Frédéric Court is a partner at Advent Venture Partners, an investor in Dailymotion, Qype and others.
The internet has disrupted both the media and the retail industries. Now, new business models are emerging that blend the two together, offering publishers a much-needed new revenue line.
Media companies now have a chance to monetise their audiences not just through plain ads, but also through transactions. On the flip side, ecommerce companies have begun to create their own content – using articles and videos to provide curated commerce experiences – and to monetise their audience, like publishers before them, by selling ads.
Creative, aspirational markets such as fashion, design or luxury are areas where some of the most interesting business models mixing content and commerce are cropping up. Farfetch and Qype, two of the companies in which we have invested, are two examples. Others include…
– New affiliates like Polyvore (using user-generated content to drive traffic to ecommerce partner sites),
— Marketplaces such as Farfetch (creating editorial features with the fashion community, from bloggers to store owners)
— 1stDibs (aggregating antique dealers and the interior-design community)
— Vente-Privee, the flash-sales pioneer and giant, creates slick video presentations for each of its sales as a way to get consumers to engage and buy.
One of the most notable and successful illustrations of this trend is Net-A-Porter, the luxury retailer. Every month, over three million fashion lovers avidly browse their site like a digital magazine, attracted by the beautiful editorial features, while a small, and growing, portion of them actually purchase.
It is little wonder Net-A-Porter was created by a former fashion magazine editor, Natalie Massenet. With this innovative model and just £9 million raised over 10 years, Mrs Massenet and her team have built a profitable ecommerce business with over £100 million in sales, which luxury goods group Richemont recently acquired for £350 million. Unsurprisingly, many publishers including Conde Nast and Hearst were rumoured to be interested in buying the company.
Likewise, some of the largest ecommerce companies in the world, like eBay (NSDQ: EBAY), Amazon (NSDQ: AMZN) and Expedia have started to add advertising to their revenue lines, leveraging their billions of page impressions and millions of eyeballs by promoting other peoples’ products and services. ASOS (LON:ASC) is not only a massively successful fashion etailer but also one of the largest sites for females between 15 to 25 in the UK, with a growing display-ad business and even its own paper magazine, sold nationally.
Savvy media companies had already started to build diversified revenue streams. Nicolas de Tavernot, CEO of French broadcaster M6, often says, advertising is like fresh lettuce – if it is not sold by the end of the day, it is worthless tomorrow. So, at M6, half of its revenue is advertising, while the other half comes from other sources like ecommerce. M6 acquired MrGoodDeal, an etailer, and has grown it by promoting it on its TV channels using remnant advertising inventory rather than selling this space cheaply to third parties.
Of course, retailers have published their own branded magazines in print for years. But the internet makes blending commerce and content much easier, less capital-intensive. In the UK, publishers are now starting to think as retailers. The Telegraph has launched the Telegraph Fashion Channel, infusing its digital editorial content with clothes shopping options via affiliate partners.
With the rise of user-generated content, new players are building very capital-efficient media businesses that leverage the content created for free by their users and their massive traffic to sell hotel nights (in the case of Tripadvisor) or leads to local businesses (as with Qype).
While it sounds like a great business idea, executing on this model is not easy, especially for traditional media companies…
Yellow Pages companies have tried to replicate user-generated models like Qype, but without succeeding – they are not able to conjure communities of writers who are passionate enough to create this content for free.
Meanwhile, making money from affiliate partners is very hard for publishers, as margins are thin and conversion is low. Media operators must not simple send their readers to a third-party shopping site – the transaction experience must be seamlessly integrated in their own site.
These challenges will fuel M&A, because media companies will need to buy in transaction know-how and because retailers must build their own audience-generation engines…
In media, Yell (YELL:LN) bought TrustedPlaces in the UK to acquire a community and local businesses reviews – areas where it had previously struggled. In another market, few mums realise that Johnson & Johnson acquired Babycentre, the website that millions of young mothers have visited for years, and where it can discreetly market its products to them.
This is only just starting — there is still plenty of opportunity. Just imagine transactional magazines on the iPad, or entrepreneurs creating the Net-A-Porter of travel or the Farfetch of art.
Expect to see more businesses leveraging the convergence of media and commerce and more strategic M&A to accelerate this trend as big groups, driven by consumer demand, seek to capitalise on it.
This article originally appeared in Advent Venture Partners.