E-commerce Landscape 2012

U.S. E-commerce Landscape & Trends February 2012Josh Yangjyang@mba2012.hbs.edu Harvard Business Schooltwitter.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 RetailE-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

More Internet users are using the web for shopping, and frequency per user is expected to increaseU.S. E-Commerce Shopper Data (2004-13E)E-commerce Shopper Data Units 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013EE-commerce PenetrationInternet Population [M] 186 195 203 211 217 222 227 231 235 239Online Shoppers [M] 104 117 130 143 153 160 170 176 184 189E-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 StatsShopping Sessions / shopper / month [M] 1.90 1.75 1.88 1.91 1.87 1.99 2.13 2.25 2.38 2.45Average price / session [M] 39.50 41.25 43.00 45.50 45.00 41.00 41.50 43.00 44.00 46.00Product 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

Consumers are continuing to shift retail buying online, at theexpense 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 storesSource: 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

… with the most active online buyers being the most affluentSource: J.P. Morgan Internet User Survey 2010 (http://www.slideshare.net/victori98pt/2011-internet-sector-outlook-by-j-p-morgan) 9

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 new10 QQ Macy’s NewEgg business models have begun to materially11 MSN Barnes and Noble LivingSocial disrupt the e-commerce space12 Linkedin Ticket Master Barnes and Noble – Groupon and LivingSocial have begun top Amazon Home Depot Overstock trafficked sites1314 Taobao Gap Gap – Multiply is a primitive but highly trafficked marketplace serving Southeast Asia15 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

Over time, the e-commerce landscape has gravitated towardwealthy customers and high-margin products (up and to the right) High Margin SKU’s Low Income Wealthy Shoppers Shoppers Low Margin SKU’s 11

E-commerce companies typically have lower operating expenses than offline retailers (Zappos is an exception) • Typically, e-commerce retailing isRepresentative P&L for Several Retailers (Offline and Online)1 cheaper than offline retailing Target Amazon Blue Nile Zappos – Primarily driven by online storefrontsNet Sales $M 63,435 8,490 333 635 being cheaper than offlineCost of Sales % 69.5% 76.0% 78.4% 64.8% • However, this is not always the caseGross Profit % 30.5% 24.0% 21.6% 35.2% – E-commerce start-ups often buy atOperating 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-upsEBITDA % 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

The big players in e-commerce appear to be moving slowly (and tritely), leaving much room for upstarts to play1 • 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 space2 • 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 innovation3 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, but4 recently shuttered that effort and appears to be content driving e-commerce traffic via product search 13

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

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

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

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

Typically, e-commerce business models follow a cycle Description Examples (Flash Sales) • One or several companies develop a new • Gilt Groupe, Vente Privee business modelNascent 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, etcSaturated • In some industries, aggregators can be • MyNines, RowNine Aggregator successful • Criteria include highly fragmented, commoditized products, low emphasis on membership, etc 19

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

One approach to brainstorming new business models is portingoffline 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, WalmartTraditional 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 LBBAlternative 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

E-commerce category analysis shows that apparel and homegoods are fragmented and competitive (Raw Data)Top 500 E-commerce Retailers: Total Average# of Retailers vs. Revenue # of Retailers Category Revenue per100% 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 RetailersNote: Internet Retailer Top 500 Guide, William Blair and Co, Expert analysis 22

Generally, building the right product and marketing it well arethe key factors for a successful retail business Retail Success Factors Building Great “Retail Product” Marketing This “Retail Product” WellDescription • 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 loyaltyKey StepsInvolved 23

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 RetentionGroup • Heavily market • Large sales teams • Simplistic, focuses • Affiliate programs • Email programsBuying discounts working with local on deal of the day • Pay heavily for merchants customer acquisitionFlash 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 trialingOnline • Charity-focused • Unsophistcated • Inspiration board • Affiliate programs • Email programsBrands (Warby Parker) manufacturing (Betabrand) • Referral programs • Sales and offers • Sales and offersSocial • Design-rich, next- • Mostly affiliate • Pinboard layout of • Sharing is easy and • GamificationBookmarking gen browsing (crowd-sourced) top-rated SKU’s natural (Lockerz) experience • Standalone value of • High entertainment creating wish lists value (browsing) 24

There are several shopping needs that e-commerce companieshave 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

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

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 LivingSocialSource: http://online.wsj.com/article/SB10001424053111904491704576575233025971542.html 27

Groupon and LivingSocial’s lead seems to be expanding, as therest of the pack can’t match customer acquisition spendingSource: http://www.readwriteweb.com/archives/over_1_billion_in_daily_deal_value_has_disappeared.php 28

Customers have become disenchanted with daily deals, buyingon 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 altogetherSource: http://www.readwriteweb.com/archives/over_1_billion_in_daily_deal_value_has_disappeared.php 29

The cost of customer acquisition has skyrocketed (and ARPUdeclined) as the daily deal has struggled to attract and retaincustomersSource: (1) http://online.wsj.com/article/SB10001424053111904491704576575233025971542.html; (2) http://online.wsj.com/article/SB10001424053111904563904576589132713012682.html 30

JungleCents is an e-commerce coupon company, sellingvouchers and helping customers discover new retailersRepresentative Partner Retailer Economics per • JungleCents is a Groupon for e-commerce giftTransaction (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 voucher150 – Only e-commerce retailers expecting very 100 5 high uplift (90%+) will be profitable in 48*** these deals100 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 RevenueNotes: * 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 priceSource: (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

The flash sales model is under pressure on the supply side, asremnant inventory levels are decreasing• While todays 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 (Gilts 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

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, 2011Source: Experian Hitwise, August 2011 (http://weblogs.hitwise.com/heather-dougherty/2011/08/huge_growth_continues_for_flas_1.html) 34

… and there is still plenty of start-up activity around flash salesand 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 SKUs 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 isnt 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

Flash sales e-commerce has contributed several customeracquisition 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 membersSource: http://www.quora.com/Why-is-e-commerce-such-a-hot-area-in-venture-capital-now 36

Fab is a flash sales site that has grown quickly, selling severalcategories 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 VenturesSource: (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

Hotel Tonight is essentially a last-minute flash sale for hotelremnant 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 PCs) and 4 taps for subsequent reservations (vs. 100 on PCs) – 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 RoundSource: (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

oBaz is a crowdsourced haggling service, allowing users tospecify 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 2011Source: http://techcrunch.com/2011/11/09/lightbank-backed-haggling-platform-obaz-shifts-focus-to-product-discovery-and-curation/ 39

Blippy pivoted earlier this year to Heartsy.me, a flash sales sitefor 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 smallSource: http://techcrunch.com/2011/07/05/blippys-new-direction-daily-deals-for-artisanal-goods-at-heartsy-me 40

While subscription e-commerce has received hype, the jury’sstill 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 ShoeDazzles 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

