline – barriers to entry in online brands includes the expertise required to build a vertically integrated supply chain ‒ Crowdsourced demand start-ups (e.g., Modcloth) also rely less on impulse purchases, as do social bookmarking start-ups like Pinterest, where users create product wishlists for “buy later” 3
  • 4. Executive Summary (3 of 3) • As more eyeballs move from PC to mobile, mobile e-commerce will become very important, and the experience today is still in early stages ‒ Currently, few e-commerce companies are focused on mobile, leaving consumers to browse e- commerce sites on browsers or download one app per retailer that actually has one ‒ There is critical distribution problem for mobile e-commerce, too, as consumers must download one new app for each retailer ‒ Start-ups tackling the space include Coffee Table, TheFind Catalogue, and Google Catalog, but they are very basic preliminary products • Finally, the proliferation of social networks in recent years could potentially open up opportunities to create inherently social shopping experiences online; however, this opportunity has yet to be cracked ‒ Most of the social commerce activity occurring today are Facebook pop-up stores and Twitter/Facebook buttons embedded on e-commerce product pages ‒ Some companies also use the social graph to make referral programs easier ‒ However, no clear class of scalable, defensible start-ups has come out of social commerce yet 4
  • 5. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes – Mobile E-Commerce Overview – Social E-Commerce Overview 5
  • 6. The U.S. e-commerce market is big ($200B+), getting bigger (9% CAGR through 2015), and still early (only 9% of total retail) U.S. E-Commerce Market (2009-15) $B 300 279 CAGR 259 (11-15) 250 240 218 197 200 176 157 150 9.1% 100 50 0 2009A 2010A 2011F 2012F 2013F 2014F 2015F Total U.S. Retail (Trillion Dollars) $1.9T $2.2T $2.2T $2.2T $2.4T $2.4T $2.5T 3.8% E-Commerce as % of 8% 8% 9% 10% 10% 11% 11% Total Retail E-Commerce as % of Total Retail 11% 11% 12% 13% 14% 15% 15% (excluding grocery) Source: Forrester, US Online Retail Forecast (Feb 2011) (http://www.forrester.com/rb/Research/us_online_retail_forecast%2C_2010_to_2015/q/id/58596/t/2) 6
  • 7. More Internet users are using the web for shopping, and frequency per user is expected to increase U.S. E-Commerce Shopper Data (2004-13E) E-commerce Shopper Data Units 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E E-commerce Penetration Internet Population [M] 186 195 203 211 217 222 227 231 235 239 Online Shoppers [M] 104 117 130 143 153 160 170 176 184 189 E-commerce Penetration of Internet Population [%] 55.9% 60.0% 64.0% 67.8% 70.5% 72.1% 74.9% 76.2% 78.3% 79.1% E-commerce Shopper Stats Shopping Sessions / shopper / month [M] 1.90 1.75 1.88 1.91 1.87 1.99 2.13 2.25 2.38 2.45 Average price / session [M] 39.50 41.25 43.00 45.50 45.00 41.00 41.50 43.00 44.00 46.00 Product return rate [%] 10.0% 9.0% 9.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Source: Department of Commerce, Internet World Stats, Company reports, JP Morgan 2011 Internet Sector Outlook (http://www.slideshare.net/victori98pt/2011-internet-sector-outlook-by-j-p-morgan) 7
  • 8. Consumers are continuing to shift retail buying online, at the expense of the likes of Best Buy, Macy’s, and Westfield … Consumers are spending more via e-commerce … … at the expense of shopping malls, department stores, and electronics stores Source: Forrester, US Online Retail Forecast (Feb 2011) (http://www.forrester.com/rb/Research/us_online_retail_forecast%2C_2010_to_2015/q/id/58596/t/2) 8
  • 9. … with the most active online buyers being the most affluent Source: J.P. Morgan Internet User Survey 2010 (http://www.slideshare.net/victori98pt/2011-internet-sector-outlook-by-j-p-morgan) 9
  • 10. Although innovation in e-commerce had been lagging for 10+ years, the last 1-2 years has seen an uptick Top Overall Sites Top E-commerce Top E-Commerce • Overall, innovation has been rampant on (Sept 2011) Sites (Mar 2010) Sites (Sept 2011) the web 1 Google Amazon Amazon – 11 of the top 15 overall sites did not exist 2 Facebook eBay eBay ten years ago 3 Youtube Netflix Netflix – Several fast risers cater to the China market (Baidu, QQ, Taobao, Sina) 4 Yahoo Wal-mart Wal-mart 5 Baidu Best Buy IKEA • However, through March 2010, e- 6 Wikipedia Ikea Target commerce had not changed much 7 Blogger Target Best Buy – By March 2010, all 15 top e-commerce sites existed 10 years ago (NewEgg was 8 Windows Live NewEgg Groupon founded in 2001) 9 Twitter Overstock Multiply.com • In the last two years, several new 10 QQ Macy’s NewEgg business models have begun to materially 11 MSN Barnes and Noble LivingSocial disrupt the e-commerce space 12 Linkedin Ticket Master Barnes and Noble – Groupon and LivingSocial have begun top Amazon Home Depot Overstock trafficked sites 13 14 Taobao Gap Gap – Multiply is a primitive but highly trafficked marketplace serving Southeast Asia 15 Sina JC Penney Sears Source: Alexa Top 500 Global Sites (note: subsidiaries listed on Alexa were removed, e.g., Amazon UK) First Round Capital (http://redeye.firstround.com/2010/03/some-more-thoughts-on-innovation-in-ecommerce.html) 10
  • 11. Over time, the e-commerce landscape has gravitated toward wealthy customers and high-margin products (up and to the right) High Margin SKU’s Low Income Wealthy Shoppers Shoppers Low Margin SKU’s 11
  • 12. E-commerce companies typically have lower operating expenses than offline retailers (Zappos is an exception) • Typically, e-commerce retailing is Representative P&L for Several Retailers (Offline and Online)1 cheaper than offline retailing Target Amazon Blue Nile Zappos – Primarily driven by online storefronts Net Sales $M 63,435 8,490 333 635 being cheaper than offline Cost of Sales % 69.5% 76.0% 78.4% 64.8% • However, this is not always the case Gross Profit % 30.5% 24.0% 21.6% 35.2% – E-commerce start-ups often buy at Operating Expenses smaller scale, slightly hurting COGS Fulfillment % 8.6% 24.1% – E-commerce companies often offer Marketing % 2.3% free shipping and return shipping to Technology and content % 4.8% 4.0% encourage e-commerce adoption, G&A % 1.7% 3.6% driving up fulfillment costs Other expenses % 0.6% 0.0% Total Opex 20.5% 17.9% 15.2% 31.7% • The hottest e-commerce start-ups EBITDA % 10.1% 6.1% 6.4% 3.4% tend to focus on high-margin categories, but financially speaking low-margin goods can be profitable online as well Note: 1Target data based on FY2009 10-K (excluding its non-retail businesses) Amazon data based on FY2005 10-K (prior to Kindle and AWS businesses). However, this includes its marketplace business Blue Nile data based on FY2010 10-K Zappos data based on FY2008 financials (from HBS case) Source: Company 10-K’s, HBS case on Zappos, Interview with HBS Retailing Expert 12
