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- 1. Digital Commerce 2.0 Investment Thesis June 2011 Bill Gilroy wtgilroy@gmail.com 917-‐533-‐7087 Proprietary and Confidential. Do not distribute.
- 2. Executive Summary The retail marketplace is being profoundly disrupted by the rapidly evolving Digital Commerce sector, with significant implications for retailers, brands consumers, and investors. • In the beginning, there was Amazon and Ebay….today Digital Commerce encompasses a huge array of merchants, platforms and service providers and represents a critical growth area for traditional retailers and brands • Digital commerce 2.0 (DC2) is…. – causing massive disruption to the retail marketplace – enabling large-‐scale and permanent changes to consumer behavior and shopping patterns – taking an increasing share of global consumer spending – a huge market and rapidly growing – still in the first inning Significant value will be created for investors at this stage of the cycle who have ability to understand this rapidly evolving market Proprietary and Confidential. Do not distribute. 2
- 3. Online Retail is a Huge and Rapidly Growing Market • Online retail sales in the U.S. 10% are forecast to grow from CAGR $155.2B in 2010 to $248.7B in 2014 (10% CAGR) and from 6% to more than 8% of total retail sales Source: Forrester Research • There is a $100 billion incremental revenue opportunity in online retail just in the U.S. over the next five years Proprietary and Confidential. Do not distribute. 3
- 4. DC2 is more than Online Retail • Consumer shopping patterns are rapidly changing • Online plus “web-‐ influenced” retail sales will comprise 53% of all retail sales, or $1.4 trillion in total sales • Successful brands will be multichannel Source: Forrester Research • In addition to online retailers, a huge ecosystem of complementary platforms and services are emerging that are creating an additional investment opportunity Proprietary and Confidential. Do not distribute. 4
- 5. Huge Secular Trends are Driving Growth Ubiquitous Web Consumer Best-‐in-‐class Prolifera2on of Innova2on / Compu2ng Familiarity and shopping smartphones New Shopping Preference for experience and growth in Models Shopping Online mobile commerce • Digital commerce grew (and increased share) during the recession • Huge secular trend – In 2009, 154 million people in the U.S. bought something online, or 67% of the online population – In 2010, 5.5 million people shopped online for the first time – 70% of growth came from existing shoppers simply buying more Proprietary and Confidential. Do not distribute. 5
- 6. DC2 Innovation: Sector Analysis* Sector Representative Primary Business Comments / Issues Companies Model Online Retail • Direct retail sales to • Different models: consumers (private discount, custom, flash label and third-‐party sales, etc brands) • Service focus • Customer acquisition? • Wholesale strategy? Platform / Internet • Revenue Share • Customer acquisition Service • Transaction Fees • Scale, scale, scale • First to market Media/Content • Advertising • Low barriers to entry • Affiliate marketing fees • Differentiation • Scale • Commerce component? Mobile • Fees from retail • User/experience partners / clients adoption • First Inning • Huge opportunity Infrastructure • License fees/solution • Technology solutions sales • Investment area for • Revenue Share brands and retailers * Sectors not mutually exclusive Proprietary and Confidential. Do not distribute. 6
- 7. Successful Brands will be Leaders in DC2 Gilt Groupe Polyvore Social Media Retail Internet Mobile Tory Mobile Wholesale Boutiques.com NET-‐A-‐PORTER Proprietary and Confidential. Do not distribute. 7
- 8. Key DC2 Success Factors • Successful DC2 E xperience companies are • Service execu4ng well in • Social at least 2 of 3 • Fun / Entertainment major areas • Convenience • Game mechanics Digital • Unique story / branding Commerce • Rewards V alue R elevance • Custom / Mass custom • Discount to retail • Local • Direct to consumer (disintermediation) • Niche • Group Buying • One-‐to-‐one • Flash sales • Relevant information Proprietary and Confidential. Do not distribute. 8
