Tag Archives: E-commerce

Technology and jobs

When people talk about the negative impact of technology on jobs, the impact of e-commerce on jobs at brick-and-mortar retailers is an often used example.

In reality, this is an incomplete analysis. While e-commerce does indeed reduce jobs at brick-and-mortar retailers, it creates even more jobs at warehouses. Specifically, when the jobs which e-commerce has created at warehouses and those that it has taken away at brick-and-mortar retailers are both taken into account, e-commerce has created 54,000 net jobs over the last year.

This doesn’t mean that technology will always create jobs. This is just one example. For example, as warehouses become increasingly automated, eventually the aggregate impact of e-commerce on jobs will be net negative.

However, it’s a useful reminder that many analyses about the impact of technology on jobs are incomplete.

And when technology does indeed create a large net negative impact on jobs, then we’ll have the time to focus our energy on more creative endeavors. As John F. Kennedy said “If men have the talent to invent new machines that put men out of work, they have the talent to put those men back to work.”

Vivense’s omni-channel ambitions

Vivense is an omni-channel furniture retailer where we’re investors. Although the company started off as an e-commerce player, it soon recognized that it operates in a product category where a high degree of product differentiaton and high order values demand a complementary offline strategy. Vivense therefore pursued a strategy of opening physical showrooms in order to build the brand and trust necessary to convert its online visitors into customers.

Vivense has so far opened 12 showrooms across Turkey. These include 3 on the European side of Istanbul, 2 on the Asian side of Istanbul, 2 in Izmir, and 1 each in Ankara, Bursa, Adana, Antalya, and Samsun.

In addition, the company is moving into its new 8000 square meter operations center in Inegol, a city with a very strong furniture manufacturing presence which is a 3 hour drive outside of Istanbul. Vivense’s previous operations center covered 900 square meters. The growth in the size of the operations center and the new showroom openings are strong signals of the extent of the company’s ambitions.

I had the opportunity to visit both the new operations center and the Inegol showroom over the Eid holidays, and was very impressed with how far the company has progressed since its original e-commerce only days.

Here’s a Turkish article in Hurriyet, one of Turkey’s leading newspapers, which covers the very exciting developments that are taking place at Vivense.

The implications of Amazon buying Whole Foods

Amazon announced yesterday that it has reached an agreement to buy Whole Foods for $13.7 billion in cash. Here are my thoughts on the implications of the deal:

1. A few days ago, Amazon was rumored to be interested in buying enterprise messaging platform Slack for $9 billion. The alternative for Slack is a $500M funding round at a $5 billion post-money valuation. Independent of which path Slack takes, the fact that a single company is in a position to realistically bid for a grocery chain and an enterprise messaging platform in the same week shows the extent of Amazon’s past ambitions and current cross-market dominance.

2. Amazon is paying $13.7 billion in cash for Whole Foods. This is 64% of the $21.5 billion of cash on Amazon’s balance sheet as of the most recent quarter. Amazon has recently been eeking out small profit margins thanks in large part to the financial performance of Amazon Web Services. In addition, the deal will likely attract debt financing without much difficulty given Amazon’s size and the health of its businesses. However, this is a very large transaction, even for Amazon. In fact, it’s the company’s largest acquisition to date, considerably ahead of its second largest acquisition to date of Twitch for $970M. This signals the importance of the move.

3. Amazon’s move is consistent with the omni-channel strategy that it has recently begun rolling out, for example by opening physical bookstores to complement its core e-commerce book sales. As fairly commoditized products, both groceries and books are categories where the benefits of physical stores are lower than those for non-commoditized product categories like furniture and clothing. However, after an e-commerce company acquires its initial online native customers, physical stores remain an essential part of growing the business due to the fact that the majority of customers in product categories like groceries still shop offline. There will come a day when this is no longer the case, but we’re not there yet. The end game is different than the approach necessary to get to the end game and Amazon’s move shows that it acknowledges the latter fact.

4. Whole Foods’ premium customers are a great match for the Amazon Prime subscription service as both customer groups are high spenders. Adding Whole Foods deliveries to Amazon Prime will make the latter service much more valuable to existing and new customers, while Whole Foods locations will help expose the supermarket’s high spending customers who don’t use Prime to the service.

5. Amazon’s logistics capabilities make it likely that it will take over Whole Foods deliveries from Whole Foods’ existing delivery partner Instacart. I don’t know what fraction of Instacart deliveries are from Whole Foods, but Whole Foods is the grocery chain that is said to have had the biggest contribution to Instacart’s early traction. This is why Whole Foods invested an estimated $36 million in Instacart. Instacart currently faces the real risk of losing one of its biggest partners, if not the biggest.

6. Whole Foods’ more than 460 locations across the US and Canada will serve as a great testing ground for, and enable the mainstream rollout of, Amazon Go checkout technology. This will further improve Whole Foods’ premium customer experience.