Subscription e-commerce offers consumers one or more ofseveral 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 brandsSource: http://robgo.org/2011/08/27/what-will-the-big-winners-in-subscription-commerce-look-like/ 43

The most popular subscription e-commerce sites can bemapped by demo and sizeSource: http://socialcommercetoday.com/subscription-commerce-the-infographic/ 44

ShoeDazzle was a frontrunner in the subscription e-commercespace, 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 PolarisSource: http://venturebeat.com/2010/04/27/shoedazzle-raises-13m-as-kim-kardashian-hawks-its-footwear/?obref=obnetwork 45

Justfab and Beachmint have also taken the celebrity-curationsubscription 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 $5MGross Revenue (monthly) $ 3,000,000 – Beachmint launched a live video channel on# of Members 3,000,000 Facebook for Cyber Monday 2011, with celebritiesMonthly Revenue / Customer $ 40.00 discussing products in a direct-response TV# of Subscribing Customers 75,000 format. This garnered more than 50k viewersCustomers as % of Members 2.5% – Beautymint garnered 500k visitors on first daySource: (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

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 NextviewSource: (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

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 LevySource: (1) http://techcrunch.com/2011/09/07/battery-leads-4-7m-round-in-floral-delivery-service-h-bloom/ 48

Blissmobox is a subscription site for organic / health goods, witha 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 competitorSource: http://www.springwise.com/eco_sustainability/environmentally-socially-responsible-products-monthly-curated-box/ 49

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 onlySource: (1) http://www.fastcodesign.com/1665114/for-25-quarterlyco-delivers-designer-curated-gifts (2) http://www.springwise.com/retail/notanotherbill/ 50

MeUndies is a premium underwear company based in BeverlyHills • MeUndies sells premium underwear • Prior to launch, they have as many Twitter followers as Manpacks • No reported fundraisingSource: Meundies.com 51

Companies like Birchbox have seized the opportunity to packagesamples (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

Birchbox is one of the best publicized subscription e-commercecompanies 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

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

… 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 / SKUsHow 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

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

C2C marketplaces have become a popular start-up modelrecently, 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

Many C2C marketplaces have sprung up over time (manyinspired by Craigslist use cases)Source: http://techcrunch.com/2011/06/05/will-airbnb-ever-be-the-airbnb-for-x/ 59

C2C marketplaces tend to fall into three broad categories Category Description Examples • Consumers selling used or new goods to other • Ebay, Amazon Marketplace, Etsy Hard goods consumers • Poshmark, Keepio, Hipswap purchases • Traditionally, transactions are all remote (i.e., products are shipped) • Several start-ups are attacking this market via mobile (e.g., Hipswap) • Traditionally, C2C online rental / borrowing of hard • AirBnB, Wimdu Hard goods goods has been difficult to execute • Getaround, RelayRides rentals • Lately, several start-ups are creating marketplaces • Qraft to allow rental of personal assets (e.g., homes, cars) • Consumers and semi-professionals selling services • Uber (rides), Cherry (carwashes) Services to other consumers (e.g., skills, lessons) • Zaarly, Gigwalk, TaskRabbit, Coffee & • For services of on-going patronage, easy to take Power (tasks / jobs) on-going transactions offline to avoid marketplace • Skillshare (lessons), Sittercity (babysit) fees • Munchery, Gobble (personal chefs)Source: (1) http://techcrunch.com/2011/11/08/max-levchin-keith-rabois-and-davis-sacks-back-the-uber-for-carwashes-cherry/ (2) http://techcrunch.com/2011/09/11/shopr-connects-buyers-and-sellers-on-twitter/ (3) http://www.springwise.com/retail/keepio/ (4) http://techcrunch.com/2011/06/15/google-ventures-backed-copious-launches-a-social-marketplace-for-the-facebook-era/ 60

Poshmark is one of several start-ups trying to disrupt hard goodpurchase marketplaces, with an easy mobile posting process • Poshmark is a C2C marketplace for hard goods – The entire buying and selling experience occurs over the mobile app – Poshmark’s angle is to make posting items for sale extremely quick and easy • Poshmark also makes handles payments and shipping security in a smart way – Buyers submit payment info on purchase – Sellers receive payment only when the item has been shipped – Poshmark emails a printable label to sellers upon the item sale – Partnered shipping companies track the shipping status • Raised $3.5M from Mayfield, SV, and SoftTech • Keepio and Hipswap are just two competitorsSource: (1) http://venturebeat.com/2011/12/06/poshmark-ecommerce-mobile/ (2) http://www.vccircle.com/500/news/kaboodle-team-launches-poshmark-raises-35m-funding-led-by-mayfield 61

Several hard good rental marketplaces are highlighted below • AirBnB is the prominent brand among hard good marketplaces, allowing consumers to rent out homes on a nightly or weekly basis. They recently expanded to several-month sublets. • AirBnB is also thinking about car-sharing services (e.g., host rents out house AND car) • International competition includes 9flats, Wimdu, Crashpadder, Couchsurfing, etc. • Unlike Zipcar (which manages its own fleet of cars), Getaround and RelayRides allow consumers to rent out their cars to other consumers. • Getaround takes a 40% commission on rent fees, but offers insurance, roadside assistance, and support. 5,000+ cars signed up (more than half of Zipcar’s fleet) and “tens of thousands” of users; raised $3.4M from Redpoint, General Catalyst, and prominent angels. • RelayRides takes 35% (but 20% goes to insurance) commission on rent fees. Raised $13M+ from General Motors Ventures, Google Ventures, August Capital, and others • Qraft is a C2C rental marketplace for “toys” – boats, RV’s, cars, bikes, planes, gear • Prices range from $10 to $10,000 day • Qraft will need to do deal with insurance and license issues for several types of rentals, as well as consumer skepticism and distrust over lending out these toysSource: (1) http://techcrunch.com/2011/09/13/qraft-the-airbnb-for-planes-trains-and-automobiles-and-by-trains-i-mean-boats/ (2) http://techcrunch.com/2011/09/09/car-rental-marketplace-getaround-gets-around-3-4-million/ (3) http://techcrunch.com/2011/10/26/carsharing-service-relayrides-raises-another-3-million-led-by-gm-ventures/ (4) http://techcrunch.com/2011/10/31/airbnb-is-thinking-about-going-after-getaround-with-car-sharing-service/ (5) http://techcrunch.com/2011/09/01/airbnb-launches-sublets-tempts-early-adopters-with-200-off-each-months-rent/ 62

