Fab Isn't an Ecommerce Company; It's a Content Company with Sales
Fab's insanely rapid ascension to popularity is fast even for these heady days of social commerce. It took Gilt two years to get to one million users, ditto One King's Lane. Fab got to two million users in just seven months, adding 450,000 people in just the last thirty days. The site expects to do more than $100 million in revenues this year.
The rise was so quick that I'd barely heard of them when I went on maternity leave, and when I came back to work it was all anyone was talking about.
How did it blow up so fast? One theory is that social commerce is such a known category that users are hungry for more and more verticals. Another is that the mix of products is simply better than what competitors offer.
My take is that Fab didn't scale like an ecommerce company, because it isn't one. Sure, ecommerce is how they make money, but what drives the love for Fab is the content. Co-founders Jason Goldberg and Bradford Shellhammer are essentially magazine editors masquerading as etailers. Day-after-day, they are designing a gorgeous, aspirational life for you one item at a time. From the $5 wine cozy to the several thousand dollar Swarovski-crystal-encrusted animal head. And it's a fabulous life millions of consumers want.
What's more: This is a company no one in the Valley would have built. I had lunch with the co-founders Monday, and as they described their business I was struck by just how un-Valley the approach was. There's no real brick-and-mortar analog for what they are building, and no quantifiable data set to determine the objects they pick. They simply look for beauty and color and style.
They drive the selection based more on emotion than data. They refused to make any decisions around what sold well for the first three months of the business, trusting their guts that if they love what they're selecting, shoppers-- or "readers"-- will too. That isn't an etailer. That's Anna Wintour. "We needed to just let it develop," says Goldberg. "We wanted people to look forward to opening the email and reading the site, no matter what they bought."
Added Shellhammer, "We do what a good editor does. We take stuff and put it together in a way that creates something new." They're selling a lifestyle that cuts across categories.
The difference was pronounced in a recent meeting Goldberg had with a Valley-based recruit for a technical position. Within in ten minutes of the interview the two were fighting. Goldberg asked what he'd do with the Fab homepage, and the recruit gave the usual spiel about A/B testing the layout to see which products made people click more, and how the data said they should be laid out on the page. He called the product placements on the front page "ads," and Goldberg balked. They aren't ads, he said, they're editorial. "We aren't trying to make people buy certain things, we want to guide them through a story," he says.
The approach is clearly resonating. One million of Fab's users came through social media referrals. That's a lot of people excited about throw-pillows. And customers are getting more rabid: Up until January the single biggest traffic driver was emails, but last month that switched to more people coming directly to the site. It was a sign to Goldberg that people couldn't wait for their emails to see what the daily finds were.
As Shervin Pishevar of Menlo Ventures said when he first met with them about investing: "You've proven taste can be a differentiator." At the time they hadn't launched, but already had 170,000 sign ups, based mostly on photos of Shellhammer's apartment on the landing page.
Of course there's a huge downside to this approach: Media companies are only as valuable as that core talent. Remember when Martha Stewart went to jail? Not a pretty time for her company or its investors. And even the massive star power of Oprah hasn't been enough to buoy up a whole network so far. I asked the two how they planned to mitigate the reliance on them, and Goldberg didn't try to sidestep the issue. "We're unabashedly saying its reliant on us, the question is how does it scale?" He's betting on a shared aesthetic among the staff and increasingly user-curated designs.
And really, when he says "their" aesthetic, he means Shellhammer. Shellhammer still approves every single item sold on the site. I asked what his house looked like and he said, "You can see it. It's been photographed quite a bit." Said Goldberg, "My job is to run a business around Bradford's taste and sensibility." Shellhammer pretty much has the dream job-- going to work at a company built around who he is.
That's almost exactly the same as how Martha Stewart built her media empire with one major difference: Fab's business model is so much better, thanks to the Web.
In the magazine days, we had to look at an index for stores and prices. Lucky changed that dramatically by accepting that people are reading fashion magazines to look at stuff they want to buy, and putting prices and store information right in the editorial. But the Web makes it instantaneous. And the tablet is even better. People purchase four times as often when they are looking at Fab on a tablet than the Web, Goldberg says.
It's the same reasons I was bullish on Jetsetter early on. It's somewhere between a highly curated travel site and a travel magazine. It was one of the first ecommece sites I ever encountered that was a joy to "read" everyday, and their iPad app took that up a notch. And interestingly through Jetsetter's reviews and premium travel service, the site is increasingly employing out-of-work travel writers throughout the world. Where is the distinction between Jetsetter and Conde Nast Traveler? It's increasingly blurred, except, of course, Jetsetter has a far better business model. I can pay them when I decide to take a trip they suggest, and pay their journalists for personalized recommendations.
At an emotional level, it's the next step after Zappos. "Reading" Zappos was nothing like reading a magazine. It wasn't beautifully designed, or even very easily searchable. But by investing so heavily in customer service, Zappos continually delighted customers. It may not have delighted them the second they came to the site, but it delighted them around the point of sale and in the case of problems or returns. And that turned customers into evangelists.
Ten years ago, the fear of ecommerce was that there was no stickiness on the Web. That people would flit between sites, far easier than they could walk out of a store, without loyalty looking for simply the vendor with the cheapest price. Zappos and Amazon proved that wrong by offering better customer service and ease-of-checkout. And now companies like Jetsetter and Fab are offering something more than price or ease. They are offering the business buzz word of the year: "beauty."
This trend is bad news for glossy lifestyle magazines, and don't think they don't see what Fab has built in their own backyard. It was hard enough for newspapers to compete with the speed, immediacy, low-cost and interactivity of blogs. But competing with the ecommerce, instant-gratification of these sites will be all but impossible for the Conde Nasts of the world.
This is an exciting story, because it isn't the Valley reinventing the business of New York. This is New York reinventing New York.
(Zappos CEO Tony Hsieh and Shervin Pishevar are both investors in PandoDaily.)