July 24th, 2023: Google kills Buy on Google, 2023 halfway update on venture capital and markets, Rumors of Shopify investing in Faire, and Amazon Prime Day recap
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
<insert recorded ad>
It’s July 24, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Google Kills Buy on Google
2023 Halfway Update on Venture Capital and Markets
Rumors of Shopify Investing in Faire
Amazon Prime Day Recap
- and finally, The Investor Minute which contains 6 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Google Kills Buy on Google
It looks like Google has finally admitted the inevitable: the goal of Google is to get you off Google, and not to get you to transact on Google.
The whole idea of Buy on Google as a marketplace never really worked too well.
First, any ads-based platform has the same problem with retail as everyone else: it's a low-margin business. While retail companies can add advertising and greatly expand their margins, advertising companies have a hard time dedicating resources and real estate to inventory that could be better monetized through high-margin ads.
Social media has it slightly better than search engines -- at least you stay on a social media site. Most people spend their days there. Despite your search intent, your behavioral intent on Google is to go somewhere else. Virtually every experiment to keep visitors on Google longer has failed, perhaps except for Gmail (innovation) and phones (acquisition).
Google has had a rough history with shopping.
In 2006, Google launched a "Google Checkout" service which allowed merchants to pay with Google on their website with the hook that advertisers would get a Google Checkout badge.
That didn't work - integrating with websites took a lot of work, and even back then, consumers had Paypal.
Google launched Google Shopping Express (later termed Google Express) in 2013, a marketplace that keeps consumers on Google. That didn't work either, even as it tried to sign up retail partners.
Google's Shopping marketplace was a big focus of the previous President of eCommerce Bill Ready at Google, even looking to drop commission fees to zero.
That didn't work either, and now the last vestiges of that program are finally dead. And good riddance, I don't expect it to return soon.
Anyone who has run a website for more than 5 minutes understands that the source of traffic matters. If a visitor comes to your website from Pinterest, it's different from someone who comes to you from a Google ad, versus someone who comes to you from a lower-funnel organic blog article.
This brings me to the main point of people building marketplaces who have traffic: intent matters.
No amount of AI, personalization, or incentives can help the visitor in that session. What should you do instead?
Cater to the needs of that visit. Build trust for that visitor with proven products. Build more direct usage instead the same way Amazon did -- by leveraging your repeat customers and gradually broaden their purchase history.
The challenge with building any marketplace is not the technology. Thanks to the hard work of Mirakl and others, anyone can buy marketplace technology.
The more complex parts are:
* Being relevant to your buyers (convenience, selection)
* Achieving the goals of your suppliers (new buyers, incremental sales)
* Keeping product and delivery quality high (performance)
* Merchandising products well, in a coherent way (relevance)
[References:]
Our Second Story
2023 Halfway Update on Venture Capital and Markets
Now that we’re halfway through the year, I thought I would give you a brief update on what’s going on in the world of venture capital, from recent sources in TechCrunch and the Wall Street Journal.
WSJ reports that many of the major venture capital players out there are either scaling back the size of their venture funds, or shutting down certain funds. Famously, Softbank started its Vision Fund in 2017 which after it took profits from Alibaba, has been losing money the past few years and writing down losses.
Other venture capitalists are telling a similar story. The famous startup accelerator YCombinator eliminated its $3 billion growth investments arm called Continuity, which was meant to provide follow-on capital to its companies. The YCombinator Continuity fund had started in 2015, and invested $1.5 billion of that original $3 billion through the end of 2022. YCombinator closed that Continuity fund in the last few months.
Another famous venture capital firm Sequoia has downsized its business and says in perhaps the understatement of the century that a “few marginal investments snuck in” over the past few years.
You think?
TechCrunch also provides some interesting statistics on the state of venture capital stating the North American startup funding fell across all stages in Q2 of this year. The funding decline is not just in terms of dollars, there were fewer deals getting done as well in the first half of the year. The most pronounced declines in funding are in Series C and later, which will likely have the effect of these firms looking for the public markets, especially as the economic outlook for a soft landing seems to be looking more positive in the last couple of months. Seed and early-stage startups experienced smaller declines, which is a good thing generally because seed investments have been up in the past few years. A modest decline isn’t so bad for early-stage firms.
Overall, if you look at investments in the last quarter compared to the peak of the pandemic Q4 2021, they are about one-third of their previous amounts.