Several services C2C marketplaces are highlighted below • Zaarly, Gigwalk, and Taskrabbit focus on allowing the buyer to post jobs and set prices rather than the seller. • Zaarly has raised $15M, Gigwalk $1.7M, and TaskRabbit $6M • Skillshare is a marketplace allowing people to post lessons and consumers to purchase these lessons (e.g., knitting, tennis, coding); raised $3M+ from Union Square and Spark Capital • Coffee & Power launched in November 2011 as a skill-based jobs marketplace, allowing sellers to post jobs they’re willing to do; raised $1M from Jeff Bezos, Greylock, Mitch Kapor, and others • The Amazings and Dabble are similar, but Amazings is focusing on a niche (starting with retirees) • Gobble and Munchery allow personal chefs to post menus, sell meals ($12-22), and specify delivery areas online; consumers can search chefs by city, review chefs, and pay online • Gobble has raised $1.2M from Founder Collective, SV Angel, and prominent angels • Vayable and Shioube allow consumers to offer guided experiences / tours to other consumers (e.g., local home-cooked meal, pub crawl, tour, etc) • Vayable requires a 15% commission fee on sellers and a 3% transaction fee from buyers • SideTour just raised $1.5MSource: (1) http://techcrunch.com/2011/04/22/vayable-is-a-marketplace-for-unique-travel-experiences/ (2) http://techcrunch.com/2011/05/03/munchery-wants-to-bring-personal-chefs-to-the-masses/ (3) http://www.fastcompany.com/1787106/shiroube-makes-travel-social-cheap-weird (4) http://techcrunch.com/2011/11/01/second-life-founder-launches-coffee-power-a-jeff-bezos-backed-marketplace-for-skill-based-jobs (5) http://techcrunch.com/2011/10/17/from-graffiti-lessons-to-olympic-luging-sidetour-raises-1-5-million/ (6) http://www.springwise.com/lifestyle_leisure/uk-retirees-paid-share-skills-group-activities/ (7) http://www.springwise.com/lifestyle_leisure/online-community-marketplace-lets-users-discover-teach-host-class/ 63

“Online brands” have grown in recent years, as consumersbecome more comfortable discovering new products online• Online brands are start-up product brands (typically apparel) that have decided to leverage the Internet as a channel over traditional offline retail (sometimes in conjunction) ‒ Brands have only recently been able to grow a large enough presence and scale quickly using online as the channel instead of offline, due to the proliferation of social media ‒ Key benefits for brands going online include ability to get consumer feedback prior to production and better margins than offline retail, but requires marketing and production competency• Bonobos, ModCloth, 20x200, and Warby Parker are brands that have largely begun online and gone mainstream. Start-ups in the space include ‒ Net-a-Porter just partnered with Karl Lagerfeld to launch a new online fashion brand called Karl ‒ Everlane has not even launched publicly (as of Nov 2011) and has generated a lot of hype in Silicon Valley ‒ Betabrand is trying to bring the H&M model online, iterating quickly on new 4-6 new SKU’s per month and introducing them in small batch sizes. They also crowdsource design ideas ‒ WildFox, Nau, and Eliza Parker are just a few in a long list of smaller up-starts• There is also opportunity for influential online content producers (e.g., bloggers, Youtube celebs) to pivot into manufacturing products, but many of these creative people are scared off by the complexity of manufacturing operations 65

Betabrand is bringing the H&M model online, iterating quicklyon new 4-6 new SKU’s per month • Betabrands uses an in-house design team and crowdsourced photos to quickly release new “inventions” – Manufacture locally in San Francisco in small batch sizes – This model allows Betabrand to quickly test customer demand for new designs • Released the “Model Citizen” product in May to allow users to upload photos of themselves – 1,000+ photos have been uploaded since, averaging 20 click-throughs per Facebook share – On average, 10% of click-throughs result in a Betabrands purchase – Therefore, Model Citizen has driven 2,000 purchases in 4 months, or $200k revenue (annual run-rate of $600k, assuming $100/transaction) • Raised $1.3M to-date from O’Reilly Alpha Tech Ventures and MoradoSource: (1) http://techcrunch.com/2011/04/27/cult-clothing-line-betabrand-pockets-1-3-million-from-oatv/ (2) http://www.fastcompany.com/1783906/betabrands-building-a-business-on-balderdash-and-memes 66

Everlane is another online brand, drumming up demand viasocial media and connections in the tech community • Everlane is also creating an online brand, for American Apparel-style clothing – Marketing a new line of clothing each month that only lasts for one month – Everlane is focused on offering expensive products at low prices, claiming that they’ll never charge more than $100 for an item • Raised $1.1M to-date KPCB, SV Angel, Lerer, Betaworks, and top angel investorsSource: http://techcrunch.com/2011/10/07/kleiner-perkins-sv-angel-back-personalized-designer-quality-e-commerce-platform-everlane/ 67

MUUSE is a premium online brand allowing customers to votefor upcoming fashion concepts from top design schoolsSource: http://www.springwise.com/fashion_beauty/designs-worlds-top-fashion-order/ 68

While MUUSE is still very early-stage, its traffic has grownquicklySource: AngelList presentation (http://angel.co/muuse) 69

E-commerce has tried to personalize retail in multiple ways Description Examples • Focused on customers searching for relevant • Amazon, Zappos Traditional E-RetailingGeneric SKU’s products (recommended SKU’s) • Many sites have recommendation features (e.g., “people who viewed this product also …”) • Traditional e-commerce sites integrating sharing • Abe’s Market, FriendBuy Social features (“people buy what their friends buy”) • Blippy, Swipely Recommendations • Start-ups focused on sharing e-commerce purchases to social graph • Start-ups using influential curators as branding or as • ShoeDazzle, BeachMint, OpenSky, Non-personalizedPersonalization affiliates Boutiques, Quarterly.co Human Curators • Start-ups with tasteful in-house buyers (“curators”) • Ahalife, Everlane • E-commerce sites using quizzes or behavioral data to • ShoeDazzle, Justfab, SendTheTrend Personalized Machine show different customers different SKU’s Curator • Art.sy, FashioningChange Personalized Human • E-commerce sites using human curators to show • Trunk Club, CakeStyle different customers different SKU’s CuratorRelevant SKU’s • Products customized via a web interface and sold on- • Nike ID, Gemvara, Chocri, Blank- Product Label, BlueNile, Cafepress demand Customization

Curation is driving increased perception of personalization, but the truest forms of personalization (Trunk Club) are difficult to scale E-commerce Personalization Mapping • Machine curation (left quadrants) are easiest to scale, but don’t inspire as much perception of personalization as human curation UniquePersonalization of SKU’s shown • Human curation delivering unique products Decent customer Good customer to each customer (upper right) is much experience, experience, more difficult to scale, as it requires one-to- low cost high cost one interaction between curators and customers • Human curation delivering generic SKU’s to each customer (bottom right) are more Generic Customers following scalable but don’t inspire as much Not personal, tastemakers, perception of personalization as the Trunk low cost medium cost Club model Machine Human Curation Source