  • 13. The big players in e-commerce appear to be moving slowly (and tritely), leaving much room for upstarts to play 1 • Amazon continues to add incremental features to its site, while continuously driving traffic to other destination sites (MyHabit, Soap, Endless, etc.) • Amazon appears to be investing in mobile e-commerce via voice-activated shopping, as it recently acquired a voice recognition technology Yap • As growth is slowing in eBay’s core marketplace business, it appears to be focusing on Paypal, particularly in the offline mobile payments space 2 • A series of acquisitions have bolstered Paypal’s reach and technology (Where, Zong, Figcard, RedLaser, etc.) • Walmart has created @Walmart Labs to explore social and mobile innovation 3 in e-commerce • However, its rumored ideas aren’t innovative, and it will likely execute slower than start-ups in the space • Google threatened to make a foray into e-commerce with Boutiques, but 4 recently shuttered that effort and appears to be content driving e-commerce traffic via product search 13
  • 14. 1 Amazon continues to add incremental features to its site, while continuously driving traffic to other destination sites • Amazon’s core business continues to grow, as media and general merchandise e-commerce continue to make up the bulk of revenue – By selling its own electronic platforms well (Kindle and Fire), Amazon’s razor-blade strategy has continued to grow its media business (~13% CAGR 2008-10) – Services such as AWS still only make up only ~4% of net revenues (FY2010) • On the pure e-commerce side, Amazon has recently re-designed the site’s aesthetics and added features – Potentially tackling mobile e-commerce problems by building a voice-activated personal shopping assistant, similar to Siri (acquired Yap in November 2011 for its voice-recognition technology); has also recently updated its mobile apps – Amazon has decided not to include Facebook Connect nor Like buttons, opting for its in-house system • Moreover, Amazon is focusing on growing e-commerce product categories with a distributed destination site strategy (rather than hoarding all traffic to Amazon.com for all categories) – Launched MyHabit (Gilt competitor) for women’s apparel in May 2011 and Endless for shoes – Acquired Quidsi in Nov 2010, then launched Yoyo.com for toys and Wag.com for pet products – Soap.com is expanding into grocery as of Oct 2011, despite Amazon’s own foray in early 2011 Source: (1) http://techcrunch.com/2011/11/09/amazon-snaps-up-yap-and-its-voice-recognition-technology/ (2) http://online.wsj.com/article/SB10001424053111904716604576549413463996484.html (3) http://techcrunch.com/2011/10/31/amazons-shoes-and-accessories-e-commerce-site-endless-launches-iphone-app/ (4) http://techcrunch.com/2011/10/24/amazons-online-drugstore-soap-com-adds-groceries-to-the-list/ (5) http://www.techflash.com/seattle/2011/01/amazon-plans-to-expand-grocery.html (6) http://techcrunch.com/2011/09/20/after-pets-diapers-and-soap-amazons-quidsi-tackles-toys-with-retail-site-yoyo/ (7) http://techcrunch.com/2011/08/01/amazon-takes-gilt-groupe-competitor-myhabit-mobile-with-new-iphone-app/ (8) Amazon 2010 Annual Report (page 27) 14
  • 15. 2 As marketplace growth slows, eBay is exploring mobile payments • Growth in the e-commerce auction marketplace business has slowed, as Paypal now represents Growth Slowing in 39% of eBay’s overall revenue Marketplace • Consumer purchasers are gradually shifting away from auction e-commerce as other e- commerce supply has opened up new buying channels (e.g., flash sales, offline retailers creating online presences) • eBay users can now scan product barcodes in-store and access eBay marketplace listings on Focus on Online to their phones (result of June 2010 acquisition of RedLaser) Offline ‒ Users can also post problems for sale with a quick scan of an offline bar code • eBay users can also scan product barcodes to find local retailers’ inventory of that same SKU. Online searches can also access local retailer inventory (result of Milo acquisition) • eBay ultimately wants local retailers to accept Paypal as a form of payment, but this growth has Driving Mobile been slow. Its acquisition of Where in Spring 2011 gives eBay a network of local SMB’s Payments with • Its acquisition of FigCard is also an attempt to increase Paypal penetration in offline payments Paypal (FigCard is a USB allowing users to pay at local SMB’s from their mobile phones via Paypal). It also acquired Zong, enabling users to potentially pay via their mobile phone bills • eBay has had the Group Gifts feature since 2010, streamlining the group gifting process. They Building Social acquired The Gifts Project in Sept 2011, which was previously powering Group Gifts Commerce Features • eBay is also working on product recommendations based on Facebook data (just acquired Hunch) and a feature allowing users to solicit feedback from Facebook friends prior to purchase Source: (1) http://techcrunch.com/2011/05/15/connecting-the-dots-on-ebays-local-shopping-strategy/ (2) http://techcrunch.com/2011/06/15/milo-fetch-allows-local-retailers-to-upload-their-inventory-to-ebay/ (3) http://allthingsd.com/20110908/ebay-bets-on-social-commerce-with-acquisition-of-the-gifts-project/ 15
