Social Shopping Business Models

 

The four companies combine different models as part of their overall Internet business strategies. In the more basic form, social shopping sites replicate a business-to-consumer brokerage business model, that is, companies that “bring buyers and sellers together and facilitate transactions” (Rappa, 2007). Within this broad scope, the four observed companies present some variations in their business models which will be explained in the following section. In addition to a brokerage model, all four sites incorporate elements of the advertising business model since these companies charge other companies to communicate information about their products to site visitors. In addition, these companies also include elements of the infomediary model (Rappa, 2007), for they sell data collected from site users, including product preferences, to companies that wish to understand a market better.

 

Components of Social Shopping Business Models

Customer Value

 

            Evaluating customer value offered by social shopping websites is not a simple task, since these types of companies target a mixed group of customers. On one hand, there are the individual consumers who use these websites to discover and share product recommendations. Then, there are the business customers to whom these websites serve as marketing channels to generate buzz about their products. Finally, another group of customers is composed of those companies which pay to place ads on the sites. The presence of a mixed customer base makes it more difficult for these companies to equally offer value to all of them.

 

So far, the primary customers for the four companies are the individual users, for without them there would be no potential buyers of products nor target viewers for the ads displayed in the sites.  To target this group, all four companies offer a platform to both discover products from peer recommendations, and to organize and share them for themselves. In addition, the four companies are constantly trying to create customer value by differentiating from the competitors. Different strategies are currently being employed by the companies, which range from adding extra product features and creating linkages with other firms to expanding their scope and experimenting with connected activities.

 

The underlying common element of customer value in all social shopping companies is the ability for a lay person to choose which products to review and to have access to a wider variety of product reviews and opinions than those offered by traditional publications. While traditional publications involve an editor or a publisher, in social shopping sites it is the users themselves who choose and decide on the content that is going to be reviewed. Also, the rating system included in many of these sites determines which products should receive more attention. According to users’ rating, some products will appear featured in the site’s homepage while others will be left behind.

 

In terms of product features, Kaboodle may seem to offer slightly better value for its customers, with the most user friendly interface and a well designed toolbar to collect product descriptions as users navigate other sites (Iskold, 2007). On the other hand, Kaboodle’s competitors are constantly adding new features to their sites, which make differentiation via product features only a short term source of competitive advantage. In fact, ThisNext has recently incorporated a recommendation system which suggests products based on users’ purchasing histories. Furthermore, ThisNext’s member profiles include the ability to add an Amazon affiliate ID which allows users to earn money when other users buy products from their lists (Cashmore, August 21, 2006).

Figure 2 – ThisNext’s homepage screenshot.

 

Scope

 

There seem to be some differences among the four companies in terms of the market segments that these companies choose to offer their value to. Clearly, StyleHive targets the fashion oriented community, composed of designers, artists, and a general public with more sophisticated shopping habits than the average consumers. Instead, ThisNext, Kaboodle and CrowdStorm target a wider user range.

 

 Another difference in terms of scope is offered by Crowdstorm, which is a UK based company. Being based in the UK differentiates Crowdstorm from the competitors in that there are more European products on this website compared to the other companies, which are all based in North America. In terms of advertisers and business alliances, the company’s location would probably have a differentiated impact. However, because of the universality property of the Internet (Afuah & Tucci, 2003), the site does not limit itself to the UK but has the potential to reach users anywhere in the globe.

 

Figure 2 – Crowdstorm’s homepage screenshot.

 

Linkages

 

Another possible form of differentiation comes from association with other companies. For example, Kaboodle has entered into a partnership with eBay (Cashmore, 2006). In this partnership, Kaboodle maintains a new eBay service called MyCollectibles. eBay users can now take advantage of Kaboodle’s social features to maintain, display and share their collections. The major reason for this partnership seems to be to increase and improve eBay’s services to its community. So far, sales are a minor driving force for the partnership since many of the displayed items are actually not available for sale at eBay.  Also, ThisNext has established an agreement with MySpace and appears to be moving towards becoming an extension of this site (Schneider, 2006). As mentioned above, it is still early in the development of these companies which are constantly changing in hope of finding a viable business model.

