Unlocking Marketplace Success and Overcoming Modern Monopolies
Guest: Shirish Nadkarni
Meet Shirish Nadkarni - a serial entrepreneur with the Midas touch for creating businesses that reach millions! Not only did he co-found Livemocha, the language-learning giant, and lay the groundwork for BlackBerry Internet Email, but he also shares his wisdom as an author! His books, 'From Startup to Exit' and his recent masterpiece 'Winner Takes All: Case Studies in how Online Marketplaces are Creating Modern Monopolies', are must-reads in the business world.
Key Takeaways:
Marketplace Dynamics: Shirish highlights the innovative strategies used by Instacart and DoorDash to attract both suppliers and consumers, addressing the initial 'chicken and egg' problem faced by new marketplaces. He also discusses the evolution towards 'managed marketplaces' like Opendoor, which simplify transactions, showcasing the continuous transformation in the eCommerce sector.
Beyond Amazon: For eCommerce businesses, Shirish advises exploring avenues beyond Amazon, given its high commission rates. He emphasises direct consumer selling and the need to balance customer lifetime value with acquisition costs. He also discusses the potential of B2B marketplaces, citing Convoy as a prime example of connecting trucking services with freight suppliers.
Monopoly Risks and Niche Opportunities: The episode touches on the risks of successful marketplaces turning into monopolies, as seen with Amazon. Shirish encourages entrepreneurs to focus on niche categories or emerging markets to avoid direct competition with giants. He also suggests creative solutions for dealing with supplier resistance, like forming partnerships or exploring alternative channels.
Links for Shirish
Related Episode
Sponsor for this episode
At the eCommerce Cohort, we're committed to helping you deliver eCommerce WOW through our lightweight, guided monthly Sprint that cycles through all the key areas of eCommerce.
What happens in a Sprint?
Each Sprint is themed-based. So using the topic of Everything You Need To Know About Subscription eCommerce as an example - here's how it would work:
Sprint Theme: Marketing.
Week One: Coaching Session -> Marketing.
Week Two: Expert Workshop -> Everything You Need To Know About Subscription eCommerce.
Week Three: Live Q&A with our experts and coaches. This is a time to ask questions and contribute your thoughts and ideas so we can all learn together.
Week Four: Submit your work for feedback, support, and accountability. Yup, all of this is to provide you with clear, actionable items you can implement in your eCommerce business or department! It's not about learning for the sake of learning but about making those constant interactions that keep you moving forward and ahead of your competitors. Sharing your work helps cement your understanding, and accountability enables you to implement like nothing else!
Who can join the eCommerce Cohort?
Anyone with a passion for eCommerce. If you're an established eCommercer already, you'll get tremendous value as it will stop you from getting siloed (something that your podcast host, Matt Edmundson, can attest to!).
If you're just starting out in eCommerce, we have a series of Sprints (we call that a Cycle) that will help you get started quicker and easier.
Why Cohort
Founder and coach Matt Edmundson started the Cohort after years of being in the trenches with his eCommerce businesses and coaching other online empires worldwide. One of Matt's most potent lessons in eCommerce was the danger of getting siloed and only working on those areas of the business that excited him - it almost brought down his entire eCommerce empire. Working on all aspects of eCommerce is crucial if you want to thrive online, stay ahead of your competitors and deliver eCommerce WOW.
Are you thinking about starting an eCommerce business or looking to grow your existing online empire? Are you interested in learning more about the eCommerce Cohort?
Visit our website www.ecommercecohort.com now or email Matt directly with any questions at matt@ecommercepodcast.net.
Matt has been involved in eCommerce since 2002. His websites have generated over $50m in worldwide sales, and his coaching clients have a combined turnover of over $100m.
-
Matt: [00:00:00] Well, hello and welcome to the eCommerce Podcast with me, your host, Matt Edmundson. The eCommerce Podcast is all about helping you deliver eCommerce wow. And to help us do just that, today we are chatting with Shirish Nadkarni about unlocking marketplace success and overcoming. Modern. Monopolist. Oh, yes we are.
But before we dive into that conversation, let me, uh, just remind you, dear listener, if you haven't done so already, head over to the website eCommercePodcast. net, sign up to the newsletter, and we will send you the notes and the links from our conversation street to your inbox. They come through automatically.
It's awesome. So sign up for that. And also, let me do a big shout out to the e-commerce cohort. Who brings you succinctly? The e-Commerce podcast? Oh, yes. E-Commerce cohort is our membership group, our [00:01:00] private members group, uh, which you can join every month. We deliver expert workshops. We get usually ex guests from the podcast actually delivering workshops.
They're awesome. Uh, so it just helps you learn and grow in eCommerce, plus one of the other added benefits, apart from the myriad of others, is you get to watch the live recording of this podcast. So we live record the podcast, you get to watch it, you can come join in, you can answer, ask your questions to our guests, and I'm sure they would love to answer them.
So, uh, yes, if you haven't done so already. Come join us in Cohort. It'd be great to see you in there. More information is available at ecommercecohort. com. Membership prices start from just 14. 99, so it's not expensive. Come and join us. Now, oh yes, perfect timing on the music, it's almost like I'm a professional, ha, ha, ha, ha, ha, steady on Matt, let's not get ahead of ourselves.
