eCommerce is dead, long live eCommerce

Where to build the next giant

Happy February one and all. We now have just over 90% of the year to go and it’s time to put January’s deluge of VC soothsaying to the test. I talked a little bit last year about the market mapping and investment strategy work that we do at Forward Partners. There’ll be more on this from Nic and I in the coming weeks but I thought that it was time to share some of the outputs: some of the consumer markets where we think there is an incredible opportunity to build the next generation of eCommerce and marketplace giants.

There are 5 — consumer health informatics, intimacy, innovative investment platforms, eSports and therapy — to get us started. So let’s take a look.

Consumer Health Informatics

What’s the idea?

The next generation of self-improvement.

Consumers are taking a greater interest in their health, diet, fitness and wellbeing. This interest is being translated into greater understanding through wearables, smartphone sensors and apps, DNA testing and genome sequencing. Increased understanding leads to wider and deeper interest, and the cycle continues.

Some existing companies in the space — 23andMe being the most well known — focus on genetics: which are a constant (or mostly constant, depending on what you read) not a variable. Today’s wearables and ‘quantified self’ businesses look to be operating at a skin-deep level of detail: ‘yesterday you took 6000 steps, today you took 6500 steps’.

There seems to be an opportunity to develop a service which helps to track, monitor and help humans to optimise themselves on an ongoing basis. Increasing value for both company and customer. This could be done through medical means — evaluation of proteins — and/or through various contextual sensors. This new breed of company will be able to answer “why should you do X” and “what effect will X have” thereby driving understanding and engagement in the long term.

Why is it exciting?

The ‘job to be done’ here is making people better humans, quite literally. It’s powerful stuff. Aside from consumers’ increasing interest in their own health a couple of macro dynamics provide strong tailwinds: an ageing population and increasing levels of wealth.

There is a bit of white space here, an extremely strong use case and very positive trends to capitalise on in this area.

What does the market look like?

The market looks increasingly well funded, though not yet in this pioneering area. This does point to whether this is possible.

23andMe (incorporated in 2006) is probably the best known operator of “Personal Genome Services” (spit in a tube and they’ll tell you about things which you might want to bear in mind based on your DNA). Helix is another US based company with what seems to be a slightly leaner business model and closer to something that Forward Partners could fund: “empowering consumers to discover insights into their own genomes through an ecosystem of high quality content partners.” Companies do exist where you can leverage existing R&D e.g. Proteome Sciences, or as suggested above, make use of the increasing amount of sensors, cameras and monitors that people are wearing/carrying with them/using everyday. Regulatory risk is of key concern here, admittedly.

NB. both Helix and 23andMe raised >$100m rounds in 2015.

Intimacy

What’s the idea?

People have struggles with partnership and intimacy. The proliferation of dating apps hint at the huge value-creation in helping people overcome barriers and frictions to finding partners. Once in a relationship, a different set of challenges presents itself. Those acutely felt by many in long-term relationships relate to connecting or re-connecting romantically and intimately with their partner.

Why is it exciting?

The ‘job to be done’ may range from saving relationships and marriages (through preventing infidelity and/or helping with reconnection) to simply having fun. The job is of serious to fundamental importance to many people, yet there are very few companies that seem to be targeting these use-cases. The subject is still seen as taboo to some extent which may go some way to explaining this, though overcoming this barrier becomes easier in the context of an increasingly transparent, socially liberal society.

The ‘problem’ is hard to quantify though the scale of last year’s Ashley Madison leak and the massive interest in erotic literature are anecdotal data points that support the need for a solution.

There is white space here and a huge amount of value to be created through the levers of modern eCommerce.

What does the market look like?

There are a few, very early stage companies looking at gaining a foothold: Pillow.io and Desire.42 are two that I have come across. The ‘incumbent’ is probably best understood as Lovehoney. Lovehoney was started in 2002 and has revenues of £43m p.a., albeit with 50% growth last year. However, Lovehoney is an eCommerce 1.0 site — a 1-stop-shop for sex toys — and provides little of the buying experience, personalisation, discovery, etc. and resultant customer engagement and loyalty that an eCommerce 2.0 offering could. The absolute market size is a question mark here.

Innovative Investment Platforms

What’s the idea?

It’s early 2016. The markets are volatile and tumultuous. The Fed’s decision to raise interest rates looks short-sighted and insular. Oil trades around $30 per barrel and the resultant negative sentiment has spilt over into equity markets. Trillions of dollars have been withdrawn from emerging and developed markets alike. That money is going somewhere and there are plenty of businesses competing to manage those assets.

Since the financial crisis of 2008 the level of financial literacy has greatly increased and the first wave of fintech startups have provided increased levels of access to run-of-the-mill investments and investment strategies. Crowdfunding has become an asset class, which demonstrates this newfound attitude to investing small portions of disposable income and also dissatisfaction with the financial instruments currently available.

There’s a gap here. Motif, Sliced, Lending Club, Cadre, Property Partner, Nutmeg all solve for a need but aren’t the full picture. It’s time for someone to tie it together in a proposition that provides next-generation financial education and empowerment.

Why is it exciting?