 

            An additional way in which linkages can help a company differentiate from its competitors is in respect to the linkages within the network of users. In this sense, the larger the web community is, the more valuable its membership is which results in distinguishing one community from the others (Afuah & Tucci, 2007). This is an important factor and will be explored in a separate section later on. For now, the following graphic provides a glimpse of the number of visits the four sites receive. The graphic shows StyleHive in a considerably better position that its competitors in terms of number of visits, followed by Crowdstorm. However, overall traffic seems low for the four companies.

 

ThisNext.com - Crowdstorm.com - Stylehive.com - Kaboodle.com

 

The first graph shows the percentage of Internet users who have visited the site. This graph shows that Kaboodle and Stylehive having started their activity earlier than the others had the highest daily reach percentage of all the four in May 2006. In April 2007 ThisNext has increased the number of visitors and together with Kaboodle and Stylehive have almost the same number of visitors, while Crowdstorm seems to be a little behind. It is interesting to see the immediate increase of visitors, especially for the two new sites of ThisNext and Crowstorm, from late September to late December period, which is most likely related to the holiday period.

ThisNext.com - Crowdstorm.com - Stylehive.com - Kaboodle.com

This second graph shows the percentage of unique pages viewed by the users in each of the sites. We can clearly see that Kaboodle stays in top of the others but is closely followed by Stylehive. This demonstrates that users spend more time browsing Kaboodle.com than the other sites.

Both graphs show that sites which are launched earlier are better positioned. Being the first mover in a market is clearly an advantage, but it is still early in the game and positions may shift around.

 

Revenue

 

Experiencing it on first hand we can see that none of the above mentioned sites generates money through subscription fees. They all offer an easy and free registration to their sites and the purpose of the registration is to distinguish users in their network and also to give them the opportunity to create a profile and pages of their own. No any other fees, like maintenance fee for example, are applied.

 

ThisNext.com and Stylehive.com use a combined revenue model. While they receive fees for marketing agreements with retailers, they also generate revenue from displaying ads and for selling market and trend information from users of the sites (Schneider, 2006). Gordon Gould, CEO and co-founder of ThisNext says on an interview on abc-news about their revenue model as based on generating money from each product sold through their site and also advertising in different levels of marketing for brand marketers. He sees a great opportunity in matching people who have products with their audience and ThisNext provides solutions for marketers to meet Internet users.

Kaboodle on the other side has signed a deal in August 2006 with eBay’s comparison shopping site Shopping.com. (Tedeschi, 2006) With this agreement Kaboodle displays products that are also on Shopping.com with prices of different sites, and if a user clicks on that product and is directed to the merchant’s site, then Kaboodle gets a share of what the merchant pays to Shopping.com. Kaboodle has also joined eBay to create the new service MyCollectibles (Cashmore, 2006). Another way for Kaboodle to generate revenue is through sponsored offers that you can see at the bottom of the main page. There are also Google ads displayed on the side of the pages which generate money for Kaboodle if a user clicks on them.

Phil Wilkinson, Co-founder in Crowdstorm says that their revenue model will be based on commissions for referrals to merchants or price comparison engines. Generating user traffic toward their site will generate money for Crowdstorm. Another channel for revenue is brand sponsorship, and also general advertising (web2list.com).

 

According to USA Today, most of the social networking sites rely on revenues coming from advertisement for the major part, but the sales revenue might soon overcome that of the advertisements (Hotovitz, 2006). Several social shopping sites, among them ThisNext.com and Stylehive.com, have received financing by venture capital firms to start their business (Schneider, 2006). The initial financing, and maybe other venture capital funding rounds, will help the social shopping sites to operate until the real money comes from the abovementioned revenue channels.

 

Figure 3 – Kaboodle’s homepage screenshot.

Connected Activities

 

Performing the connected activities that underpin social shopping is a way of offering better value to its customers. The activities chosen should be consistent with the overall firm’s core strategies, should reinforce each other, take advantage of industry success drivers, take advantage of a firm’s distinctive capabilities, and be geared toward making the industry more attractive to the firm (Afuah & Tucci, 2003).

As we saw above, social shopping sites allow users to discover, organize and share products. This constitutes a significant value, but may not be sufficient to achieve sustainability. One type of connected activity that is a natural fit for social shopping sites is the ability for customers to complete the purchasing cycle. In this respect, all four companies are offering at least one link to another website where items can be purchased. However, the system is currently in early stages and could be improved much more. For example, companies could add price comparison and alternative sources from where to buy a product.

 

Figure 4 – StyleHive’s homepage screenshot.