Now let's meet [00:02:00] Shirish Nadkarni, a serial entrepreneur with the Midas touch for creating businesses that reach millions. Not only did he co found Live Mockup. The language learning giant and he also laid the groundwork for BlackBerry internet email. We are going back a little bit there Shirish, I'm not gonna lie.
He also shares his wisdom as an author, his books from Startup to Exit and his recent masterpiece, Winner Takes All, case studies in how online marketplaces are creating modern monopolies are must reads in the business well Shirish good to have you on the show.
Thank you for joining us all the way from Seattle, Washington. How are we doing today?
Shirish: Thank you, Matt. Great to be with you. I'm doing well.
Matt: Good, man. Good. So, for those that might not know, and I dare say, actually, there's going to be quite a few that don't know, um, just [00:03:00] explain. What BlackBerry internet email is because I know right going back a few years But I it's that bizarre point of life where there are going to be people listening to the show that actually have no idea what I'm Talking about so just explain that and let's jump into the conversation
Shirish: Right, right. Yeah. So, um, uh, Blackberry, first of all, was a very popular. BlackBerry mobile device that lets you access your email and calendar. It had a unique keyboard on the device, so you're not typing on a piece of glass. And it was very, very popular in the 2000 timeframe until iPhone came about. Now, BlackBerry internet email was a technology that my company had developed that BlackBerry acquired.
And it, um, allowed people to access the existing [00:04:00] email accounts. Uh, so we had, uh, reverse engineered all the proprietary email systems
Matt: Oh, wow.
Shirish: AOL, Hotmail, Lotus Notes, etc. And, um, you could access any of these email systems. Uh, through BlackBerry internet email.
Matt: So, I mean, hats off to you, sir, for doing that, because it sounds like, you know, we're so used to this, like the iPhone now, you can scan a QR code and connect to all your accounts and all that sort of stuff. Uh, but this is in the very early noughties and you're, you're doing something which sounds to me like it was a bit of a technical breakthrough.
Uh, it, it never really been done before, um, so I'm curious, did you just wake up one day and think, oh, I'm just going to crack the world of email because I want email on my Blackberry, or, or was there, was there something else that sort of was driving this?
Shirish: Yeah, so this was again in the early, uh, 2001 2002 timeframe, um, where [00:05:00] BlackBerry was getting started. Uh, at the same time, um, uh, phones, uh, commodity phones, uh, at that time Nokia and Samsung, et cetera, phones were becoming internet enabled. And so we said, Hey, wouldn't it be great if you could access your email account?
On your phone, just like with Blackberry. And so we, um, then looked into all the popular email accounts, uh, systems out there and found that they were all proprietary. And so we had to essentially reverse engineer all of these, uh, email systems to enable access to, uh, those systems. And we made it very, very simple.
All you had to do was enter your email address and password and boom, you would be able to access your email.
Matt: Mm.
Shirish: That was very attractive to BlackBerry because they were all about email access and we gave them. The ability to access a wide range of accounts.
Matt: Yeah. Yeah. Crazy. Crazy times. And [00:06:00] that's, so I take it you had a BlackBerry yourself, you would access your emails on this, you'd obviously do a lot of testing, um, so was that your first soiree, if I can put it that way, into the world of tech, or was there something pre Cracking email on Blackberry.
Shirish: So before starting my company, which was called T Mon Systems in 2000, for about 12 years, I had worked at Microsoft
Matt: Okay,
Shirish: and I actually worked on email technology, including doing the, Acquisition of Hotmail, uh, in 19, um, 97. And so I had developed, uh, some expertise around email that I, you know, wanted to leverage.
And that's how I started my first company.
Matt: yeah. Fantastic. So you were there right at the beginning of when Microsoft took over Hotmail.
Shirish: Yes, I actually engineered the ac I was the person who, uh, convinced, uh, [00:07:00] Microsoft Management to actually pay $400 million to buy Hotmail.
Matt: Of course you were. That's a great conversation starter. Well, what have you done in your life? Well, I convinced Microsoft to spend 400 million quid on an unknown email platform, uh, which they did obviously. And, um, I remember when Microsoft bought out. Hotmail, because obviously like most people back then I had a hotmail email address, because they did this really simple marketing thing didn't they, every email that got sent out was an email via hotmail, and so you just clicked the link oh I've got to get my, I need an email address that will do, What was it about Hotmail that made you think this is worth 400 million in the late 90s?
This is, I mean, it's a lot of money now, but it was insane amounts of money back then. No one had heard of deals like this, right?
Shirish: You're right, but remember this was in 1997 at the height of the dot com [00:08:00] boom where companies were going public at a billion dollar or more valuation. So what was interesting about Hotmail was that it was growing very rapidly and email is a very addictive application. You need to go check your email, you know, several times a day.
