Forward Partners

Business models for ecommerce 2.0

By May 23, 2014 2 Comments

Andy Dunn from Bonobos wrote yesterday about the dominance of Amazon in what he calls ecommerce 1.0 and ‘scale ecommerce’ – that is selling third party brands and taking stock, and identifies four strategies for ecommerce ‘David’s’ who want to take on the ‘Goliath’:

  • Proprietary pricing – e.g. flash sales companies like Zulily and One Kings Lane
  • Proprietary selection (aka curation) – e.g. companies that build their brand and community around their product selection like Nastygal and Modcloth
  • Proprietary experience – e.g. companies that offer amazing discovery experiences like RenttheRunway, Shoedazzle and Birchbox
  • Proprietary merchandise – e.g. vertically integrated retailers like Bonobos and WarbyParker

This is a good framework to think about whether a startup will be able to compete with Amazon. Without a sustainable advantage along at least one of these dimensions it will be tough to compete with the price competition that will come shortly after initial success.

Capital efficiency is important to us here at Forward Partners and that pushes us towards proprietary experience and proprietary merchandise companies which more often either have low stock requirements or high margins. Most important though is that the product or service is amazing at some level. Key to success is building a great brand and that is much easier the product is good enough to talk for itself.

There is overlap between the categories, but it’s most correct to think of our portfolio companies Thread, Stylect, Top10, and Hubbub as offering proprietary experiences; Big Health, Wool and the Gang, Zopa, Unbound and Hailo as proprietary merchandise companies; and SnapTrip is the one company we have which I would classify as proprietary pricing.