Your Solution to Monetizing Your Closet

Your Solution to Monetizing Your Closet

What is it?

VillageLuxe is described as the Airbnb of high-end fashion, where consumers can both lend and rent designer goods from other users. The business focuses on a niche market of fashion-conscious women in NYC and is based on improving the inefficiencies of women’s closets. Fashion-focused women spend considerable amounts of money on clothing, shoes and accessories, however, between uses these ‘investments’ end up sitting in closets underutilized. While many women resort to consignment or donation in order to get rid of clothes they no longer wear, what about the clothes they want to keep, but don’t wear as often? VillageLuxe’s solution: renting.

Renting your clothes allows you to continue to recognize value from already purchased clothing that would otherwise go unused in between wears. This idea of monetizing underutilized assets has been seen with other business models such RelayRides with cars and Airbnb with homes.

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Network of Fashionistas

VillageLuxe users engage in a two-sided network with lenders and borrowers, and most users participate on both sides. As a result, each new user actually adds value to both sides of the network, giving VillageLuxe a unique ability to balance between supply and demand. VillageLuxe goes a step further to encourage this behavior explicitly, subsidizing $10 of a user’s first rental if she also lists an item.

Additionally, users themselves are motivated to spread the word in order to maximize the value of the service. The more fashion-oriented women who sign up, the more rental options users have, creating a positive network effect.

Despite these expansion efforts, the business has been slow to scale, however, this appears to be intentional. VillageLuxe offers a luxury service and is able to maintain exclusivity through an invite-only signup process. While this exclusivity stifles user growth, the expensive nature of the products and the need for maintaining quality validate the company’s decision to use vertical segmentation in order to keep high quality users, thus preserving the value of the platform for everyone.

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Quality is Key

Quality control is something that should be top of mind for VillageLuxe given the issues that similar companies, like Airbnb, have had to date. Asking women to share expensive designer clothes with strangers means asking them to change their behavior. Women need to become comfortable with this new concept, making it critical for VillageLuxe to build users’ trust through a quality experience. VillageLuxe has implemented mandatory reviews and social connections to assist with exactly that.

Uber used mandatory reviews in order to improve the accountability of its user base. VillageLuxe has followed suit, but unlike Uber, VillageLuxe customers’ multi-transaction relationships makes doing so even more critical. VillageLuxe acts as a community for like-minded women to share their fashion investments. The cycle of lending and borrowing means that this week you might borrow a dress from Sarah and next week Sarah might borrow a purse from you. You feel more of a responsibility to return Sarah’s dress in good condition if you know she will be borrowing your items later. And, if you love Sarah’s fashion taste and want to borrow her clothes in the future, it’s in your best interest to be a responsible borrower.

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VillageLuxe’s Future

It will be exciting to follow VillageLuxe’s journey and to see whether the business model is scalable and can maintain the same level of quality and trust as it expands. Surely VillageLuxe will be presented with similar questions that Airbnb faced about how much control the company actually has to manage the users’ experience and whether they can prevent people from abusing the service.

It will also be interesting to see what impact VillageLuxe has on future consumer buying patterns. Will shoppers begin to consider future rental income when making purchases, turning clothing into potential investments? This could open up luxury goods to a new demographic that previously couldn’t afford them.


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Twitter has acquired dozens of companies since its inception and contrary to popular belief, these are not exclusively talent deals. The acquisitions of Crashlytics (Jan 2013), an app crash testing tool, MoPub (Sep 2013), a mobile ad exchange, and TapCommerce, (Jun 2014), a mobile app retargeting tool, have reportedly each cost the company over $100M and have added core mobile products that it is leveraging today.

So what’s the purpose behind all of these acquisitions and how are they linked? Twitter answered that question on October 22 at its Flight Conference when it announced Fabric, a modular mobile software developer kit (SDK), which leverages parts of each of these acquisitions, as well as capabilities it built in-house.

What is an SDK? It’s a set of software development tools that allow third party developers to build applications for a particular company or software package. Its primary purpose is to simplify otherwise time-consuming development tasks for developers and hopefully provide value to the company offering the SDK (in this case Twitter).

Fabric SDK has three modules, described briefly below.

Twitter Kit

Twitter Kit has three main features. “Sign-in with Twitter” simplifies the authentication process for new users. “Native tweet embed” makes it easy for developers to integrate tweets into their apps. “Digits” allows new users to sign up for apps with just a phone number.

Crashlytics Kit

Crashlytics Kit also has three main features: Crashlytics, Answers, and Beta. Crashlytics allows app developers to see what part of the code caused a crash and which users were affected, in order to quickly stabilize the app. Answers provides analytics on app usage. Beta allows developers to do beta testing and get user feedback.

MoPub Kit

MoPub Kit integrates with MoPub, a mobile ad exchange, to place ads into 3rd party apps so developers can monetize their traffic.