And so, um, I was working on Microsoft at that point, working on msn. com and we were late to the game. And so we said, Hey, we need something that brings people to our portal every day, multiple times a day. And we heard about Hotmail, saw that it was, uh, delivering, uh, web based email service. And it was growing very rapidly, so we decided to make the, uh, the offer.
Actually, Hotmail, uh, at that time was only doing 2 3 million dollars of revenue, but we had to end up paying 400 million dollars, uh, for, for the, um, system, uh, [00:09:00] because otherwise they would have gone, uh, public at a billion dollar valuation. Uh, so it was, uh, at that time somewhat of a deal to go get Hotmail at that price.
Matt: That's incredible. I mean, I have to be honest with you, Shirish. I have a Hotmail account, which I must not have access for like 15 years. Cause you know, email, all of a sudden you could start buying your own domain names, couldn't you? And then Google Mail came along and it changed. Is Microsoft still in ownership of Hotmail?
Do you know? Is it still going on?
Shirish: It is still going on, um, and, um, I still have a Hotmail, uh, account, uh, that's, that works, um, uh, but, uh, they have now rebranded as, I think, Outlook Mail, and so it's the same system behind the scenes. Behind the Curtain is the same system, it's just rebranded as Outlook.
Matt: Fantastic.
Shirish: still out there, but, uh, you know, Gmail is now the dominant email system,
Matt: Yeah, yeah, yeah, no, it is. I'm curious, [00:10:00] was it a success? Was it worth the 400 million for Microsoft? Do you look back at it and go, we did a great deal then?
Shirish: I think so, because, uh, you know, at that, you know, when we bought Hotmail, they had about 10 million users growing very fast. And then over its lifetime, I think they've gotten to a billion plus email accounts. So, um, I think it was a good buy for Microsoft. Yes, it seemed very expensive at that time, but I think ended up being a good purchase for Microsoft.
Matt: so I'm curious and I appreciate, we'll get on to the conversation of eCommerce, but I'm curious, let's talk about email a little minute here, because I'm kind of curious. Why did you and Microsoft at the time go? Let's buy Hotmail versus let's start our own email platform, right? So, uh, let's start Outlook email and then we'll be competitors too.
Um, Hotmail. The reason I'm asking this is because this is a question, the takeover [00:11:00] question is one that plagues a lot of people. Do I buy an existing thing out there, like an eCommerce business, for example, do I buy an existing eCommerce business or do I start from scratch? And so if you don't, let's just dig into this a little bit because I'm super curious, what, what was the thinking behind, Takeover versus, um, starting your own.
Shirish: Yeah, that's, that's actually a very, uh, good question because, uh, internally, uh, we got pushback from our, uh, from the division at Microsoft that was working on email technology. And they said, Oh, we can also. Build something like Hotmail, but we knew based on past experience that you know, it would probably take another two years before they would be able to come out with a similar technology, understand how to scale it.
That's one of the things that Hotmail did was they. We had scaled it to millions and millions of accounts, which is not a small undertaking. And we needed to [00:12:00] really, uh, give a big boost to MSN by integrating Hotmail. We thought we could get a lot of new users through Hotmail becoming members of msn. com.
And so for that reason, it was, it was a tough decision, but ultimately Bill Gates decided to go ahead with the acquisition and not wait for the. Email guys at Microsoft to build a similar technology.
Matt: Yeah. That's really interesting. So it was the, uh, the time to market and the ability to scale, um, and they're actually the two really good principles, aren't they, in terms of do I buy this business? Well, what's the time to market for me, um, and how easy is it to scale? And so these guys already had a few million users.
um, versus you would, you would have to build the technology and you'd start from scratch. So you'd be a few years behind and I think super important lessons there. Um, super, super important. I so. So, you worked at Microsoft, you then start up your own [00:13:00] company, you figure out internet email for BlackBerry.
So I now understand, because you've got this background in Hotmail, you've sort of got your head around that, so it gave you sort of a leap forward. The BlackBerry is no longer with us, so I'm assuming, or maybe it is actually, and I just don't know about it, but I'm assuming you've done something since then, uh, to just keep yourself busy more than anything I would have thought.
Shirish: Yeah. Well, um, after that I started LiveMocha that you mentioned in the introduction and, uh, but now I'm focused on helping. Entrepreneurs. Uh, so I, uh, write books as you mentioned. Uh, have to, uh, share some of my experiences, uh, and then I, uh, invest and, and advise, uh, startups. I really enjoy doing that and working with smart entrepreneurs.
Yeah,
Matt: Was that a, was that a natural progression for you or did you, as in you sort of, you, you started writing books. I dare say the [00:14:00] thing that happens is you sort of start writing books. People start to reach out to you and you start to ask, they start asking questions. You then start to get involved, don't you?
And you kind of figure out what that means. You know, how do I get involved in startups? Well they've not really got any money to pay me for my time, uh, but I can invest in them, uh, for a return of their business. And I think it's a really interesting model. Um, How long have you been doing that?
Shirish: uh, so about for about seven years, last seven years.
Matt: Are you enjoying it?
Shirish: Oh, absolutely. Um, you know, I, uh, uh, really enjoy meeting with smart, uh, entrepreneurs and helping them with their strategy and go to market approach and, um, you know, business models. Um, those are things that we discuss and, and it's exciting to see when somebody really succeeds.