  • 16. 3 Walmart, meanwhile, is also focused on similar social and mobile initiatives, although with less urgency • Walmart has leveraged its gigantic offline brand into e-commerce, garnering 1.5 billion visits to Walmart.com each year (fourth highest-traffic e-commerce site behind Amazon, eBay and Netflix, according to Alexa) – Even so, e-commerce is still a small part of its overall business, which generated $419B in annual sales and 10.5 billion customer visits per year (7x the online traffic) – This focus on the core business may limit Wal-Mart’s urgency to innovate quickly and invest heavily in e-commerce • Like eBay, they believe that the next frontier for e-commerce will be social and mobile, and acquired Kosmix for $300M+ to form Silicon Valley-based @WalmartLabs – On the social front, they are focused on gifting and “virtual end-caps” (personalized SKU recommendations based on Facebook data, in the form of curated emails) – On the mobile front, they just revamped their iPad and iPhone apps allowing users to browse inventory at local stores (like Milo), scan products (like RedLaser), and create voice-activated shopping lists Source: (1) http://allthingsd.com/20110615/what-wal-mart-has-in-store-for-making-commerce-social/ (2) http://www.washingtonpost.com/business/technology/walmart-introduces-new-iphone-ipad-apps/2011/11/09/gIQADBAC5M_story.html 16
  • 17. 4 Google has pulled back on a foray into an e-commerce destination site, but is innovating on e-commerce search • Google launched Boutiques.com in November 2010, but has decided to shut it down in October 2011 – Boutiques was an e-commerce site allowing anyone to curate a “boutique” of favorite products – Shoppers could follow their favorite curators and click-through to transact on other retailers’ site • However, they recently updated their Product Search site, with a heavy emphasis on computer vision and machine learning algorithms – The aim is to show users similar products or to allow users to search by product characteristic (e.g., red dress) Source: http://googlecommerce.blogspot.com/2011/09/enhancing-shopping-experience-on-google.html 17
  • 18. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes – Mobile E-Commerce Overview – Social E-Commerce Overview 18
  • 19. Typically, e-commerce business models follow a cycle Description Examples (Flash Sales) • One or several companies develop a new • Gilt Groupe, Vente Privee business model Nascent New Business Model • Often originates from offline analog or tweak on other online model • Several companies will clone good business • Rue La La, Ideeli, Hautelook, Copycats models MyHabit (Amazon), FashionVault (Ebay) • Slight variations may include geography, branding, strategy • Several companies begin replicating the • One Kings Lane, Totsy, Zulily, Apply to Different business model in different product categories Lot18, Gilt Taste, Jetsetter, Little Categories Rue • Several companies will pull different marketing • Fab, Ahalife, OpenSky, Net-a- Apply Innovative levers to differentiate, including theme, Porter Marketing Strategy pricing, content, influencer-marketing, etc Saturated • In some industries, aggregators can be • MyNines, RowNine Aggregator successful • Criteria include highly fragmented, commoditized products, low emphasis on membership, etc 19
  • 20. Several business models’ cycles are shown below Traditional C2C Flash Sales Group Buying Subscription E-retailing Marketplace / Coupons • Amazon • Ebay • Gilt Groupe, • Woot • ShoeDazzle New Business Vente Privee Model • Buy, NewEgg • Half.com, Amazon • Rue La La, Ideeli, • Groupon, • Justfab, Copycats Marketplace Hautelook, My LivingSocial, Buy JewelMint Habit (AMZ), With Me, Fashion Vault Facebook Deals, (Ebay) Google Offers • Wayfair, B&N, • AirBnB, SkillShare, • One Kings Lane, • Plum District, • Beachmint, Apply to Different ShoeBuy, Expedia, Qraft Totsy, Zulily,, Bevvy, Poggld Babbaco, Categories Lot18, Gilt Taste, Manpacks, Jetsetter, Little Guyhaus Rue, Gilt Home Apply Innovative • Zappos, Bonobos • Etsy • Fab, Ahalife, • Gilt City • Birchbox, Not Marketing OpenSky, Net-a- Another Bill Strategy Porter, Hotel Tonight • Shopzilla, • n/a • MyNines, • Yipit, DailyD, • n/a Aggregator PriceGrabber, RowNine 8Coupons, Shopping.com, TheDealMap Google Product 20
  • 21. One approach to brainstorming new business models is porting offline retail models online Offline Model Offline Example(s) Online Analog(s) Single-brand retail stores Gap, American Apparel Everlane, Betabrand Multi-brand retail stores Walmart, Macy’s Amazon, Walmart Traditional Retail Wholesale retail Costco None Venue gift shops Disneyland stores, stadium stores Facebook pop-up shops (to a small extent) Import goods shops n/a Ahalife Boutiques / mom-and-pops n/a Shoptiques Outlet retail stores Gap, BR Gilt, Rue La La (to some extent) Garage sales n/a C2C marketplaces (Copious, Poshmark, Craigslist) Auctions n/a eBay, Swoopo Fukubukuru Baseball cards LBB Alternative Models Mail-order Mail-order catalogs TheFind Catalogues, Coffee Table “Of the month” clubs BMG CD Clubs, Book clubs ShoeDazzle, Direct-Response TV As Seen on TV, HSN Joyus In-flight duty free Skymall Not possible Swap meets / conventions n/a C2C marketplaces (Copious, Poshmark, Craigslist) Black markets / knock-offs n/a None 21
  • 22. E-commerce category analysis shows that apparel and home goods are fragmented and competitive (Raw Data) Top 500 E-commerce Retailers: Total Average # of Retailers vs. Revenue # of Retailers Category Revenue per 100% in Top 500 Revenue ($B) Retailer ($B) 3% 2% 2% Automotive parts 4% 2% 7 $0.6 $0.08 90% 2% 6% 3% Jewelry 14 $1.0 $0.07 3% 80% 9% 5% Flowers & gifts 11 $1.2 $0.11 4% 12% Toys & hobbies 18 $1.4 $0.08 70% 5% Sporting goods 29 $1.9 $0.07 60% 10% 14% Specialty (non-apparel) 45 $2.7 $0.06 5% Food & drug 21 $2.8 $0.13 50% 5% Hardware, home imp. 24 $2.9 $0.12 19% 40% Housewares, home 50 $3.6 $0.07 24% Health & beauty 26 $3.6 $0.14 30% Books, music, video 27 $5.7 $0.21 20% 3% Apparel & accessories 122 $15.0 $0.12 34% Office supplies 17 $17.7 $1.04 11% 10% Computers, electronics 57 $23.8 $0.42 6% Mass merchant 32 $43.6 $1.36 0% Breakdown of Top 500 Revenue Breakdown Total 500 127.4 $0.25 E-commerce Retailers of Top 500 E- commerce Retailers Note: Internet Retailer Top 500 Guide, William Blair and Co, Expert analysis 22
  • 23. Generally, building the right product and marketing it well are the key factors for a successful retail business Retail Success Factors Building Great “Retail Product” Marketing This “Retail Product” Well Description • What you sell. Sourcing the right products, • Outbound marketing (e.g., media buying, based on customer demand marketing partnerships, affiliate prog) • How you sell it. Choosing the appropriate • Inbound marketing (e.g., SEO) business / pricing model • Incentives for referrals • Building strong brand • Overall customer experience (including any • Incentives for loyalty (i.e., repeat purchase) entertainment value) Goals • Drive higher conversion rates on new traffic • Drive new organic and inorganic traffic • Drive organic referrals and organic loyalty via • Drive inorganic referrals excellent customer experience • Drive inorganic loyalty Key Steps Involved 23
