EcommerceBytes-NewsFlash, Number 2878 - August 27, 2012     1 of 4

VC Josh Goldman Talks about Investing in Ecommerce Startups, Part One

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If you were a venture capitalist, how would you go about investing in ecommerce startups? For Josh Goldman, General Partner at Norwest Venture Partners, a great deal of it is identifying key trends such as the rise of curated shopping, and looking for founders who have a vision and can grow and manage communities of engaged shoppers and adapt to changing conditions.

Goldman is a repeat entrepreneur himself, 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. His first executive leadership role was in the 1990s as President and CEO of mySimon, Inc., a pioneer in online comparison shopping services, which he sold to CNet Networks in early 2000 for $703 million.

EcommerceBytes Editor Ina Steiner sat down with Goldman in an in-depth interview to discuss the trends he's seeing in ecommerce. Part One covers the rise of curated-shopping sites; what's working (and not working); and his thoughts about eBay, Amazon.com and Google as "ecommerce Super Powers."

How Shopping Online Has Changed
Goldman has watched ecommerce evolve and believes we're now in the next revolution, which will be a big growth phase for consumer ecommerce.

The first revolution was the comparison shopping phase where people would type in the URL of a comparison shopping engine and start their shopping there. "Then there was this sort of hybrid phase where people would go to Google to look for products but the top search results were from these comparison shopping engines," he said. "So they were still going through the comparison shopping engines but you were often starting it at Google."

The business then became one of what he calls "link arbitrage." Sites started to learn how to buy clicks from Google at a certain price and mark them up a bit and sell them through a merchant. "It would pass through a comparison shopping engine, it would pass through a retailer of DVDs, but it started at Google."

"Google started to extract revenue from this, and the shopping engines had to be good at this sort of mathematical game of arbitrage. That was its mid phase," Goldman said.

But now, Google has said that arbitrage phase doesn't need to exist. "Like a lot of arbitrage windows, it collapses as the two sides get more sophisticated. So Google sort of killed that area off pretty effectively."

The Rise of Curated-Shopping Sites
Part of Google's decision to kill arbitrage is due to the rise of curation sites and services, Goldman believes. And he is putting is money behind it, investing in sites like ModCloth, which credits its success to its offering of unique and varied selection of clothing by primarily independent designers, and by regularly engaging customers on the site, on the ModCloth Blog, and through social networks.

Goldman said he believes shopping searches became almost overwhelming because of how efficient Google was getting - "80 pages or thousands of results when you look for a black sweater or a pair of jeans isn't helpful any more."

"You saw the rise of sites that help to curate this - that try to speak to a particular audience, and help you find the best or the most appropriate and the best fashion or style or whatever. It moved beyond price, and that helped the rise of new sites. I would put Gilt in that category, I would put Fab, I'd put One Kings Lane, and many other great companies helping to curate this. There are thousands of them, sometimes in niche product areas."

Shopping search became "more about finding the right thing than about finding search results," which has caused a big shift.

Google, Amazon.com and eBay as Super Powers
Goldman says there has been the rise of two ecommerce super powers, Google and Amazon. "One of the most interesting things is the rise of Amazon not just as a retailer, but as the new alternative place or maybe even dominant place for many people to start their shopping even if you don't buy from Amazon," he said. That's thanks in great part to Amazon Marketplaces, which lets shoppers buy from someone else and with Amazon getting a piece of the transaction.

There are others who would like to be the "third leg of that stool," he said, and believes eBay may be closest.

"Frankly I think eBay not having recognized these trends earlier allowed Amazon to assume this, and rise beyond just retailer into this ecommerce superpower. eBay missed the chance to do that themselves and are trying to reinvent themselves and fix that, and it's going to be fascinating to watch if they can reestablish themselves and maybe be that third super power."

Goldman said eBay was the first social commerce platform, yet really saw itself as a marketplace, and legacy problems contributed to its slow recognition of current shopping trends.

"eBay really suffered with legacy problems," he said. "In their case, powerful sellers would get together and make a lot of noise and complaints with any change eBay tried to make. It must have been incredibly frustrating to be a product manager or engineer at eBay because you could create these wonderful things, and powerful seller groups would come to annual conventions or demand to speak to Meg Whitman and demand to make changes or they were going to go elsewhere, and eBay often succumbed. A lot of innovations, you might have found existed in eBay and then got killed because of this legacy situation."

To Be Continued - Turning "Social Commerce" on Its Head
Goldman said 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.

What is social commerce? Are the collaborative features that startups are bringing to online shopping really scalable? Look for the answers in part two of EcommerceBytes interview with Josh Goldman.

Related Links
Part two, Norwest Venture Partners Josh Goldman on Social Commerce

Part three, 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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