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Bubblicious? $1.5bn investment pours into social commerce startups

9 commentsJanuary 17, 20115 min read
Written by Dr Paul Marsden

So the New York Times is reporting that social commerce platform Groupon is preparing an IPO for this spring, valuing the group-couponing giant at a bubblicious $15bn.  That’s around 10 times the investment poured into social commerce startups over the last 12 months (see list below). And to put it into perspective, $15bn is what Microsoft reportedly offered to buy Facebook outright – settling instead for a $240m investment back in 2007.  And $15bn is 4 times the current valuation of Twitter following its latest round of investment. And 2.5 times what Google was rumored to offer to buy Groupon just last month.

So are we entering a social commerce powered ‘Bubble 2.0’? Let’s take a look at what’s been happening over the last year in the social commerce investment space:

  • $15bn valuation of Groupon based on rumored IPO (Spring 2011)
  • $950m investment in Groupon, social commerce platform (group-buy) (Jan 2011)
  • $1.2m investment in ShopSocial, a new Shop-And-Tell social commerce app that will offer kick backs for sharing purchases – (currently no more than a holding page as a site) (Jan 2011)
  • $6bn Google offer to buy Groupon social commerce platform (group-buy) (Dec 2010)
  • $175m investment in LivingSocial social commerce platform by Amazon (Dec 2010)
  • $10m investment in BeachMint, social shopping solutions (Dec 2010)
  • $15m investment in Gilt Groupe, social commerce site (members-only flash sales) (Dec 2010)
  • $31m investment in HauteLook, social commerce site (members-only flash sales) (Dec 2010)
  • $6m investment in Payvment, social commerce software (shopping cart, payments) (Nov 2010)
  • $30m investment in Lockerz, the teen ‘friends-with-benefits’ social shopping site with 18m members, including $18m from Zuckerberg/Bezos/Pincus sFund (Nov 2010)
  • $5m investment in Yardsellr, social commerce app (f-commerce (Facebook marketplace)) (Nov 2010)
  • $1.1m investment in ShopSocially, a social shopping site (shop with your friends) (Oct 2010)
  • $20m investment in Etsy, social commerce platform (indie crafts marketplace) (Aug 2010)
  • $15m investment in ShopKick, social commerce (check-in rewards) app (Jul 2010)
  • $12m investment in Beyond the Rack, social commerce site (members-only flash sales) (July 2010)
  • $16m investment in BuyWithMe, social commerce site (group-buy) (July 2010)
  • $1.3m investment in Yipit, social commerce site (group-buy deal aggregator) (Jun 2010)
  • $19.8m investment in Modcloth, social shopping site (indie fashion) with ‘be the buyer’ (customer driven inventory) program) (Jun 2010)
  • $110m purchase of Woot, daily deals community by Amazon (Jun 2010)
  • $7.5m investment in Swipely, Shop-And-Tell social commerce app that creates a social stream from credit card payments (May 2010)
  • $11.2m investment in Blippy, the Shop-And-Tell social commerce app that creates a social stream from credit card payments (April 2010)
  • $6m investment in PowerReviews, social commerce app (user reviews) (Mar 2010)
  • $5m investment in Alvenda, social commerce software (f-commerce, shopping cart) (Jan 2010)
  • $1.2m investment in ThisNext, social shopping site (Jan 2010)

That’s a lot of investor dollars for a nascent industry – $1.449bn in the non-exhaustive list above. So is the social commerce space overheating?  Well, it is possible we are witnessing some ‘irrational exuberance’ that could create a demand bubble. But we think any irrational exuberance will be short-lived (hence Groupon is smart to IPO ASAP):  In our view it’s a function of an initial rush, borne of pent-up demand, to invest in social media – on track for becoming the planet’s favourite media – now that social media has a real business case and real cash flow. Social commerce is like social media, only with money.

So for the many investors who have been itching to invest in social media, but have been waiting for a business case and cash flow, social commerce delivers. Far better to invest in a company that generates real money now, like Groupon (estimated revenue $800m-1bn) than a social media start-up that’s a great idea, like Twitter, but with no business model.  Hence the early rush to invest in the social commerce industry.

But because social commerce is all about the money – the rest is just conversation, as Gordon Gekko would put it, we think any initial exuberance will be kept in check with hard numbers.  For example, check out Paul Chaney’s 4-point reality check on f-commerce – yes, companies can help you sell on Facebook, but what you get right now is rudimentary and not a lot is getting sold on Facebook (yet) (sales volumes are low, managing back-end functions (integration) can be problematic, merchandising options are few, Facebook becomes a gatekeeper between you and your customer).

