Local has been a category that has long attracted a lot of attention from internet startups. Not surprising given that it is a $130Bn market. Now that Groupon and Living Social (a Lightspeed portfolio company) are growing s0 fast, it is attracting even more attention from startups.
Most of these startups focus on innovating on their product, and aim to have a “sales light” approach.
Usually they start with a self service business model, expecting local businesses to go to the web to sign up for service on their own. They mostly point to Google as the evidence that self service can scale.
I’ve long been skeptical that self service works for selling products to local businesses. From my time at CitySearch in ’96 to today, I haven’t seen this work. In fact, I’d argue that ReachLocal exists as a public company solely because Google can’t get local merchants to self serve. Today, perhaps lost in the holiday shuffle, the WSJ notes that even Google has turned to a call center sales force to reach local merchants.
The Internet-search giant this year has hired several hundred sales representatives to call U.S. businesses such as spas, restaurants and hotels to promote new advertising initiatives, people familiar with the matter said. The effort includes an office in Tempe, Ariz., with around 100 sales representatives, one of these people said.
The other business model that startups attacking local hope to rely on is channel partnerships. Many startups have struck deals with local yellow pages, or newspaper groups, to sell their product too. They have typically been disappointed when sales numbers come in far short of projections. It is hard to get someone elses salesforce to know and care about your product as much as you do, especially when they are used to selling traditional media and not online media.
The winners in this category (Yelp, Groupon, Living Social, Yodle, ReachLocal, CitySearch etc) have all relied on a direct sales force, whether on the phone, or feet on the street, to drive their revenue growth.
If you want to make a business in local online media, you have to control your own destiny and build your own salesforce.
More on internet trends December 22, 2010Posted by jeremyliew in 2011, Internet.
UPDATE: Bloomberg has made this video private so it is no longer available. Sorry
I was interviewed on Bloomberg TV this morning about internet trends. It’s about a five minute video. You will have to click through to Youtube to watch as Bloomberg doesn’t allow embedded video watching.
Why Lightspeed invested in Bonobos December 16, 2010Posted by jeremyliew in apparel, bonobos, Ecommerce.
Today we’re announcing that Lightpseed and Accel are investing in Bonobos, a vertically-integrated men’s apparel etailer. Bonobos was founded in 2007 by a couple of Stanford Business school students, selling better fitting pants out of their dorm room. Initially their focus was on pants, cut for modern American men who had played sports growing up. Not the too skinny Euro cut that doesn’t work for men who had some muscle in their legs, but not the baggy and pleated looks that Brooks Brothers made the staple of American style. I am happy to say that I have a lot of their pants in my closet!
The company has since moved to the web and grown substantially, both adding product lines under their own brand (shirts, jackets, polos, shorts and sweaters), as well as carefully curating products from other brands that fit their style and aesthetic. Their growth was initially steady, but has really taken off in the last few quarters as they got a better handle on Customer Acquisition Cost versus Lifetime Value. As I’ve mentioned before, companies who understand these customer level economics can quickly reach millions in monthly revenue as they can confidently spend on marketing to grow their customer base. Our investment into Bonobos will enable them to ramp their growth rate in just this manner.
Earlier this year Lightspeed invested in Living Social and in Shoedazzle. Both investments were premised on the idea that making shopping fun is driving this current generation of ecommerce companies. Unsurprisingly, both companies have a primarily female customer base.
Bonobos is different. Andy Dunn, Bonobo’s CEO, captures some of the differences between the way that men and women shop for clothes like this:
Basically, this says that for many women, style, trend and fun are the most important factors. Time and hassle is acceptable if the style, trend and fun are high enough. Shoedazzle certainly focuses on style, trend and fun.
For many men, the equation is different. They do not like to shop, but they do care about looking alright. They focus primarily on fit, but want time and hassle to be minimized. For an e-commerce website, this means that fast, free shipping and returns are important factors to drive men’s apparel sales.
Furthermore, men develop a certain loyalty to brands and retailers that have clothes that fit them. If they have confidence in a particular brand, they can make their annual shopping fast and easy, and they don’t have to cross shop from other places. Whereas the lifetime value for female clothes buyers comes from their frequent purchases driven by entertainment shopping, the lifetime value for male clothes buyers comes from the brand loyalty engendered by meeting their needs for clothes that fit, in a fast and easy buying process.
I’m very excited about our investment in Bonobos. We believe that they are the leading pureplay vertically-integrated men’s apparel etailer, and are well positioned, and well capitalized, to expand on their leadership position. In Shoedazzle, we are also investors in what we believe to be the leading pureplay vertically-integrated women’s apparel etailer as well. JCrew, Lands End and others have grown to be billion dollar businesses in the vertically-integrated catalogue led apparel space, and have transitioned well to the web, but the advantages of being a pureplay etailer will allow for very valuable new companies to emerge.