Matt: Fantastic. So the title for today's show, uh, Shirish, is Unlocking Marketplace Success. Marketplace, Marketplace Success, uh, and Overcoming [00:15:00] Modern Monopolies. So unlocking marketplace success, what do you mean by that? What are some of the things that we should be thinking about at the moment, uh, based on what you see through your investments, through your knowledge of the tech industry?
Uh, what, what are some of the things we should be seriously thinking about right now?
Shirish: Absolutely. Um, so one of the things that is interesting about marketplaces is that you have the chicken or the egg problem and you get started because, uh, you know, no supplier is going to join your marketplace because there are no consumers and no consumers are going to come to your marketplace because there are no suppliers.
So how do you get, uh, around that problem? And that's what I, one of the things I discussed in my book is you, Focus on the supply side of the equation and you focus on a narrow market or category. So I'll give you some examples.
Matt: hmm.
Shirish: Instacart, uh, which is a grocery delivery service in the US. I don't know if they're in the UK as well.[00:16:00]
Um, but,
Matt: but I know who you mean. I do know who you mean. Yeah. Yeah.
Shirish: but you know, they started in, uh, the Bay Area. And, um, initially what the founder did was, uh, he, uh, went to the Safeway site. Safeway is a major grocery chain here in the U. S. And he scraped all their content and made it available on his website, uh, without their permission. Um, you know, not something that's entirely legal to, but you know, you have to be scrappy as an entrepreneur.
And then, uh, allowed, uh, his customers to place orders through his website, choose items from the scraped content, and then he would go deliver the groceries himself. Uh, so that's one example. Another example is DoorDash, which is a Food delivery service. And they started in Palo Alto in California. And what they did was they actually, uh, scraped the menus off of restaurants in Palo [00:17:00] Alto, and, and they would actually take the order from the consumers.
And turn around and call the restaurant over the phone and place the order and go pick it up and deliver it to their customers. And that's how they got started. Uh, so you have to be scrappy to figure out how to get started when you have no suppliers on your website. And then once you have some traffic, then you can go to the suppliers and say, look, we've been ordering stuff from your web, from your website for all these days.
Why don't you become a partner and become. You know, integrate over the internet.
Matt: That's really interesting. It's, um, I love those kinds of stories where somebody somewhere just goes, I just, I'm, there's a proof of concept here. So DoorDash just goes, I'm just going to put a load of menus on the website. People are going to order stuff. I'm going to take their order. I'm then going to call that.[00:18:00]
restaurant, order that food. pick it up and deliver it and I'm not. gonna make any money because. because there's no way you can make money off a 4 5 buck delivery It gives that really interesting proof of concept, doesn't it, because you don't need all your ducks in a row, you just, is there a market for this, is there an easy way to test this concept, to test this idea, yes or no, um, I love your phrase, you've got to be a little bit scrappy, um, and I think it's just thinking around that, like, can we prove this concept, yes or no, uh, and quite quickly I think you'll discover whether it's a yes or whether it's a no.
So with DoorDash and Instacart, they, they, they quite quickly discovered what was going on and, and obviously grew from there to the point where they then have people knocking down on their door going, can you please add my stuff to your website?
Um, really interesting. [00:19:00] Do you see that happening a lot, or do you think, even still today, people are like, no, I've got to have this, I've got to do this, this, I've got to have all of these things in a row before I start?
Shirish: No, every situation I've encountered, um, uh, whether it's Doordash or Instacart or Airbnb, you know, the founders have been supremely scrappy, uh, to figure out how to get supply side of the equation on their marketplace. And then they, uh, go after consumers. So, um, you know, uh, Airbnb is a good example. Um, you know, before, uh, before Airbnb, people would use Craigslist to advertise.
That had a house for rent, et cetera. And so, uh, what the Airbnb founders did was they would go to all the Craigslist listers, the people doing the listings and say, Hey, you know, why don't you come on, uh, Airbnb and you can now put pictures of [00:20:00] your home on our website instead of just a list, simple listing.
And so they basically, uh, hacked. into Craigslist to create supply on their website.
Matt: mm hmm, it's really clever, really clever. What um, I mean, there's lots of different stories there, lots of different marketplaces, ideas, you know. So you've got food delivery, you've got shopping delivery, you've obviously got the home rentals. What are maybe, just a slightly different turn here, uh, Shirish, what, what do you see emerging in this kind of marketplace market, for want of a better expression, that is really quite innovative and that you sort of, you've got your eye on and think that's going to take off.
Like, what's the next Airbnb or, uh, that you see at the moment?
Shirish: Um, so right, I mean, there's, there's been an evolution of marketplaces, uh, over time, you know, from simple listing type of marketplace like eBay or [00:21:00] Craigslist to now marketplaces like Opendoor, um, which will, you know, basically buy, let's say you have a home for sale. Uh, they will actually, uh, buy the home from you, renovate it, and then sell it themselves at a profit.