7. Since Whole Foods only operates in the US and Canada, companies that face the risk of being displaced by Amazon making similar moves in other countries have the opportunity to prepare their defenses and preempt these moves. These companies include horizontal e-commerce players, offline grocers, and logistics companies. Given the scale and scope of Amazon’s ambitions and demonstrated execution, it’s likely that what these companies don’t do, Amazon eventually will.

Modanisa’s English ad

Modanisa is an online modest female fashion retailer where we’re investors.

The company recently aired its first online video ad in English which targets an international audience. With over 65% of Modanisa’s revenue coming from outside of Turkey, this ad firmly establishes Modanisa’s position as an international e-commerce company.

Here’s the full ad.

Just like you

Our portfolio company Modanisa is the world’s leading e-commerce site dedicated to female Muslim fashion.

The company recently shared a short video dedicated to the women that it serves. What’s unique about the video is that it features the participation of non-Muslim women who wanted to show their support for the active lifestyles of Muslim women.

This is why the video is called Just Like You.

Two takeaways from Souq’s exit to Amazon

Earlier this week, Amazon announced that it acquired Souq, the largest horizontal e-commerce company in the Middle East, for $650M.

The transaction has been covered at length elsewhere so I won’t repeat this coverage here. Instead, I’ll share my two key takeaways from the transaction.

First, it’s proof that big tech exits do happen in the region. After Turkey’s leading food ordering marketplace Yemeksepeti’s $589M purchase by Delivery Hero in 2015, this takes us a step closer to producing the Middle East’s first billion dollar tech company exit.

Amazon, which has a track record of growing on its own in international markets, chose instead to acquire Souq. This decision reflects the quality, size, and strength of the company that Souq’s team built. Souq is a big entrepreneurial success story.

Second, making money as a regional tech investor is possible, but not easy. Souq is reported to have raised $425M of funding prior to its exit and its last $275M round is said to have been completed at a $1B post-money valuation.

The second fact suggests that investors in the company’s last round only got their money back or made a return because of the liquidation preference on their investment. In its absence, they would have lost money.

This also shows that headline private market valuations should often be taken with a grain of salt.

Regarding the first fact, since the Souq team also walked off with money from the exit, the return to the average investor in the company was less than $650M / $425M = 1.5X. That’s not a great return for a risky and illiquid asset class like venture capital.

In other words, depending on what the liquidation stack looks like, some investors made money on the exit but many others didn’t.

Just because you have shares in a company that achieves a large exit doesn’t mean you make money.

TazeDirekt relaunching

My partner Hasan’s online grocery business TazeDirekt was purchased by Migros, one of Turkey’s leading grocery chains, following TazeDirekt’s closing in February of last year.

Migros recently announced that it will be relaunching TazeDirekt’s service next Tuesday, March 21st. If you’d like to be notified of the relaunch, you can sign up at this link. Or you can simply visit the TazeDirekt website to place your order on Tuesday. The initial relaunch will be serving Istanbul.

Up to its close, TazeDirekt had developed into a brand which offered its customers great products and consistent great service. In exchange, TazeDirekt’s customers loved the brand.

I hope that the Migros team successfully continues where Hasan and his team left off.

E-commerce and international transactions using Turkish bank cards

I recently read that the Banking Regulation and Supervision Agency (BDDK) of Turkey is closing all debit and credit cards issued in the country to e-commerce and international transactions beginning on August 17, 2017. I confirmed the accuracy of this news with several entrepreneurs and unfortunately it’s accurate.

The new regulation will apply to both existing debit and credit cards which will be closed to e-commerce and international transactions on August 17, as well as to new cards issued after this date. Card owners will be able to open their cards to e-commerce and international transactions by requesting that their banks do so. So this isn’t an outright ban on e-commerce and international card transactions but a change in the default state of card owners.

It’s a switch from a default state of free use which you need to take action to opt out of to a default state of restricted use where you need to opt in to gain the right of free use. And unfortunately defaults influence user behavior.

If this regulation is applied, existing e-commerce and international purchasers will purchase less, and new e-commerce and international purchasers will be less likely to emerge. So e-commerce and international transactions will take both a short-term hit and a likely even bigger long-term hit.

Proponents of the regulation claim that it will lower card fraud. However, there’s a problem with this claim. Specifically, rather than address the root cause of the problem, the regulation addresses an innocent bystander. Rather than attempt to lower the incidence of fraud through a combination of technology to identify and penalties to punish those perpetrating the fraud, the regulation punishes innocent card owners, e-commerce sites, and international merchants. Two wrongs don’t make a right.

In fact, if it accomplishes anything at all, this regulation shifts the burden of responsibility in the event of card fraud from the perpetrators of the fraud to its victims. This will further motivate fraudsters and may even increase the incidence of fraud.

Fortunately, there remain about 5 months for this misguided regulation to come into effect. If you’re an e-commerce site or an international merchant, that’s plenty of time to let the regulatory agency behind the proposed change, the BDDK, know of its harmful effects and unintended consequences.

If enough people speak up, the BDDK just might correct its course. And if not, you’ll have supported a just cause.