FAB

Is being the poster child for “social commerce” enough?

I hadn’t heard of Fab.com until I read about it in the Wall Street Journal. It was described as an online “design retailer” and I wondered what that was? Its impressive website made me think of other businesses who have positioned themselves on design; I guess Habitat was one of those and IKEA could make a similar claim. But both Habitat and IKEA started as “brick” businesses and Fab.com is all online, so it has had the opportunity to “repurpose” the idea for the networked era. Apparently, Fab.com is a leader in social commerce too. I hadn’t heard of social commerce either, but it appears to be better than old fashioned ecommerce; I guess these days any business that can leverage the word “social” is worth more.

As an object lesson in new business start-up there is much to be learnt from Fab.com. Clearly, not trying to be too clever and translating a simple and proven idea, being a design-lead retailer, to the internet, rather then doing something wild and new, seems to have paid off. Broadening its product mix, to fully exploit the potential of the target demographic, is also a solid and low risk idea. It was also interesting to hear Fab.com’s CEO say how he feels that, apart from strategy and culture, to paraphrase what he said a little, he sees his role as to get the look and feel of each website page right. For me this is perhaps Fab.com’s most differentiating attribute, as I don’t think I have come across a better online retail layout and, in the absence of interaction and video, that I’m sure will come one day, I’m not sure you could do it much better.

Fab.com has only been trading for two years or so and it has now “achieved a valuation of” $700M in a recent funding round. It has 10M registered members in 26 countries and expects to generate $140M in revenue this year, although it has still to make a profit. Most of the sales of its 12,000 products come from the US, with about 30% coming from Europe, and rather than expanding geographically too quickly it is going to consolidate its inventory and distribution position in its current markets first. From my own personal experience I know that having products in stock has a material impact on sales completion.

I was also reading Luke Johnson’s piece in the Financial Times today too, on what used once to be called “creative copying”, and couldn’t help seeing a connection. What Fab.com has done is build an online store positioned around the idea of design: a sort of online Habitat with a much broader product scope. It has done this very well and leveraged social media to build an audience very quickly, the essential ingredient of any online business. It also has a great user interface, which is very compelling, but is all this enough to sustain it as a business in the longer term?

The problem with copying in the networked era though is that it’s much easier for someone else to copy you. It’s one thing to bring the idea of a muffler shop to the UK, like Tom Farmer did when he started KwikFit, because once he built the chain it was costly and difficult for a challenger to do the same, but online the retail front-end at least is very much easier to copy, although the “back office” infrastructure holding all the inventory isn’t.

As Habitat found out, design positioning on its own isn’t enough to sustain a strong competitive retail market position, nor is a user interface, nor, in my opinion, even good social media relationships. Longer term value is only created by being able to sustain a difference in the market place and, to be totally honest with you; I’m not sure how Fab.com is going to be able to do that.

Mark

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