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Choices and constraints: How DTC companies decide which strategy to follow
Companies typically have to settle on strategies that align with their customers, employees, investors, and regulators. The more they know about how the other side will decide, the clearer their own strategies become.
If regulators always prefer choice for consumers, then it is easy for a platform to allow multiple payment choices: Shopify allows multiple payment options from its partners, Apple doesn’t.
By regulatory intervention, it will have to now.
Nash equilibrium and Netflix time
Nash equilibrium is a fascinating, post-facto explanation for some of the interesting decisions you will often see in business.
In simple terms, Nash equilibrium states that if you have clarity on the other side’s decision, you can make yours without regret. In other words, there is no incentive to change strategy once each side knows what the optimal position of the other side is, in their combined transaction.
All physical products cannot escape retail, because ignoring retail means a smaller serviceable market. But it is a choice companies can make.
I see this playing out every weekend at home. I don’t mind reading a book alone or watching Netflix with my kid, but when I am available for Netflix and my kid decides to read a book, it is a bummer.
DTCs, DNVBs and game theory
In DTC, how companies decide their omnichannel strategy depends on how well they know what their customers’ choices are and what their ideal strategy will be. In many transactions, constraints are actually good forcing functions — they narrow down choices and help you arrive at an equilibrium faster and cheaper.
The marketing and public-market filing languages make for a fascinating read into the minds of companies.
When Warby Parker filed its IPO prospectus last month, the company referred to its digitally-native status in the past tense. The model was effectively flipped in 2020, as its share of online sales to total sales dropped from 65% to 40%. Meanwhile, its physical store count increased from 126 to 145.
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Tiger Global backs Nacelle with $50M for its e-commerce infrastructure
Consumer shift to buying online during the global pandemic — and keeping that habit — continues to boost revenue for makers of developer tools that help e-commerce sites provide better shopping experiences.
LA-based Nacelle is one of the e-commerce infrastructure companies continuing to attract investor attention, and at a speedy clip, too. It closed on a $50 million Series B round from Tiger Global. This is just six months after its $18 million Series A round, led by Inovia, and follows a $4.8 million seed round in 2020.
The company is working in “headless” commerce, which means it is disconnecting the front end of a website, a.k.a. the storefront, from the back end, where all of the data lives, to create a better shopping experience, CEO Brian Anderson told TechCrunch. By doing this, the back end of the store, essentially where all the magic happens, can be updated and maintained without changing the front end.
“Online shopping is not new, but how the customer relates to it keeps changing,” he said. “The technology for online shopping is not up to snuff — when you click on something, everything has to reload compared to an app like Instagram.”
More people shopping on their mobile devices creates friction due to downloading an app for each brand. That is “sucking the fun out of shopping online,” because no one wants that many apps on their phone, Anderson added.
Steven Kramer, board member and former EVP of Hybris, said via email that over the past two decades, the e-commerce industry went through several waves of innovation. Now, maturing consumer behaviors and expectations are accelerating the current phase.
“Retailers and brands are struggling with adopting the latest technologies to meet today’s requirements of agility, speed and user experience,” Kramer added. “Nacelle gives organizations a future-proof way to accelerate their innovation, leverage existing investments and do so with material ROI.”
Data already shows that COVID-era trends accelerated e-commerce by roughly five years, and Gartner predicts that 50% of new commerce capabilities will be incorporated as API-centric SaaS services by 2023.
Those kinds of trends are bringing in competitors that are also attracting investor attention — for example, Shopistry, Swell, Fabric, Commerce Layer and Vue Storefront are just a few of the companies that raised funding this year alone.
Anderson notes that the market continues to be hot and one that can’t be ignored, especially as the share of online retail sales grows. He explained that some of his competitors force customers to migrate off of their current tech stack and onto their respective platforms so that their users can get a good customer experience. In contrast, Nacelle enables customers to keep their tech stack and put components together as they see fit.
“That is painful in any vertical, but especially for e-commerce,” he said. “That is your direct line to revenue.”
Meanwhile, Nacelle itself grew 690% in the past year in terms of revenue, and customers are signing multiyear contracts, Anderson said.
Anderson, who is an engineer by trade, wants to sink his teeth into new products as adoption of headless commerce grows. These include providing a dynamic layer of functionality on top of the tech stack for storefronts that are traditionally static, and even introducing some livestream capabilities later this year.
As such, Nacelle will invest the new round into its go-to-market strategy and expand its customer success, partner relations and product development. He said Nacelle is already “the de facto standard” for Shopify Plus merchants going headless.
“We want to put everything in a tailor-made API for e-commerce that lets front-end developers do their thing with ease,” Anderson added. “We also offer starter kits for merchants as a starting point to get up-and-running.”
