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“This is Not Just for the Menlo Mom”

I read an article by Nick Bilton this week in the New York Times entitled “Disruptions: The Echo Chamber of Silicon Valley.” I think he makes some solid points, and it reminded me of my first meeting with Mauria Finley, founder and CEO of Citrus Lane.

Citrus Lane FBOne of the first things Mauria told me when we met was “Citrus Lane has to be about products and a community that is not just for the ‘Menlo Mom.’  We have to reach the Nebraska Mom, the Tennessee Mom – the broader audience of moms around the country and eventually the world.”

Mauria and her team had spent a ton of time talking to moms around the country as well as the brands behind the products they buy. They learned a ton, and applied it towards their business strategy and business model. There are 10,000 babies born every day in the US, and the average first time mom spends more than $12,000 on her child in the first year (think diapers, baby food, strollers, etc.). If Citrus Lane had started out with a product mix focused on moms from Silicon Valley (or the “Menlo Mom”), chances are the company would end up reaching a very small percentage of those 10,000.

Everything the company does reflects this thinking. I won’t give away all the secrets, but the company’s $25 price point, the product mix, the content and engagement models (heavy on mobile and Facebook, for example, given that many moms spend their days out and about – not sitting in front of a desk) are all designed in the context of how the majority of moms throughout the US think, not just those based in Silicon Valley.

Citrus Lane Sold Out Tweet

The results speak for themselves. The company has grown more than 10X from when we invested a year ago, and has sold out 6 months in a row. Click here to view a recent presentation from Mauria on how she’s building Citrus Lane and why “Social is the Very Essence of our Brand.”

In contrast to the data points in Nick’s article, Mauria and her team launched with a product offering that appeals to the market at large, avoided getting overly focused on the early adopter crowd in Silicon Valley, and they nailed it. Maybe a good topic for Nick’s next article :).

Content, Community and Commerce: Why Verticals Win

Houzz1When it comes to the three C’s – Content, Community and Commerce – we have a very basic thesis we have been investing around for several years now: vertical platforms win.

What do I mean by “win?” Deliver a (much) better experience for users. Create value for brands and advertisers. Deliver higher monetization rates (and thus value) for management and investors. Win for consumers, win for brands, win for management. And they can do it at scale, which is where we believe many of the horizontal platforms start to degrade.

How do they do it?

Content. By focusing their efforts on a specific interest area, vertical sites can deliver the best user experience around content. Images, text, search and sharing are all tailored to the area of interest. Don’t believe me? Look up “kitchen” or “kitchen remodel” on Pinterest, then go to the “Kitchens” section on Houzz. For someone who is interested in architecture, design or remodeling kitchens, the experience on Houzz is dramatically better (unless you want a random picture of a naked woman in a kitchen, which did pop up in my search on Pinterest).

Community. If in a large enough category (think: home improvement, music, fashion, travel), a vertical platform can amass a big enough audience to truly create a thriving community. Yelp has done this exceptionally well in a giant vertical, and now has more than 100 million unique monthly users. Google, Foursquare and startups like Ness are challenging (especially using mobile as a trojan horse), but Yelp has the largest and most focused community, and it’ll be tough to beat Yelp if it continues to innovate. Another great example is Zillow, where users are encouraged to “claim” their home and input their own data and photos. It’s working – Zillow has more than 45 million unique visitors every month, and more than half are on a mobile device. Last year we invested in an e-commerce business called Citrus Lane which is focused on building a large community of moms around its brand; a community opportunity we don’t see with many other e-commerce businesses. Given that moms spend more than $45 billion each year on their babies (first time moms spend $16 billion alone), and more than 100,000 babies are born every day in the U.S. alone, we think this category is not only large enough to support a vertical winner but also emblematic of a “mobile first” opportunity. More and more moms spend the majority of their time on their iPhone or Android device and very little in front of a PC.

Commerce. The beauty of nailing content and community in a vertical platform is your users actually want a commercial experience. And when I say “commercial experience,” I don’t just mean “ads” (which tends to be the de facto model for horizontal platforms). Meilishuo, the top vertical platform in China for women’s fashion has more than 4 million daily active users, almost all of whom are females between the ages of 20 and 35. It’s a highly focused, engaged and active community. When you utilize Meilishuo (best on iPad), one of the first things you’ll notice is it’s intentionally commercial – you can click to purchase more than 95% of the content on the site. You don’t see that on horizontal platforms like Instagram or Pinterest. As a result, Meilishuo is driving hundreds of millions of dollars of GMV (gross merchandise volume) in the fashion category. (Funny anecdote – when I was in NY with Meilishuo CEO Xirong Yu, I showed him Instagram. He kept clicking on images and saying “Why can’t I buy it?”)

