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E-commerce (i.e. online retail) has a long history and is the foundation of the commercial Internet. Looking at that history, we argue that innovation in e-commerce comes in waves. First successful e-commerce business models were focusing on convenience of choice (e.g. generalist e-commerce player Amazon or specialist online shops for any specific segment, e.g. Zappos) or on price by cutting out middle men in the respective industry’s value chain. A massive second wave arose from a sharp focus on price advantages with flash sales and shopping club models. Now, in some segments, convenience is back on the agenda by adding curation – our third wave. We see examples in food (e.g. Middagsfrid), beauty (e.g. Birchbox), apparel (e.g. Trunkclub) and many more subscription services.
While subscription services can make sense in some areas, this business model is for sure not the one-size-fits-all solution for all product or customer segments. We believe in segments, in which inspiration plays a key role (the “Pinterest segments”), we will see content evolving as a differentiating element. And thus, content could be the fourth wave.
Case study crafts & hobby market US
In the US crafts & hobby market is quite sizable. With successful marketplaces like Etsy (IPO’d earlier this year) it is evident that many Americans engage in crafts & hobby projects and there are quite large suppliers for materials they need, e.g. Michael’s is the market leader with 1,288 shops throughout the country. The Crafts & Hobby Association claims that ca. 63 m US households engage. For many crafters, however, inspiration is a key element in their online user experience – first they think about what project to pursue, then they get the supplies. According to the Crafts & Hobby Association two thirds of the crafters use the Internet to find their inspiration (32% use retail websites, 23% use social networks).
Surprisingly, the incumbents (“offliners”) are very late to the game, e.g. Michael’s launched its website in 2014, and do not provide what the users are looking for:
Based on their brand awareness in the market, the offliners can achieve substantial traffic – however, they also have to invest heavily in search engine marketing measures. The content users are looking for is – to a large extend – not available. Some players are even missing out on basic e-commerce capabilities. Needless to say, their social network reach is underleveraged.
Such shortcomings do not stay unrecognized. There is a line-up of startups (“onliners”) ready to challenge the status quo:
Craftsy and Brit+Co offer video-based paid online courses that explain step-by-step how to complete a project. These videos differ in length (20-90 minutes) and complexity (can be multi-level classes). While these two players started with monetizing content, they also offer the respective supply to many of their classes and thus, enter online retail for material supplies. The combination of video content (paid/free) and material supplies is provided by most players on our list, although the integration of content and e-commerce differs in sophistication. While all players focus heavily on content, they also are better in leveraging social networks (based on SimilarWeb data, social networks account for 20-40% of the player’s traffic).
In total, we can see quite different e-commerce profiles in the US crafts & hobby market:
Today, in any given segment of a developed e-commerce market there is probably a fairly high number of potential competitors for startups – for instance, the German retail association HDE argues in a recent study that the average online retail share for non-food categories is ca. 19% in 2014. Thus, content can be a differentiator in terms of superior user experience but is also relevant for optimizing marketing spend (i.e. search engine optimization and social network reach vs. paid traffic) in such a competitive environment.
We expect more and more startups adopting the concept of content and e-commerce integration, especially in segments where inspiration plays a vital role in triggering purchase decisions. Example segments are: apparel, beauty, do-it-yourself/gardening, food, and others. Beyond online retail, there are also opportunities for marketplaces (e.g. Houzz), travel (e.g. TripAdvisor) and other digital business models.
- Stryber expert opinion: very low = content does not play a role at all (e.g. content, if any, is part of a separate navigation item); very high = content plays a key role (e.g. multimedia content is fully integrated and is a key element for the user experience)
Sources: Michael’s 10k & IPO prospectus (2014), SimilarWeb (Sept. 2015 data), Crunchbase, Pinterest, Facebook, HDE Online-Monitor 2015