Groupon may be the fastest growing company ever, from WordPress blog to $1bn revenue faster than Google, eBay, Amazon, Apple or anyone else, and its 3,100 staff may service 50 million users, but there are uncertainties – such as whether Facebook (or indeed Amazon) will muscle in and eat Groupon’s lunch.  But the rumoured Groupon IPO at $15bn would give a company with $1bn revenue a nominal P/E ratio (Price to Earnings) in the region of just 15;  the average P/E for S&P 500 companies is 20.2 (2000-2010).  So fair value we would say.

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Dr Paul Marsden
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9 comments

  • […] This post was mentioned on Twitter by Paul Marsden and Nuttaputch. Nuttaputch said: น่าสนใจว่า Social Commerce จะเป็นภาวะฟองสบู่หรือไม่ เพราะมีเม็ดเงินลงทุนเข้าระบบไปแล้วกว่า 1.5 พันล้านเหรียญ #mkttwit http://is.gd/toqlaG […]

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  • Paul, leaving aside the possibility of a new bubble, I’m not sure I agree with the widespread trend of extending the term ‘social commerce’ to members-only flash sales and group buying as well. Hence, if a bubble is coming I don’t think it’s a social commerce bubble, if it makes any sense.
    Flash sales services are actually quite anti-social, since they are members-only and they’re not driven by purchase volumes, which actually are one of the main constraints. And with group buying – at least for the successful ones – the initial core component of sharing the deal to make it tip (ie a real incentive to share) vanished under either negligible tipping thresholds or simply because of the vast number of subscribers made sharing unnecessary for deals to tip and the business to go on. You may say that Groupon is indeed social because it’s the collective power that enables a deal to exist in the first place (same for Woot in a way), to which I’d argue that it should therefore be listed in a different category, because the definition/type of *social* which applies to Groupon et al is not the same applied to other services.
    And the aforementioned sites account for more than 90% of the funding discussed in your post.

    I don’t want to make a fuss over terminology but I believe that there isn’t yet an accurate definition of social commerce / social shopping (actually, there is and you coined it – “helping people connect where they buy and buy where they connect”), or one that everyone understands and uses correctly. It’s much easier to define eCommerce and I’d expect almost everyone to get it right, but my feeling is that social commerce is whatever you wanted to be and can be very deceiving (or the hot catchphrase to raise money in 2011), especially when it goes mainstream to people not working in this space.

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    • Hi Fabio, thanks for your thoughtful comment – and I understand the concern for potentially over-extending the definition of social commerce.

      When adding a social layer to retail was new uncommon, such as member-get-member private shopping clubs, there was no real problem – but now that the vast majority of retailers have or are planning to add a social layer to the shopping experience – does that make all retail social commerce? Does adding share buttons to product pages or in-store check-ins count as social commerce, or what about user reviews, or even as you suggest – adding group-buy features?

      And what about referral, affiliate and network selling programs – usually left out of the social commerce trend – they are explicitly social.

      I think the industry will soon subdivide – we’ll see more social shopping, social buying, perhaps as distinct or subsets of social commerce. I’m tracking the evolution of definitions here – http://socialcommercetoday.com/social-commerce-definition-word-cloud-definitive-definition-list/

      Thanks again Fabio, good food for thought.

      made sense to include shopping clubs

      of your concerns about the trend of extending social commerce different things together under the umbrella term of social commerce

      Reply

  • Great article.
    I do feel that what you are looking at is social marketing.

    Social marketing allow you to attract a whole new group of clients who were never exposed to your business in the past.

    When compared to traditional marketing cost of TV, Radio and Newspaper the Groupon model is a very cost effective marketing tools.

    In this new social world the marketing machine of Groupon and the like actually cut back the merchant a cheque after 30 days.

    When compared to the traditional cost of TV, Radio and newspaper the merchants are flocking to this new marketing concept.

    This new marketing avenue harnesses the power of team buying and can truly drive more new business to your door.

    These new marketing avenues are essentially an online coupon service with an immediate call to action, providing a platform to coordinate and facilitate group buying by consumers of retail business products.

    The consumers are members of the local community who have chosen to join a free subscriber list. The products are provided by local business vendors seeking to increase their sales and to expand their consumer/client base by accessing the larger subscriber list.

    The marketing power of the internet has grown very fast in a short period of time and there is a whole new generation of shoppers who are looking for great value and great service.

    Your job as a retailer in this internet age is to decide how you will market yourself so you can “Build Your Business”.

    Reply
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Digital wellbeing covers the latest scientific research on the impact of digital technology on human wellbeing. Curated by psychologist Dr. Paul Marsden (@marsattacks). Sponsored by WPP agency SYZYGY.