Why newly founded online retailers are growing so fast
March 9, 2015 12:17 PM
RJMetrics analyzed the data of 200+ ecommerce retailers and $25 billion in transaction revenue. One key insight that emerged is that ecommerce companies founded in 2013 grew 2x faster than those founded in earlier years (2010-2012). This analysis was done by looking at revenue based on the number of months a company has been in business.
This pattern of accelerated growth emerged early on, after only six months in business 2013 companies were bringing in nearly a half million in monthly revenue, other years hadn’t even crossed a quarter million at this point. The impact of high monthly revenue can be seen more clearly when viewed as total revenue.
After one year in business, companies founded in 2013 had cleared $6 million in revenue, while on average, companies founded in 2010-2012 were just clearing $2 million. By 22 months, the last time period for which we have accurate data, companies founded in 2013 had generated close to $19 million. By month 22, earlier companies were just closing in on $7 million.
So what’s driving this accelerated growth? First, the significance of product/market fit cannot be overestimated. The only way to avoid being crushed by the giants (Amazon, eBay, and Walmart, who are growing aggressively in their own right) is by a) avoiding fast-moving consumer goods where those retailers excel, and b) creating an experience that customers love and continue to come back for.
Successful examples can be found in companies like TheRealReal, with their focus on flash deals for high-end consignment clothing, to Plated with their aim to create a frictionless buying experience around preparing a healthy home-cooked meal, and Birchbox who created an entirely unique buying experience by reinventing the cosmetic sample. These retailers are pushing into e-commerce categories where customer choice has traditionally been limited, and doing so in novel ways.
The other major force behind this accelerated growth comes from the explosion of technology that ecommerce retailers have been enjoying over the past two years. These four factors mean that it’s easier than ever for someone to start and scale an ecommerce company.
1) Marketers have better channels to reach potential customers
The immediate hurdle that any new company faces is customer acquisition. Getting those initial customers can be incredibly challenging, but thanks to new developments in advertising platforms, overcoming this hurdle doesn’t present the same monumental challenge that it did for stores opening just a year or two earlier.
One example of this is Facebook Ad Exchange (FBX). FBX opened for business in late 2012 and completely changed the game. FBX allows retailers of any size to retarget site visitors on Facebook. By October 2013, Internet Retailer declared this advertising innovation to be the new “secret weapon.”
For new ecommerce stores, it’s difficult to justify investment in acquisition channel that doesn’t have immediate return. FBX provided new retailers with the opportunity from day one, to generate a reliable revenue stream.
2) The rise of the mobile majority
Mobile commerce has clearly become a web retailing fundamental, impacting everything from product merchandising to page load times. 2012 marked the year of the mobile majority in the U.S., with smartphone ownership crossing 50 percent of all mobile subscribers. Over the course of 2013 smartphone ownership continued to climb at a rapid rate, reaching 71 percent by 2014 according to Nielsen, and mobile commerce became a growing share of total online retail.
Most significantly for new retailers, 2013 marked a point where it became easier for companies to add new features to reach the rising number of consumers buying via smartphones and tablets. For example, Shopify overhauled their platform in early 2013 and a key facet of the redesign resulted in responsive store templates becoming the norm. Suddenly, for only $14 a month, anyone could set up a new ecommerce store that was on par with the biggest retailers in the business.
3) Advances in technology infrastructure
A report earlier this year from Forrester Research found that ecommerce companies doubled their spending on software from 2010 to 2014. Much of this spend is going toward software-as-a-service (SaaS) investments that allow retailers to “outsource the burden of support, scalability and upgrades to the vendor.”
As the SaaS market explodes, so does the ability of new retailers to access sophisticated technology. Tools like Sweet Tooth allow retailers of any size to build technologically advanced loyalty programs. Email service providers like MailChimp make it easy for retailers to build targeted email campaigns. Advances in everything from CRM to order management have been, and will continue to, make it easier for new retailers to compete with established vendors.
This also includes the emergence of cloud computing hosting options from Google, Microsoft, and Amazon Web Services, projected to grow at 30% CAGR through 2018. And cloud-based platforms like Shopify, Squarespace, and more are enabling companies to scale quickly with minimal initial investment.
4) The ability to make better decisions faster
Data has always been a competitive advantage for the Fortune 500, but with the evolution of business intelligence and analytics tools, this advantage is being extended to even the newest players.
Google Analytics has been a standard in web analytics since its launch in 2006, and with the beta launch of Universal Analytics in late 2012, it became even easier for businesses to better understand the customer’s path to purchase. Tools like Mixpanel take web analytics to the next level and reached mass appeal in 2013. Optimizely has made the practice of A/B testing commonplace. Tools like RJMetrics make enterprise-wide analytics accessible to any retailer, regardless of size.
The ability to make data-informed decisions from day one is setting new vendors up to be smarter than ever about how they grow their businesses.
What this means for the future of e-commerce
2013 was the best year ever to start a new ecommerce store, and there are no signs of rapid ecommerce advancement slowing down. We expect to see this trend continue with stores founded in 2014 and 2015 growing as fast, if not faster.
There has never been a better time than now to start an ecommerce company. Incumbents, beware: you’ll have to stay agile to compete.
RJMetrics provides web-based data-analysis tools to online retailers and other companies.