And it's all a very well oiled machine, uh, where no human being is really involved. It's all managed. For you, so managed marketplaces are a big phenomena, uh, that's happening where a lot of the transaction is handled for you as opposed to you doing all that work.
Matt: Yeah, you see, um, in the UK, you see a lot of, I dare say you have them in the States as well, a lot of the webuyanycar. com type thing where, you know, you've got something for sale, we'll buy it for you, from you cheaper, but we've, we've obviously got a process to, to sell that somewhere down the line and [00:22:00] make a profit.
But at no point in that whole process do you talk to a human being until the very last minute. where a human has to inspect your car just to make sure it is what you said it is, you know?
Shirish: right, right, right, yeah. So the more you can automate the whole transaction, the more transactions that can happen on your marketplace. So you have to grease that whole process.
Matt: Yeah, that's it. It's very true. And these are called managed marketplaces.
Shirish: Yes, management.
Matt: yeah, Yeah,
Shirish: Yeah,
Matt: So Opendoor, what other examples have you got, um, of sort of up and coming spaces like the marketplaces like this, where you think? Yeah, I'm really, this idea in itself is interesting, like the ability to sell your house instantly, you know, what, what else do you see happening in that space?
Shirish: I think there's a lot of potential for B2B. Marketplace, something I talk about in my book. Um, you know, another example is a company called Convoy, which is also located in [00:23:00] Seattle, and they basically connect, um, um, you know, uh, trucking companies, uh, with, uh, companies who want to ship freight. And they, uh, again, uh, make that process very simple, um, you know, they will figure out how far you are from the freight supplier and then price based on your distance because they know how much distance you have to travel and pick up and deliver, etc.
All that stuff is calculated for you, um, and, and done automatically, uh. In the old days, um. Before Convoy came, uh, on stream, uh, you used to actually have brokers who would be on the phone calling different, you know, freight suppliers and trucking companies and saying, Hey, you know, I have this freight to be delivered from Seattle to Portland and, uh, the freight supplier is going to pay you 800 to do that.
Do you want to take it? And [00:24:00] it's a very cumbersome process that is now all automated. Uh, for you and you know, because of the GPS tracking, et cetera, where the truck is, when it will be delivered, all of that is all automated for you.
Matt: Yeah. Wow. Fascinating. Uh, absolutely fascinating. The whole managed marketplace thing. Um, how does that, uh, you see, you mentioned in the book, you talked about opportunities in B2B. One of the things that I'm, I'm, I'm trying to understand here is, We have a lot of people listening to the show who are in eCommerce, right?
So I'm going to say traditional eCommerce. So they have a website, they sell a product or a digital service online to their customers. It's their website. They may be listing their website in other marketplaces, such as the obvious one being Amazon, right? So we sell on our website, we sell on Amazon. What Um, with what you [00:25:00] know, talk to me like, what are the things that I'm missing?
What are some of the things that I should be thinking about, um, that's going to help me, uh, based on what you know about, uh, marketplaces, managed marketplaces, uh, the other stuff you've written in your book, Sirish, what, what should I be thinking about right now?
Shirish: Well, so the, the challenge that you face, um, with Amazon is that, uh, while you get a lot of customers through Amazon, uh, Amazon apparently takes, you know, a dollar for every 2 of sale. So they're taking literally 50 percent of the transaction. In a variety of different, um, um, situations and, um, obviously when you're giving up 50 percent of your revenue, it's very hard to make a profit.
And so, uh, what eCommerce sites have to consider is, uh, one is are the other marketplaces that they can join, like Walmart [00:26:00] in the U. S. And potentially others, or Etsy also, which is a worldwide marketplace. So, uh, expand your reach where perhaps you can make more of a profit from each transaction. And then secondly, uh, you know, see if you can go direct to consumer on your own website, but that'll also require significant investment in.
In marketing, um, uh, but maybe it'll be profitable. Uh, there is a rule of thumb that we have in the venture world, which is your lifetime value of your customer has to be at least three times the cost of customer acquisition.
Matt: Yeah.
Shirish: Well, uh, assuming you spend a dollar on marketing. To acquire a customer, make sure you're making at least 3 in profit from that customer over, over the lifetime.
If that is the case, you have a direct consumer opportunity as well.
Matt: yeah. Now it's interesting that ratio, um, the three to one ratio, you know, your [00:27:00] lifetime value to your, they call it CAC, don't they? The cost, uh,
customer acquisition
Shirish: LTV to
Matt: Yeah, LTV to CAC. And so the ratio three to one has been, um, has been banded around I think for a little while. What's interesting, um, and maybe you can talk to this is I'm starting to hear rumours that actually that.
Ratio has now got to increase for investors to be interested just because the cost of money is going up with higher interest rates. So obviously for investors, there's the opportunity cost is now greater because they can get interest on their money. Um, and borrowing money is now more expensive. Uh, so I, I've heard a number of people talking about a four to one, even a five to one, um, uh, lifetime value to, uh, uh.
Customer Acquisition Costs or LTV to CAC.