- 9. Comparison Shopping: A DC2Case Study ` Proprietary and Confidential. Do not distribute. 9
- 10. Gilt Vs. Bluefly (1) Year Founded 2007 1998 2010 Revenue $400M $89M % Growth 2010 / 2009 135% 9% % Growth 2009 / 2008 100% -‐15% Profitable? Breakeven No Unique Monthly Visitors 968,133 817,442 % Change y/y 16.58% -‐5.79% % Change m/m 13.98% -‐8.95% V R E V R E Value / Relevance / Experience (1) Gilt Groupe financial data estimated. Proprietary and Confidential. Do not distribute. 10
- 11. Selected DC2 Company Profiles 11
- 12. Sector: Online Retail Warby Parker: Disintermediating the Prescription Eyewear Market V R E Company Warby Parker Headquarters New York, NY Year Founded 2010 2010E Revenue NA Profitable (Y/N) Yes Unique Monthly Visitors (1) 21,050 Funding ~$2M Investors First Round Capital, Lerer Ventures, SV Angel CEO Neil Blumenthal Business Description Online retailer of branded prescription eyewear • Several online retailers are pursuing a classic disintermediation model to deliver exceptional value to customers. Warby Parker has entered a crowded marketplace for designer prescription eyewear and distinguished itself with a highly targeted strategy, prominent value message and a fun and seamless shopping experience Source: Warby Parker Proprietary and Confidential. Do not distribute. 12
- 13. Sector: Online Retail Gemvara: Bringing custom to fine jewelry V R E Company Gemvara Headquarters Lexington, MA Year Founded 2006 2010E Revenue ~$7M Profitable (Y/N) NA Unique Monthly Visitors (1) 134,585 Funding $20.2M Investors Highland Capital Partners, Canaan Partners, Balderton Capitall CEO Matt Lauzon Business Description Online retailer of custom fine jewelry • Custom retailers are proliferating online, particularly within the jewelry and apparel categories. Gemvara offers an easy-‐to-‐use platform for customers to design their own jewelry or select from styles developed by other customers, all at price points from a few hundred dollars to several thousand dollars. Proprietary and Confidential. Do not distribute. 13
- 14. Sector: Online Retail Stella and Dot: Reinventing the Avon Lady V R E Company Stella & Dot Headquarters San Bruno, CA • Using technology, a new breed of direct Year Founded 2004 sellers is transforming the industry. Stella & 2010E Revenue $104M Dot has built a $100M jewelry brand by Profitable (Y/N) Yes Unique Monthly Visitors (1) 184,137 employing a sales force of independent stylists Funding $37M that are equipped with their own company-‐ Investors Sequoia Capital Jessica Herrin branded URL and mobile app. CEO Business Description Direct seller of designer jewelry utilizing ‘direct-‐ seller’ approach Proprietary and Confidential. Do not distribute. 14
- 15. Sector: Platform/Service Rent the Runway: Netflix for Fashion V R E Company Rent the Runway Headquarters New York, NY Year Founded 2009 2010E Revenue ~$6M Profitable (Y/N) Yes Unique Monthly Visitors (1) 150,796 Funding $30M Investors Highland Capital Partners, Bain Capital CEO Jennifer Hyman Business Description Offers members opportunity to rent designer fashions • Rent the Runway has rapidly scaled to 1 million members and profitability in less than 2 years. For brands, the platform is a marketing and customer acquisition channel, as 98% of members try brands they’ve never worn before. Proprietary and Confidential. Do not distribute. 15
- 16. Sector: Platform/Service Polyvore: Content, Community, Entertainment and Commerce V R E Company Polyvore • Most visited Headquarters Mountain View, CA fashion website on Year Founded 2007 the Internet 2010E Revenue ~$15M -‐ $20M Profitable (Y/N) Yes Unique Monthly Visitors (1) 2,370,546 • 10 million Funding $8.1M uniques/month Investors Benchmark Capital, Matrix Partners, Harrison Metal (source: Company) Capital CEO Pasha Sadry Business Description Community site for online style where users are • ~150 million empowered to discover style and set trends pageviews/month • Analytics Goldmine • Partner with brands to drive deep engagement Proprietary and Confidential. Do not distribute. 16
