Not really a well thought out article. Here's why -
1) Why should anyone care about solving the problems that the writer of this article wants to see solved?
2) She fixates on the 3-8% that affiliate sites make without considering a few things:
a) Sites make that regardless of where the user actually buys. So if someone comes to your site and decides to buy a jacket you make money whether they buy it from Retailer A or Retailer B.
b) It's usually 10% for fashion sites and once you are driving larger volume you can cut deals for 15%.
c) If you become the decision engine (something Google and Bing are trying to do with their Flight Search and other initiatives in various verticals), then you can easily take over the entire business.
If people are coming to you and you help them decide what to buy - then you can start selling them that stuff.
3) The costs and barrier to entry is much lower if you are trying to fix the discoverability problem.
4) The real problem, and the most important thing, is the role of fashion. What fashion really does. That can be tackled completely in the online world through a website.
5) Fashion is a market that is going to make a lot of startups a lot of money.
Things that signal status (such as special electronic brands and designer bags and Grey Goose vodka) are never going to go out of style.
Instead of listening to this writer's advice, any company going into fashion should look at how backward thinking most people in the industry are, how little they understand technology, and how they are unwilling to admit the core purpose of fashion.
The easiest entry is discoverability and influence and that's also the most powerful element of the fashion ecosystem.
If you become the discovery engine and the decision engine then it's game over for everyone else.
All those VCs funding fashion startups are not idiots.
Yes, fashion is a huge industry in the US, and you can make a ton of money in the market.
By just being a middleman, you're looking at margins in the 10% region. Enough to build a business, but not a game-changer.
If you target production and supply-chain problems, which are far harder, then you can build a business with margins north of 40%. Not only that, but because you've solved some seriously hard problems, you've driven the cost of competition up for the existing players, while adding yet another entry barrier for other startups.
That's the point of the article -- that today's fashion-focused startups are all going after small game, with nobody shooting for buffalo.
I don't think the people going in to fashion start ups are going in to them to make large profits. It seems to me they are motivated by wanting creative control over some product or line of products and this is just another way to go about doing that.
For criticizing her article for not being "well thought-out", you sure didn't write a well thought-out reply. I don't see how your reply actually disproves anything she said; you've basically just said, "no, she's wrong... because she is wrong."
c) If you become the decision engine (something Google and Bing are trying to do with their Flight Search and other initiatives in various verticals), then you can easily take over the entire business.
If people are coming to you and you help them decide what to buy - then you can start selling them that stuff.
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If you become the decision engine for Fashion you can decide everything else.
I think perhaps it's not very clear until you consider what WalMart has done and what Amazon is doing.
And what Google is trying to do.
You start off as the starting point and then you start taking over more and more until you start producing the products you were originally only linking to.
Amazon and WalMart are not decision engines, and they never were. Maybe Amazon had a little of that on the side, but both are traditional retailers with all the traditionally hard problems the article mentioned that people don't want to solve.
In fact, Amazon is a poster-child example of what you stand to gain if you are willing to tackle more than just being a frontend.
Amazon started off selling books. What do you think their margin for each was?
Then they took over a large part of the market. Then they moved into selling other things like electronics.
Then they made the Kindle and controlled the device people read on and the starting point and the buying point.
Now they are getting into publishing and self-publishing.
They are taking over everything starting with taking over the online selling point for books.
That's what a fashion startup earning only 10% can do.
Use the 10% (which is mostly profit) to power an engine that slows takes over all of fashion.
Move into parallel areas like shoes and accessories.
Then starts making their own stuff.
I appreciate your trying to defend the poster of the original short-sighted article.
However, if you look at building a real business that has the power and control to completely take over an entire industry then starting online is much better than starting in the backend.
If you want to provide services to publishers who publish books (which is what back end would be for books) - well and good.
But there's nothing transformative about it.
The real transformation is to replace Publishers.
that's why the poster of the original article is so wrong.
She thinks she's thinking big by talking about tackling the back end instead of doing online sites.
However, the real prize is to replace the entire pipeline and then, if the company so chooses, to replace labels and the entire fashion industry.
Starting Point: Where people start their search (to buy something or find something).
Decision Engine: Where people make a decision.
Buying Point: Where people actually buy.
What are all the reviews at Amazon for?
Amazon is both a decision engine and a buying engine. They are trying to wean off starting engines like Google and that is why they first tried A9 and now are trying devices in customers' hands.
If you step out of your attempt to defend the poster of the first article you'll realize that her article (not her, just the article) is very short-sighted.
The Internet is destroying entire industries - yet she thinks fashion internet startups should instead compete in the real world.
That makes no sense. We should all play to our strenghts. While she's trying to do backend stuff and help existing Fashion companies, some 'only 3 to 8%' earning Internet startup is going to disrupt the entire industry.
A hacker, in my opinion, is not meant to figure out how to solve the problems the existing industry power players created or want solved.
A hacker, again in my opinion, should solve the most elegant things and solve things for actual people.
You are missing a very key point here: consumers do not decide what they wear, the fashion / PR machine decides that for them.