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White-label SaaS shipping startup Outvio closes $3M round led by Change Ventures
Outvio, an Estonian startup that provides a white-label SaaS fulfillment solution for medium-sized and large online retailers in Spain and Estonia, has closed a $3 million early-stage financing round led by Change Ventures.
Also participating were TMT Investments (London), Fresco Capital (San Francisco) and Lemonade Stand (Tallinn). Several angels also joined the round, including James Berdigans (Printify) and Kristjan Vilosius (Katana MRP). This is the startup’s first institutional round of funding after bootstrapping since 2018.
Online retailers usually have to use a number of different tools or hire expensive developers to create in-house shipping solutions. Outvio offers online stores of any size a post-purchase shipping setup, which seeks to replicate an Amazon-style experience where customers can also return packages. Among others, it competes with ShippyPro, which runs out of Italy and has raised $5 million to date.
“We can give any online store all the tools needed to offer a superior post-sale customer experience,” Juan Borras, co-founder and CEO of Outvio, said. “We can integrate at different points in their fulfillment process, and for large merchants, save them hundreds of thousands in development costs alone.”
“What happens after the purchase is more important than most shops realize,” he added. “More than 88% of consumers say it is very important for them that retailers proactively communicate every fulfillment and delivery stage. Not doing so, especially if there are problems, often results in losing that client. Our mission is to help online stores streamline everything that happens after the sale, fueling repeat business and brand-loyal customers with the help of a fantastic post-purchase experience.”
“While online retailing has a long way to go, the expectations of consumers are increasing when it comes to delivery time and standards,” Rait Ojasaar, investment partner at lead investor Change Ventures, said. “The same can be said about the online shop operators who increasingly look for more advanced solutions with consumer-like user experience. The Outvio team has understood exactly what the gap in the market is and has done a tremendous job of finding product-market fit with their modern fulfillment SaaS platform.”
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Chicago’s ShoppingGives gets served a seed round from Serena Williams’ VC firm, Serena Ventures
ShoppingGives, a Chicago-based startup pitching retailers a service that can integrate nonprofit donations into their sales and shopping platforms, has raised an undisclosed amount from Serena Williams’ venture capital firm, Serena Ventures, the company said.
ShoppingGives allows retailers to offer a donation on behalf of a shopper to any of over 1.5 million nonprofits that are on its list — all without leaving the retailer’s website.
The company said that retailers can use the donation data to create a more authentic and personalized engagement with customers based on the causes they support.
“ShoppingGives aligned with my values of investing in businesses and entrepreneurs who are making a difference. By creating opportunities to grow social impact with a seamless approach for retailers and brands, ShoppingGives is charting the course for all businesses to stand forth as agents of change in our society,” said Williams in a statement.
The company’s technology helps retailers manage and report donations and is already recommended by Shopify as one of a collection of apps for merchants setting up their online stores. Its service integrates with e-commerce content management systems and is already a partner for the PayPal giving fund.
ShoppingGives has already donated to more than 6,000 nonprofit organizations selected by customers, according to the company. Brands like Kenneth Cole, Natori, White + Warren, Margaux, Solstice Sunglasses, Tomboyx, Fresh Clean Tees, Blind Barber, Huron and Neighborhood Goods use the service already.
Image Credit: ShoppingGives
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Millennial Media’s Paul Palmieri launches Tradeswell, a startup promising to fix e-commerce margins
A new startup called Tradeswell said it’s using artificial intelligence to help direct-to-consumer and e-commerce brands build healthier businesses.
The company is led by Paul Palmieri, who previously took mobile advertising company Millennial Media public and then sold it to TechCrunch’s corporate parent AOL (now Verizon Media). Afterwards, Palmieri founded Grit Capital Partners, but he told me he decided to join Tradeswell as a co-founder and CEO because he was so excited about the vision.
Palmieri said that just as Millennial helped independent app developers get smarter about advertising, Tradeswell gives upstart e-commerce companies the data they need to compete with “the big platform behemoths.”
It’s no secret that a number of direct-to-consumer companies have struggled to make a profit due to challenging unit economics. Palmieri suggested that one reason for this is the fragmentation of their tools and data.
“If you’re selling something like Campbell’s Soup, you want to figure out, how is your tomato soup business and your chicken soup business?” Palmieri said. “Today, brands are saying, ‘How’s my Amazon business? How’s my Shopify business? How’s my Shopify business on Instagram?’ ”
So rather than relying on those platforms for data, Palmieri suggested brands want an independent platform that they trust to bring everything together, “where it’s a combination of a Bloomberg terminal plus a trading platform.”