  • 24. Different business models employ different strategies along each step, some of which are generalizable Branding / Sourcing / Store Layout and Customer Customer Business Model Merchandising Presentation Acquisition Retention Group • Heavily market • Large sales teams • Simplistic, focuses • Affiliate programs • Email programs Buying discounts working with local on deal of the day • Pay heavily for merchants customer acquisition Flash Sales • Exclusivity / • Source remnant • Layout not focused • Content marketing • Email programs membership club inventory from top on category/search • Referral programs • Referral programs • Heavily market brands • Affiliate programs (stored credit) discounts • Use of celebrities (OS) Subscription • Curation, • Curators source • User quizzes for • Use of celebrities • Heavy email convenience, indie goods personalization (ShoeDazzle) program and/or sampling • Free goods for • Naturally retains trialing Online • Charity-focused • Unsophistcated • Inspiration board • Affiliate programs • Email programs Brands (Warby Parker) manufacturing (Betabrand) • Referral programs • Sales and offers • Sales and offers Social • Design-rich, next- • Mostly affiliate • Pinboard layout of • Sharing is easy and • Gamification Bookmarking gen browsing (crowd-sourced) top-rated SKU’s natural (Lockerz) experience • Standalone value of • High entertainment creating wish lists value (browsing) 24
  • 25. There are several shopping needs that e-commerce companies have still had trouble filling to-date Description E-commerce Progress Instant • Consumers often want to receive (and • Amazon Prime two-day shipping Gratification/ perhaps consume) purchased products Immediacy immediately after transacting • Consumers often need to “touch a • Birchbox and other sampling sites Sensory Experience fabric, smell a cologne, or sample food” (low-cost sampling) / Sampling before buying • Free, easy returns (e.g., Zappos, TrunkClub) • For some categories, product education • TrunkClub personal stylist Education / and/or personalized selling is the norm Personalized Selling • Heavy editorial and/or video (e.g., cars, TV sets, make-up) (e.g., Lot18, Jetsetter) Note: Harvard Business Knowledge: “Retailing Revolution,” Oct 2011 (http://hbswk.hbs.edu/item/6813.html?wknews=10122011) 25
  • 26. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes • Group buying / couponing • Flash sales • Subscription • C2C Marketplaces • Online Brands • Personalization • Crowdsourced Demand • Miscellaneous – Mobile E-Commerce Overview – Social E-Commerce Overview 26
  • 27. The group buying / couponing space has lost a bit of its luster • Groupon and LivingSocial were frontrunners into the daily deals space, spurring scores of copycats and niche competitors • However, in its third year now, the group buying industry is facing rising disenchantment, both from customers and merchants – Merchants complain that the long-term economics of doing group buying is not favorable, as Groupon does little for customer retention – Customers buying impulsively often don’t end up using the coupons, resulting in ~20% breakage upon expiry – Some customers buy and sell in second-hand markets, but 75% either breakeven or lose money on these deals • As a result of customer disenchantment, daily deals sites have struggled to organically retain customers, and many have spent enormous amounts on customer acquisition and are now struggling with profitability • According to Yipit, one-third of tracked daily-deal sites (170 of 530) have been shut down or sold so far in 2011 (including the #3 player, BuyWithMe, selling to Gilt); larger companies’ efforts have fared even worse – Facebook launched a daily deals service in April, only to shut down in August – Yelp slashed its daily deals product team by half in August, citing users being unhappy with Yelp Deals – Foursquare has opted not to get into the daily deals business, but rather to partner with larger players like Groupon and LivingSocial Source: http://online.wsj.com/article/SB10001424053111904491704576575233025971542.html 27
  • 28. Groupon and LivingSocial’s lead seems to be expanding, as the rest of the pack can’t match customer acquisition spending Source: http://www.readwriteweb.com/archives/over_1_billion_in_daily_deal_value_has_disappeared.php 28
  • 29. Customers have become disenchanted with daily deals, buying on impulse then often not using the coupons • Based on a survey by CityDeals, 20% of purchased deals go unused before expiring • Some customers attempt to sell unwanted deals purchased on impulse, with only 25% making a profit – 34% sell at a loss, which likely shapes the customer to become more disciplined about daily deal purchases or quit altogether Source: http://www.readwriteweb.com/archives/over_1_billion_in_daily_deal_value_has_disappeared.php 29
  • 30. The cost of customer acquisition has skyrocketed (and ARPU declined) as the daily deal has struggled to attract and retain customers Source: (1) http://online.wsj.com/article/SB10001424053111904491704576575233025971542.html; (2) http://online.wsj.com/article/SB10001424053111904563904576589132713012682.html 30
  • 31. JungleCents is an e-commerce coupon company, selling vouchers and helping customers discover new retailers Representative Partner Retailer Economics per • JungleCents is a Groupon for e-commerce gift Transaction (e.g., Bonobos) certificates $ – Bonobos has run a recurring promotion on JungleCents (distributed on AskMen), 200 allowing users to pay $48 for a $100 Bonobos voucher 150 – Only e-commerce retailers expecting very 100 5 high uplift (90%+) will be profitable in 48*** these deals 100 190* – Note: sample economics for partner retailers is shown to the left 133 50 90** • As of late Nov 2011, JungleCents had 2.2M registered users 0 • Raised $1.5M in seed money from Mark Cuban Total Voucher Retailer COGS**** Gross in October 2010 Transaction Value Net Margin Value Revenue Notes: * Assuming 90% uplift over voucher value (mirroring traditional high-end retailer gift card uplift); ** Out-of-pocket payment by customer; *** Voucher price (assuming JungleCents takes no transaction fee currently); **** Assuming COGS = 70% of basket price Source: (1) Josh’s analysis and assumptions; (2) http://techcrunch.com/2010/10/22/mark-cuban-junglecents/ (3) http://techcrunch.com/2011/11/30/startups-investing-and-daily-deals-five-questions-with-mark-cuban/ 31
