What makes one e-commerce startup succeed where others fail? That’s what I was wondering 0n Friday, as I caught the last half of a panel of Wayfair executives (moderated by its CEO and co-founder Niraj Shah) at MITX’s e-commerce summit. Why was it Wayfair that had reached such heights?
I unfortunately arrived too late to hear most of the answers to that question, but on Sunday, Fred Destin of Atlas wrote a terrific blog post on the challenges of e-commerce businesses, including this bit on why Wayfair succeeded. As Destin explains, e-commerce is really hard:
Customers are generally blind to your brand and unless you’re Amazon don’t often fundamentally care where they shop. Transparency is absolute, inventory fungible, and all shoppers care about is price and speed.
Destin covers a number of different “angles” to succeed despite this, including Wayfair’s:
Solving CAC and Buy-Side Margin : CSN Stores (now Wayfair)
CSN stores started out by setting up tens then hundreds of bland single product sites that sold commodity products at attractive prices. Wooden beds for your kids, side tables, you name it. In the process they achieved two things: an SEO strategy that at the time they started was incredibly efficient and extremely attractive buy-side margins. Even though the average value of what they sold was probably low, net contribution per order remainder attractive because their CAC was super low and because they sourced directly in China and probably achieved 90% gross margins that way. If you sell stuff for $50 but you’re making $45 gross and spending $5 to attract a customer, you have a business. They were one of the industry’s most discrete mega operators until they rebranded as Wayfair and started playing the brand / destination site game. I hear their revenues are north of $600M.
Basically, being really good at search is a critical piece of Wayfair’s success. But can that last? Shah hit on this a bit in the panel Q&A. Though he acknowledged that search remains a critical part of the company’s strategy, the rebranding from CSN to Wayfair was designed to help build some level of customer loyalty and repeat business. (Read the full Destin post for thoughts on just how hard this is.)
It’s no secret that search is increasingly competing with social as a content discovery tool, and so the increased focus on a unified and recognizable brand makes a lot of sense for Wayfair. What’s less clear, though, is how to keep up the super low cost of customer acquisition as mobile becomes a bigger part of the e-commerce pie.
The future of mobile search is wide open, but consider this bit from a January New York Times article:
But, analysts say, as people change their search habits on mobile devices — bypassing Google to go straight to apps like Yelp’s, for example — that dominance could wane, or a competitor could swoop in and knock Google off its perch.
“It’s important to recognize that many mobile apps are really vertical search engines,” said Rebecca Lieb, a digital media analyst at the Altimeter Group. “It is impossible to really say anyone dominates a section of mobile in a secure way right now.”
Even if this phenomenon is just a temporary blip on the road to more mobile friendly search, it has to be top of mind for Wayfair. And so I was interested to hear from Shah that the company has mostly eschewed native mobile apps. And not because they think mobile websites are better, but because creating native apps costs too much money. (Its flash deal site Joss & Main is the exception and does have its own mobile app.)
No doubt Wayfair is thinking a lot about how to keep cost of acquisition down on mobile, beyond what hints were given on the panel. And per Destin’s post, the company has already achieved the hard part: reaching scale. It’s big enough now to experiment with some of the other e-commerce “angles” that Destin explains. To date, Wayfair has beaten the odds, and capitalized on an angle that works.