There is room for a 10x improvement here. Providing useful and actionable education and access to financial instruments hasn’t happened yet. If you asked 10 people walking down a street “how do you go about buying a share in a company?”, there wouldn’t be a good answer from 9 of them. Close to the other end of the spectrum (but below high-net-worth individuals) there are plenty of HENRYs (high earners, not rich yet) with investing appetites that are not satisfied with the instruments that are currently presented to them. The product isn’t good enough and the messaging is wrong.

The prospect of providing to-date-unseen access, expertise and education to a wide variety of totally underserved consumers is an enticing one.

What does the market look like?

Crowded, admittedly. Banks, asset managers, IFAs, scale-ups and money managers of all varieties are all competing for the existing wallet and new entrants are trying to expand the market and capitalise on the unserved and underserved.

There’s also a good bit of regulation here which increases complexity and the cost of operation. That said, the FCA continues to be actively supportive of fintech and startup activity and this ‘handicap’ is well understood by regulators, investors and many customers.

Brian Moynihan, the CEO of Bank of America, recently said that many of the customers that robo-advisers are going after are below the bank’s “wealth cut off”. It’s certainly true that, for better or worse, there’s a significant power law at play with wealth in society. Though it’s also probably fair to say that quite a few in the market are going to have their lunch eaten by companies with targeted products, well defined messaging and low cost bases. Who’s hungry?

21st Century Therapy

What’s the idea?

We’re increasingly aware of not only the prevalence mental illness but also of the toll that our world takes on our mental wellbeing. We understand that our mental wellbeing is an important part of the whole. Yet, even though we know all this, there is still a stigma about therapy. Even if that’s not something that bothers you, the right therapy for you is hard to find. That may be in the form of traditional consultations, phone calls, VoIP, vlogs, blogs, crowdsourced cognitive therapy, hybrid human/AI advice or by another method.

Why is it exciting?

The importance of helping people with their mental wellbeing cannot be understated. When we’re happy, we’re better people — all round. There’s clearly a huge amount of value to be created here.

Therapy has, up to now, been a defensive strategy. But this increased understanding of the importance and challenges to our mental wellbeing is likely to lead to a more proactive, offensive approach to our mental health.

Also, wherever there is stigma and taboo, there is a lack of information. This means that content can be a differentiator and that discovery, education and personalisation can be massively effective levers for a business. There are opportunities abound in this space.

What does the market look like?

The consumer market for therapy here in the UK is probably around £1bn, where the suppliers are fragmented sole-traders with varying levels of qualification and experience. No doubt there’s an attractive marketplace opportunity here.

But beyond looking at the existing market, there’s definitely room for businesses to open this market up to a wider pool and this is probably where the greatest opportunity exists.

eSports

What’s the idea?

Computer games have long provided entertainment and escape to masses of gaming fans. In recent years such gaming has turned professional with organisations such as Major League Gaming arranging tournaments where leagues of gamers compete against each other. Such competitive gaming is known as eSports. Big money is at stake — over $30 million in prize money in 2014, as the graph below shows.

Competitions are streamed live online, attracting an estimated 100 million online viewers globally each month and even shown live in stadiums to sell-out crowds. For instance, the BBC broadcast the League of Legends World Championship quarter-finals from Wembley. This could be the future of computer gaming.

Why is it exciting?

The potential market is massive. Most gamers play on smartphones and tablets. This increases reach to over 2.5 billion people which is five times greater than during the PC era. Gaming is no longer niche. Games such as Clash of Clans and Candy Crush are transcendent.

This isn’t yet a mega industry by any means. Global industry revenue is expected to reach $465m by 2017 but it has massive, outsize growth potential. The industry has the power to bring about a paradigm shift in spectator sports. It has sown the seeds for a large ecosystem thereby creating fresh opportunities for savvy entrepreneurs. Specialist eSports arenas, new computer games more attuned to spectator sport, gaming as mainstream advertising media, merchandise, fantasy eSports, betting and wagering — the opportunities are plenty.

Looking further into the future, imagine a time when virtual reality technology takes over gaming. eSports could become the ultimate immersive spectator event!

What does the market look like?

The growth of eSports continues unabated. Global audiences are estimated to grow from 260 million to 335 million by 2017. Big companies are taking note. For example, Amazon acquired Twitch.tv, a game streaming site for $970m in 2014 and Activision Blizzard acquired eSports organiser Major League Gaming for $46m. Big gaming companies such as Electronic Arts have launched their own eSports division.

While it is already a big market in the US and Korea, it is starting to take off in UK. AIM listed Gfinity is a UK pioneer that staged the UK’s largest eSports event at Queen Elizabeth Park in 2014, attracting 4,000 paying spectators and an online audience of 8.7m. This the time for entrepreneurs and early stage investors to take note.

That’s a whole lot of words and I hope that you enjoyed reading at least some of them. This articulation of our investment strategy is part of the job of investing in solo-founders and super early stage businesses. It’s also one of the most enjoyable. We spend a good deal of time working on our analysis frameworks and thinking about where there are spaces for great businesses to be built. The next step is speaking to solo-founders, founding teams and testing our thesis in the market so get in touch, we are always listening.

Many thanks to both Pradeep and Nic for their help in preparing this post.

This article was originally published on the Forward Partners blog on February 4th 2015