Shirish: Yeah, that's, that is true because, um, um, as you rightly mentioned, you know, um, when you're calculating the LTV, um, you're discounting future. [00:28:00] Cashflow to the present, and the higher the interest rate, the more the cashflow in the future gets discounted. And so, um, you know, when you have, um, um, higher interest rates, uh, that ratio can be more like four to four or five to one.
Matt: Yeah,
Shirish: Uh, so you're absolutely right. Um, that's always a good, you know, place to be because, um, then you clearly have profitability that you can then raise money on.
Matt: yeah, yeah. And it's an interesting one, isn't it? Because it helps you define marketing budget. We had Matt Pooner on the show last week. Well, he was the last person I interviewed. Well, he's the last week in terms of show order. I don't actually know why these things come out. But he was talking about this and creating a really clear Marketing budget on the basis of what you call blended ROAS.
Um, but again, understanding that ratio, you, you know, understanding lifetime value to customer [00:29:00] acquisition costs is really quite an interesting thing to sort of think about. Um, especially if you've got the cash, I mean, a lot of people starting out don't have the cashflow to bankroll, um, you know, these sorts of things.
And so you, they, they tend to be much higher. Um, So, I, friends, so we're talking then about marketplaces, managed marketplaces, talking about startups and hustle, um, and maybe not just relying on Amazon now, obviously looking at different marketplaces, having your own direct to consumer site, um, understanding that.
What do you mean when you talk about overcoming modern monopolies then?
Shirish: Yeah. Um, so one of the, um, hypothesis of the book, uh. Is that, uh, once you get a marketplace going, then it, there's a virtuous cycle that follows where as you add more suppliers, [00:30:00] more consumers come to the site because there's a wide array of suppliers and then more suppliers come because there are more consumers.
And then basically the end state is when you become a monopoly.
Matt: Yeah.
Shirish: And so you've seen that multiple times with Amazon, with eBay, with Alibaba and Instacart and DoorDash. They all become monopolies. Um, or it's, it's either a winner take all or Take most kind of situation. Um, the problem with becoming a monopoly is that it becomes very easy to abuse that monopoly power to the detriment of your consumers and suppliers.
And I give several examples of that in my book about Amazon and Apple and Google. Amazon, for example, has a private label business called Amazon Basics. You may be
Matt: Yeah. Yeah. Yeah. I've seen that. Yep.
Shirish: Um, and so what has happened is, uh, people internally within Amazon [00:31:00] have, uh, been able to access, you know, proprietary data from different suppliers to figure out which markets are the most profitable to enter into.
And then they basically, uh, uh, you know, reverse engineer that item and go directly to the manufacturers and say, why don't you manufacture that product for us as well? And then, uh, when you go to the website, they will self preference themselves higher than other manufacturers. And so, uh, that has created a lot of problem for many suppliers who now suddenly find themselves in competition with Amazon.
Uh, so it's not something that the, you know, management of Amazon has explicitly said. You know, Jeff Bezos has not gone out there and said to people in his company, go do this. It's just that people have abused the monopoly power to their own, you know, uh, benefit. [00:32:00] Uh, so as management team, Amazon has to make sure that, you know, they, you don't give access to proprietary data to the average individual within Amazon.
Matt: Yeah. That's really fascinating, isn't it? And you, this is always the danger, isn't it, when you sell on a marketplace like Amazon, the customer's not yours, it's the customer's theirs, the data is theirs, um, you're just there for the sale and hoping that by selling on Amazon, it actually raises awareness of your brand and people might migrate from Amazon to your website.
And there's a strategies behind how you do that, isn't there, and sort of thinkings to do that. Um. But you're right, there is a danger here, um, that as a, as an eCommerce brand, if you're selling on marketplaces, you are, you are in effect giving free access to your sales data, um, to these marketplaces, uh, as well as obviously a commission and a, and a cut and so on and so forth.
So you do see the rise of [00:33:00] Amazon Basics, you know, and, and. Um, and also one day Amazon might just go, yeah, I don't want you to sell on my website anymore. And there's not a whole great deal you can do about it to be fair. Um, and you know, if that's your business, you're, you know, there's plenty of stories of people being screwed over like that.
Um, so I mean, you've talked about this as in, if you become a monopoly, don't abuse your power. Right. So a bit like, um. I'm, I'm going back to the 1990s now, uh, when you were at Microsoft, they were in the press all the time, you know, being investigated because of their monopoly power. You don't tend to see that as much these days, actually.
Every now and again, the EU takes a bit of a swipe at Apple. You know, you've got to use USB C chargers or it's no go. But you don't tend to see those sort of big court cases now over monopolies that you used to see. Um, but obviously they, they, they exist in, in Apple in quite, quite some major ways. So I'm always curious as to why it's not happened to Apple yet.
But all that [00:34:00] aside, um, what do I need to think about as an eCommerce company that is maybe going to other people's marketplaces? I mean, you've, you've talked a little bit about having a direct to consumer side. Be aware that you're, you know, you're giving them your sales data. Is there anything else I should think about?
Shirish: Yeah, I mean, um, the other thing that, um, you might want to be careful about is, is, uh, making sure that nobody under, nobody knows who your manufacturer, let's say you're manufacturing the item in China, is to do that as secret, you know, as, as possible so that nobody, you know, whether Amazon, anybody else doesn't go back to that manufacturer and re engineer the same item.