- 17. Sector: Platform/Service ShoeDazzle: Record Club Model Revolutionizing Shoe Market V R E Company ShoeDazzle Headquarters Los Angeles, CA Year Founded 2009 2010E Revenue ~$20M Profitable (Y/N) No Unique Monthly Visitors (1) 2,233,581 Funding $60M Investors Andreesen Horowitz, Polaris VP, Lightspeed VP CEO Brian Lee Business Description Based on a personal style evaluation, ShoeDazzle selects and ships a pair of shoes every month to its more than 3 million members • ShoeDazzle has attracted more than 3 million subscribers that receive five shoe recommendations every month from ‘celebrity stylists’ based on a style evaluation of each member. Members can skip a month or shop for something else. All items are $39.95 Proprietary and Confidential. Do not distribute. 17
- 18. Sector: Media / Content Total Beauty: Deep Focus on Large Sector to Rapidly Scale V R E Company Total Beauty Media Headquarters Santa Monica, CA Year Founded 2009 2010E Revenue NA Profitable (Y/N) No Unique Monthly Visitors (1) 512,442 Funding $16M Investors Wallington Investments, USVP CEO Emrah Kovacoglu Business Description Online site offering content and community in the beauty category. • Content and media sites covering fashion and beauty have proliferated online due to low barriers to entry, robust advertising spending, and strong consumer interest in these categories. Total Beauty is acquiring complementary sites to achieve the scale necessary to make the ad model work. Proprietary and Confidential. Do not distribute. 18
- 19. Sector: Mobile Kickbucks: Marrying Mobility, Loyalty and Precision Proximity V R E Company shopkick Headquarters Palo Alto, CA Year Founded 2009 2010E Revenue NA Profitable (Y/N) No Active Users 1.5 million Funding $20M Investors KPCB, Citi, Red Hoffman CEO Cyriac Roeding Business Description Mobile app that offers users rewards and deals for walking into stores and malls • Mobile is creating enormous opportunities for brands and retailers. Shopkick has already amassed 1.5 million users who have visited 250,000 locations nationwide and scanned more than 3.5 million items. Proprietary and Confidential. Do not distribute. 19
- 20. Sector: Infrastructure Pixazza: Enabling Interactive Shopping Experiences V R E Company Pixazza Headquarters Mountain View, CA Year Founded 2008 2010E Revenue NA Profitable (Y/N) NA Unique users per month (April 2011) 100 million Funding $17.8M Investors CMEA, August Capital, Foundation Cap, Ron Conway CEO Bob Lisbonne Business Description Platform that makes photos interactive to deliver relevant content and enable sales. • As retailers and brands continue to embrace DC2, significant investments will be made in technology infrastructure. Pixazza reaches more than 100 million unique users per month (45% growth March – April 2011) Proprietary and Confidential. Do not distribute. 20
- 21. Where is this heading? • Online-‐only brands will struggle to ‘cross-‐chasm’ from initial adopters without Online innovating Retail • Increasing blend of digital and bricks and mortar • Proliferation of disintermediation models in focused sectors Platform/ • Initial land grab will be followed by the market coalescing around winners Service • Successful companies will nail ‘experience’ and ‘relevance’ • Proliferation of me-‐too sites; well capitalized companies grow though Content / Media acquisition to achieve scale • Companies will add commerce capabilities and begin to look like online retailers or platform / service providers Mobile • Poised to explode; a massive amount of retail market share will be put up for grabs as consumers gravitate to the best mobile offerings Infra-‐ • Brands and retailers will continue to increase investments in digital Structure strategies, creating large market for technology and service providers Proprietary and Confidential. Do not distribute. 21