  • 32. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes • Group buying / couponing • Flash sales • Subscription • C2C Marketplaces • Online Brands • Personalization • Crowdsourced Demand • Miscellaneous – Mobile E-Commerce Overview – Social E-Commerce Overview 32
  • 33. The flash sales model is under pressure on the supply side, as remnant inventory levels are decreasing • While today's flash sales leaders (e.g., Gilt, Hautelook, Vente Privee) have grown their businesses by selling luxury retailers' remnant inventory, today they are looking to change business models as unsold inventory supplies are lower – Gilt and competitors rode the wave of obscenely high inventory levels during the recession (up to 10x normal levels, according to a former executive of Nieman Marcus), but retailers have adjusted and inventory levels are going down – Therefore, as flash sales supply is decreasing, supplies prices are increasing and flash sales discounts are decreasing (Gilt's average discount has decreased from 70% to 40-50%, according to analyst reports) • Despite the headwinds, flash sale sites continue to raise large amounts of venture money at high valuations – Beyond the Rack raised $37M in Nov 2011, Gilt raised $138M in May, and Ideeli raised $41M – Moreover, Vente Privee (European flash sales leader) just announced plans to enter the U.S. in a JV with American Express (licensing the Vente Privee brand to the JV and using American Express’s large customer list as an acquisition channel) • Gilt and others have been shifting vendor mix away from luxury brands towards indie brands – Moreover, Gilt has begun to leverage its strong brand to sell full-priced products in the U.S., departing from sourcing remnant inventory in its latest property, Park & Bond – While the U.S. fashion flash sales supply might be saturated, Gilt is still expanding this model to 90+ countries internationally, as well as to new categories (e.g., newly launched Gilt Home to compete with OKL) Source: (1) http://www.businessinsider.com/vente-prive-is-going-after-the-50-billion-us-remnant-inventory-market-2011-9 (2) http://techcrunch.com/2011/11/08/gilt-goes-global-expands-flash-sales-site-to-over-90-countries/ (3) http://techcrunch.com/2011/11/09/flash-sales-site-and-gilt-competitor-beyond-the-rack-raises-37-million/ (4) http://www.reuters.com/article/2011/10/17/us-flashsales-idUSTRE79G41X20111017 (5) http://techcrunch.com/2011/10/18/gilt-groupe-debuts-new-home-focused-retail-and-curated-content-site-to-take-on-one-kings-lane/ 33
  • 34. However, the flash sales model is still popular on the demand- side, and fairly consistently across income levels too … Monthly Market Share of Flash Sale Sites Flash Sale Sites’ Visitor Share by (over All Sites, as of August 9, 2011) Household Income* 100% 14% >$150k 90% 80% 16% $100-150k 70% 60% 27% $60-100k 50% 40% 30% 25% $30-60k 20% 10% 17% <$30k 0% Notes: * Rolling 4 weeks ending August 6, 2011 Source: Experian Hitwise, August 2011 (http://weblogs.hitwise.com/heather-dougherty/2011/08/huge_growth_continues_for_flas_1.html) 34
  • 35. … and there is still plenty of start-up activity around flash sales and other discounted e-commerce models • From a customer standpoint, flash sale and daily deal sites provide several key customer value propositions: – Discounts. Buying, then marketing and selling remnant inventory is one way to offer customers discounts, but flash sites are also helping brands (primarily indie brands) get discovered by offering select products at discount – Curation. The dearth of SKU's in many early-stage flash sale sites helped them brand themselves as curators – every SKU seemed hand-picked to the customer. To this end, flash sale sites (more than traditional e-commerce sites) have focused their marketing on expert curation – Exclusivity. While most flash sale sites are no longer exclusive, the urgency and limited supply of deals offered still contribute to the exclusivity nature of their brands • As a result, several start-ups have emerged in non-fashion categories with a similar feel to flash sale sites, but not necessarily sourcing remnant inventory – Lot18, for example, sells discounted wine online (which isn't new), but tries to brand itself as an expert curator with top-notch editorial content along with its deals • Several others have taken other approaches to offer these value propositions – Fab.com launched a flash sales site branding itself around the theme of design, selling any number of product categories, mostly from small brands and designers. They focus heavily on curation, but also bring the discount and exclusivity element – OpenSky recently pivoted to become a flash sales site relying on celebrities as expert curators (and marketers) of discounted products (but not necessarily remnant inventory) 35
  • 36. Flash sales e-commerce has contributed several customer acquisition best practices to the e-commerce ecosystem • Traditionally, e-commerce e-mail programs were seen as spammy Email Programs • However, given the “daily” nature of flash deals, consumers began to accept well- crafted daily emails from flash and daily deal sites • Other e-commerce sites have begun using content-filled email programs (e.g., Etsy) • Excellent editorial, photography, and videos are being used in blog forms to attract “Content and and retain customers, pointing them to products Commerce” • Flash sales sites like Net-a-Porter and Gilt are bringing “content and commerce” to the forefront as a key customer acquisition tool • One Kings Lane, Lot18, Birchbox, and Etsy are just a few other companies building out heavy content programs • Flash sales took off as social media sharing features were becoming mainstream, and Referral Programs made inviting friends to an e-commerce membership easy • Along with flash sales’ belief in high lifetime value (retaining customers with email and content programs), many offer credit discounts to members who successfully invite friends to join as members Source: http://www.quora.com/Why-is-e-commerce-such-a-hot-area-in-venture-capital-now 36
