🎢 #56 - The future of commerce is distributed and social

Hi Fam! Welcome to Consumer Startups :)

Today’s post is inspired by my conversations with Bennett from Canal, Paul from Red Sea Ventures, and Walter from GIST.

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Online sellers, other than Amazon, use an archaic and complex approach to acquire customers. As Brandon from Violet puts it, the current process is akin to pole fishing. 

“Today, if you sell your product on the internet, you likely have your website on one of the top platforms out there. This gives you one single website (or store) that exists in a sea of more than 1.7 billion websites. 

Sellers, or “Merchants” as we call them, have to go fishing by spending money in all the different watering holes across the internet. They cast their pole and hope to snag a fish, pull into the boat, and score a sale.” 

These ‘watering holes’ include marketing tactics like paid search and social media advertisement and SEO. Merchants pay big bucks to funnel lead traffic to their website, and then pray that those visits lead to purchases.

The worst of those watering holes are Facebook and Google 

 A recent survey conducted by 13 Ventures reports that startups spend  ~50% of their venture money on marketing-related costs, mostly on Facebook and Google ads. While this might have been a cost-effective customer acquisition strategy 10 years ago, cost per click (CPC)  has skyrocketed since, making it nearly impossible for any startup to do this profitably.

The average CPC for Google was only $0.38 in 2005. In 2020, the average CPC was $1.03, a 170% increase, according to a study done by Hochman Consultants. Facebook’s average CPC also jumped a lot in the past decade, with the start of the pandemic providing an additional bump as online retailers doubled down on their marketing efforts in light of the e-commerce tailwind. 

(FB ads cost by Adcostly)

Another problem: e-commerce = siloed experience

Two problems with a siloed experience:

1) You have to go to the exact right place online for a chance to buy a product.

2) It is a single-player experience, and the commerce experience in the US is not social.

These two problems create a myriad of other problems, all of which lead to a loss of potential revenue for online merchants.

1. Distributed digital economy that allows consumers to buy anywhere and anytime on the internet

2. Social commerce that productizes and leverages word-of-mouth to drive outsized return for merchants

1) Distributed digital economy

It means that consumers should be able to buy the product they like anywhere on the internet, anytime they want. This distributed future can unlock opportunities for both consumers and businesses. 

Consumers will be able to buy anything they like without leaving the blog page they are reading or the game they are playing. The shopping experience will be a lot more natural and immersive.

On the other hand, online merchants will be able to discover more channels to sell their products, as opposed to only selling on one out of 10,000,000+ online shopping sites. These new channels will provide them with additional revenue streams.

Moreover, this distributed future will create ways for creators and other non-retail companies to profit. For example, a VR game developer will be able to make a commission fee from the products they sell through the games they developed without having to hold any inventory.

One startup opportunity is to build the picks and shovels that empower this distributed digital economy. One company I like is Violet, a venture-backed marketplace startup, matching merchants’ product catalogs with new distribution channels (e.g. creators, non-retail companies, etc). 

They are deeply integrated with many e-commerce merchants that carry products and inventories, and they provide the API to developers (developer is defined as any company or person that creates an app that exists on the internet), allowing them to access product catalog on Violet, create carts, and place orders. Learn more about it here.

Violet

• Venture-backed (non-public)

• Founded in 2017

• Started by serial entrepreneurs with decades of experience in retail and tech

2) Social commerce

I am puzzled by why social commerce is not a bigger thing in the US. 

Shopping is intrinsically a social experience. You rely on your friends’ and families’ opinions when purchasing a product. Reviews are the closest thing to that social element, but there is often a lack of trust among the consumers since many reviews online are fabricated.

In China, social commerce is already a massive phenomenon. Group-buying company Pingduoduo has a 7.3% share of the Chinese e-commerce market (great writeup on the company here). Livestream shopping is another social commerce trend in China, dominated by Alibaba’s Taobao Live.

I believe that similar social buying and livestream shopping behaviors will become prevalent in the US in the next 5 years. Two social commerce startups I have been following are Popshop Live and GIST. 

Popshop Live is a rising livestream shopping app that has gotten a ton of traction and VC money during the pandemic. According to Techcrunch, Japan LA, one of the biggest stores on the platform, did $17,000 in sales with more than 1500 individual checkouts in a single show, which was more than its offline and online sales combined on an average Sunday before the pandemic.

GIST is an app that lets you see what your friends buy. It allows people to build social identity over shopping history and product affinity. According to the founder Walter, “We want to completely disintermediate advertising as we know it and give brands the things they want the most (sales and a direct relationship with customers) and what customers want the most (security and the best products). This will look like what I call a marketplace for direct relationships.”

Popshop Live

• Venture-backed (Benchmark, Floodgate, etc)

• Founded in 2016

• Started by an NYU grad who also founded Williamsburg Lab

GIST

• Venture-backed (Kleiner Perkins and Accel Scout Funds)

• Founded in 2018

• Started by the former head of marketing of Enjoy

Full-time:

• Genies - Product Manager (Remote)

• Accolade Partners - VC Analyst (DC)

• Cambridge Associates - VC Associate (SF)

• High Output - Chief of Staff (Remote/NYC)

• Schematic Ventures - Analyst (Bay Area)

Internship:

• Carbon - Marketing Intern (Remote)

• Thrasio - Product Launch Analyst Intern (Salt Lake City)

• OpenView - Investment Intern (Boston)

• Ohi - PM Intern (SF/LA/NYC)

• Boulevard - Operations Intern (LA)

Let me know your thoughts on e-commerce! I would love to hear from you. Happy Sunday :)