Messy Problems
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Messy Problems

Could Canva buy Redbubble (ASX: RBL)?

Canva.com, the leader in graphic design tools, sits at the core of the creative economy. Casual individual designs and serious design corporate teams use Canva for everything design-related. Canva, as the content creation layer, owns the surface of creative image expression.

Hypothetical: Canva could acquire Redbubble, the leading marketplace for independent creators to go deeper into the intersection between creative expression and commerce.

Redbubble isn’t just a marketplace with more web traffic than all its competitors combined (second only to Etsy), but one that provides the necessary inroads to own the creator economy, from content creation, to monetization. I have written about Redbubble’s business model in depth here.

Redbubble’s unique position comes from the ease of which Redbubble artists can transition the chasm between graphic creation and graphic monetization. In less than a minute, a user may upload a graphic, have it superimposed upon a range of products (from shirts, to mugs, to stickers), set a commission, and activate these products in a personal shop on Redbubble, ready to be purchased. Customers may discover the creators products through the general Redbubble search function or through direct links to the creator’s mini-shop. When an order is placed, Redbubble produces the product and drop-ships directly to the customer.

Creators make money simply by creating and uploading graphics, with the platform owning product suggestions, e-commerce discovery, logistics and payments (even tax!).

Creators are incentivized to bring in new customers to the platform, as they are incentivized for each sale they make, while new customers can easily discover other or similar products on the general Redbubble platform.

Why go down the value chain?

The creative economy is won by those who pay attention to the top of the funnel at the creative design layer.

At the moment, Canva is one of the market leaders in the graphic design space, owning the content creation layer. Graphics can be monetized directly through licensing, or in the far larger market of commerce.

The content creation layer is the cornerstone of monopolizing commerce. Just as Tiktok’s acquisition of Musical.ly, a video editing tool, helped it generate the original content to power the network effect of the Titkok consumer app, the $2 Trillion USD creative economy is won by whoever owns the content creation layer, which Canva is well positioned to be in. The creation of creative digital assets can be monopolized and bottlenecked by Canva’s tools, which gives rise to the ability to capture value downstream — commerce through the physical manifestation of creative digital assets (i.e. shirts, stickers, etc).

Canva should be targeting asset-light e-commerce enablers with a large existing reach so that they do not have to recreate any supply chains, or promote any new existing consumer/artist behavior. Instead, the use of Canva’s tools and digital assets can be used to super-power an existing graphics-based economy.

Manufacturing Network Effect

Redbubble currently comes with an underrated manufacturing moat that Canva would unlikely not be able to build out themselves. The Redbubble Manufacturing Network effect (under fulfillment & operations) is present in 3 main ways:

  • Manufacturing Centers
  • Logistics Network
  • Economies of scale in manufacturing specific SKUs

As Redbubble is in the manufacturing space, and faces a global, difficult-to-predict, on-demand customer base, setting up manufacturing capabilities on both a just-in-time basis but just-in-space (i.e. at the most ideal geographic location for any given customer, given various input economics and logistics cost)

“With 41 fulfiller locations at 30 June 2020, 96% of all products sold are fulfilled by a partner local to the same geographic region as the customer who bought them.”

What we are seeing here is the promise of modular, white-labelled manufacturing, applied to a specific demand niche.

Beyond the logistics network effect, which is an adjacent dependency for manufacturing excellence, there is network effect also in the manufacturing of specific SKUs. Given the unique incremental cost per revenue (as opposed to incremental cost per production) of Redbubble’s captive audience — i.e. that prediction of volume for a specific new product type across different geographies can be easily tested at scale, with their existing 6m customer base, any new Redbubble SKU can be launched significantly cheaper and at lower cost than a competing white-labeled marketplace attempting to tackle a specific SKU (say shoes).

Redbubble currently provides close to a 100 different products that creators can choose from, and it is clear that the focus on new product structuring (which requires building manufacturing and sourcing capabilities — a long-term moat) has a multiplier effect on not just long-term creator monetization potential, but enhances the existing library of creator assets onto newly designed products.

Existing Consumer Base

Redbubble also currently comes with a powerful existing consumer base with a pre-established buying pattern.

An acquisition of Redbubble will contribute 511k selling artists (FY2020), a loyal customer base of 6.8 million customers, and a robust global fulfillment network, that would form the basis of the e-commerce arm for Canva.

FY 2019 data

Where is Canva’s head at?

