Curated ecommerce is a hot topic. Call it a new wave of commerce businesses or just a new vertical that has gained a lot of momentum over the last 6 months. The Gilt Groupe started it after Vente-privee mastered flash sales.It is full priced online retail with a focus on apparel and white goods.
Just to be clear flash sales is not the same thing as curated commerce. Flash sales boils down to selling high value merchandise at deeply discounted price. Flash sales is an industry that I keep an eye on as I believe it is a good measure of where apparel online retail is at. Curated commerce is ecommerce with a editorial angle to it (beautiful images, content that is more related to the person buying the item) .
Flash sale businesses have steadily been pivoting to full price commerce as the flash sales businesses is in the decline in mature markets (Ventee-Privee and Markafoni being the exception to the general trend) . Flash sales also faced stern competition for attention and inbox space from daily deals (Groupon, LivingSocial). Ultimately companies who are succeeding in ecommerce are those who have built deep relationships with their customers based on being customer centric, logistics focused and ensuring that joy is created post transaction.
Enter the upstart
I have been following the journey of Fab.com pretty closely as I believe that they are part of a new wave of ecommerce businesses. Jason Goldberg is someone I deeply respect as he is transparent (his blog is a must read for any one in ecommerce) but they are like Amazon as they fret the little stuff. The business is unique and making lots of noise and have gone through a variety of pivots. Pivot has a serious misdirection in this case as Goldberg and co-founder Bradford Shellhammer have refocused their business 5 times. The 5th being the most ambitious I have seen from a startup (more on that later).
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E-commerce in emerging markets is one of the keys to commerce maturation that will be seen globally in the next 10 years. The fastest growing ecommerce markets are not saturated like what is seen in the UK, US or South Korea. Thus investors such as Naspers, Tiger Global Management and Rakuten are competing against one another in emerging markets as every business wants to ensure that they have their share of the long term returns that will be seen in these markets.
However an online venture builder and accelerator from Germany entered into this race about 18 months ago and have in a very short period of time created quite a few market changing moments across the globe.
I want to define what is an emerging market in my own mind before we continue with the fascinating race seen in emerging market ecommerce.
An emerging market is one that geographic area which is inhabited by customers whom have means to pay for products but are unsure of new technology to ensure a transaction occurs on the Internet between the customer and a commerce business. The markets also faces barriers for foreign businesses which deem the market to be heavy for investment thus the investment is taken to another country or region. Barriers are: credit card penetration, Internet connectivity and logistics to deliver the bought item to the user.
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Google unveils Shopping express in San Francisco, Amazon acquires Goodreads, Walmart does Lockers as well and much more.
It is April fools day which leads to a complete lack of trust in news today. Readers, my post today is what was news last week and no funny stuff. Last week was an interesting week and I think is a precursor to where the rest of the year is leading to. Google has unveiled their Shopping Express service in San Francisco and surprise surprise the first merchants listed are all retailers that have been burned by Amazon. I think this is a stake in the ground moment for ecommerce. North American ecommerce is clearly Amazon vs Google but the interesting tidbit is that Jeff Bezos was an early investor in Google. Amazon Prime is the gold standard in terms of logistics and I wonder how many millions of dollars Amazon has spent on it over the years? Yes, I think Google is now a player but they still have considerable work to do to catch up to Amazon.
Talking about Amazon, the Seattle business has acquired Goodreads for $150 million if AllthingsD has it correct. The question is why did it take so long? I think Amazon will continue to buy businesses that can compliment their Kindle ecosystem. I have a feeling that this was also done as a defensive move to ensure that none of the competitors could acquire Goodreads. I always come back to the fact that books and content is key to Amazon’s future. Readmill, you better be ready, Amazon may come knocking soon.
It seems eBay is looking more at the emerging ecommerce markets. Today’s news that they have played a role in the new round of funding in Snapdeal does not surprise me one bit. The BRICS will play a very big role in ecommerce over the coming years. I wonder how eBay is going to approach Russia as that seems their next target.
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The Samwers launches a new fund, Price Comparison gets hot in South East Asia, Walmart gives us a glimpse into the future and more.
Is Rocket Internet going to be around in 5 years time? That is the question I have had on my mind for the last few weeks. Internet businesses is a funny thing, the movement in the markets can mean that irrelevance happens quickly. Groupon is a great example of this.
Thus the news that Manuel Koser is moving away from being MD of Zando is indicative of an entrepreneur who is moving on to a new venture and not one being sidestepped by investors. Rocket Internet has a recipe that works and their staff are some of the most efficient individuals I have met.
Emerging market ecommerce is a high stakes game full of risk, trust and lots of work. Will Rocket Internet IPO? As time goes on, I am leaning more towards one of their vehicles (Big Foot 1 or Big Foot 2) being made the investment opportunity.
Bigfoot I, in which Kinnevik owns 33%, was the first fund they launched and comprises
Dafiti (online shoes and fashion in Brazil), Lamoda (online shoes and fashion in Russia)
and Namshi (online shoes and fashion in the Middle East). These three companies are
built on the same platform and systems as Zalando, and Lamoda and Dafiti in particular
are performing very well. Dafiti currently has the best infrastructure and very high volumes while Lamoda has the best momentum. Bigfoot I is well funded but might need some
additional injection to fully progress with the expansion plans.
Bigfoot II, in which Kinnevik owns 34%, was the second fund they launched and
comprises The Iconic (online shoes and fashion in Australia), Zalora (online shoes and
fashion in South-East Asia) and Zando (online shoes and fashion in South Africa). This
fund is a little younger and might need some additional funding to progress with the
companies’ expansion plans.
The other story that dominated my thoughts was the sudden split between Rakuten and their joint venture partner in Indonesia. Rakuten has now done this on 2 occasions and everytime it has left a deal after 12 months. I think it is clear that Rakuten are slowly learning that joint ventures sometimes is not the best way to enter a market. Hiroshi Mikitani clearly wants a bigger slice of global ecommerce but they have to manage their market entrance strategy better.
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Ma announces his successor at Alibaba, eBay says paid search has no effects, Google make plenty of changes and more.
Middle of March is normally the start of news that relates to end of quarter information. SEC filings, quarterly results and lots of press coverage is the norm. The point is we are almost done with quarter one and Alibaba did the unthinkable. Jack Ma, the founder of the biggest ecommerce business in the world has announced his successor. Jonathan Lu is to take over from Ma and his appointment I think is a very strategic one. One, he is one of a handful of Alibaba senior management who has vast knowledge of the entire operation. Also, I think his background in finance has helped him. It is clear that an Alibaba IPO is coming and he will be the person meeting with banks etc. One other thing to note, is that Alibaba has decided to appoint a local executive and not an international CEO to lead them into the future. Alibaba in my mind is going to be a threat for all ecommerce businesses in the coming years.
The article or story that dominated my thoughts was the eBay story over Paid Search ads. eBay claim that they have results to backup their conclusion that paid search is ineffective. “Overall, paid search turns out to be a very expensive way of attracting new business: The study’s authors estimate that, at least in the short-run, paid ads generate only about 25 cents in extra revenues for each dollar of ad expenditures. (For branded keyword searches, the additional revenues are close to zero” It is a fascinating read but I think a few things needs to be said. One, eBay has proved this for their own keywords and have tested their own hypothesis. I generally think that paid advertising is to be used in a controlled manner as it can lead to unsustainable growth (hello Groupon) but this raises some eyebrows in the direction of Google Adwords. Also keep in mind, that eBay has a reputation of bidding on low quality keywords which must be taken into consideration. Google answered this situation in 2012 and I must say I think we might see more of these stories in the coming 12 months. Adwords is the revenue driver for Google and they will defend it aggressively.
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2012 was a year in which a bigger picture formed inside my thinking. Ecommerce is my day job and I think we are in a great period for commerce. Let us be clear about one thing, retail and ecommerce is no longer 2 channels. It is one massive opportunity for businesses and entrepreneurs to assist customers buying items whether it be online or in-store.
Mobile commerce in its current format is not the endgame in my mind. We are only scratching the surface on what mobile devices can do. Augmented reality, location and a variety of other things will play a role in commerce in the coming years.
Regular readers will be aware of my thinking regarding the big five. It is not the animals found in the game park but rather the big five technology businesses. I have written about it in the past when I looked at the Amazon effect but these companies drive the technology used by us on a daily basis.
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Yesterday, was a significant day in the history of Alibaba. Jack Ma announced to the world that he will be succeeded by Jonathan Lu Xaoxi. Does the new heir apparent seem to be a new unknown? I tend to think so but Lu is Ma’s choice and that speaks volumes.
Lu, is like Ma one of the few Alibaba executives that has experience and knowledge of all 25 Alibaba businesses (a brief summary of the Alibaba holdings is seen below). That is significant as he will need to manage all of these holdings after they were all realigned to be separate businesses.
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Cobone acquired by Tiger Global Management, Google selling cars?, Hybris raises money and much more
I missed writing last week’s summary and boy this week has been full of news. Google is rumored to be building a Amazon Prime competitor. I find this interesting, how does it fit into the commerce value chain at Google? (at the moment this seems like a program to be run on top of Google Shopping? ). Secondly, it raises a very interesting question – if I am a merchant why would I take part in this program? Amazon Prime is the world’s greatest loyalty program and it is very successful for Amazon’s customers. The mere fact that Bezos keeps the user numbers secret tells you of the importance. Google has a serious disconnect with “Google Shopping Express” and needs to ensure that it compliments its services or it will go nowhere.
Are we beginning to see the building blocks for a marketplace from Google? Maybe, but Google has bigger problems to worry over – vertical search as seen with apps is cannibalizing its advertising business(the goose that lays the golden eggs for Larry and co), Android has lost ground in comparison to iOS for the last 2 months and Motorola seems to be having less staff every month.
I am going to say it as it has been on my mind for the last few weeks – anybody that wants to directly compete with Amazon needs lots of cash, patience and has to be 4 steps ahead of Bezos. No one has won when going head to head with Amazon.com (only when using the courts have Amazon lost) – they are the kings of margins and closing down industries. Google must be real sure that they want to go head to head with Amazon. I have seen what they do to companies – it aint pretty.
A few weeks ago I wrote about a potential IPO for Hybris software. Well, in the last few days they have announced a new round of funding by some serious investors. Meritech’s additional investing is interesting as they are a late stage fund and I think it signals that this investment is primarily done for growth. Let us be honest for a moment, enterprise commerce solutions is at the moment an open market. Oracle has spent billions on acquisitions, eBay has a interest via GSI Commerce and IBM has also spent millions on acquisitions to ensure that they have a total solution for merchants. Hybris is in my opinion a company to watch and I have a feeling that they will target specific functionality to add to their current offering. The IPO will come as they will need to raise money to challenge Oracle ATG in the enterprise commerce platform industry.
Africa and the Middle East are regions that I look at closely. Ecommerce in both regions are it is infancy but the investors are all here spending millions to ensure that they have a business/es to cater for customers in both regions. The Middle East has seen an influx of investment (LivingSocial etc) and then saw those same investors move out of the markets. It is almost like the ecosystem lost momentum which ensured business closures, investors leaving etc. Cobone is a early market leader who received funding from LivingSocial (whom are also under some pressure) and then lost the investor due to LivingSocial leaving the region. Earlier today, it was announced that Tiger Global has acquired Cobone with original investor Jabbar Internet Group exiting the investment. I note that Tiger Global Management is investing heavily in Africa and MENA – it almost looks like a consolidation of holdings has been happening over the last 6 months.
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It is the month of February and Q4 seems like a lifetime away. I am beginning to see one story develop in more detail as time goes by. Ecommerce in North America is becoming a battle between Amazon and Google. It is Jeff Bezos vs Larry Page, the State of Washington vs California and it all boils down to owning the commerce vertical online.
Background
Regular readers will be aware that I believe that Amazon is the gold standard for ecommerce. Their value proposition is attractive for customers and they control the entire ecommerce value chain when a customer acquires a product from them. The only thing that Amazon does not have a 100% control over is logistics, the final step to getting the product into the hands of the customer. I believe that Amazon is solving that problem by coming closer to their customer’s location through fulfillment centre’s.
Google on the other hand is a technology company not really sure what it’s core offering is. It is a media company (via Adwords, Product Listing Ads), a lobbying behemoth (they spent $18 million dollars in Washington, as seen in the graph below), a mobile operating system company (via Android and Motorola Mobility), provide analytics and software for business (Google apps). It is becoming clear that they have ambitions for retail which makes sense. Increasingly it is being shown that they also want to be part of ecommerce.
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