- 22. Investment Thesis for Digital Commerce • Large market and growing rapidly • Gaining significant share in a trillion dollar plus market in the US alone • Benefitting from large-‐scale secular trends that are accelerating • Global • Huge amount of innovation • Still early Proprietary and Confidential. Do not distribute. 22
- 23. Appendix • Additional Selected Company Profiles Proprietary and Confidential. Do not distribute. 23
- 24. The DC2 Market is Global and Expanding Rapidly Company Loca2on Business Investors London, UK Boticca.com is the global online ISAI destination for accessories that connects customers directly with top independent designers all over the world New Delhi, India Exclusively.In is a members only retailer Accel Partners India offering a curated daily selection of the Tiger Global best in Indian fashion, home decor and travel. Beijing, China Milanoo.com is one of the Internet’s Sequoia Capital premier merchants of wholesale fashion apparel. Rio de Janeiro, Brazil Brazil’s leading daily deal site General Atlantic, Tiger Global Moscow, Russia Russian flash-‐sale site for high street Balderton Capital, and luxury fashion and home goods Bessemer Venture Partners, Accel Partners, Russia Partners, Proprietary and Confidential. Do not distribute. 24
- 25. Sector Example – Online Retail (Custom, E-‐enabled Selling) V R E Company J. Hilburn Headquarters Dallas, TX Year Founded 2007 2010E Revenue ~$10M Profitable (Y/N) NA Unique Monthly Visitors (1) 134,585 Funding $12.3M Investors Battery Ventures, Bridgescale Partners CEO Hil Davis Business Description Direct seller of custom menswear • J. Hilburn is building an affordable luxury custom menswear brand online by pursuing a direct selling model with a team of ‘stylists’ nationwide. Proprietary and Confidential. Do not distribute. 25
- 26. Sector: Online Retail Bonobos: Creating an Online Men’s Retail Brand V R E Company Bonobos Headquarters New York, NY Year Founded 2007 2010E Revenue $10M Profitable (Y/N) No Unique Monthly Visitors (1) 76,252 Funding $22.3M Investors Accel Partners, Lightspeed Partners, Stage 1 CEO Andy Dunn Business Description Online retailer of branded and third-‐party men's apparel Proprietary and Confidential. Do not distribute. 26
- 27. Sector: Platform / Service Birchbox: Bridging Content, Community and Commerce in Beauty V R E Company Bonobos Headquarters New York, NY Year Founded 2010 2010E Revenue NA Profitable (Y/N) No Unique Monthly Visitors (1) NA Funding $1.4M Investors Accel Partners, First Round Capital, Lerer Ventures CEO Hayley Barna Business Description Beauty product discovery service Proprietary and Confidential. Do not distribute. 27
- 28. Sector: Platform / Service H.BLOOM: Is There a Platform for Every Niche? V R E Company H. BLOOM Headquarters New York, NY Year Founded 2010 2010E Revenue NA Profitable (Y/N) NA Unique Monthly Visitors (1) NA Funding $2.2M Investors Battery Ventures CEO Bryan Burkhart Business Description Subscription-‐based luxury flower arrangements at affordable prices to consumer and corporate customers Proprietary and Confidential. Do not distribute. 28
- 29. Sector: Mobile Pose: Creating a Fashion Community around Photo Sharing V R E Company Pose Headquarters Lexington, MA Year Founded 2010 2010E Revenue NA Profitable (Y/N) No Active Users NA Funding $1.6M Investors True Ventures, GRP Partners, Founder Collective CEO Justin Rosen Business Description Mobile app that makes the in-‐store shopping experience social Proprietary and Confidential. Do not distribute. 29
- 30. Sector: Infrastructure TellApart: Harnessing Retailers’ Customer Data to Drive Sales V R E Company TellApart Headquarters Burlingame, CA Year Founded 2010 2010E Revenue NA Profitable (Y/N) No Active Users NA Funding $1.6M Investors Greylock Partners, Bain Capital, Reid Hoffman CEO Josh McFarland Business Description Predictive customer analytics platform that drives revenue using customer data Proprietary and Confidential. Do not distribute. 30