Send The Trend personalizes product recommendations atusers based on a style quiz, and categorizes products by trend • Send the Trend creates a “gallery” of products the user may like – Also allows users to shop by trend (e.g., “Back to School” page shown) • Users can share this gallery as their own “online stores” with friends, and receive a $10 credit for each transaction • Raised $3M from Battery, Founder Collective, and othesSource: (1) http://techcrunch.com/2011/07/25/sendthetrend-allows-you-to-create-a-curated-online-store-of-accessories/ (2) http://techcrunch.com/2011/05/02/send-the-trend-raises-3m-to-personalize-shopping-for-fashion-accessories/ 73

Fashioning Change is an e-commerce site offering suggestionsfor green alternatives to the products users indicate preferring • Fashioning Change is building a Netflix-style engine to tag products with style and eco features – Users indicate which brands and products they find appealing – The engine then finds similar products (taste-wise) that are more eco-friendly • Founded by Adriana Herrera and Kevin Ball and based in Founder’s Institute San DiegoSource: http://techcrunch.com/2011/11/28/fashioning-change-launches-netflix-style-recommendation-engine-for-green-shopping/ 74

Shoptiques curates fashion inventory from boutique retailersand sells to an exclusive community of members • Shoptiques takes inventory from local boutiques, but sells on consignment (doesn’t own inventory) – Handle all photography on its own – Membership is very exclusive currently • Founded by Olga Vidisheva (HBS ’11) • Just got accepted into Y-Combinator’s new class after working out of Dogpatch NYCSource: http://www.businessinsider.com/startups-y-combinator-2012-12 75

CakeStyle is an upstart Trunk Club for women • Based in Chicago, CakeStyle launched in November 2011 as a Trunk Club clone for women • CakeStyle buys from designers like Kate Spade, Elie Tahari, and Rag & Bone at wholesale prices then stores in warehouses – Personal stylists coordinate with customers to understand their taste then send seasonal boxes of clothes that can be easily returned – Each shipment costs on average $2,000-3,000 for the client – Shipments are sent once per season • The big question is whether or not women hate shopping as much as men, enough to want someone else to do their shopping for themSource: http://techcrunch.com/2011/11/01/cakestyle-is-a-personal-shopping-service-for-women/ 76

Customization has slowed as a trend, as the model hasgenerally failed to gain traction and prove scalability• Co-creation e-commerce isn’t new but has begun to enter the mainstream recently – Co-creation sites allow consumers to design their own products for purchase and/or buy products others have designed – CafePress launched in 1999 to allow users to design custom t-shirts, mugs, and accessories. Later, start-ups like Zazzle, Skreened, StickerGiant, and Lulu emerged offering easy-to-customize products – Several co-creation companies have taken off from Germany in recent years (e.g., Chocri, Spreadshirt) and have expanded to the U.S. and UK• Co-creation companies typically become cash-flow positive quickly because customized products sell at a premium and are sold on-demand (i.e., there is no excess inventory)• To date, start-ups riding the co-creation wave have primarily been e-commerce destination sites focused on a particular product category (or group of categories), and employ one or more of several business models: – Consumers design, then buy their own products (e.g., NikeID, BlueNile, Chocri, Blank-Label, Shirtsmyway, etc.) – Consumers buy products designed by other consumers or indie designers (e.g., MyFab, ModCloth, Threadless, etc.) – Consumers connect with manufacturers and co-design offline (e.g., Custommade)• Two problems the co-creation market faces today are scalability and design-manufacturing accuracy – Scalability. Companies will need to be creative about how to scale their businesses as consumer demand increases, since it will be harder for manufacturing to benefit from economies of scale – Design-manufacturing accuracy. Despite strong user interfaces allowing users to design their own products, a fraction of users will be dissatisfied with how the product actually turns out (i.e., requires stronger, more accurate UIs)Source: (1) http://www.readwriteweb.com/start/2010/03/is-america-on-the-verge-of-a-co-creation-invasion.php (2) http://www.crunchgear.com/2010/07/21/new-wave-of-web-services-brings-customization-to-commerce/ 77

Several companies have interactive features allowing users todesign their own clothing and transact List Not Exhaustive • Offers an interactive tool to allow consumers to choose design and fitted sizes of shirts in the $60-100 Blank-Label range (per shirt) • Launched in Oct 2009, based in Shanghai; had supply chain issues in May 2010 when it reached 1,080 unique customers with $100k+ revenue for the month • Claims that the most important feature for consumers is the fitting; however, very few consumers know their measurements (need to go to a tailor to get these numbers) ShirtsMyWay • ShirtsMyWay is a competitor with a stronger user interface and better selection but more expensive ($100-150 price range) • Customized clothing for girls age 6-12, allowing designers to select variety of clothing items FashionPlaytes (sweaters, shirts, etc.) with variety of colors and designs • Canada-based retailer offering custom tailored suits online starting at $199 IndoChino • Funded by Burda Digital Ventures and Boris Wertz • Threadless is a T-shirt design site allowing users to submit t-shirt designs and the community to vote Threadless and buy top design tees • Spreadshirt is similar to Threadless but more focused on allowing designers to open shops than for Spreadshirt community-voted designsSource: (1) http://www.crunchgear.com/2010/06/18/shirtsmyway-design-your-own-dress-shirt/ (2) http://techcrunch.com/2008/04/29/indochino-offers-tailor-made-suits/ 78

A few others apply customized e-commerce to other categories List Not Exhaustive • Allows users to design their own chocolate bars (ingredients inside) a la Pinkberry Chocri • Minimum order of two bars; available for bulk purchases for weddings, events, retail, etc. • Allows users to design their own boxes of granola-based cereal a la Pinkberry MeAndGoji • Primarily focused on allowing users to design iPad and iPod skins with any picture, but have expanded Infectious to other categories such as skateboards, car decals, wall decals, t-shirts, art prints, etc. • Raised $750k in seed funding in 2007 from True Ventures • Allows users to design t-shirts, mugs, binders, posters, etc. Zazzle • Allows users to design their own handbags starting at $85; top designs are saved for others to buy LaudiVidni • Rickshaw Bagworks is similar company BlueNile and • Allows users to design their own jewelry, including rings, gems, necklaces, earrings, bracelets, etc. Gemvara Shortomatic • Allows users to design their own swimming trunksSource: (1) http://scg.mit.edu/index.php?option=com_content&view=article&id=84:the-mit-smart-customization-seminar- 2010&catid=35:smart-customization-events&Itemid=109; (2) http://www.nytimes.com/2010/05/16/business/16proto.html?_r=1 79

UPcload is building a technology to allow users to easily gettheir full clothing measurements ingested into the cloud • One of the key problems facing e- commerce customization is the difficulty in fitting precisely • UPcload ships consumers a standard-sized CD for calibration, and UPcload software calculates sizes using a webcam – Specific measurements of arm length, chest circumference and more are calculated and converted into reliable clothing size recommendations • Based in BerlinSource: http://www.springwise.com/fashion_beauty/online-shopper-clothing-size-profile-webcam/ 80

