• About Jeff Richards

    - Venture Capitalist @ GGV Capital
    - Dad
    - Entrepreneur

  • Subscribe with Feedburner

  • Enter your email address to subscribe and receive notifications of new posts by email.

    Join 60 other followers

  • Top Posts & Pages

  • Recently on 13 hrs to think

  • Join 60 other followers

  • Admin

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.

The Business of “You” Is About to Win, Big Time

nest 2I recently installed a Nest thermostat.  It was so easy and such an upgrade over my prior thermostat that it literally made me say “wow.”

And it got me thinking: we are in, or entering, a golden age of technology for consumers.  And I love it.  It’s one of the reasons I think so many of us in the VC community are thrilled to be investing right now.  We can see the revolution taking place around us every day.  It’s not hidden in some corporate data center or a manufacturing plant in Taiwan.  It’s in our homes, on our wrists and impacting our lives every day.

A lot of the credit for this revolution is no doubt due to Apple, as the iPhone has unlocked entirely new economies and capabilities on both an individual and global scale.  Remember carrier “music services” on your RAZR just 6 years ago?  Now you have millions of songs at your disposal via Pandora or Spotify.  Not to mention games, movies, TV, photos, video chat – the list is long.

What’s so cool about this new era is it’s focused on you, the individual.  Yep, you win.

In the 90’s much of the innovation in technology was around enterprise technology – think SAP, Siebel, OracleHP.  Great for big business, but not a huge direct impact on day-to-day quality of life for consumers.  In the late 90’s and 2000’s, the Internet changed the way we shop (Amazon, eBay, etc.), get news (Yahoo, ESPN, etc.), trade stocks (ETRADE) and connect with each other (Hotmail, Skype, Facebook).

Very cool and industry-changing stuff, but did it impact your quality of life as an individual?  Perhaps to a certain degree.  But not like this new era will.

My Jawbone UP gives me daily readouts on my sleep and exercise habits.  My plug-in Prius gets over 80 MPG in city driving (65 highway).  I see the Tesla Model S and Nissan Leaf everywhere in Silicon Valley.  My Nest has already learned our family’s temperature habits and is eliminating wasted energy usage (for more on how it does this, see the Nest website).  Not to mention the bazillion apps on my phone that make life better every day.  And all of these devices and apps will soon be connected – enabling the “smart” world we’ve all been talking about for decades.  They’re helping me be healthier, save money, and spend more quality time with family and friends.

The innovation happening around “you” is incredible.  As venture capitalists, we see things that are years away from hitting the mainstream, and so many of them are truly amazing.  The best and brightest entrepreneurs coming out of Stanford and MIT want to build killer applications and devices that are focused on actually improving people’s lives, not just selling standard IAB ad units (and lots of them).

I know the prevailing sentiment right now in the tech community is that “enterprise is hot, consumer is not.”  But trust me, there is a ton of innovation and funding happening around the business of “you,” and it is going to change your life in meaningful ways.  The Jawbone, Prius and Nest are just the start of what I anticipate to be a massive wave of devices and apps that impact consumers in game-changing ways.

And yes, I realize these are currently “early adopter” technologies.  But they are a big flashing sign of “things to come,” and I expect all three represent technologies that will become mainstream very quickly.  Don’t agree?  A company I sit on the Board of recently received a $20,000 credit from its insurance company to give employees wearable devices like the UP – simply because they believe it will make them healthier (and thus the company a more attractive one to insure).  With incentives like that, it won’t be long before these devices are mainstream.

This new golden age of consumer technology, the business of “you,” is still in its infancy, but it’s accelerating and happening before our very eyes.  Pretty cool.

Note: GGV is not an investor in Nest, Jawbone or Toyota (but I wish we were!).

%d bloggers like this: