It is not often that an entrepreneur has a successful business twice. Most entrepreneurs have one major exit and then they become Angel investors. While they are building their business for the second time they either take money off the table from investors or the take their companies public. Michael Rubin in my opinion is one of the most unmentioned commerce entrepreneurs there is currently. However don’t let the lack of press coverage fool you – he is a serious heavyweight from Philadelphia.
Rubin sold his enterprise commerce business to eBay for $2.4 billion. GSI commerce as it was called then had some serious retailers as clients. eBay had a massive weakness in the enterprise space and fixed that by acquiring Magento and GSI Commerce.
Rubin pioneered an innovative pay-for-performance business model that fueled GSI’s organic sales growth, which he then complemented in recent years with 11 strategic acquisitions. GSI became one of the largest publicly-traded Internet companies, facilitating billions of dollars of merchandise sales for its customers, with 2010 revenues of $1.4 billion and more than 5,000 employees. As part of the transaction, eBay divested certain assets to Kynetic, specifically all of GSI’s online licensed sports merchandise business (Fanatics) and 70% ownership in Rue La La and ShopRunner.
Magento for me is the trojan horse for eBay as that business is used globally and has commerce partners in emerging markets. GSI Commerce was and still is the big success that Michael Rubin had. How he convinced eBay to spin ShopRunner, Rue La La and Fanatics into a new business (Kynetic) is worth a book. I hope Rubin decides one day to write a book..
The Race to the Customer
Currently – commerce is going through a phase of re-energizing as niche and stand alone services are being acquired / funded by the big players (eBay, Amazon, Alibaba etc). Search and merchandise availability is no longer a differentiator, they are expected by customers. Businesses that don’t have them are in big trouble as over time customers will leave them to bigger and better commerce businesses. So then what remain for companies who want to build trusted brands that customers love? Logistics and loyalty programs.
At the moment Amazon, Google and eBay are investing heavily into same day delivery. Amazon has a wide lead on all of their competitors due to Amazon Prime and the distribution centers that they have been building. eBay has launched eBay now that is a clearly a mobile first commerce play but it is not making any revenue. Google had no choice but to look for an acquisition and then they went across the border into Canada and acquired Bufferbox. eBay’s acquisition of Shutl is clearly a bolt on for them in the UK and in certain cities in the US.
If you look at all of this in detail you will notice a glaring emission and that is that there is no partner for retailers whom wish to provide 2 day shipping or expedited shipping as a loyalty programme. It takes a lot of capital to offer that service to customers and in most cases businesses are looking for partners to help them combat the effect of the big players potentially damaging their business.There is a significant amount of revenue to be made as no retailer wants to partner with the big commerce businesses. As that normally ends up in a negative reaction for the business long term.
I have been keeping an eye on ShopRunner and think that Kynetic has a significant lead over their competitors (The closest competitors I can think of are Borderfree). Why? They already have 2 very important parts to this business. The users who pay $79 to be able to leverage the comfort of 2 day shopping and they also have partners that can service the needs of their customers (all be it a not a very wide selection currently).
Why are all the commerce companies doing these shipping programs? It is a huge value added service for their customers but that is not the primary reason why these businesses are doing it. It is another form of data collection for data scientists to look at then make algorithms to power product recommendations and to do personalization. The data that is now being collected regarding habits and shopping times are the most vital for commerce businesses. You can potentially create value from nothing by being aware of trends etc. What most commerce customers don’t understand is the troves of data needed to do personalization and recommendations.
What Does ShopRunner actually do?
ShopRunner partners with retailers and brands such as Brooks Brothers and Calvin Klein to provide free two-day shipping to ShopRunner members who shop at the partners’ online stores. ShopRunner members pay $79 a year or $8.95 a month for that privilege. The brands and retail operations handle all the packing and shipping, with ShopRunner plugging into their back-end systems to make sure its members are getting their orders when promised.
ShopRunner takes two percent to five percent of each Shop Runner-eligible purchase a member makes on partnering e-commerce sites. In return, the company attempts to prove to its retail partners that it is bringing them new repeat customers who will spend more than nonmembers.
Alibaba – The dragon from the East
Regular readers will be aware of the concern that Alibaba should create for commerce businesses. So when ShopRunner announced that Alibaba led their funding round I took notice. Alibaba post IPO is going to be a big investor in commerce as they will have billions to spend. That should scare most commerce businesses.
- Alibaba is not Amazon, nor eBay or Google. They are a a combination of all 3 business with a scale that no-one (maybe Amazon has) has. As they are investing into Chinese logistics they will need expertise to help them when they finally roll out in China. The logistics businesses like Fedex, DHL wont assist as they would like to own that part of the value chain. Suddenly their partnership with Shoprunner is a massive show of their future.
- ShopRunner needs to scale to become the defecto leader in 2 day logistics – What do they need to do? Acquire customers, move into international markets and add retail partners.These factors costs money and that is why Kynetic made this strategic offer to Alibaba. Alibaba ticks all 3 boxes and that could lead to them acquiring ShopRunner (it is a possibility).
- ShopRunner I suspect will also go into the data business. They are sitting on trends and data that most probably only Amazon has. The logical extension of this is a loyalty program me which will then put them firmly against Amazon Prime. That makes the funding from Alibaba seem logical. It is a defensive strategy to ensure that no other commerce business invests into ShopRunner but gives Alibaba and Kynetic what they need.
- I have to ask the obvious question if eBay had a good relationship with Rubin and Kynetic – why did they not invest in the round of funding?
Scott Thompson (yes the Scott Thompson that had to leave Yahooi) made a few very interesting comments when he discussed the funding with AllThingsD. It read like a bit of PR but a shielded response due to fear of the big businesses potentially getting a head start on them, is clearly visible.
So are you just a two-day-shipping service, or are you building something bigger?
I actually prefer that the outside world not know where we are taking the business. We’re in the middle of 1.0 of the business.
If you had spent the day with me yesterday, you would have spent three hours with me and the exec team talking about the 2.0 , 3.0 and 4.0 versions. You’ll be surprised at where we intend to take this business, and what our plans are with adjacent opportunities.
We are assembling a very, very large group of consumers in the network who turn out, even today, to be the best digital shoppers … high lifetime-value customers. And then, as a result of being in the network, we’re getting those high-value consumers to concentrate spend among our retail partners.
You can begin to imagine, then, if Scott and team are able to grow the network to be 10 or 12 or 15 million of these consumers, and then what can he do with 15 million people actively engaged in this way. I wouldn’t want you to let your imagination run wild, but there are three or four or five things, when you thought about it, that are adjacent opportunities that we’re going to tackle over the next two to three years.
The ShopRunner story will develop as Alibaba goes public but has potentialy massive implications for the entire commerce industry.