3 Waves of Ecommerce

At its core, ecommerce is a simple business. If Lifetime Value (LTV) > Customer Acquisition Cost (CAC), then you have a business. If not, you don’t. Simple

If CAC and LTV are well understood and reasonably constant, where is the opportunity for a startup? Creation new scalable customer acquisition channels where the markets are NOT efficient

The first period was in the late 90s: the scalable acquisition channel was portal distribution deals.  However, at some point the deals were out of reach of new companies (too expensive) and ecommerce leaders were built for each of the big portal channels; travel (Expedia, Travelocity), jobs (Hotjobs, Monster), dating (Match), and so on.

The second period was from 2002-2005, right after Google launched Adwords.  This was a a new, scalable customer acquisition channel.  In the beginning this was an inefficient market, one that was largely ignored by most big retailers. Small startups from Lending Tree to Zappos to LegalZoom to Diapers.com to BlueNile* all took advantage of the cheap, performance-based customer acquisition.  Eventually, software companies emerged to help with SEM and now, no ecommerce player can rely on SEM alone because the market is efficient.

Today: over the last few years, Facebook, both through viral channels (invites, notifications, and the feed) and also through its CPC advertising platform, provided two new, scalable customer-acquisition channels.  Social Games were first(ZyngaPlaydom*, PlayfishKixeye) but now otheer industries followed: including online dating (ZooskChirpme*), Daily deals (GrouponLivingSocial*), Flash Sales (GiltZulilyOneKingsLaneFab and others) and social commerce (Shoedazzle*, ModclothJustFabBonobos).  All these companies have something in common: They make shopping fun. They provide discretionary purchases that are as fun to shop for, as to buy. That is because Facebook is a place for entertainment, and the shopping use case must match the channel. This is in contrast to the Adwords driven ecommerce era. At that time, the key channel was Google, and intent-driven non-discretionary purchases were the fastest growing categories. As I said earlier, you don’t shop for mortgages on a whim. But you do shop for designer clothes, deals on sushi restaurants or fabulous shoes on a whim, because it is fun to look.

–According to Jeremy Liews, Partner at Lightspeed Venture


This entry was posted in Ecommerce, technology and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s