Perhaps the most important point is this last one: these vertical sites are intentionally set up to drive commerce. It’s part of the core user experience. Upon introducing several friends to Houzz last year, more than one came back to me and said “I’d like to see more tags!” The products are part of the user experience and – done in a tasteful manner – play an integral role in the consumer’s engagement on the site.

The biggest challenge with vertical platforms – historically – has been getting enough critical mass to matter.  There are vertical sites all over the web for almost every niche interest you can think of. Many of these are in fact small, thriving communities with no venture capital backing and a highly profitable business model. Others – like those mentioned above – are already big and getting bigger (think Spotify, in music). Given the commercial aspect of these vertical platforms, they tend to monetize at a much higher rate per user than their horizontal peers. As Xirong from Meilishuo put it to me: “I don’t want a billion users. I want the most valuable 200 million users.”

Horizontal platforms play an important role in the Internet ecosystem, and my bet is Facebook and its social graph will play a really important role for a very long time. But – it will be very hard for other vertical platforms to gain prominence, and few (if any) will monetize as well as the rising vertical platforms. These new vertical platforms are also the most likely to develop innovative forms of monetization as we move to a “mobile-first” environment (phone & tablet).

A few questions we’ll be watching closely over the next year or so (that this post doesn’t attempt to answer):

– Will the horizontal platforms (Facebook, Google, Tencent, Baidu, etc.) eventually “win” in these large categories, despite early leads from the upstart innovators?  Seems unlikely, unless… (see next point)

– Will the big horizontal platforms acquire the new vertical leaders in the interest of garnering eyeballs and also alternate / non advertising-based models of monetization?

– Will the emerging vertical platform leaders be able to go global – as the horizontals have (more than 75% of Facebook users are from outside the U.S.)? As they do, will they be beaten to the punch by local vertical leaders?

– Will we see many, valuable vertical players (sort of like the SaaS space in enterprise), or consolidation and just a few winners?

Many unanswered questions, but a battle that will be fun to watch with billions of dollars at stake.

Disclosure: my firm, GGV Capital, invests across the US and China, and is an investor in Houzz, Citrus Lane and Meilishuo.

Citrus Lane Raises $5.1M from GGV and Greylock

Today subscription e-commerce site for moms Citrus Lane announced its new round of funding, $5.1M led by GGV Capital and existing investor Greylock Partners (read John Lilly’s post about Greylock’s 2011 investment in Citrus Lane here).

Citrus Lane, launched in 2011 by entrepreneur and former EBAY exec Mauria Finley, has quickly built a loyal following of thousands of moms who anxiously await each month for their Citrus Lane box to arrive (it’s not uncommon to see “We can’t wait!” and “We’re stalking the mailman waiting for our Citrus Lane box!” posts on Facebook).

Needless to say we think the business Mauria and her team are building is well on its way to being a huge success.  We love the category ($40B is spent annually on babies in the US).  We love the business model (subscription, which provides major advantages in merchandising and inventory management, two areas where e-commerce businesses often struggle as they scale).  And social media is completely changing the game for both customer acquisition and engagement.

But what we love most is…the mindset Mauria and her team have towards building a long-term, sustainable brand and business.  We’ve met more than 80 e-commerce businesses in the US in the last 18 months, and while we loved many of them, it was rare to find a team that was thinking about their business 5 years down the road.

Doing so requires a different approach, and it’s not for everyone.

–          It requires rational growth (you may have noticed a “Sold Out” sign on the Citrus Lane web site last month).    Rational growth means all of the key areas of the business can ramp accordingly (things like merchandising, supply chain and customer care, which sometimes get left in the dust while Marketing and customer acquisition ramp uncontrollably).  Don’t get me wrong – Citrus Lane has phenomenal growth – but they’re managing it to ensure a great experience for their customers.

–          It requires a deep focus on engaging with customers and the community.  Visit Citrus Lane’s Facebook, Twitter or Pinterest pages and you’ll see a constant dialogue with a growing community of mothers (and some awesome photos of babies loving their Citrus Lane boxes).  High quality companies are leveraging social media in this respect like never before (read Gary Vaynerchuk’s The Thank You Economy for more examples).

–          It requires a smart approach to financing and capital.  Mauria had plenty of opportunities to raise more than she did in this round.  She chose to raise “the right amount of capital at the right time.”  We think it’s a smart approach.

We love Citrus Lane for many reasons – not the least of which are business and metrics-oriented reasons that we believe will make it a great investment for our firm – but as always it comes down to the team.  Mauria, Claire, Terra, Victoria and the rest of the team are building something special.

We’re thrilled to be a part of it!

ADDITION: Here are a few of the articles covering the financing:

Techcrunch “Citrus Lane Lands $5.1M”

VentureBeat “Oh Baby!”

AdWeek “Citrus Lane Wins Over New Moms”

 

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