Crowdsourced demand e-commerce companies have raisedgood funding, and social bookmarking could be the next wave • For years, companies like ModCloth, FashionStake, and MyFab have tapped the wisdom of the crowds to validate upcoming product designs and sourcing decisions – Younger start-ups like MUUSE (and to some extent, Betabrand) also crowdsource demand for new designs – However, to solicit feedback on upcoming products from the crowds, these companies have to drive traffic to their voting pages, which is not easy and requires on-going marketing – Thus, these become relatively difficult to scale • The current social bookmarking phenomenon is more appealing to users and perhaps evolving into e- commerce applications, although it is less flexible in predicting demand – Pinterest’s fast traffic growth indicates that social bookmarking is an activity that appeals to consumers – Users seem to enjoy bookmarking “things” from around the web, perusing others’ bookmarks, and voting and commenting on bookmarks – While market leaders Pinterest, SVPPLY, and TheFancy direct users’ attention to “pins” that link to e-commerce sites (and collect affiliate revenue), they have not attempted to be retailers – Smaller upstarts have begun to recognize the connection between browsing bookmarks and buying: Lockerz and Curisma are both sourcing their own products 82

Quirky allows consumers to submit product ideas, incentivizes the crowdto vote (with royalties), and manufactures the highest voted products • Quirky allows consumers to submit product (“invention”) ideas for $10, and if the product becomes manufactured offers perpetual royalties – The community votes products up and down – 30% of gross revenue is shared with those who participated (35% to inventor, 65% to those who voted) • Raised $23M to-date from Norwest, RRE, and othersSource: http://techcrunch.com/2010/06/30/modcloth-funding/ 83

MyFab crowdsources product design and allows consumers tobuy these products direct from China factories Idea Product Transaction Manufacturer Designer Retailer Consumer (Factory) • Showroom costsTraditional Furniture Retail Model • Catalog costs• Customer demand projected by historical sales (causing • Inventory costs / risk unsold inventory) • Warehousing costs• Still ideal for big brand manufacturers • Transportation costs Product Manufacturer Consumer (Factory)MyFab Model MyFab• Customer demand projected by Idea (Retailer) Transaction and user voting and on-demand orders (causing no unsold inventory) Product Feedback• Ideal for small / indie designers Designers: 84

Like MyFab, ModCloth is an indie clothing company that crowdsourcesclothing design and allows consumers to vote on designs to manufacture • ModCloth takes clothing designs from indie designers and its buyers select top styles to manufacture and sell on its site – Like MyFab, ModCloth empowers the designer community to submit designs and users to vote on the best designs in order to gauge demand before production – Unlike MyFab, ModCloth does not produce on-demand; rather, their model attempts to minimize unsold inventory via user voting, but still holds inventory and warehousing, “making bets on a wide variety of products” – Consequently, MyFab shipment timeframes are standard 1-5 day periods (because not on-demand) • However, ModCloth seems limited as a crowdsourcing platform in that they have a threshold number of products they will ever want to display on the site (and threshold number of buyers reviewing designs), which creates a ceiling for the number of designers that can be “empowered” to submit designs – This, in effect, makes them a niche retail brand outsourcing its design to indie designers (e.g., a longtail Zara) • ModCloth launched slowly in 2002 but has ramped in the past few years – Achieved $3.2MM revenue in 2008, scaled to $19MM in 2009, and is expecting much stronger growth in 2010 – Raised $19.8MM Series B in June 2010 from Accel and existing investors Floodgate and First Round CapitalSource: http://techcrunch.com/2010/06/30/modcloth-funding/ 85

Lockerz is also a social bookmarking site, but uses gamemechanics to incentivize activity and sell discounted goods 19M+ registered members and 45M+ monthly unique visitorsSource: http://techcrunch.com/2011/08/10/lockerz-opens-up-social-commerce-and-sharing-network-to-non-members-signs-deal-with-emi 86

Curisma is a social bookmarking tool (like Pinterest) that alsooffers daily deals • Like Pinterest, TheFancy, and SVPPLY, Curisma is a browser bookmarking tool – The tool is focused on bookmarking e- commerce items, though, as it requires the user enter the product price range – The site allows users to follow others and re-pin (“want”) others’ items, or indicate that they already own (“have”) them • Curisma is sourcing and selling daily deals to Curisma users, inspired by what people are pinning – They claim that daily deals are personalized based on the things users pin or like • Founded by two MIT grad students (Fatma Yalcin and Eugene Gorelik)Source: http://techcrunch.com/2011/11/27/curisma-offers-diy-coolhunting/ 87

Lyst is a premium e-commerce bookmarking site, allowingauthenticated designers to add new SKU’s • Unlike Pinterest and others, users cannot bookmark new products to the site – Only authenticated designers and super- users can add new products – Products are purchased off-site, so Lyst likely takes affiliate cuts of conversions – Users, however, can re-pin (“Add to Lyst”) products to their own “lysts” • Ultimately, Lyst’s model is similar to a consignment-only store, taking no inventory risk and operating on affiliate revenues – However, Lyst approaches online retailing from a wish-list and impulse buying perspective, rather than a search-and- catalog perspective • Lyst has a decent Facebook following (40,000 likes), having only launched in Sept 2011 in London • Raised an undisclosed amount from AccelSource: http://techcrunch.com/2011/09/16/lyst-comes-out-of-the-closet-to-open-up-high-fashion-world/ 88

A few variations of the rental model have been applied online, but few have been runaway successes Note: Models not mutually exclusive Pure Rental Rent-to-buy Peer-to-peerDescription • Sites employing a traditional • Sites allowing renters to keep • Sites allowing one user to rent to rental model products another user • Renter pays, receives shipped • Renter pays, receives shipped • Some sites allow payment, others product, returns by due date product, has option to return the are free (often using set return package) product or keep it for a “buy price”Key Players(sample) Source: (1) BV Capital / Crate&Barrel Conference Presentation (August 2010); (2) http://worldaccordingtocarp.wordpress.com/2010/02/01/the-new-golden-age-of-renting/ (3) http://techcrunch.com/2011/08/21/luxemi-is-a-rent-the-runway-for-indian-clothes-and-jewelry/ 90

Art seems to be a good category for a rental service • Art e-rental addresses a large market, as the average homeowner has several pieces of art and often grows tired of the same art – Also lightweight and easy to ship both ways • TurningArt charges customers $10-30/month and sends them a frame and initial art piece – Customers can send art pieces back to TurningArt and request a new piece at their own frequency with free shipping – If users want to keep the piece, they can buy the art (and previous rental spend counts as credit toward this buy) – Based in Boston, TurningArt raised $750k in May 2011 – Artsicle is a direct competitor • Art.sy has an increased focus on art discovery, building the Art Genome Project to tag each art piece with ~200 characteristics – Is this overkill for art? The business model is unclear as they are still in private beta – Art.sy has raised ~$1.5M from prominent angelsSource: (1) http://www.finsmes.com/2011/05/turningart-secures-750k-seed-funding.html (2) http://mashable.com/2011/03/01/artsicle/ 91