Ironically, these numbers are somewhat good news for the market going forward. Everyone is now convinced Fed Chairman Jay Powell now knows what he’s doing with the economy after calling him an idiot the past 12 months, and the economic outlook going forward looks incrementally better in the next 6 months than it has in the last 6 months. Combined with the fact that early stage investments look pretty robust, and more eCommere IPOs will happen in the next 12 months, things could turn rosy pretty quickly.
If you were on the sidelines in the first half of the year, I would not have that same hesitation in the second half. While we aren’t back to boom times, I think the appropriate analogy is that it is time for the turtle to start peeking its head out of its shell.
[References:]
Our Third Story
Rumors of Shopify Investing in Faire
Shopify continues to lean forward into venture capital as news reports have Shopify having talks with Faire. It's unclear if this is ongoing or what, but the thought exercise on what it might mean is interesting.
Here's where a Shopify investment in Faire would align:
* Faire is about giving small brands access to small, independent retailers. Very aligned with Shopify's mission of supporting entrepreneurs.
* Faire's valuation (Series G in 2022 as an extension, during boom times, raised $1.4 B) is challenged and Shopify could likely pick it up for much less than Faire has raised if it were willing to play hardball on the valuation (unlike what happened on Flexport, at least from my calculations).
* While there is an integration between Shopify and Faire today, this would ensure that one continued and could perhaps lock out other platforms that had interest.
* A wholesale marketplace is another business model - a matchmaker between retailers and brands. An outright acquisition feels like a stretch, but I don't mind the idea of an investment if it were properly valued.
The big challenge? It's still unclear if Faire is a sustainable enterprise. More on this in a moment.
There is history between Shopify and the wholesale market:
Last time Shopify took a crack at the wholesale market; Shopify quietly acquired a company called Handshake in 2019. At the time, it was rumored they would re-release and do a big splash on the Shopify platform. Many kept waiting for a massive re-launch, but it never seemed to materialize and seemed to be constantly tucked in the background.
Shopify did get a VP of Product out of it, Glen Coates! 😀 Oh yeah, and a New York City office space.
While Handshake was a startup, at this point Faire is definitely not.
The company has raised over $1.4 billion and is estimated to have revenues in the "mid-hundreds of millions" range (not released - but Google whispers). In fact, the company raised a Series G extension of $400 million in May of 2022. I read an article that said they had over 1,100 people at this point (despite layoffs), which would put their burn by my calculations, somewhere just south of $200M a year.
Any of these numbers on their own would put the company in a danger zone. Many brands I speak with say that while Faire is a monster, it is also quite expensive: taking 25% of the first sale, and 15% of subsequent sales. Meaning, it's great to introduce you to people and give a brand their first break, but you don't want to stay there indefinitely.
Still, at the right valuation, this would seem to have at least proper philosophical alignment.
[References:]
[PAUSE]
And Our Last Story
Amazon Prime Day Recap
Well Amazon Prime Day is finished, and I thought I would provide a kind of meta-analysis of a number of people I trust in this space including Amazon, CNBC, Martin Heubel, Margaux Logan, and John Shea.
As far as the official statistics from Amazon, they announced that the first day of Amazon Prime was the single biggest day in the company’s history, where 375 million items were sold, as opposed to 300 million items the previous year. Home Goods, Fashion, and Beauty were the top categories on the day. Below all these categories is electronics, which is usually a bigger headline category on Amazon. Seeing Fashion and Beauty so high at Amazon is quite a powerful statement for the firm which had a long history trying to penetrate these categories. This tells you at least at the low-end of the market, it appears to be working.
Andrew Janis reported that 52% of consumers waited until Prime Day to purchase an item they had wanted on discount, which indicates that many people are starting to view this as a regular event like a Black Friday. In most cases, this isn’t incremental spend for a consumer, it’s something they were looking to buy anyway and so why not get it at a discount.
Margaux Logan from Publicis published a report saying that more than half of the items sold on Prime Day were below $20. Which I’m not sure is such a great number if you’re a brand, but it kind of tells you the state of things on Amazon today. Even despite this low average order value, Buy Now Pay Later using Amazon’s preferred provider Affirm were 6.5% of orders during Prime Day, up 20% year over year.
John Shea, CEO of Momentum Commerce, reported a few interesting stats on the day as well, including:
* 18% of products in search results were on discount this year, compared to only 14% last year.
* The price discounts were deeper, and
* Brands spent an average of about 14% of their revenue to promote products on Prime Day.
