Messy Problems
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Messy Problems

Diving into Redbubble — one of the most underrated E-Comm business models in the creative economy

One of my favourite e-commerce business models is a 15-year-old listed company that very few people have heard of before: Redbubble (ASX: RBL).

Redbubble is an Australian-based global e-commerce business where shoppers can buy quality products with designs on them that are created by artists who upload their designs and can open mini-shops of products with their designs on them. Some of the product categories include wall art, clothes, phone cases, pillows, aprons, bags and so on.

Redbubble solved two key issues in a way that I have not seen other e-commerce platforms in the creative space do so well:

  • Product Structuring for Creators
  • Capturing Platform brand value through Creator’s networks

Product Structuring for Creators

Product Structuring is one of the most underrated value-adds an e-commerce platform can give to creators looking to sell on its platform, something I elaborate on in detail here.

In essence, product structuring revolves around providing plug-and-play products that allow creators to easily monetize. This feature argues that creators are in the business of growing reach and engagement; Monetization is a different beast altogether. An opportunity exists for platforms to develop plug-and-play products that allow creators to use their skills to build monetizable products as easily as possible.

Seller-facing view
Customer-facing view

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.

Beyond creating deeper monetization channels, this creates a three sided network effect — beyond the two-sided network effect for most marketplaces — with a manufacturing moat/network effect as the additional third side.

Manufacturing Network Effect

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).

Capturing Platform brand value through Creator’s networks

An analogy for Redbubble’s business model would be white-labelled e-commerce marketplace for designers. However, many white-labelled e-commerce plays have structural restrictions that prevent them from gaining network effects.

Most white-labelled e-commerce marketplaces are reliant on their distributors/influencers for initial as well as ongoing fan reach. Redbubble on the other hand, functions to the customer as a niche aggregator in the creative design space. Customers are able to search and pool orders across creators in Redbubble for a range of products. This is particularly powerful in the niche area of creative design, given that a Star Wars fan for example, could be brought in by a specific Creator, but then discover other SKUs and creators in Redbubble in the same order session. This can be clearly seen in the repeat purchase rate of their existing customer base

By owning both distribution and product manufacturing, Redbubble incentivises creators to bring in their audience, extends the creator’s monetisation potential over time, as well as the customer’s long-term purchasing behaviour.

Redbubble’s Financials

The two most interesting pieces of Redbubble’s business model are:

  • Extremely high take rate of 29%
  • Asset-Light positive cashflow cycle

Redbubble justifies its high take rate since it manages the end to end process from demand acquisition, product manufacturing and logistics. With such a rate, Redbubble has been able to grow both the number of creators/sellers, as well as keep power creators happy.

Redbubble has a startling inventory-light model — a reflection of their strong ability to manage just-in-time manufacturing.

Redbubble’s 5-year CAGR has been 44%, comparable to the 5-year 45% CAGR of Etsy.

Redbubble has shown an ability to generate strong net operating cashflows, with an ROE of 31%, above the industry average of 25%.

Growth has been relatively slow relative to the broader industry, in large part I believe due to the age of the company (founded in 2006).

Redbubble has come closer to profitability, with a positive EBIDTA in FY2020 with a 2020 EBIDTA of 5.1M, driven by covid tailwinds, and expect to be fully net profitable in the coming few years, while still investing in growth. In their recent Annual Report, Redbubble aims to reach 150m AUD EBIDTA in 2024.

Where is Redbubble now?

The web traffic for Redbubble is currently around 23 million per month according to Semrush. This volume of web traffic is significantly higher than its direct competitors like Zazzle.com (3.65 million/month), Cafepress (1.16 million/month), and Teespring (1.2 million/month). Given the recent bump in Redbubble’s reach, the management has been focused on doubling down on growing market share in the US through marketing efforts.

Redbubble shares have tumbled from a 2020 high that saw its share price 10x in price from a 2020 low. This has been due to a post-covid tailwind decline, which saw a general increase in e-commerce globally (Redbubble sees a majority of its sales in the US), as well as a decline from the boost that customized face-mask sales had in 2021.

As can be seen, RBL trades at a discount, which in my opinion include:

  • Relatively slow cumulative growth (for its size)
  • Being listed on the ASX
  • Uncertainty over management/ Legacy company as the founder of 15 years has not been able to find a suitable replacement CEO.

There are arguments that RedBubble could be worth more now and in the future if taken private under TMT-experienced investors, rather than remaining an ASX listed company.

Redbubble has one of the most interesting and underrated business models that I have ever seen in the e-commerce space and the unique combination of manufacturing, creative economy and white-labelled monetisation infrastructure are key themes I expect to see played out more and more as the creative economy continues to mature. Only a few business models have been able to nail down parts of these problem statements in the creative economy.

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

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