Canva’s current acquisition strategy seems to be going deeper into the product stack, specifically building a product moat around design creation.

Canva acquired Vienna-based Kaleido AI and Czech Republic-based Smartmockup, a platform for advanced photo editing and AI-driven automation tools, and mock-up creation platform respectively.

Smart Mock Ups, one of their acquisitions in 2015, as seen below, can be seen to be in the intermediary space between RedBubble and Canva, of the intersection between design and physical products.

Diving deeper into the product stack makes sense to ensure a monopoly on the content creation layer.

To a certain extent, Canva has acknowledged the intersection between design and physical products with their recently launched Print Service (https://www.canva.com/print/), although it is clear that the use-case for the Print Service is internal (i.e. creator for self, or branding team for internal corporate use), as opposed to the external broader market of commerce. My understanding has been that Canva Print has been a tremendously successful business direction for them, even if it is internal rather than external.

Imagine if the Canva tools are used to power the commerce of the creative economy (i.e. the external). If Canva were to do this by itself, it would mean replicating an existing e-commerce brand platform (Amazon-like, to drive initial customers) or fulfillment tool (Shopify-like), as well as an entire payments and logistics platform.

What if Canva stayed as just the content creation layer with no direct integration into e-commerce? That is certainly possible, though that would mean that the creative commerce segment would be necessarily lost to other players who are able to create a better experience across the entire value-chain of content creation and e-commerce. A verticalized end-to-end solution that encompasses their own distribution channel/audience.

Reasons why Canva won’t do this:

  • Not a Needle-mover: Although potentially profitable, diving horizontally into merchandizing would be a distraction from completely winning the content creation layer. Canva saw $500m gross revenue in 2020, while Redbubble saw about $47m in net revenue (after GMV of ~$500m). In the upside scenario (i.e. the Canva-Redbubble entity growing to the size of Etsy), they would match Etsy’s 2020 annualized net income of $500m, which is merely a doubling of Canva’s existing 2020 revenue, a doubling that would happen simply if Canva were to repeat its growth performance from last year.
  • Lack of customer overlap: A large segment of Canva’s 4m users (in terms of revenue) are likely to be enterprise clients, who are motivated to efficiently churn out communication, branding and PR materials for their corporate entities, as opposed to individual creators or influencers in the creative economy.
  • Lack of Product focus: While Canva is ostensibly focused on graphic creation, their key product focus is on allowing branding/marketing teams to leverage existing/off-the-shelf design assets to create one-off branding/marketing assets (posters, social media pictures, etc), as opposed to allowing artists/creators to easily create original designs. In fact, existing Canva assets that are licensable may still have commercial resale limitations. In other words, it would be helpful to understand how much of Canva’s existing digital assets would be a potential candidate for Redbubble-type swag merchandizing, as well as the breakdown of the types of tools that existing Redbubble artists use to create their graphics.
  • Split leadership focus: Although I would argue that the Redbubble model has a significantly reduced operational model (given lack of inventory and reliance on 3PLs rather than own-fleets), any acquisition would entail Canva leadership including e-commerce mental models on top of their software product focus, which would be a first. Additionally, drawing from the Etsy model, which draws ~25% of their revenue from advertising services, a key revenue line for most mature e-commerce players, advertising capabilities would additionally need to be built out.

End thoughts

There are plenty of other potential players in different parts of the value chain that could consider a Redbubble acquisition (e.g. Shopify), and the Canva-Redbubble entity may never happen. However, key lessons from the synergy between the content creation tools layer and white-labelled merchandizing, especially in the context of the creative economy is a powerful idea that would drive the next decacorn.

If you are building something in the creative economy space, feel free to hit me up at jengyang.chia@creditsaison-ap.com

Chia casually toyed with Redbubble and has a badly optimized shop with VC memes here: https://www.redbubble.com/people/chiajy/shop?asc=u. Disclaimer: I own like, $500 of Redbubble that I bought just to make me focus on writing this article.

Chia Jeng Yang, Principal at Saison Capital, dives into consumer, SaaS, and fintech investment trends across the U.S. and Asia, builds projects in the venture capital and public policy space, works closely with early-stage (Pre-A) founders and can be contacted at jengyang.chia@gmail.com. Previous work here: http://chiajy.com

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Chia Jeng Yang

Chia Jeng Yang

Principal @ Saison Capital | Consumer/fintech investing | Angel/Operator | work with smart people on projects: http://chiajy.com