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Google is slowly becoming a commerce based company

Last month, in my weekly newsletter, I argued that Google was slowly becoming a commerce based company.

Indeed, the growing importance of their hardware business (acquisition of Motorola Mobility, the Chromebook laptops, the Google Glass, etc), their move into the delivery business (acquisition of Buffer Box, launch of a same day shipping service) and the rumored opening of Google's retail stores seem to indicate a progressive shift in their business model.

Two weeks ago, Jeff Jordan, former CEO of Open Table and a partner at Andreessen Horowitz wrote an article arguing that Amazon and Google are on a collision course.

"In Google’s case today, I am becoming increasingly convinced that their most challenging competitor isn’t another search engine like Yahoo!, Bing, Baidu or Yahoo! Japan.  It’s Amazon, which is bringing a completely different take on search—in this case, product search."

Since advertising represent more than 95% of Google's revenue and shopping being the biggest advertising category, Amazon, with its increasingly sophisticated product search, is threatening Google’s core business. Google’s commerce-related initiatives show that they are taking this threat very seriously. As Jeff Jordan illustrates with the example of a search for a Canon EOS 7D, Google has significantly revamped their search product page (a combination of product description, customers reviews, Youtube tutorials, etc).

His article is a very interesting read about the growing battle between two Internet pioneers that will shape the future of retail. Read it here.

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Subscription commerce: thinking inside the box

Every once in a while, a new business idea gets copied and replicated into new verticals everywhere. A few years ago it was Groupon and the promise of daily deals website. Now subscription commerce is all the rage.

Subscription commerce is a twist on the traditional ecommerce model: instead of paying for an item when you need it or want it, you pay a periodic fee (typically monthly) to get a box of goods delivered right to your home. Today there is a subscription box for literally everything:cosmetics, shoes, condoms, coffees, razors, clothes, pet goodies, flowers, etc. Is subscription the future of online retail or just a fad?

The subscription business model is of course not new. As a kid, many of us subscribed to magazines and we remember the excitement of receiving something new every week or month. What is new here is the type of goods that those companies want us to subscribe to. The growing popularity of the subscription model has been very much in line with the digitization of goods such as books, music and movies, etc. As those goods became digital and moved to “the cloud”, accessing them has become more important than owning them and therefore a subscription makes sense. As investor Fred Wilson explained in a blog post, over the last two decades, the subscription business model has been adopted in other industries like software and content.  

In comparison, the consumption of tangible goods like the ones that are delivered in a box has not really changed. Therefore, the sustainability of the subscription business model to sell physical products has yet to be proven.

Describing its startup as a “Netflix or Spotify for cosmetics” might be a catchy elevator pitch but it doesn’t tell the full story.

The challenges of selling tangible goods through a subscription model

It’s widely recognized that the number one rule for a successful subscription business is to have a low churn rate (= number of people who cancel their subscription). In other words your customers have to commit to your product/service for a very long time. The best way to achieve this is to develop a strong value proposition as well as a powerful brand. 

Value proposition

As Kevin Kelly explained in one of his visionary post, subscription is a bit like renting: you’re paying a fee for something you don’t want to own. On Spotify, you pay a subscription because you want to access your music immediately whenever you want, wherever you are.

In the case of subscription commerce, a consumer is paying a monthly fee to receive (and own) tangible goods. Every month corresponds to a new purchasing decision and the objective of the subscription is to have the pain once (when you subscribe) and then to enjoy the product on a regular basis. In order to prevent the customer from questioning the value of the product or service every month, you need to keep customer satisfaction high. That’s where it becomes interesting to make a distinction between two types of boxes:

The curated box: help the customer to discover something new (it can involve the use of sampling). Example: Birchbox = hand-picked beauty samples for $10/month

The convenient box: deliver usable goods that are consumed on a regular basis. Example: Dollar Shave Club = quality blades sent to your door for $1/month

Discovery is great for the consumer but is difficult to satisfy in the long run; as quality fluctuates, people can get frustrated and then unsubscribe. People who subscribe to a box for convenience are easier to satisfy because they know what they will get.