Think about this: while a girl may discover a cool, new designer on Pintrest and buy a dress from that designer, trust me, she will still scratch out some girl's eyeballs to get the new Louis Vuttion bag. And why? Branding. And hundreds of millions of dollars in marketing to create an image, an illusion, and an object that conveys status. LVMH is the most powerful and profitable luxury conglomerate in the world for a reason (it is about 3x more profitable than Amazon with 20% less revenue).
Brands either die or thrive based on their ability to do two things: create a desirable brand and manage inventory. The entire function of branding and marketing is not going to be replaced by Svpply. Or Pintrest. Or whoever.
Lastly, it's comical you keep mentioning Amazon. One of the biggest reasons for their success is their ability to manage a supply chain better than almost anyone else.
I've found that almost nobody in Silicon Valley gets this, especially engineers (speaking as one). They treat the "product problem" as a technology problem (more data, better recommendations), but it's really a psychology problem (how do you make people fall in love?).
Mapping the social web onto the latter problem is actually more straightforward, IMO, than trying to, say, mine my Facebook account to make more "personalized" apparel recommendations.
You may want to give her more credit. She did a fashion startup for a few years.
About the 3-8% affiliate fees, that's not a viable business model. You would have to deliver north of 15M dollars to get 1M dollars. Assuming the average ticket is $150, you need 100,000 conversion. The average internet conversion rate is 3%. So you need 3M uniques. That is not very easy to get. Even if you are buying it.
She did a fashion startup for a few years and she never figured out that nearly every luxury company gives 10% to 15% commissions?
If she really thinks it's 3 to 8% then she's blissfuly ignorant.
She doesn't get the fundamental concept of capturing the starting point. If a site becomes the destination for fashion i.e. where people go to search for the next thing they buy.
Then that site can very easily expand into selling that very thing.
At some point we say - Instead of getting 15% from this luxury watch maker, we ask for 25%.
Then we say - Let's make stuff ourselves and see if we can get more than 25%.
What Google is doing and what Facebook is trying to do is very similar. Expand and take over all the profits. But first you need to be the starting point or decision point for something (search, social interactions, dating, buying clothes).
Back in the real world, it is actually happening the other way around. Retailers and brands (which have all the power and money) are becoming the content creators and poaching talent from the publishing industry. Quote below from a Business of Fashion article earlier this year.
"What began as a trickle is now starting to look more like a mass exodus. Jeremy Langmead, formerly of Esquire, is now at Mr. Porter. Andrea Linett, formerly of Lucky magazine, is now at eBay. Dennis Freedman, formerly of W, is now at Barneys. Fiona McIntosh, formerly of Grazia, is now at My Wardrobe. And the list goes on. It seems that there are almost weekly reports announcing that yet another magazine veteran has fled a traditional publishing company to take up a position at a brand or retailer. Recently, it was British Vogue that was in the headlines, when creative director Robin Derrick and fashion director Kate Phelan both announced within days of each other that they were leaving the magazine. Phelan is set to become creative director of Topshop, while Derrick’s plans have yet to be revealed.
By now, it’s a well-known fact that times are tough for traditional, ad-supported editorial outlets. For example, from 2007 through 2009, Condé Nast — publisher of Vogue, Vanity Fair and others — saw about $500 million in revenue disappear, a decline from which it has yet to recover. In fact, Condé Nast CEO Chuck Townshend recently admitted to the Wall Street Journal, “My eyes are wide open. I don’t consider [the traditional ad-revenue model] to be a perennially sustainable stream of revenue.”
I think you killed your reply. Still read it. You may have a point. In the case of Google you can see this happening, and Jason Calacanis pointed earlier this week that "Google is now buying content companies and just giving you the answer". So you are right. However I think when you are dealing with physical products the dynamics are truly different.
One of the reasons why stuff is so much more expensive in Europe than US. The prices are higher, so cash margins per sale still high even if percentage margins might be lower.
Now Europe is obviously a place where there is a lot of scope for these businesses.
1) Why should anyone care about solving the problems that the writer of this article wants to see solved?
2) She fixates on the 3-8% that affiliate sites make without considering a few things:
a) Sites make that regardless of where the user actually buys. So if someone comes to your site and decides to buy a jacket you make money whether they buy it from Retailer A or Retailer B.
b) It's usually 10% for fashion sites and once you are driving larger volume you can cut deals for 15%.
c) If you become the decision engine (something Google and Bing are trying to do with their Flight Search and other initiatives in various verticals), then you can easily take over the entire business.
If people are coming to you and you help them decide what to buy - then you can start selling them that stuff.
3) The costs and barrier to entry is much lower if you are trying to fix the discoverability problem.
4) The real problem, and the most important thing, is the role of fashion. What fashion really does. That can be tackled completely in the online world through a website.
5) Fashion is a market that is going to make a lot of startups a lot of money.
Things that signal status (such as special electronic brands and designer bags and Grey Goose vodka) are never going to go out of style.
Instead of listening to this writer's advice, any company going into fashion should look at how backward thinking most people in the industry are, how little they understand technology, and how they are unwilling to admit the core purpose of fashion.
The easiest entry is discoverability and influence and that's also the most powerful element of the fashion ecosystem.
If you become the discovery engine and the decision engine then it's game over for everyone else.
All those VCs funding fashion startups are not idiots.