EcommerceBytes-NewsFlash, Number 2879 - August 28, 2012     2 of 4

Norwest Venture Partners Josh Goldman on Social Commerce, Part 2

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Josh Goldman, General Partner at venture capital firm Norwest Venture Partners, believes social commerce is turning out to be something very different from what people thought it would be just 2 years ago. Social commerce was initially perceived as being about Facebook and collaborative shopping experiences - "we'd shop together, recommend products to each other" - but it's turning out to be something that goes well beyond group-shopping.

EcommerceBytes Editor Ina Steiner sat down with Goldman in an in-depth interview to discuss the trends he's seeing in ecommerce. Goldman is a repeat entrepreneur, and in his current role, he has in-depth knowledge of how some of the most innovative ecommerce firms are operating. His current investments and board seats include Gilt Groupe, ModCloth, Quirky and WhaleShark Media (RetailMeNot), and he also holds various board and advisory roles with search, social networking and digital media companies.

In part one of the interview, Goldman discussed the rise of curated shopping; what's working (and not working); his thoughts about eBay, Amazon.com and Google as "ecommerce super powers," and about investing in ecommerce startups. Today in part two, he discusses social commerce and how it's helping not only in marketing, but is helping retail sites with inventory, gross margins, customer engagement and new product evolutions, and he answers the question, are these new ecommerce models scalable?

Social Commerce - Not What We Thought It Would Be
Goldman called Gilt Groupe, Quirky, ModCloth, and Whale Shark Media (RetailMeNot.com) the big portfolio companies that fit with his investment theses. "These are companies I sought out as a prediction for the kinds of companies that will be big winners and are worthy of substantial investment."

Their focus on social is the thing that connects them, he said, but social commerce is turning out to be something very different than what it was two or three years ago when the term first started to gain traction.

"Everything that was social commerce a couple of years ago was, "we're going to shop together and promote things to each other, recommend things to each other."" That still exists, Goldman said, but it's not the ultimate version of what we're seeing in social commerce.

"The real innovation in social commerce is opening up your company's walls - breaking them down and opening up your operation to the community, to help all areas of your business, from your merchandising to your buying process, to what products you carry, the designs of your products, the pricing, the descriptions, the photography."

Social Commerce Breaks Down the Walls
Goldman said all those areas are now being opened up to the retailers' highly engaged audience. "That, to me, is the most exciting thing happening - when your (retail) buyers, deciding what products to carry at ModCloth, can gauge the sentiment of your audience in real time while a vendor is sitting in your office and showing you some new sweaters and tops and accessories. The buyers at ModCloth, with their iPhones and an internal app they've developed, can post that and gauge sentiment within minutes and use that data to decide, while the vendor is sitting there trying to sell them, yes I'll take them, no I won't, or yes I'll take 50 of these, 100, or 500, because they're looking at their iPhone and deciding, this is working really well with our community."

Replacing the "gut feel" of buyers employed by retailers with "some gut-feel but now backed up by data" is real social commerce innovation, he said, and it's happening at ModCloth.

"You're seeing improvements in inventory, in gross margins, in customer engagement, in new product evolutions that become exclusive to these companies because their crowd invented it. That's a powerful theme. It's much more powerful than, let's go shop together on Facebook and then recommend whether the dress looks good or not. It's a fundamental change, and I'm investing against that thesis."

Quirky, another company in Goldman's investment portfolio, is an extreme example of using the community - everything Quirky produces in the consumer product space is submitted by the community, voted on, rated and even named and photographed by the company.

Goldman said for a company to do what Quirky is doing now with between 150 - 200 employees would require thousands of employees at a traditional firm not using a social model.

But Is It Scalable?
Goldman speaks about sites like ModCloth and Quirky, which don't have the same name recognition as an eBay, Amazon or branded retailer - is there a limit to how many people will engage in such communities? EcommerceBytes asked if the work done by ModCloth's community - even if was 10,000 or 20,000 - could actually influence 100 times that, or 1000 times that number.

"I think we're still in the early phases of understanding where the scalability issues start to affect these companies," Goldman responded. "But these are not communities of 1000 people or 5000 people, they're much larger in many cases. I don't know how much both companies want out there, but both companies have much, much larger communities than you've stated."

He said it would be interesting to see where it does start to break down, and where it doesn't. "We need to use technology and community tools to make sure this does scale. Where it's powerful is where it's not just a tiny subset of your shoppers who are engaging, but where it's a large fraction, a large percentage of your community that is at some level engaging with these new tools or techniques."

There are some ways to address these scalability issues, Goldman said, and Quirky and ModCloth are working in those areas.

Each product released at Quirky has on average 1000 people on the team that created it, according to Goldman, and Quirky gets well over 1000 submissions a week now for new product ideas. "Every time one's sold, the entire crowd of 1000 people shares in the revenue. But even the thousandth person on the team gets a bit of the revenue if the product is sold or makes it to market. So it is scaling in an interesting way. It's scaling up because Quirky can do more products faster. But the teams are incredibly large. I don't think any of us thought they would become this big and this active."

Quirky is doing some interesting things to draw people whose new product ideas were not chosen into other teams or products that were chosen, Goldman said.

ModCloth also has "all kinds of programs for their amazingly loyal audience." For example, "you can submit editorial and photos and sketches or ideas for changes. You can actually create original designs. They have a program called Be the Designer. They have Be the Stylist, where you can match items together. They have Be the Editor, where you can actually describe the products. They're finding these ways to engage the community. You end up with incredible cost savings and the ability to scale faster than you could before, because you're not hiring employees to do this, you're organizing passionate committee members to help, and so you save money but you also end up with this passionate audience."

To Be Continued - Social Data
Goldman believes in using social data for things like recommendations and promotions, and discusses which is more important when choosing companies in which to invest - the business model, or the founder. Look for the answers in part three of EcommerceBytes interview with Josh Goldman.

See Part 3, VC Josh Goldman Discusses Social Data in Ecommerce


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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