For a more information on Fabric, check out Twitter’s press release.

So why has Twitter invested hundreds of millions of dollars to launch an SDK – especially when two of the three modules don’t seem to relate to the core product (tweets)? Fabric allows Twitter to deepen its relationships with app developers, which can help create additional network effects and attract new users to its core product.

Being a platform business is the Holy Grail for technology companies. If executed well, you can create network effects, barriers to entry, and significant scale leading to enormous returns. Just look at Apple and Google – their aggregate market cap exceeds $1 trillion! This is in large part because of the iOS and Android platforms that allow them to profit from the explosion of mobile devices and the related ecosystem.

Companies like Twitter and Facebook don’t have the ability to develop a mobile OS, which is pretty clearly a two-horse race now. So how do they avoid being relegated to just another app sitting on your home screen, or worse yet tucked away in some folder?

They need to leverage their assets – the real-time communications layer and the social layer, respectively – to build or expand platforms they do have. Facebook has done this through acquisitions such as Parse, a mobile back-end-as-a-service provider of development tools, which is the basis for some of its SDK offerings. Twitter is hoping that Fabric will allow it to become an indispensible resource to developers as well.

How can Fabric create network effects for Twitter? Below are two examples:

  1. Offering developers an easy sign-in process (Sign-in with Twitter or Digits), which will drive higher app usage (by removing sign-up friction), which will drive more developers to use the SDK. Part of the Twitter Kit is tweet embed, so the hope is that developers will also integrate this feature into their apps thereby expanding Twitter’s distribution and hopefully accelerating new Twitter user sign-ups.
  2. Offering developers a tool to monetize their app traffic (MoPub). As more developers use the MoPub Kit, more advertisers will want to buy ad inventory, which will drive more developers to use MoPub. Twitter clearly benefits from this, as it will earn a share of the advertising revenue.

Ultimately developer relationships come down to proving your value. Can your SDK help developers grow and monetize their user base? If Twitter can do that, developers will happily use Fabric SDK and Twitter will benefit from the additional distribution and monetization.

References

https://blog.twitter.com/2014/introducing-fabric

 


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Network effects are the widely discussed benefits that arise when a greater number of users are connected to a service or platform.  Less studied, however, are the reasons why having a greater number of users (and fewer platform choices) may actually decrease the value of a platform, what I’d like to call “network dis-effects” for the purpose of this blog.  I’m not referring to logistical reasons, such as when a network is incapable of handling a certain volume, but instead, to fundamental reasons.  I break these into two categories which seem to be more prevalent in today’s online economy: first, the value of having segmentation among groups, and second, the value of having segmentation within a given user.

In the first case, it appears that certain platforms are actually better off when the network is smaller and more carefully defined by common interests.  This can be for a multitude of reasons.  In the social sphere, groups often prefer to cluster based on commonalities – for example, online dating sites that are religion-focused (e.g., J-Date) or moms’ group sites that are geographically-focused (e.g., Park Slope Moms).  In these examples, the value of the network is based more on the quality of the members, as defined by their commonalities, than on the quantity of members: for J-Date, finding a religious match is more important than finding “just anybody”; for Park Slope Moms, getting after-school activity advice from a local mom is more important than hearing the view of a mom across the country.  Interestingly, Facebook initially started off as an Ivy League-only platform, predicated on the notion that the elite would prefer to interact only within themselves.  One has to wonder what would have happened if Facebook had maintained its initial status segmentation – would social networking have developed as a series of small (potentially interconnected) platforms based on common interests, instead of the winner-take-all market that it is approaching today? (1)

In the second case of network dis-effects, people like to segment themselves into different, distinct categories that do not overlap; as a result, the consumer gains value from being present in different ways across different platforms, and platforms are therefore more beneficial to the user when smaller and more tightly defined.  One of the most prominent examples of this is the simultaneous existence of both LinkedIn and Facebook.  Theoretically, a person’s connections overlap in that some of their work colleagues are also friends, and vice versa.  Wouldn’t one platform that combines these two networks make the most sense?  I argue no, because portraying different versions of oneself within these two contexts is critically important.  The consumer would therefore prefer to have two separate logins, pages, etc. in order to maintain a distinctly professional (vs. social) persona.  This category of network dis-effects assumes that within one person, multiple “users” exist, and that in some cases, segmenting these “users” within a given person can be beneficial.  I argue that this is particularly strong when discretion is a highly valued component of the platform.

(1) According to http://www.statista.com/statistics/265773/market-share-of-the-most-popular-social-media-websites-in-the-us/ and other sites, Facebook has more than 50% market share today (as defined by traffic), and is continuing to grow.