Perceived consumer value

What helped software and digital content companies like Dropbox and Netflix to scale is the nature of their product. They are selling non-subtractable goods, which means that one customer using the service does not exclude another customer and at scale the marginal cost becomes close to zero. As a result, for a fixed amount, these companies often offer an unlimited use of their service. In comparison, tangible goods are by nature rival goods; the consumption by one customer prevents the consumption by another. It seems obvious but each customer needs to receive his or her own box and each box has the same cost. Moreover since the box is delivered physically, the shipping fees increase the price of the box compared to what the customer would pay at the retail store. Birchbox has solved this by going into a vertical where sampling is a common practice. They probably don’t pay for the content of their box because the brands are happy to give them for free.

Customer acquisition

Customer acquisition is one the biggest (if not the biggest) challenge of web startups and customer acquisition costs can make or break a startup. Subscription commerce companies are no exception and since most of them are in a low margin – high volume business, they need a very large customer base before turning a profit. Leveraging social media and producing great content is definitely the route to go but not everyone will be able to replicate the success of Dollar Shave Club. Their (fantastic) launch video went viral in a couple of hours, crashed their server but they eventually got 12,000 orders in their first two days.

The subscription model in itself is also a great customer retention tool. Delivering a box to your customer on a monthly basis is a fantastic way to keep consumer mindshare.  

Subscription based business are attractive to both entrepreneurs and investors because when successful they offer recurring revenues and predictability. Dropbox, Mailchimp, Netflix , are all great examples of companies that have successfully built a subscription business. In the case of online retailers, the subscription model can help those with a compelling value proposition and a great brand to grow by attracting and retaining customers.  In the long term, however, subscription commerce is likely to be more a marketing technique than a scalable business mode

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I don’t know if they will succeed but I truly hope they do because Fabsie belongs to these startups that depict a future you want to live in

Supporting Fabsie in this week's Digital Culture newsletter

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Fabsie: Why now?

This is a guest post by James McBennett, co-founder and CEO of Fabsie, a London based e-commerce startup allowing anyone to easily buy bespoke ready-to-assemble furniture. Follow him @mcbennett Fabsie has launched ‘This Stool Rocks’ on Kickstarter bringing digital to physical production to furniture, please back them!

Digital to Physical (d2p) production is any set of machines that are controlled by digital files to assemble matter. Their aim is to take on manufacturing, disrupting several concepts that were cornerstone to twentieth century production. Most of these machines are based on Computer Numerical Control and were pioneered at MIT in the early fifties. An extrusion device whose position is controlled by a computer is known as a 3D Printer. A laser whose position is controlled by a computer is known as a laser cutter and a router whose position is controlled by a computer is known as a CNC router. Each machine works with one material such as wood, metal, plastic or resin. Any tool can be placed in the hand of a robotic arm turning a twentieth century tool that performs a single routine into a twenty-first century tool that performs any routine.

The various types of computer numerically controlled tools are as old as the computer, two challenges held back their development. The first was the cost of the machines that has dropped enormously from prices between $100,000- $500,000 per machine down to $1,000 - $50,000. Secondly, computer drawing skills were difficult to find, restricted to top-tier university graduates with access to expensive software. Software has dropped in price, most universities around the world are teaching students digitally, making digital skills widely accessible. As the visionary system comes closer to reality, new questions are being asked and remain to be solved. “Who is responsible in the case of an accident?” “What happens to quality marks?” “How do I protect my design data from spreading?” or alternatively “How do I gain viral growth to spread my design data?”

Digital Wants to be Distributed

Economies of Scale are for Volume, not Repetition

When these machines are connected to the internet along with massive online libraries of downloadable files, things start to get really interesting. In my startup Fabsie, our current aim is to network customer demand with CNC wood routing machines alongside great design files. A maker can sell their spare capacity making products every day using their machine, but might never end up making the same product twice. As as a result, the economies of scale no longer relate to repetition, but are still available for volume.

