Sramana Mitra: I’ve thought about this quite a lot. My observation is that you have to have private-labeled brands to compete with Amazon at this point. In whatever category that you’re working in, you need a product that you can differentiate with.
You can’t really differentiate on the basis of other people’s products that easily unless you get some sort of an exclusivity from other designers or other product conceptualizers. The user experience is part of that differentiation. There are a lot of mattress brands right now.
The user experience is something that I wouldn’t put past Amazon to be able to win on. Somewhere there needs to be a product-level differentiation. The user experience is a secondary differentiator.
Daniel Gulati: I think that is the default consensus view today. That is certainly the view that most take. The contrarian view is actually if you look at e-commerce and if you look at the data on exits in e-commerce, they have been multi-brand retailers.
Sramana Mitra: But that’s not where we are in 2017. If you look at companies starting out today, for multi-brand retailers to scale at a venture pace is going to be very difficult.
Daniel Gulati: Unless there’s a shared platform. I totally agree with you that starting a web-based Chewy now is the the right time. The consumer always wins here. I’m looking at VR-based shopping environment. I’m looking at things like conversational environments. That is true given a static platform environment. If we see a fundamental shift in the underlying platforms where consumers spend time, that is exciting to me.
Trying to anticipate that shift is what I’m spending time on. We’ve just seen, time and time again, that the incumbents, no matter how strong, are slow to these platform shift. If VR suddenly fulfilled its promise and people were starting to transact in that environment, someone like an Amazon would be aware of that. A startup would be nimble enough to land grab that new platform.
Sramana Mitra: I agree with you on VR and AR presenting opportunities. These are also very heavy technology investments if you want to have a differentiated proprietary platform. The biggest application of that is in fashion and digital merchandising type of environment. That is an opportunity.
The thing that we see in the early stages is today, even the pre-seed investors want to see validated businesses. They’re not willing to invest in companies that are concept stage. It will be very difficult for entrepreneurs to bootstrap a very big technology investment in AR or VR and prove that they sell fashion through something like that.
Daniel Gulati: On that particular point, we’ve made six or seven VR investments. Generally, what you’re saying has some truth. Series A investments want to see more than what they wanted to see a decade ago. I think you just need to find the right investor. If someone shows up with $10 million in monthly revenue in a category that we don’t care about, we’re not going to fund that. This hits on entrepreneur or investor fit.
You have to find the investor or the set of investors who are going to help you at the stage you’re at. We love to meet entrepreneurs in the earliest stages of company and idea formation. We will step up with a check where we love the opportunity. I just wanted to focus in on that. I do want to double-back on Amazon. How can you compete in this Amazon-dominant world? There is another vector here.
We’re investing a lot and thinking a lot about offline-online shopping trail that the consumer is increasingly leading – researching online and coming to a store to induce trial. The path to conversion is increasingly looking like pieces of spaghetti. You have this multi-touch concept.
We’ve invested in a company called Beta which is redefining what a store is. We’ve got a couple of other investments that are around, “How do you, as a retailer, leverage your physical footprint? How does your physical footprint intersect intelligently with your online business?”
Walmart just announced that your offline purchase history is available online now. If I’m able to infer and show you products online that take into account your offline shopping behavior, that’s a huge advantage. Amazon, by definition, is weak in that area. How do we repurpose our stores to be not just holders of inventory but experiences in and of themselves? That’s where I’d be focusing.