By all accounts I’ve read, Amazon Prime Day was a big success for Amazon just from the fact that I didn’t read any reports saying it was a disappointment. Even though merchants had to discount more to get sales, sales did follow. This kind of behavior does seem to follow general consumer behavior in certain categories right now — you can get them in the door, but they are looking for bargains.
It seems like at least this time, consumers walked away satisfied with what they found.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:7085292098865831936/?
https://www.cnbc.com/2023/07/13/amazon-prime-day-more-than-375-million-items-sold.html
https://www.linkedin.com/posts/andrewjanis_prime-day-2023-takeaways-activity-7085627573795258369-19KM/?utm_source=share&utm_medium=member_desktop
[PAUSE]
Hey, Watsonians, this is Rick. If you haven’t joined other listeners in our online community, you’re only getting half the value from this podcast. Our community contains members from all around the world discussing the most interesting topics we cover on the show.
You can join the conversation now at community.rmwcommerce.com.
Now a word from our sponsor Commercetools:
When a multi-billion dollar beauty brand’s eCommerce platform neared the end of its life, the entire business was at risk — including the ability to serve customers. By switching to Commercetools and embracing a more flexible MACH architecture, the retailer’s vision for connecting in-store and personalized shopping experiences became a reality. The brand can now roll out new features within days, securing its position as a modern brand that uses technology to its advantage. If you are being held hostage by your technology platform and your developers have thrown up their hands, tell them to start a free trial at www.commercetools.com today.
It’s That Time Friends, for our Investor Minute. We have 6 items on the menu today.
First
Licensing Firm Authentic Brands Group Raises $500 million
Just when you thought companies weren’t raising big rounds, IP licensing firm Authentic brands Group has raised a new round of funding from General Atlantic. If you’re wondering what an IP Licensing firm is, they own the intellectual property of a brand which gives them the right to resell the rights to the name of a brand, create line extensions in new categories, or license it to be operated internationally. The new $500 million fundraising round values the firm at $20 billion.
Second
Gather AI acquires Ware in Merger of Warehouse Drone Vendors
Gather AI allows you to use autonomous drones to get a real-time picture of your warehouse inventory. The release from the company says that it will create the largest player in the space with over 25 customers. Ware AI was originally a spinoff of Carnegie Mellon University, long known for its robotics expertise.
Third
Food giant Mars acquires Kevin’s Natural Foods for $800 million
This is a great exit for Kevin’s Natural Foods which provides ready to eat type of meals that are easy to prepare in your kitchen. It appears that the brand will continue to operate relatively independently under the new Mars ownership.
Link: https://www.reuters.com/markets/deals/mars-buy-healthy-food-maker-kevins-natural-foods-2023-07-05/
Fourth
Fabricated Equipment Parts Procurement Provider CADDi Raises Series C Funding
CADDi is a 6-year old provider that offers a procurement parts platform as well as a place to store drawing data. This round was led by existing investors like Globis Capital Partners. The company plans to expand to over 100 employees in the US and build towards a goal of $10 billion in revenue by 2030.
Link: https://www.dcvelocity.com/articles/57937-procurement-solutions-provider-raises-89-million
Fifth
Buy Now Pay Later Provider Affirm Shuts Down Returnly And Partners with Loop Returns
A lot going on in this one, and it’s caused ripples in the eCommerce returns market. You might recall that back in April 2021, Affirm acquired Returnly for approximately $300 million. I always thought it was an odd fit, except for the fact that Returnly was basically a payments business which offered instant credit to shoppers at the time of a return in order to facilitate an exchange.
It turns out that didn’t work out too well. Affirm is shutting down Returnly by October, which is pretty soon in eCommerce terms. No doubt Returnly’s 1,500 merchants weren’t planning on switching returns providers in time for holiday, but I guess your roadmap just changed! As part of a new agreement with Loop Returns, which becomes the preferred returns provider for all these merchants.
Link: https://www.loopreturns.com/blog/open-letter-to-returnly-merchants/
AND FINALLY …
Israeli-based Beauty and Cosmetics Manfuacturer Oddity Tech Launches IPO
While you may not have heard of Oddity Tech, it could signal a shift in the market as to how consumer products companies are developed. Oddity uses AI to develop new cosmetics under brands like Spoiled Child.
The company may be on to something as it’s already up 30% in its initial debut. Data and technology is core to the brand, but obviously the success will depend on distribution and marketing so we will see how it works out in the long-term. Is this one of the first high growth and profitable Direct to Consumer brands? Just saying.
Link: https://www.sec.gov/Archives/edgar/data/1907085/000110465923079316/tm223332-30_f1a.htm
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