Although auctioning is a time-tested commerce model offline,it has not fared well online to-date • While auctioning is a real, time-tested commerce model offline, its transition to online has been difficult. Online auctions havent proved to be a better value proposition than normal e-commerce retailing models – Auctions dont necessarily make products cheaper for buyers, and auctions take more time and attention for buyers, with the possibility that they end up losing on auctions they spent time on – Offline, auctions are typically used for charitable purposes or for letting the "market" determine prices when pricing is ambiguous. – Additionally, they are typically social events and done in real-time with large groups, an experience not replicated online to-date • Several companies in the auction space have shut down or pulled back – eBay, which has long been the leader in auction-based e-commerce, appears to be shifting away from the auction model and toward a traditional “buy-it-now” model “… Initially, eBay started selling long-tail inventory and they sold it in an auction format and that made sense at the time. Today, eBay is 30-35 percent auctions. A lot of the inventory on eBay today is brand new …” John Donahoe, CEO, eBay (June 2, 2010) – Swoopo (and clones Bigdeal, Madbid, etc) were penny-auction sites that charged small fees (1 to 25 cents) for users to bid on items, but this overhyped model has hit the deadpool amidst scam talks – CharityBuzz brings the niche charity auction model online, but has scaled slowlySource: http://d8.allthingsd.com/20100602/john-donahoe-session/ 92

Miscellaneous E-commerce Start-ups 93

Sneakpeeq is like a flash sale site, but has a unique pricingscheme which feels a bit too much like Swoopo • Sneakpeeq sells merchants’ goods on its site as any other flash sale site would, but covers the sales price (see orange button below) – Once a user clicks on the “peeq” button, the current price is revealed – Each successive “peeq” drops the price until the unit has been purchased, and the price will reset to its original starting price • This gamified pricing scheme can be helpful to drive additional engagement, but there are several problems: – Feels very “sketchy” a la Swoopo – A savvy customer knows that she’s just doing extra work to get the product down to the price she’d pay on a normal flash sale site • Sneakpeeq has raised $2.7MSource: http://techcrunch.com/2011/05/23/sneaqpeeq-is-the-social-shopping-mall-where-as-you-shop-the-price-drops/ 94

mydeco is a furniture-focused e-commerce marketplace with a3D home design tool for consumers to visualize product pairings • Mydeco began as a 3D home design tool website and has gradually shifted to a marketplace – Users can create elaborate rooms with mydeco’s sophisticated design tools – Others can view users’ rooms with tagged products • Mydeco is also launching a new e- commerce site where it curates a small number of boutique furniture brands • Raised over £10M from BV Capital and EVC PartnersSource: http://eu.techcrunch.com/2011/11/23/mydeco-designs-itself-a-new-direction-as-a-retailer/ 95

Monocle Order is a members’ club, specifically for sunglasses • Monocle Order is a members’ club for sunglasses – Upon the first purchase (at full retail price), the customer gets 50% all future purchases (and free shipping) • This model may be interesting in that it incentivizes a few things: – Alleviates consumer pressure from paying full-price on the first item (high-margin), as they anticipate future benefit from this first purchase – Incentivizes consumers to buy from your store vs. others for future purchases (as long as the 50% discount price is slightly lower than competitors but still a profitable transaction)Source: http://techcrunch.com/2011/05/23/sneaqpeeq-is-the-social-shopping-mall-where-as-you-shop-the-price-drops/ 96

Joyus is an online video site with e-commerce focused onwomen’s goods • Joyus is attempting to bring the Home Shopping Network model online – Users find sales on Joyus.com, each of which centers around a 2-3 minute video with direct links to products in inventory – Below the video, users can browse all products mentioned in the video in a catalog setting – Purchases are completed on-site • Amassed over 11k Twitter followers • Raised $7.9M from Accel, Harrison Metal, and othersSource: http://www.fastcompany.com/1781405/joyus-fashion-video-commerce-fabulous 97

Snapsort is building sleek product recommendation destinationsites by vertical, based on user-inputted product criteriaSource: http://techcrunch.com/2011/08/19/snapsort-raises-500k-to-expand-its-product-recommendation-engine/ 98

Mobile e-commerce is a large nascent opportunity, but mobilebrowser sites and poor apps leave several unmet needs open• Today, e-commerce is not a popular activity on tablets (even less on mobile phones), rated as one of the lowest use cases in surveys ‒ Tablet usage is still in early stages, and consumers are focusing on core use cases (e.g., reading, gaming) over other use cases more prevalent on PC (e.g., word processing, e-commerce) ‒ E-commerce companies are not investing heavily in mobile, and so the experience on tablets is subject to poor browser experience or uninventive one-off apps, and the lack of a hard keyboard makes the check-out process cumbersome ‒ In the current app-heavy environment, the need to download multiple apps from each e-commerce retailer a user likes is cumbersome• However, the mobile e-commerce opportunity on tablets is massive as these devices begin to proliferate; and for tech-savvy user groups, e-commerce is viable as a use case on tablets (see Fab.com study)• To help solve the problems in mobile e-commerce, a few companies (Google, TheFind) have quietly released early-stage apps in 2011 ‒ They aggregate several retailers’ offline catalogs into one downloadable app, and users can peruse catalogs, click-through to buy on retailers’ sites, and bookmark favorite products ‒ However, these efforts are early-stage (small user and retailer bases), and don’t seem to command much focus from Google and TheFind 100

The mobile e-commerce opportunity is potentially a hugemarket, particularly as tablets continue to proliferate U.S. Tablet Installed Base Forecast The installed base of tablets in the U.S. is expected to grow from roughly 15-20M in 2011 to nearly 50M by 2014Source: Yankee Group – Consumer Connected Devices Forecast, Dec 2010 (http://web.yankeegroup.com/rs/yankeegroup/images/2011-tablet-forecast-snapshot.pdf) 101

However, e-commerce is not a popular activity on tablets todayPercentage of Tablet Owners Using Tablet for Each Activity • Shopping is a favorite activity of(n = 1,430 tablet owners) consumers in the real world and even more so online – Traditionally, shopping has occupied 5-9% of consumers’ time spent (free time) in the real world – On PC, shopping as a percentage of online time spent has hovered in the 6-10% for several years • However, shopping is one of the least popular use cases of tablets to-date1 – According to AdMob’s April 2011 survey, only 42% of tablet users had ever used their device for e- commerce related activities Note: 1 Reliable data regarding e-commerce time spent on tablets is not yet available Source: (1) Google AdMob survey, April 2011 (http://blog.roound.com/post/4531115079/research-accounted-for-78-of-time-spent-on-tablets) (2) Bureau of Labor Statistics (http://www.bls.gov/news.release/atus2.t01.htm) (3) Annual consumer survey conducted my top management consulting firm (latest in December 2010) 102