Matt: Yeah. And have strong agreements in place over that. Um, yeah, suppliers can really mess up your business if you're not careful. That was my, certainly my experience, you know, [00:35:00] um, so, uh, let's, let's start from the beginning. Right. Okay. Um, I get the. The benefits of doing the marketplace, right? I, I, from a, just from an entrepreneurial point of view, I see the benefit.
If I can create a marketplace, I don't need any product. I just need people to list. I need a mechanism to connect a buyer and a seller together and take a small percentage in the middle, right? And it doesn't have to necessarily be a big percentage, but it can, if it's a big market, it can be super profitable, right? And the bigger I get, the more profitable it's going to be, the more people are going to depend on me. How do I get started, right? Because I'm sitting there thinking, this is genius, I should have mattsmarketplace. com or whatever, you know, I'm going to set up. How do I pick a good industrial market to think about marketplaces in?
Because the ones that I'm thinking of, um, Shirish, I think are very oversaturated, [00:36:00] but I don't know if that should stop me. You know, there's already Amazon in the eCommerce world. Um, at some point I dare say someone's going to knock Amazon off their perch because no one ever stays on top forever.
Um, but I don't, I don't know if that's going to be me in my shed.
I don't, I don't know. I'm just kind of curious. Where would you start with it all?
Shirish: Um, well, um, I would, um, one is looking at, um, markets in which emerging markets where, uh, Amazon is not yet, you know, a dominant player. So for example, uh, in India, before Amazon, uh, became a major player, you had companies like Flipkart, uh, which was founded by, uh, two engineers who had worked at Amazon, went back to India.
And started something, started a marketplace like Amazon. Um, so if you happen to be from a different country, uh, then perhaps you could create a [00:37:00] marketplace in a different location where Amazon or Walmart or somebody else is not dominant. Uh, the other option I could take is to, you know, go deep into one category.
So, um, you know, uh, today Amazon, for example, is not, um, uh, a marketplace really for fashion goods. Uh, uh, so maybe in a different country, in a different location, I might be able to create a marketplace just for fashion brands and, and, and do some of the things that Amazon doesn't do, such as providing data and giving them branding opportunities, et
Matt: Yeah. Yeah.
Shirish: basically I have to do things that, um, I have to look for, you know, niche locations or categories where I can really dominate.
Matt: So niche it down or go to a different country. I like that. I like the thinking there. And it's. So, if I'm going to say start a marketplace, and [00:38:00] you mentioned fashion brands, um, what makes a good marketplace? Do I have to, do I sit there and think, what, this is how my brain works, right? What is it that the customer's not currently getting when they buy on other websites that I can give them in this marketplace other than choice, right?
Because I have to do something, well, do I have to do something? That is more than just choice. Do I have to be innovative in some kind of way? What, what do I need to think about that? Yeah,
Shirish: yeah, right. I mean, initially, um, um, it's, um, all about, uh, you know, creating, it's all about choice, uh, convenience and price, as you know, right? Those are the three, uh, major items. Um, so, you know, maybe, um, uh, maybe, uh, it's price, uh, maybe you price goods at a, at a level that you can't [00:39:00] get directly from the, um, uh, supplier.
And that happened in India. Uh, so for example, Flipkart, uh, for a long time, because they had enormous VC funding, they basically subsidized the sale of smartphones on their marketplace. So it became really inexpensive to buy those smartphones and they lost money on every sale, but that is what made those marketplaces really popular.
Now, having said that, I would say that you have to have, you know, significant VC funding to be able to afford to do that. But initially it has to come down to, you know, price or convenience. So on convenience, maybe you implement, you know, free shipping for a certain period of time or whatever. But again, for that, you need money to try some of those tactics.
Matt: Yeah. I'm, as you're talking, [00:40:00] I'm thinking about one of our websites we used to own. I sold it a few years ago called Jersey, Jersey Beauty Company. And in effect, we sold Different beauty brands. That's what we did. We, we, you know, we bought in from different suppliers. We had to get supplier agreements. We then sold that product on our website direct to consumer.
Um, and I don't, I don't, I, that's not technically a marketplace. I wouldn't have thought that was just me buying products and trying to sell 'em a profit. Um, but what intrigues me about the beauty industry is. This idea of doing a beauty marketplace where, where you could bring in just about everybody's, you could scrape the data and bring it in.
And as long as you've got some way of buying it now, a lot of beauty brands now have terms and conditions of supply, right? So, um, at the time there Dermalogica. And Dermalogica, you had to have a salon, a beauty salon to, so [00:41:00] they, they, they, they, they had quite stringent terms of supply. You had to have a salon, a trained therapist to get that, you know, in their products to buy their product to then sell it on your website.
Um, your website had to conform to certain standards. Um, and then in 2012, they changed their pricing policy. Was it 2012? I think it was 2012. Basically, they changed their pricing policy to one which was the more you buy, the more you pay, uh, which sounds a bit odd, but that's what they did. for reasons known to them.