  • 37. Fab is a flash sales site that has grown quickly, selling several categories of products along one theme: design • Fab is a design-based flash sales site that has grown quickly – Pivoted from gay social network, Fabulis, which had 350k users – In 3-4 months, Fab has reached 650k registered users and estimated ~$10M gross revenue (at 1.2M users by Dec ’11) • Unlike other flash sales ventures, Fab doesn’t just apply the business model to a few new product categories (a la OKL, Lot18, Gilt Taste) – Instead, Fab has chosen a trendy them, design – Fab sells any category of product as long as the product fits its design theme – Customers with an interest in this trend / theme can buy all of items here • In August 2011, Fab raised a $8M Series A led by Menlo Ventures Source: (1) Josh’s analysis and assumptions (2) Fab CEO blog (http://betashop.com/post/10657024333/115-days-650-000-members-100-000-orders-200-000) (3) http://betashop.com/post/8993831254/fab-com-further-integrates-social-commerce-with (4) http://venturebeat.com/2011/12/08/fab-com-40m-series-b/ 37
  • 38. Hotel Tonight is essentially a last-minute flash sale for hotel remnant inventory, only available on mobile phone • Hotel Tonight curates same-day hotel inventory sold to consumers for discounts – Focused on a simple mobile booking experience, booking "basic," "elegant," or "hip" hotels on the go – Claims that the average account set-up takes 80 taps (vs. 300 on PC's) and 4 taps for subsequent reservations (vs. 100 on PC's) – Expedia estimates that 60% of mobile bookings are same- day (80% for Hotwire) • The company was operating in 23 markets as of late Sept 2011, and just added 14 new markets – 750,000 downloads as of late Sept 2011 • Unlike hard goods retail (e.g., fashion, home goods), hotel remnant inventory is very difficult to control and limit (no variation in "production" as in hard goods) • Raised $3.25M from Battery, Sequoia, and First Round Source: (1) http://allthingsd.com/20110510/hoteltonight-raises-2-25-million-for-last-minute-hotel-booking-app/ (2) http://techcrunch.com/2010/12/20/hotel-tonight-fulfills-some-of-paul-carrs-fantasies-actually-safe-for-work/ (3) http://gigaom.com/2011/09/29/hotel-tonight-looks-beyond-biz-travelers-to-vacations/ (4) http://venturebeat.com/2011/11/16/hoteltonight-calls-room-service-orders-up-8-6-million-series-b/ 38
  • 39. oBaz is a crowdsourced haggling service, allowing users to specify demand then offering a group buying model • oBaz is a crowdsourced haggling service, allowing users to vote on products they like – oBaz then negotiates prices with vendors once 25 votes have been cast • oBaz also created a feature called Aisles, which is similar to OpenSky – Each aisle is a category (e.g., parents, musicians, chefs, students) and expert curators find flash deals (although not celebrity) • Raised a seed round from Lightbank in July 2011 Source: http://techcrunch.com/2011/11/09/lightbank-backed-haggling-platform-obaz-shifts-focus-to-product-discovery-and-curation/ 39
  • 40. Blippy pivoted earlier this year to Heartsy.me, a flash sales site for artisanal goods • Heartsy is a flash sales site for artisanal goods, selling products similar to those on Etsy • Retailing artisanal goods is not an easy business – Etsy has thousands of SKU’s and doesn’t have to take inventory risk by predicting demand for any given SKU – Most of Etsy products are sold in small batch sizes – Heartsy, on the other hand, has a limited number of “longtail” SKU’s • Traction appears to be slow, as Heartsy’s Twitter and Facebook followings are quite small Source: http://techcrunch.com/2011/07/05/blippys-new-direction-daily-deals-for-artisanal-goods-at-heartsy-me 40
  • 41. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes • Group buying / couponing • Flash sales • Subscription • C2C Marketplaces • Online Brands • Personalization • Crowdsourced Demand • Miscellaneous – Mobile E-Commerce Overview – Social E-Commerce Overview 41
  • 42. While subscription e-commerce has received hype, the jury’s still out on whether these businesses are sustainable • Subscription e-commerce has existed for years, often in the form of crude of-the-month clubs (e.g., beermonthclub.com, wineofthemonthclub.com), but many start-ups have built next-generation versions of these businesses in the last few years – ShoeDazzle, Justfab, and Beachmint have scaled the fastest, shipping fashion goods monthly to paid subscribers and mobilizing through partnerships with celebrities – Following ShoeDazzle's buzz, other start-ups have copied the model for other categories, with mixed success (Manpacks, Guyhaus, Babbabox, Foodzie, etc) – Companies like Birchbox have received a lot of buzz by offering curated samples on a subscription basis • The model has some clear benefits on both the supply and demand sides … – E-commerce companies are attracted to the subscription model, as ARPU is much stabler and generally larger than selling one-off products. Customer retention efforts are minimized – Subscription e-commerce also offers several benefits to customers, including curation, the convenience of less time- spent shopping, and the ability to trial products (for some companies) • … but how churn rates will trend after the initial hype wears off will depend on whether or not subscription e-commerce provides enough value proposition to customers – Past offline subscription commerce programs have often been labeled as marketing scams and ended over time as churn increased (e.g., BMG Music 12 for one CD deals) • Subscription-focused e-commerce start-ups will soon have to face the question: is the subscription model engaging enough to build scalable businesses, or simply a feature and/or pricing scheme? 42