The Hottest Enterprise IT Trend You Have Never Heard of December 6, 2010Posted by Barry Eggers in datacenter, enterprise infrastructure, flash.
Ten years ago, the term virtualization was rarely uttered in an enterprise data center. Today, it’s part of the daily vocabulary. Server virtualization has changed the datacenter forever, shifting the proverbial IT bottleneck from computers to storage. There’s hardly an element of the enterprise infrastructure that hasn’t been impacted in some way by virtualization. Today, we all know more about virtualization than we care to admit, and VMWare’s stock has gone up and down and up again….
The Cloud is supposed to be the next big thing in IT – first brought to the public’s attention in 2007 in The Big Switch, by Nicholas Carr. Back then it had not yet make an indelible mark on the enterprise.
Three years later, the Cloud is already the centerpiece of ubiquitous primetime ads brought to you by the folks in Redmond. The Cloud has been over hyped, then under hyped (Gartner would call this the Trough of Disillusionment), then over hyped again. Certainly, the Cloud will have its day in the sun. But this post is not about the Cloud…
This post is about Flash. Not Adobe Flash. Not Flash sales. But Flash memory. Flash memory, the solid state technology that has mysteriously entered our lives through iPods, smartphones, tablets, laptops, and practically any mobile device, is about to invade the Enterprise Datacenter – in a very big way. While consumers have provided the insatiable demand for this technology that has driven its cost lower and lower, a group of savvy startups have been preparing this technology for large scale business deployment.
It’s the hottest trend you’ve never heard of, the virtualization of 10 years ago.
Why Flash memory? Why now? Because rotating hard disk drives (HDDs) are no longer good enough…..the last bastion of moving parts (i.e. “energy hogs”) in the datacenter has lived a good life, but like tape, its days are numbered. Disk drives are great for storing large amounts of data, and will continue to have a relevant place in the data center in that role. But now that the bottleneck has shifted away from servers, there will be a new focus on storage performance that will pave the way for Flash memory-based solutions.
But while performance is the reason for introducing Flash into the datacenter, COST will be the reason that it takes a significant “byte” out of the disk drive market. You see, a “hybrid” storage system that includes Flash memory for speed and inexpensive HDDs for capacity is both faster AND lower cost than a system comprised solely of expensive high performance HDDs. Hybrid systems are expected to become the “flavor of the decade” for storage during 2011.
Unlike virtualization, Flash memory in the enterprise will not grab your attention because of a single poster child (aka VMWare), but rather because of the depth and breadth of solutions that will pervade the market. There is an ecosystem building around enterprise flash memory that will enable continuous improvements in cost, performance, and reliability while providing a variety of product choices to end customers.
Companies like FusionIO*, OCZ, and Virident provide card-based solutions that plug into server slots. These solutions have a direct high speed path to the computer, allowing them to satisfy I/O intensive applications like database processing and web analytics.
Other companies like Pliant Technology* and STEC package Flash memory in the same form factor and with the same storage interface as HDDs, creating a solid state disk (SSD). The large storage and server OEMs will place SSDs into HDD slots, allowing them to quickly retrofit current products with this hot new memory technology.
There are also appliances from companies like Avere, Gridiron, and Kaminario that pack large capacities of Flash into a standalone system in order to accelerate capacity-hungry, mission-critical applications.
Other companies like Nimble Storage* take a “clean sheet of paper” approach to design a best in class “hybrid” system from the ground up, offering enterprise customers unprecedented functionality in a single system – raising the bar once again on the storage incumbents.
On the component side, companies like Sandforce, Anobit (also an SSD player), and Link-a-Media* are offering merchant silicon solutions for controlling and managing Flash. These pre-engineered building blocks could shorten development times for the next set of market entrants.
And, of course, there are several stealthy software companies that will engineer more performance, reliability, and availability into the solutions that gain the most favor with enterprise customers.
Over the next few years, billions of enterprise IT dollars will shift from rotating disks to Flash memory solutions. Several private companies will ride this wave to financial success. Meanwhile, the heavyweight storage and server OEMs, who have already recognized the disruptive nature of Flash memory, will reshape their product lines as they battle over market share. Given the scope and scale of solutions coming to market, and the insatiable enterprise demand for storage price/performance, it’s not crazy to predict that we will see the next $10B enterprise market develop in this area.
But don’t expect a Superbowl commercial for any of these companies anytime soon!
* A Lightspeed portfolio company