There are several reasons why e-commerce is not moreprevalent on tablets today • Many tablet buyers have one or two key purposes for purchasing tablets (e.g., reading, playing Still early games, watching videos) and still have not explored the full potentials of their tablets • As a result, common PC activities such as word processing and e-commerce are still being neglected on tablets (regardless of the quality of the user experience) • To-date, consumers have heavily preferred app experiences over browser experiences on tablets Poor browser (evidenced by the proliferation of app stores) experience • Leading publishers, social networks, and gaming companies have opted for app experiences over investing in optimizing their mobile browser experiences • A leading cause of e-commerce shopping cart abandonment is customers becoming disenchanted No keyboard by the seemingly thousands of address and 16-digit credit card number fields they have to fill out • This problem is accentuated on tablets • Some e-commerce companies who have recognized that browser experiences on tablet are subpar Uninventive apps have created tablet versions of their site • However, by and large, these are uninspired efforts that simply take a website’s basic design and “tabletize them” (e.g., adding a simple swipe or pinch feature) • The average e-commerce customer browses through multiple e-commerce sites App fatigue • On PC, getting from one e-commerce retailer to another is as easy as typing in a quick URL • However, on tablets, this same behavior would require downloading a new app for each retailer a user is interested in, and each with different levels of product sophistication 103

Consumers agree, citing poor shopping experiences anddifficulty entering checkout informationNote: Based on Forrester/Bizrate Insights Q2 2011 Tablet Commerce Flash Online SurveySource: Forrester Why Tablet Commerce May Soon Trump Mobile Commerce, July 2011 104

Of those who have downloaded shopping apps, retailer-specificapps are the most popular but are not a sustainable solutionNote: Based on Forrester/Bizrate Insights Q2 2011 Tablet Commerce Flash Online SurveySource: Forrester Why Tablet Commerce May Soon Trump Mobile Commerce, July 2011 105

Crafting a mobile experience is still far-off for most e-commerce retailers (87% do not have a mobile program today)Source: Forrester, 2011 Online Retail Technology Outlook (Jan 2011) (http://www.forrester.com/rb/Research/2011_online_retail_technology_investment_outlook/q/id/58435/t/2) 106

Less than half of the top 30 e-commerce retailers have iPadapps, and none have iPad optimized websitesSource: http://techcrunch.com/2011/12/05/retailers-arent-ready-for-ipad-shopping-trend/ 107

Though e-commerce is not a popular use case for tablets yet, conversion rates can potentially be high • Fab presented raw data (in blue font) after only 1 week of launch, and estimated conversion rates across platforms showed that iPad (browser) was higher than Windows PC’s and just lower than MacsOperating System (Stats for Week 1) Visits % of Revenue Est Revenue # of Conversions Conversion RateMacintosh 196,092 57.95% 208,861 2,089 1.065%Windows 190,566 31.08% 112,018 1,120 0.588%iPhone 53,947 3.61% 13,018 130 0.241%iPad 26,219 6.61% 23,838 238 0.909%Android 14,155 0.33% 1,204 12 0.085%iPod 2,600 0.00% - - 0.000%(not set) 2,554 0.01% 36 0 0.014%Linux 2,281 0.40% 1,442 14 0.632%Blackberry 1,608 0.00% - - 0.000%Total 490,022 100.0% 360,417 3,604 0.736% • Fab customers (skews tech-savvy male) are actually manually typing in 16-digit CC numbers and filling out e-commerce fields on their iPads • Screen size has a huge impact on whether a person completes an e-commerce purchase on mobile devices (iPad with higher rates than iPhone) Source: (1) Josh’s analysis (2) http://betashop.com/post/6688589482/one-week-of-fab-com-70-of-revenue-and-nearly 108

Google and TheFind have launched early versions of e-commerce aggregator apps, using offline PDF catalogs Catalog page Product page Wishlist (bookmarks)Note: Google Catalogs screenshots shown 109

They allow users to peruse retailers’ catalogs, create shareablewishlists, and click-through to buy on retailers’ sites• Catalogs are a better shopping experience than traditional e-commerce layouts, providing a premium, entertaining reading experience (great fit for tablet) with the useful feature to bookmark / buy with one click – TheFind, a venture-backed e-commerce search engine founded in 2005, launched an e-commerce tablet app “Catalogue” in May 2011 for the iPad and Android devices – Three months later, Google launched an iPad app called Catalogs, which is almost a direct clone of TheFind’s Catalogue (it even has most of the same retailers on-board) – Each app has worked with partner retailers to upload PDF versions of their offline catalogs or lookbooks (quarterly or monthly)• These apps have several interesting features – Users can flip through top catalogs of the day or search by retailer or category, and subscribe to retailers to get updated catalogs automatically delivered to their app – While flipping through catalogs, users can click into any product to open up a basic product page in-app. These product pages have limited data (i.e., not all the product info available on retailers’ site). User can click-through to buy on retailers’ site – Additionally, users can bookmark favorite products into wish lists (which will likely become sharable one day) – Google’s app also has a scrapbook feature, allowing users to “snip” pages of a catalog then “paste” and edit into scrapbooks, similar to PolyvoreSource: (1) http://searchengineland.com/thefind-catalogue-the-return-of-google-catalogs-78140 (2) http://googleblog.blogspot.com/2011/08/shop-your-favorite-catalogs-with-google.html (3) http://www.mobilecommercedaily.com/2011/05/24/crate-and-barrel-sephora-among-national-brands-in-new-catalog-app 110

However, Google and TheFind are still in early stages of solvingthe mobile e-commerce problem, and aren’t clear-cut winners • Google’s app seems to have a small user base, with 509 ratings on the Apple app store (compared Small user base to Flipboard’s 86,985 ratings on 3.5M users). They are not yet available on Android • TheFind’s app has 437 ratings on the Apple app store and 15 in the Android app store • This implies each has fewer than 20k downloads (assuming Flipboard’s ratio of ratings to downloads is representative) • Each has several well-known retailers (including Williams Sonoma, Crate & Barrel, Brooks Brothers), Small retailer base but are still quite limited • Retailers do seem to be excited about working with Google and TheFind, as it drives free incremental viewership of their catalogs. The main concern is that user bases are still too small • Google has traditionally maintained a low level of focus on e-commerce, recently shuttering a small Low level of focus foray (Boutiques). Their M&A activity doesn’t indicate much focus on e-commerce • TheFind’s Catalogues app has grown slowly over 4+ months since launch, indicating a lack of focus compared to its core business (e-commerce search). For comparison, their e-commerce search app “Where to Shop” reached 1M+ downloads in 12 months • Even if Google and TheFind were more successful, the markets for aggregator apps are not winner- Room for many take-all. There would still be room for competition • For example, Flipboard and Pulse have done well in the news aggregation app space, but there are dozens of venture-funded, acquirable competitors (e.g., Zite, Flud, Taptu, Newsmix)Note: As of October 2, 2011 111