  • 43. Subscription e-commerce offers consumers one or more of several benefits Benefits Description Analysis • For consumers who want someone else • Price at premium – caters to wealthier customers to tell them what they want willing to pay a premium for curation service Curation • Beer clubs have been doing this for • Often requires a well-respected / branded curation years team (e.g., celebrities, topic influencers, crowdsourced, in-house team) • ShoeDazzle brought this model into the limelight • Only sustainable for product categories that users buy constantly (else churn will be high) • Best suited for fragmented industries with indie brands • For consumers who want someone • Pricing across the board, curation not as important else to shop for them out of Convenience • Best suited for “need” products (vs. “want”) convenience • Only sustainable for “fast-moving” product • Manpacks and Guy Haus promise to categories that constantly need to be replaced save customers time by mailing basic (else churn will be high) things • For consumers who want to sample • Pricing across the board - can even go free products cheaply before they buy Trial / Sampling • Curation is not required but helpful • Birchbox brought this model into the • Only sustainable for product categories with limelight fragmented set of brands Source: http://robgo.org/2011/08/27/what-will-the-big-winners-in-subscription-commerce-look-like/ 43
  • 44. The most popular subscription e-commerce sites can be mapped by demo and size Source: http://socialcommercetoday.com/subscription-commerce-the-infographic/ 44
  • 45. ShoeDazzle was a frontrunner in the subscription e-commerce space, leveraging celebrity influence as a “curator” • Shopper buys one pair of shoes, then begins to pay $39.95 / mo • ShoeDazzle’s monthly plan creates a sense of customer loyalty / stickiness – Each month, ShoeDazzle recommends 5 pairs of shoes for the buyer and the buyer picks one – If the buyer rejects all 5, she can elect not to pay for that month – Shipping is free • Co-founder is Kim Kardashian – Has raised $60M from Andreessen Horowitz, Lightspeed, and Polaris Source: http://venturebeat.com/2010/04/27/shoedazzle-raises-13m-as-kim-kardashian-hawks-its-footwear/?obref=obnetwork 45
  • 46. Justfab and Beachmint have also taken the celebrity-curation subscription model, with more emphasis on new categories • Justfab is a direct competitor to ShoeDazzle, featuring TV star Kimora Lee Simmons (President and Creative Director) – As of Sept 2011, grossing monthly revenue of $3M (vs. $500k from Sept 2010), with 3M registered members – Planning to expand into new categories with celebrities – Raised $62M from Matrix, TCV, others • Beachmint is another competitor, which has launched Jewelmint (Kate Bosworth), Stylemint (Olsen twins), and BeautyMint (Jessica Simpson) Justfab Membership – As of June 2011, grossing monthly revenue of $500k. ShoeDazzle was grossing $5M Gross Revenue (monthly) $ 3,000,000 – Beachmint launched a live video channel on # of Members 3,000,000 Facebook for Cyber Monday 2011, with celebrities Monthly Revenue / Customer $ 40.00 discussing products in a direct-response TV # of Subscribing Customers 75,000 format. This garnered more than 50k viewers Customers as % of Members 2.5% – Beautymint garnered 500k visitors on first day Source: (1) http://techcrunch.com/2011/09/21/gilt-groupe-investor-matrix-partners-leads-33m-round-in-fashion-retail-and-styling-platform- justfabulous/ (2) http://techcrunch.com/2011/11/29/beachmints-celeb-filled-cyber-monday-draws-over-50000-viewers-with-help-from-rtoz/ 46
  • 47. Babbaco is a subscription site for kids educational products Description Investment Thesis • Babbaco sends a monthly “Babbabox” with a “fun & • Offers curation and convenience benefits to enriching” experience for 3-6 year olds customers • They charge parents $30/mo for a box with 4 ‒ Curation: building trust as a curator with a components (plus a surprise gift for parents): familial brand, products fitting for monthly purchase, very fragmented industry – Create: 3-4 projects – Explore: “activities to engage with the world and ‒ Convenience: helps busy parents save time nature” from buying “essential” products – Story Tell: related books and stories • Strong founder (Jessica Kim, Kellogg MBA, former – Digital: related software BM at Kraft) who is branding the site with her name to build a familial brand • Each box contains a different theme (e.g., bugs) • Raised $1.2M Series A round in August 2011 from – Kiwicrate and Little Passports are competitors Lightbank, SV Angel, and Nextview Source: (1) http://thefamilyroom.marthastewart.com/2011/10/04/instant-entertainment-comes-in-a-box/ (2) http://robgo.org/2011/08/27/what-will-the-big-winners-in-subscription-commerce-look-like/ 47
  • 48. H.Bloom is a subscription site for kids educational products • H.Bloom brands itself as “subscribing to happiness” by getting frequent deliveries of luxurious yet affordable flowers ‒ Curation: floral arrangements prepared by “professional designers,” sourced directly from professional growers ‒ Convenience: frequent, automatic delivery of flowers • There is some question over whether or not this is a valuable service – flowers are a disposable good and often consumed as surprise gifts, not as frequent purchases • Has raised $8M in funding from Battery, Brian Lee, and Anton Levy Source: (1) http://techcrunch.com/2011/09/07/battery-leads-4-7m-round-in-floral-delivery-service-h-bloom/ 48
  • 49. Blissmobox is a subscription site for organic / health goods, with a flash sales arm as well • Blissmobox (subscription e-commerce site) is a product of Blissmo, a flash sales site for organic / sustainable products ‒ Monthly subscription price is $19, on boxes with retail value $30+ (33%+ savings) ‒ Doing both flash sales and subscription enables trials to convert to purchases • Organic / health goods are a very fragmented industry where indie brands are valued • No reported fundraising • Eco-Emi is a small competitor Source: http://www.springwise.com/eco_sustainability/environmentally-socially-responsible-products-monthly-curated-box/ 49
  • 50. Quarterly.co allows users to pick “contributors” (influencers) they want to receive gifts from each quarter • Quarterly.co is a subscription service akin to OpenSky in flash sales ‒ Allows users to select “contributors” they’d like to receive gifts from ‒ Contributors choose gifts they’d like to send out (and probably get a cut of subscription revenues) ‒ Users get a gift once every 3 months • Founder and President was editor-in-chief at GOOD Magazine for 5 years • Based in West Hollywood, no reported fundraising • Not Another Bill (UK) also sends monthly gifts (very random and fun products) sourced from around the world, but curated by the site owner only Source: (1) http://www.fastcodesign.com/1665114/for-25-quarterlyco-delivers-designer-curated-gifts (2) http://www.springwise.com/retail/notanotherbill/ 50