Standardisation Must Die

In the twentieth century, you could have any car colour you wanted as long as it was black. The means of production forced standardisation as repetition was a requirement by the machines of the day. Advertisers made us want these products, but it’s not like there were any alternatives as bespoke tailoring and custom furniture were reserved for those with the deepest pockets. When one customer asked if we could make a bigger stool for him as he is 6”6 tall and his colleague is even taller. We responded, “No problem whatsoever.” Digital-to-Physical production makes bespoke options as affordable as the standard ones. However, the Long Tail of Things is what interests me most, being able to host an infinite amount of options that make niche-use files accessible. The guy who works from home with his dog can buy a hybrid desk / doghouse so they can work comfortably beside each other.

What is Happening now?

The 1940’s was about numerical control, the 50’s about computer numerical control. The 80’s saw tools combine with computer numerical control such as 3D printing, CNC wood routing, laser cutting, plasma cutting, waterjet cutting and so on.... Innovation was stifled until patents expired that led to a crash in prices by the early 2000’s. Now platforms and marketplaces that network machines and files are beginning to take off. Fabsie is trying to kickstart CNC wood routing on kickstarter and you can help by backing the project receiving a rocking stool in reward.

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Steven Johnson on the impending electric car revolution being led by Tesla:

And if that’s the case, then the automobile industry will go through exactly what the computer and software world went through with the rise of the PC, the Web, and the mobile revolutions. Smaller companies that bet heavily on the new paradigm will become dominant in an amazingly short amount of time; behemoths who cling to the old models will swiftly become afterthoughts. The EV revolution will be like Hemingway’s classic line about going broke: it will happen gradually, then all of a sudden.

Agreed. This is going to happen sooner than most people think.

[via Daring Fireball]

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E-commerce is like blogs 6 years ago

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This is a guest post by Carl Waldekranz, co-founder and CEO of Tictail, a Swedish e-commerce startup allowing anyone to easily create a bespoke online store for free. Follow him @postcarl

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Do you want to know where e-commerce is going?

  Check the blogs.

  I want to start with a story that has been told too many times, it’s about blogs and how they shifted the whole media landscape. Some 6 years ago, 2006/2007, we were asked to create a blog for a big swedish magazine. It needed to have multiple users with both separate pages and an easy to use system to aggregate the content in a curated way onto the landing page. We decided we’d build the platform ourselves. This was at the beginning of Wordpress and long before Multisite. Today this would have been crazy (probably was back then too)! My point is that some 6 years ago blogging wasn’t mainstream. Now don’t get me wrong! Blogging definitely existed, but it was a big deal to have a blog. It was for those who were special enough to have something important to say, people like journalists and authors. Yet, some 6 years ago internet wasn’t a new thing, Web 2.0 was definitely already a catch phrase and social was already on the agenda. To not have a webpage as a company would be lame. The internet was, considering this, quite mature and again - it’s easy to forget how much has changed since then. Today blogging is mainstream, it’s for everyone and anyone. It has gone beyond polished thoughts and reasoning to be about self expression. The personal journals of the social age. It’s now equally expected for a company that sells B2B infrastructure web services as for a fashion photographer to syndicate an RSS feed. As blogging became mainstream more and more services were created, some of them good - most of them bad. Posterous, Tumblr, Blogger, Blogspot, Live Journal, TypePad, Wordpress all had different positions in this crowded landscape. It quickly stopped being about having a blog or not, and became a discussion about what kind of blog you had. At that time, the biggest competitor wasn’t competing platforms but the massive untapped offline market. In many ways, to me -this is the step that e-commerce got stuck at. Blogs become big

Some blogs would gain massive traction. Run by private individuals they would surpass established traditional media outlets by being faster, more personal and savvier in the way they would leverage other social channels to spread their message. Slowly, but oh so surely, a shift was happening. Brands were losing power when it came to communicating to consumers. They couldn’t control all communication channels anymore, and therefore no longer had sole control of influencing their audiences.

It’s the good old story of a technology being made available - like blogging, turning into a service and adapted by companies. But because technology always moves towards zero costs it will eventually cross over to become available as a consumer service, first for the early adopters and then for the mainstream. And when consumers and companies play with the same tools, in the world of the social media, the best content and the best service will win. Which is a perfect segway over to the state of e-commerce today.