Tradeswell’s AI focuses in six key areas of an e-commerce business: marketing, retail, inventory, logistics, forecasting, lifetime value and financials. Palmieri suggested that in some cases (like ad-buying), Tradeswell will replace existing software, while in other cases it will integrate.
“Think of us as a neural AI layer, where [a brand] might have different platform relationships, which are the fingers, and we’re the AI brain,” he said. “We’re giving brands insights and forecasts: If you make this change, we anticipate XYZ will happen.”
In some cases, like the aforementioned advertising, Tradeswell can also support full automation, so that merchants don’t have to worry about “setting up and tearing down hundreds of campaigns.”
The key, Palmieri said, is that the platform has access to the business’ full financials, so it can optimize for net margins, rather than simply driving the most impressions or clicks or sales.
While Tradeswell is only coming out of stealth mode today, it’s already been working with more than 100 brands. For example, Steve Tracy of Red Monkey Foods and San Francisco Salt Company said in a statement that the startup’s “unique, comprehensive, algorithmic approach has helped us grow sales, identify commercialization opportunities and forecast far more accurately.”
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VCs and startups consider HaaS model for consumer devices
I’ve been following consumer audio electronics company Nura with great interest for a few years now — the Melbourne-based startup was one of the first companies I met with after starting with TechCrunch. At the time, its first prototype was a big mess of circuits and wires — the sort of thing you could never imagine shrunk down into a reasonably sized consumer device.
Nura managed, of course. And the final product looked and sounded great; hell, even the box was nice. If I’m lucky, I see a consumer hardware product once or twice a year that seems reasonably capable of disrupting an industry, and Nura’s custom sound profiles fit that bill. But the company was unique for another reason. A graduate of the HAX accelerator, the startup announced NuraNow roughly this time last year.
Hardware as a service (HaaS) has been a popular concept in the IT/enterprise space for some time, but it’s still fairly uncommon in the consumer category. For one thing: A hardware subscription presents a new paradigm for thinking about purchases. That is a big lift in a country like the U.S., which spent years weaning consumers off contract-based smartphones.
That Nura jumped at the chance shouldn’t be a big surprise. Backers HAX/SOSV have been proponents of the model for some time now. I’ve visited their Shenzhen offices a few times, and the topic of HaaS always seems to come up.
In a recent email exchange, General Partner Duncan Turner described HaaS as “a great way to keep in contact with your customers and up-sell them on new features. Most importantly, for startups, recurring revenue is critical for scaling a business with venture capital (and will help appeal to a broad set of investors). HaaS often has a low churn (as easier to put onto long-term contracts).”
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Lookiero closes $19M led by MMC Ventures to be the Stitch Fix for Europe
Lookiero, the online personal shopping service for clothes and accessories, has closed a $19 million funding round led by London-based VC MMC Ventures, with support from existing investor All Iron Ventures, and new investors Bonsai Partners, 10x and Santander Smart. The company will use the backing to expand in its main markets of Spain, France and the U.K. In June last year it closed a funding round of €4 million led by All Iron Ventures.
The startup applies algorithms to a database of personal stylists and customer profiles to thus provide a personalized online shopping experience to its customers. It then delivers a selection of five pieces of clothing or accessories curated by a personal shopper to fit the customer’s individual size, style and preferences. Customers then decide which items to keep or return (at no additional cost), allowing Lookiero to learn more about the customer’s taste before starting the whole process again.
By generating look-a-like profiles and analyzing previous customer interactions with each item, Lookiero says it can predict how likely a user is going to keep a certain item from a range of more than 150 European brands from a warehousing system that will ship more than 3 million items of clothing this year to seven European countries.
It’s not unlike the well-worn Birchbox model. Lookiero’s main competitor is Stitch Fix (U.S.), which has upwards of $1.5 billion in annual revenues and IPO’d in November 2017.
Founded in 2015 by Spanish entrepreneur Oier Urrutia, the company says it now has over 1 million registered users and has grown revenue by more than 200% from 2017 to 2018.
In a statement Urrutia said: “This investment round provides us with the necessary capital to further increase the accuracy of our technology, which is really exciting. It will allow us to offer the best possible experience for our users and to continue expanding across Europe.”
Simon Menashy, partner, MMC Ventures, said: “The migration of fashion brands online has improved consumers’ access to clothing, and there is now an almost overwhelming amount of choice. At the same time, it can still be really hard to find exactly what is right for you, especially with High Street retail stores in decline. Lookiero provides the best of both worlds, giving every customer a hand-picked selection from their personal stylist.”
Ander Michelena, co-founding partner of All Iron Ventures, said: “Even if what Oier and his team have achieved to date is remarkable, we believe that Lookiero still has great potential to continue expanding internationally and to become a player of reference in a market segment where there is still a lot to do in terms of innovation and user satisfaction.”
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