  • 51. MeUndies is a premium underwear company based in Beverly Hills • MeUndies sells premium underwear • Prior to launch, they have as many Twitter followers as Manpacks • No reported fundraising Source: Meundies.com 51
  • 52. Companies like Birchbox have seized the opportunity to package samples (sourced at no cost) into subscription programs • Sampling is a more economically enticing model of subscription e-commerce, as companies typically face no COGS and can potentially be paid on both sides (brands pay for sample distribution and consumers pay for products) – Operating profit margins are in the 25% range for a representative early-stage company in this space (<10k customers), and they project margins to increase to 30-40% as the company scales (assuming little advertising spend) – Costs primarily reside in SG&A, outsourced warehousing and logistics, salaries, etc. • Vendors often have un-distributed trial inventory (some estimates believe this is 90%+), so companies like Birchbox are desirable partners – Historically, samples are distributed in retail stores (for free or sold), through the mail (e.g., with Sunday newspapers), or other channels (e.g., hotels) – Online distribution of samples has yet to scale • While vendors desire that sampling results in full-sized product purchases, they also value customer feedback, which Birchbox aims to offer but to a limit (voluntary user surveys, user preferences, etc) 52
  • 53. Birchbox is one of the best publicized subscription e-commerce companies Trial Research Purchase • $10/month subscription • Read experts’ makeup advice • Buy high-end makeup from established brands and niche • Receive box of 4-5 items per • See bios and videos of niche brands month high-end brands 53
  • 54. Birchbox has built an operating system … Brands Birchbox.com Consumers Samples Samples Receiving User Monthly and Re-package Subscription Shipping Storage Products Products Receiving Transaction Prepare and Shipping (User Buys) packaging Storage Mkt Materials Research In-house editors In-house editors ingest brand publish editorial marketing materials content $$$ $$$ 54
  • 55. … that delivers on its customer promise Customers Beauty Brands Consumers • Effective channel to reach consumers via • Discover new niche brands Customer samples Promise • “Delightful” shopping • Serve as e-commerce sales channel • Convenient access to purchase • Collect customer data (e.g., trial-to-buy conversion) • Attractive packaging (brand-building) • Curate large and niche brands / SKUs How BirchBox • Acquire customers (“consumers”) for • Premium editorial content on-site OS Delivers brands to ship sample to • In-house team packages “surprise” • Quick delivery via outsourced inventory package holding and shipping • E-commerce site for easy purchase • E-commerce system automatically calculates important customer data 55
  • 56. And there are plenty more, many of which will never scale … Beauty, Clothing, Accessories Other • Amarya (UK) • LuxeBox (CA) Culture and Arts • Boudoir Privé (UK) • Razwar (DE) • Just the Right Book (book club) • Bread&Butter (CA) (skincare) • Hoseanna (pantyhose) • Papirmasse (small art prints) • Facekitt • Manpacks (underwear) • Stack Magazines (print magazines) • FeelUnique (UK) • Me Undies (premium underwear) • Totapress (greeting cards) • GlossyBox (UK) • Panty by Post (CA) (underwear) • WeeklyIndie (mp3s) • Glymm • Swag of the Month (apparel) • Guy Haus (men’s face care) • Stylistpick (UK) (shoes) Parenting • Hiskit (men’s face care) • The Under Shirt Club • Citrus Lane (healthy baby products) • Little Passports (toy kits by country) Food & Drink Subscription to One-Off SKU’s • Amazon • CandyJapan (Japanese candy) • Foodzie (health foods) • Alice • Chocs (chocolate) • Graze (UK) (health foods) • HotelChocolat (chocolate) • Healthy Surprise (health foods) Other • Martins (chocolate) • PaleoPax (health foods) • Jangneus (kitchen cloths) • Able & Cole (UK) (fresh veggies) • Dulcinea (baked goods) • The Fruit Guys (fresh fruit) • Craft Coffee (artisan coffee) • Full Circle (fresh fruit / veggies) • Eightpointnine (artisan coffee) • Farm Fresh to You (organic • Steepster Select (tea) produce) • Toys 4 Tails (dog toys) Source: (1) http://socialcommercetoday.com/subscription-commerce-the-infographic/ (2) http://socialcommercetoday.com/directory-of-subscription-commerce-clubs-subcom/ 56
  • 57. Agenda • E-Commerce Market Overview • E-Commerce Innovation Cycles • Appendix – Key E-Commerce Themes • Group buying / couponing • Flash sales • Subscription • C2C Marketplaces • Online Brands • Personalization • Crowdsourced Demand • Miscellaneous – Mobile E-Commerce Overview – Social E-Commerce Overview 57
  • 58. C2C marketplaces have become a popular start-up model recently, led by niche sites like AirBnB • Online C2C marketplaces can be broadly segmented into three buckets: hard good purchases (e.g., eBay), hard good rentals (AirBnB), and services (Skillshare) ‒ Traditionally, eBay is the preeminent online marketplace and facilitated transactions on hard good purchases. Direct competitors threatened eBay for the general merchandise market, while niche players like Etsy targeted hand-crafted goods and expanded to tangential categories ‒ Meanwhile, Craigslist has traditionally served as the go-to portal for consumers looking for hard good rentals and services online (and to some extent, hard good purchases), but without facilitating transactions ‒ However, lately, niche players have risen up to make monetizable businesses out of Craisglist use cases (e.g., AirBnB for temporary housing, OKCupid for personals, TaskRabbit for errands, Skillshare for lessons, etc) • Traditional models of online marketplaces (or intermediate solutions like Craigslist) leave many unmet needs on the table, which these start-ups are tackling but few have perfected ‒ Hard good purchases: seller’s time spent uploading product information, trust in sellers shipping on- time (or at all), inaccurate representation of product quality / condition ‒ Hard good rentals: safety / trust in both buyers and sellers, ease of working with insurance companies, true need for rental across multiple geographies (e.g., Uber is only useful in certain large cities) ‒ Services: safety and trust in sellers, ability of relationships to be taken offline after initial transaction 58