The Rise of the Indie Brands and Boutiques

E-commerce is more or less where blogs were a couple of years back. Platforms, thousands of them - some of them good, most of them bad. All competing more with offline than each other. And now, e-commerce is slowly but oh so surely, starting to go beyond enterprise and move towards the SME’s, let’s call them Indie Brands & Boutiques. These are entrepreneurial companies driven by product, brand and story rather than high distribution and low margins. These companies do not respond well to being treated like traditional companies, they don’t separate themselves and their legal entity, they are one and the same. They are first and foremost people and their product is more than just a product - it’s a statement.

Just like blogs shifted the power from traditional media outlets to independent influencers and trendsetters, e-commerce will no longer be about inventory and search listings but about social media rewarding good content, and creating a power shift. Run by private individuals, some of these Indie Brands and Boutiques will surpass established e-commerce outlets by being faster, more personal and savvier in the way they leverage other social channels to spread their message. These Indie Brands and Boutiques may never individually surpass the Zara’s of the world but as a group they will take a growing chunk of the e-commerce pie. It’s the same old story happening again.

We often speak about Moore’s law and Chris Anderson's views on how technology changes when it reaches the point at which you can waste it. Use it carelessly to experiment, fail and push innovation forward. We speak of this in regards to bandwidth, computer memory, chip performance but too seldom about software. Tumblr, one of the biggest blog platforms today, didn’t change what a blog was, they simply lowered the threshold enough for people to be willing to risk starting a blog (and later these users redefined what a blog was). They removed the risks, of time and money, from the equation and enabled anyone to start blogging. And although hundreds of thousands of blogs never gained more than a couple of visitors, the ones that did would grow in numbers and eventually cater to millions of people every day. Where is Tictail in all of this?

Our ambition is to become the worlds most used and loved e-commerce platform and in our first ten months we’ve taken the first nervous steps in that direction. The e-commerce platform should never be the filter between the idea and the execution, it’s function is to be an enabler. Millions of stores will try and fail to launch their businesses on Tictail and that’s ok because out of those millions, hundreds and thousands of stores that would have never been launched had the cost of failure been bigger, will try and succeed, and create what may well become the future Nike’s of our world. Our mission, as a platform, is never to be the judges or curators who decide which stores we believe in or not, our mission and what keeps us up at night is to provide each and every one of these stores with the best possible tools to tell and spread their story, their product and their brand. The e-commerce landscape will change. A couple of platforms will survive as the winners, they will be top-of-mind and individually they will have their different perks. Tictail will cater to the next generation of online stores, the indie brands and the boutiques. Because the investment of time and money to start and to try is now close to zero, new untried categories of stores will be created. These users will change the concept of an online store through unique stories and products.   Stores driven by storytelling with the help of social media will grow as a group and have the same impact on the e-commerce space as individual bloggers have had on established media in the past couple of years.

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Has the next bicycle for our minds arrived?

Steve Jobs once famously said that "computers were the equivalent of bicycles for our minds". Over the last few years, with the rise of the iPhone and the iPad, smartphones and tablets became our new bicycles. Now, with Google Glass targeting a consumer release by the end of 2013 and growing rumours of Apple working on an iWatch, it looks like a pair of glass and a watch will replace all this. Wearable computing has been dubbed the next big thing in consumer tech and some are already predicting the death of smartphones.

The promise of wearable computing is to take technology out the way and “to save us from ourselves”. While tech gadgets have enhanced our life in many ways, the smartphone in our pocket is also a constant source of distraction and can drive awkward social behaviors (who’s never checked his/her emails while at a dinner party?). At the latest TED conference on Wednesday, Sergey Brin said that “Google Glass will help you to fight the antisocial and emasculating habit of compulsive smartphone checking”. The ambition of Google is what computer scientists are calling ubiquitous computing - “the idea that computers will no longer be devices we turn on, but will be so integrated into our everyday environment that we can ask them to do things without ever lifting a finger” according to a NY times article. In others words, it’s when technology stops interfering in your life but is instead seamlessly integrated in it. If wearable computing devices deliver on such a promise, they could replace smartphones in the next decade. The new gadgets will replace the “old smartphones”.

But then comes a surprising truth: “technology is aging in reverse and thinking that the new is about to overcome the old is just an optical illusion”. These words are from Nassim Nicholas Taleb, the author of the Black Swan. In his new book, Antifragile, Taleb explains that for anything informational or cultural (technologies, ideas, books, etc), as opposed to physical, the old is likely to overcome the new. Think about the bible, the fact that it’s has been there for centuries can make you confident that it will still be here for another couple of centuries at least. If we stick to Taleb’s theory, Glass has actually a higher probability of failure than smartphones. The idea, however, is not to say that Google Glass will fail. After watching the mind-blowing video released last week by Google, it’s difficult not to have the feeling that a future, once only possible in sci-fi movies, has finally arrived. However dismissing the future of smartphones would be as dangerous as predicting the failure of Google Glass. Smartphones and tablets emerged as extensions of our computers. It's very likely that smartwatches and Google Glass will also work as extensions of our smartphones and without them they could quickly become obsolete. 

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Fashion and tech are now in a relationship

It’s fashion week season and the biggest trend coming from the runway is not the color to look out for next winter season but the growing relationship between fashion and technology. This is not a new trend but over the last few years fashion and technology have merged at an accelerated pace. From livestreams to interactive smartphone photography, brands and designers are making their fashion shows more accessible.

Luxury fashion retailers are leading the way in digital innovation and among them Burberry has emerged as the most technology advanced. The iconic UK brand was one of the first brands to live-stream its fashion shows and while many of its competitors are progressively elaborating their online strategy, Burberry recently opened a new flagship store in London designed as a physical manifestation of their website. The store includes the world's tallest retail screen, 550 hidden speakers and smart mirrors turning into screens when needed. This week, they announced a new concept, “Made to order with Smart Personalization”, allowing customers to order coats and accessories directly from the runway. While some argue that the impact of their digital strategy is yet to be seen on their top line, Burberry’s management is convinced that deeply embracing the digital age is the way forward. Technology offers many opportunities for fashion retailers: they can engage with their audience, tell stories and grow their brands through social media. They can also use the ever-increasing amount of data to get insights about their customers and can use those insights to learn what to produce. Finally, they can develop in-store technologies to create unique shopping experiences.

However the growing relationship between fashion and tech works both ways: technology companies are also getting closer to fashion brands. If purchasing an iPhone has become a fashion statement, not everyone is Apple. In a growing but competitive consumer tech market, fashion brands represent the opportunity for tech companies to add a new key dimension to their sophisticated gadgets: the cool factor. At NY fashion week in 2012, models walked the runway at Diane von Furstenberg show wearing Google Glass, the Internet-connected glasses that will show digital information right in front of your eyes. According to the NY times, Google is also collaborating with Warby Parker, a successful e-commerce startup selling trendy eyeglasses at affordable prices, to help them design fashionable frames

The reason why tech and fashion work so well together is because they are both highly aspirational products that are about self-expression. With the rise of wearable computing, described as the next big thing in consumer tech, we’ll be carrying new mobile devices other than smartphones. The style and design of those devices will be as important as their technology.

While some think that the future of fashion lies in a marriage with technology, the opposite could prove to be true as well.

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Online growth is likely to be the primary metric for sorting the winners from the losers among specialty retailers. There are two forces driving the shift from"bricks" to "clicks": Mobile and Amazon.

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Everyone you encounter will have doubts about what you’re doing—investors, potential employees, reporters, your family and friends. What you don’t realize until you start a startup is how much external validation you’ve gotten for the conservative choices you’ve made in the past.

Founders at Work

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The death of traditional retail. Really?

In the first newsletter, I said that my objective was to talk about the evolution of commerce but that I didn’t believe in the complete disappearance of physical stores. The first article I had chosen to illustrate the motivation behind this weekly newsletter was the popular post written by Marc Andreessen about how software is eating the world. Last week, the same Marc Andreessen predicted the death of traditional retail.

From an economic perspective, this statement makes sense: online retailers enjoy significant costs and capital advantages compared to physical stores. With their high fixed rent and labor costs, traditional retailers have narrow profit margins. While today anyone can open up an online store on Shopify or Tictail in a few minutes, opening a physical store requires important upfront investments. Furthermore, by eating an increasing share of total retail sales, e-commerce players are putting even more pressure on their already highly leveraged offline competitors.