Um, and so then, you know, our prices went up cause we were quite a big supplier of their, of their product. How do you get around this with marketplaces in terms of there are suppliers out there who are very, very anti use selling? Their stuff online or being some kind of, we were not allowed part of the terms and conditions supply with most of the beauty brands.
We couldn't sell on Amazon and we couldn't [00:42:00] sell on eBay. We had to sell it direct on our website. We couldn't sell outside the European Union. Um, and, you know, Dermalogica have since built their own direct to consumer business, which you, I, I. As a business person, I understand, why would I not want to go direct to consumer and make the most profit?
Um, for somebody in the middle, it's quite tricky dealing with a supplier like that.
Shirish: right.
Matt: So how do you, how do you mitigate that if you're, if you're doing your own marketplace? You know, if you find these, if you find suppliers that just aren't interested in working with you, but you've hustled a little bit, um, what are some, what are some of your experiences there?
Shirish: I mean, um, this has happened on Amazon as, um, the only way to get around that is somehow get that product from the black market in a sense. Uh, find some, somebody, some salon out there who is willing to sell you that product and then you turn around and sell it on your marketplace. [00:43:00] Uh, but if the supplier is not willing to sell you product, there's not much you can really do about it except to buy it from other sources at a.
Inexpensive, uh, price.
Matt: Mmm.
Shirish: Did you try that, uh, you know, getting it from the product from other salons? Mm-Hmm.
Matt: At the time, no, but part of me, I mean, and I, I appreciate the problems that buying on the black market does, but it's, it's one of those where you kind of go, if I was going to do it now, if I was going to set up a beauty website now, not that I would, but if I, if I was going to. Um, I think you would have to find a way around it.
So part of me would be actually probably the better thing I can do is go around to all the Dermalogica salons, um, that have Dermalogica accounts and create a Dermalogica marketplace where they all put their details in, uh, because they're a small salon, they've not got time to do their own website or anything like that.
You know, we market that. [00:44:00] We sell, uh, the products to the end consumer, um, but it's the, the salon that fulfills the orders from their stock. Do you see what I mean? We connect the buyer and the seller. So we've thought about that, you know, could we do something around that, for example, Dermalogica might be a bad example because I don't think it's a particularly popular brand anymore.
I think they, they shot themselves in the foot slightly, just my personal opinion. Uh, please DemoLogical lawyers, don't shoot me, it's just an opinion. Um, but it's, it's one of those where I think, I, I think I could do something a bit more creative, uh, if that makes sense with the salon owners
Shirish: Yeah. I mean, as I said, you have to figure out a way to get that supply and either you buy it from the salons or create a marketplace. For the salons to go through your site.
Matt: yeah, no, very clever. Very clever. Loving that. Um, listen, I'm aware of time. As always, I'm just getting warmed up, uh, and as always, I'm coming to the end of the [00:45:00] time. It flashes on my screen going, you've got a few minutes left. Uh, listen, Cherish, it's been great chatting to you, man, and, um, love the story about Microsoft, by the way, and Hotmail.
I'll remember that. I will remember that, I have no doubt. Uh, if people want to reach out to you, if they want to find out more maybe about the book, uh, where to get the book, how to get ahold of you, what's the best way to do that?
Shirish: Yeah, so you can search for my two books on Amazon. Um, you know, so you search by my name, Shirish Nadkarni, or you can come to my website, www. shirishnadkarni. com. I'm also on LinkedIn. I'm on Twitter. I welcome people to connect with me. Um, if you're an entrepreneur, if you have any questions, happy to chat with you anytime.
Matt: Fantastic, fantastic. We will of course link to all of that information on the website and in the show notes as well. So if you're listening to this podcast on your Uh, non BlackBerry device, I dare [00:46:00] say. You can, uh, you can click the link, uh, and that will take you straight through. Uh, listen, super appreciate you coming onto the show, man.
Genuinely love the conversation and really, really appreciate you being here. Lots to think about and you've resurrected some ideas in my head. So a big thank you for that.
Shirish: Thank you, Matt. I really enjoyed the conversation.
Matt: Fantastic. Well, there you go. What another fantastic conversation. Huge thanks again to Shirish for joining me today. Uh, make sure you subscribe to the podcast, wherever you get your podcast from, because we've got some more great conversations lined up, and I don't want you to miss any of them. And in case no one has told you yet today, let me be the first person to tell you, you are awesome.
Yes, you are. Created awesome. It's just a burden you have to bear. Shirish has to bear it. I've got to bear it. You've gotta bear it as well. It's just the way it is now, this show is produced by the Talented and amazing [00:47:00] Sadaf Beynon, Tanya Hutsuliak. The theme song was written by Josh Edmundson. And as I said, if you would like to read the transcript, the show notes, all those sorts of good things, head over to the website eCommerce podcast.net, where they all await for you and you can consume them to your heart's content.
Uh, so all that's left for me to say is, uh, thank you so much for joining us. That's it from me. That's it from Shirish. Have a fantastic week wherever you are in the world. I'll see you next time. Bye for now. [00:48:00]