Coffee Table is a catalog competitor, but attempts to allow in-app purchases by crafting retail partnerships one-by-one • Coffee Table launched in June 2011 also to bring catalogs to iPads, but with the hope of allowing in-app purchases – Some retail partners have agreed to allow Coffee Table to complete the purchase end-to-end in-app – Others still require Coffee Table to direct users to e-commerce sites to complete orders • User traction is still low (only ~100 app ratings on Apple store) • Founded by Chris Friedland and David Berman (founders of Build.com), and hired Ben Choi (ex-Maveron, Storm VC, RRE) as CEOSource: (1) http://www.internetretailer.com/2011/06/13/new-coffee-table-ipad-app-reshaping-catalog-shopping (2) http://www.internetretailer.com/2011/11/04/coffee-table-partnering-top-retailers-power-mobile (3) http://allthingsd.com/20111116/forget-about-black-friday-or-cyber-monday-catalog-spree-is-waiting-for-sofa-sunday 112

TapBuy also offers one-click in-app purchases, but chooses toscrape SKU-data off sites rather than use catalogs • TapBuy launched in July 2011 as an iPhone app, but still has a small following (only 29 ratings in Apple App Store) – Scrapes product info from various retailer sites (e.g., Gap, Old Navy, Target) – Users enter credit card info and shipping address once, and purchases can be made with one click – When users click to buy in-app, TapBuy’s algorithm automatically in-fills retailers’ checkout processes on behalf of the user • However, TapBuy is still in early stages and only allows users to sort SKU’s by category, and not by retailer – TapBuy also aggregates local deals (like Yipit) • Kima Labs is the company behind TapBuy – Appear to have pivoted from Barcode Hero, for which they raised $770k from SV Angel and others – Team is all ex-AmazonSource: http://techcrunch.com/2011/11/01/tapbuy-deals-mobile-shopping-without-the-hassle/ 113

The ideal mobile e-commerce app will have severalcharacteristics • To increase conversion rates, users should be able to purchase products in-app rather than be re- One-click in-app directed to a retailer’ website where he/she will have to create a membership purchase • Users should have checkout information stored in the app so that subsequent check-outs can be as efficient as potentially one click • Although catalogs are engaging and entertaining, Google and TheFind are merely porting PDF Customized UX copies of catalogs into the app – Magazines and newspapers are learning that porting offline content in the form of PDFs to mobile is a subpar experience, and Flipboard and Pulse are capitalizing on this oversight by building great mobile UX’s • The ideal mobile e-commerce app will integrate retailers’ photography and product information in a beautiful standardized format (with some level of customization per retailer) • Once such an app has acquired enough users, it can include several features to enhance the Extras entertainment value of mobile shopping (everything you can do in a real mall and more) ‒ Deal of the day ‒ Excellent editorial content (from retailers and/or publishers), both written and video ‒ Loyalty points across all retailers ‒ Social sharing features (e.g., wishlists, ask friends for opinions, real-time co-browsing, etc) ‒ Charge retailers for prime real estate (e.g., promoted listing) 114

Experts believe social commerce is essentially about turningthe traditionally one-way marketing funnel into a viral loopSource: (1) http://socialcommercetoday.com/speed-summary-adobe-whitepaper-on-the-business-value-of-the-facebook-like/ 116

While “social commerce” is potentially a large opportunity, it is still expected to be small relative to overall e-commerce Social Commerce Market Size Estimate (2011-15) $B 30 30 25 21 16 Rest of World 20 15 13 12 10 9 8 5 6 14 U.S. 5 9 4 5 1 3 0 2011 2012 2013 2014 2015 Total E-commerce Market (U.S.) $197B $218B $240B $259B $279BSocial Commerce as % of Total E-commerce 1% 1% 2% 3% 5% Note: Booz & Co defines “social commerce” as commercial activity directly attributable to marketers selling to consumers via social channels Source: Booz & Co (triangulating with Forrester, GP Bullhound, Euromonitor) (http://www.360i.com/pdf/2011/360i-Social-Commerce- Playbook.pdf 117

To-date, only ~25% of Facebook users have shared productsSource: 8thBridge: Social Commerce IQ (http://socialcommercetoday.com/speed-summary-social-commerce-iq-report-from-8thbridge/) 118

On average, media products and consumer electronics are thecategories with lowest social commerce prowess to-dateSource: 8thBridge: Social Commerce IQ (http://socialcommercetoday.com/speed-summary-social-commerce-iq-report-from-8thbridge/) 119

Product views resulting from social recommendations (e.g.,likes) tend to result in higher conversion Product views from ‘likes’ accounted … while orders from ‘likes’ accounted for 1.1-1.6% of overall product views … for 1.7-2.2% of overall ordersSource: Adobe Online Marketing Suite: Best Practice Guide (http://assets.omniture.com/en/downloads/datasheets/2510.white_paper.facebook.measure_like_value.pdf) 120

Victoria’s Secret and Adidas have extremely strong Facebook reach relative to competition Top 25 Retailers on Facebook (as of September 2011) Victoria’s Secret 15.3 Gucci 5.4 adidas Originals 11.2 Aeropostale 5.2Victoria’s Secret Pink 10.4 Forever 21 5.2 Walmart 9.3 Nike 5.1 Burberry 8.6 Best Buy 4.7 Levi’s 7.5 Ralph Lauren 4.0 WWE 6.8 NFL 3.9 Lacoste 6.5 Hot Topic 3.5 Hollister Co. 6.0 Kohl’s Dolce & Gabbana 3.3 5.8 Target 5.6 GameStop 2.8Abercrombie & Fitch 5.5 Old Navy 2.5 American Eagle 5.4 Macy’s 2.5 0 2 4 6 8 10 12 14 16 0 1 2 3 4 5 6 Millions of Fans Millions of Fans Source: Channel Advisor Facebook Commerce Index (http://socialcommercetoday.com/top-25-retailers-on-facebook-list-and-download/) 121

The value of Facebook “fan-hood” can be significant • In general, the referral value of a Facebook fan can be calculated: Advocacy Value of a Fan = % of New Customers Coming From Referrals x New Customer Revenue x 1/Total Number of Fans x 80%Source: http://socialcommercetoday.com/how-to-calculate-fan-value-fan-economics-101/ 122

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E-commerce Landscape 2012

by joshyang

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