Interestingly though, over the last couple of months, there have been numerous articles about some of the most innovative e-commerce players opening stores. In November, eBay experienced with a social pop-up store in London while Etsy did the same in New York. Bonobos, originally a pure online brand, has partnered with Nordstrom (one of the biggest department store company in the US) and is now opening “guideshops”; Fab, the “online Ikea” said that for them the question was not whether they would open a shop in NYC but when. Even Amazon is considering different ways to get more “physical”. 

Several arguments can explain the opening of stores: marketing, branding, logistics, etc but eventually, I believe it all comes down to create the best shopping experience for the customer. The “experience” is one of the three things that matter to shoppers. The two others are “great products” and “great prices”. Today, you can find anything you want online and you are also likely to find the best deals online. But the shopping experience is still very different compared to offline. There are things that are inherent to physical commerce that online commerce has not yet managed to replicate; for example, instant gratification (enjoy the product as soon as you buy it), tactability (experience the product by touching it), relationship with the vendor (although Zappos has being incredibly innovative here). Software-based companies will continue to innovate in those areas but there are things you just can’t change.

My biggest problem with the statement supporting the future death of traditional retail is that it only takes the economic perspective and assumes that shopping is a burden. This is not true. In many cases, shopping is a social activity. Many families and friends go shopping on a Saturday as an activity not because they have to. To some extent, we can compare the rise of e-commerce to the one of Facebook; by connecting us with friends like never before Facebook became an important part of our social life. However, it hasn’t stopped us from going to bars to socialize and I don’t see this changing in a foreseeable future.  It’s just the same for shopping.

Retail is certainly going through massive changes and technology is the main driver behind those changes. Marc Andreessen is right when he says we are only at the beginning of the revolution and that the landscape will dramatically change. But I bet that stores will still be part of this landscape.

source: The Case for E-commerce acceleration

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Just Build It.

"Tomorrow your kids will not wait to receive the new toy they are dreaming of; they’ll design it (and customize it) on a tablet and manufacture it with the 3D printer you’ll have installed next to your iMac (if the Mac is still there). Welcome to the “Just Build It” economy."

2nd edition of my newsletter about the future of commerce. Read it here

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Is Fab the next IKEA?

The Bottom line: In an entertaining slideshow, Fab's CEO tells the 18 months story of its e-commerce company with now 10M members and selling in 26 countries. 33% of their sales come from mobile devices. They are IKEA for the social age.

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Why I'm starting a newsletter.

Digital Culture - Your new breakfast reading. Every Friday.

Why?   While there are many websites, blogs and newsletters talking about technology, startups and the digital revolution, I have the feeling that there are not many sources talking about the evolution of commerce in a consistent way. By commerce, I mean any activities related to stores (physical or online) or products and services that you buy and sell. The Internet is transforming the fundamentals of commerce and the way people were used to do business. By now, most people are more or less familiar with the concept of e-commerce but new “buzzwords” are popping up constantly: mobile commerce, social commerce, digital commerce, showrooming, etc. By selecting the pieces that I find the most insightful and relevant on these topics, I intend to inspire readers and help them to understand what is really going on out there. I want to make one thing clear: I don’t believe in the end of all physical stores and the objective of this newsletter is not to claim that the Internet will eat everything. Yes "Software is eating the world" (a must read) but physical stores can still play a critical role in providing convenience and a unique experience to the shopper and they should continue to do so. However I do believe that traditional stores and retail chains have to reinvent themselves and embrace the latest technologies. Format. I will start by selecting 3 interesting pieces available on the internet every week. I will not necessarily pick the latest news, hence some articles will be several weeks/months old. Eventually, I hope that from one week to another, the newsletter will tell a compelling story. I also plan to write some of the articles myself and to invite guest writers to contribute; feel free to get in touch if you are interested.

Hopefully, you'll now have one more reason to look forward to Friday. George

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By 2020, advertising as we know it will no longer be the primary marketing vehicle used to build brands. Advertising will instead focus on driving...

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The story behind how an ordinary looking East London corner shop was hacked to play a familiar tune whenever anyone picked up a Red Stripe, much to people's surprise.