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Wise Banyan recently opened beta testing of its online investment management service. They are the most recent competitor to enter the $4B market (growing >200% YoY) for automated investment management (aka robo-advisors). These companies allocate client accounts to a pre-set portfolio of ETFs holding stocks, bonds, commodities, and alternative investments. Built on modern portfolio theory and emphasizing passive investment, online advisors tout their ability to be constantly vigilant and invest with messy human emotions and fears.

So what makes Wise Banyan’s product special? It’s free. Their launch marks the final step in the price war waged between the online advisors. Traditional asset managers (those with a pulse) charge upwards of 100 bps to manage client money. The first online advisors entered the market charging clients about 50 bps. Wealthfront started charging clients only 25 bps, managed the first $10,000 for free, and offered an aggressive referral program–$5,000 managed free for each recommended friend. Seeking the largest accounts, Betterment dropped to 15 bps for accounts over $100,000.

Wealthfront relied on network effects (the referral program) to grow AUM. However, investing is typically a solitary activity. Even talking about money is taboo. There just isn’t an inherent network effect to the online investing product. Grafting network effects onto the offering facilitated faster growth, but it did nothing to prevent competitors from entering the market.

Building sustainable competitive advantages in the financial advising space is tough. All of the advisors are utilizing the same fundamental investment strategy: modern portfolio theory. Nothing about that strategy is proprietary–here are the equations on Wikipedia. However, even if a company developed a superior investment strategy, the competitors are going to work tirelessly to reverse-engineer, approximate or steal the winning method. Any advantage will be quickly eroded.

With no other significant arenas in which to compete, the robo-advisors have been forced to compete over price for their commodity product. Earning any money in an ecosystem with a free option is going to require differentiation along new dimensions. One successfully differentiated online advisor is LearnVest. They have selected a unique target market (young adults, specifically women) and focused heavily on education and financial literacy. Another differentiated advisor, Kapital, has focused on gamifying the investing experience.

In the past year, we’ve seen hints of the largest advisor, Wealthfront, seeking to rebrand itself as the online advisor built for Silicon Valley. The upwardly mobile developers are sitting on a good deal of investment money. Wealthfront has sought these customers with promotions and low fees. This tech-savvy and cost-conscious customer-base seems like the most willing to move their money to the cheapest option. If I were at Wealthfront, I’d be spending these critical months between Wise Banyan’s beta test and full launch finding a way to make my clients sticky.

 


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When I heard the news that Snapchat rejected Facebook’s all-cash $3-billion dollar takeover, I had a lot of questions. First of all, why did Snapchat reject such an offer given its non-existent business model? Secondly, what does Facebook see in Snapchat? How can Snapchat add value to Facebook’s business?

On first glance, it could seem like Snapchat is merely a fad. Users can send pictures or videos to their friends and decide the time frame within which their friends could view the sent message. Following this logic, it seems as if Snapchat should be able to learn a lot about their users based on the pictures that users have uploaded. However, is this really scalable? Unlike words, it is a lot more difficult to categorize and collect user information based on pictures in Snapchat’s current format. Also, Snapchat allegedly deletes messages that have already been viewed by the recipient, which makes information gathering even more challenging.

I think Snapchat has three main value propositions to its users:

  • Users can select their audience – Unlike Instagram or Facebook where an uploaded photo is visible to all your friends or friend categories, Snapchat allows its users to select who the picture goes to. This allows users to communicate in a more focused manner.
  • Users can communicate in the medium that most accurately depicts their message – Every message is a story and stories can be told differently depending on the content. Snapchat allows its users to express their story through art, text and media.
  • Time commitment required is minimal – Snapchat is accessible through a mobile device and each message lasts 10 seconds at most. Time to access messages is limited to 10 seconds, and time to craft a message is also shortened because users know that this is short-lived.

Although these are all valid propositions, it is still difficult to justify why it should be worth $3 billion because none of these value propositions are revenue generating. A closer look into Facebook’s user base shows that 78% of them are mobile users, which means that they directly compete with Snapchat for attention. Furthermore, Snapchat surpasses Facebook’s photo uploads by 50 million images on a daily basis. As Snapchat takes user time away from Facebook more and more, Facebook’s value proposition to its advertisers is starting to erode. Is this worth $3 billion dollars? To Facebook, it probably does – especially so since Facebook’s IPO has faced a lot of investor scrutiny with regards to whether they can provide a reasonable shareholder return.

Whether Snapchat is eternal or ephemeral really depends on how well it can sustain its user base. From a features stand point, there is definitely a lot that Snapchat can do to constantly keep its users hooked.

In the meantime, Snapchat could benefit from cashing in on its large user base. One way to do so is by requiring users to login using their Facebook account. That way, Snapchat could access more detailed user information and target users more accurately. This would be a good value proposition to companies who are looking to advertise. On the other hand, user disruption could be limited by only showing ads after receiving 10-15 Snapchats.


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