Check out this article published today on Forbes.com. Our Founder and CEO, John Caplan, is interviewed about how OpenSky is pioneering social commerce.
Four Years And $50 Million Later, Has OpenSky Cracked The Code For Social Commerce?
It’s been about five months since OpenSky launched the latest version of itself, the company’s third business model in four years, but CEO John Caplan isn’t bashful about what he’s achieved. “OpenSky has solved the Internet for small business,” he declares while riffing through a PowerPoint presentation at the company’s Chelsea, Manhattan headquarters.
With a veteran’s ease with pitches and talking points, he rattles off the numbers: 2.8 million registered members, 7,000 merchants selling 32,000 products. Each month ten percent of the site’s visitors make a purchase, he boasts, a conversion rate that dwarfs the industry average of three percent. “So I’ve basically kicked the s—t out of traditional e-commerce,” he says, lowering his voice on the expletive.
Maybe he has. But in startup terms, OpenSky has had a long, rocky history. Before starting the company Caplan, a 43 year-old Manhattan native, enjoyed a long streak of success, first as president of About.com during its late 90s heyday then as the CEO of Ford Models beginning in 2002. When he left Ford in 2009 the company raked in $130 million in annual sales, up from $30 million five years earlier.
He started OpenSky that year as a sort of beefed up affiliate network of independent bloggers. The company enlisted popular niche bloggers, gave them a digital shopping cart for in-page purchases and encouraged them to sell on behalf of cash-starved small businesses. The goal was to give small businesses a lucrative new sales channel while granting a nice chunk of those sales to the bloggers. The company raised $11 million from Highland Capital Partners, Canaan Partners and others through 2010, but after little more than a year the business stalled. OpenSky’s 5,000 bloggers grew to reach an audience of just 100,000 unique visitors according to TechCrunch.
In the spring of 2011, the company switched gears. Caplan recruited a cast of celebrities, including Martha Stewart, Serena Williams and chef Bobby Flay, to recommend products via a Twitter-like feed within the OpenSky site. The model showed potential, and even sales. Caplan raised another $30 million from his investors that October. FORBES, meanwhile, listed OpenSky as one of its Most Promising Companies last year, citing revenues of $18 million in 2012, up from $4 million the previous year. So we were a little confused, and worried, when the company announced yet another pivot.
But Caplan says that even as the celebrity-based model grew, he spotted a bigger opportunity. In November he listened to OpenSky’s in-house buyers complain about how many pitches they received from small businesses clamoring to get on the site. Since OpenSky managed inventory itself, the company could only handle a fraction of the sellers. “So we said we’re not going to build a store,” Caplan remembers. “We’re going to take our technology, simplify it and then get the hell out of the way.”
What does that mean? It means that OpenSky now allows any small business to create an account on the site, list its products and start selling to a baked-in network of buyers. Companies attract followers like they would on Twitter and customers view a feed of updates from the businesses and members that they follow. Click on an update, and you’ll get taken to a product page where just one more click leads to a purchase.
OpenSky takes a 20% commission on each sale, but takes nothing if the buyer was recruited to sign up by the business itself. So if, say, a customer of Style Girl signs up for OpenSky via Stye Girl’s Twitter account, OpenSky takes nothing when that customer buys a Style Girl product. Her customer = her sale. When customers recruited by one business buy from another–say that Style Girl customer buys some Knork flatware–the recruiting company gets a 10% cut. The system is designed to incentivize businesses to bring as many customers on to the site as they can.
Gigi Pascual, the founder and owner of Buttermilk, a Los Angeles-based food truck and vendor of red velvet pancake mix, is a fan. Her 5,000 OpenSky followers, many of whom she brought over from the company’s Facebook and Twitter accounts, buy an average of 50 cans of her $13 pancake mix each week. After experimenting with Etsy, an online marketplace for small businesses, and Shopify, a service for creating e-commerce sites, she now uses OpenSky exclusively for online sales. “With Etsy I couldn’t even find my product,” she says. “OpenSky is more organized and a better marketplace in general.”
Caplan points out other advantages. Existing options, like Shopify, require small businesses to become experts at online marketing, web design, SEO and other skills with which they’d rather not bother. Places like Amazon and Etsy may provide helpful sales channels, but sellers have trouble establishing customer loyalty and relationships. Social media, on the other hand, is great for building brand loyalty but less effective in generating actual sales. OpenSky, he says, solves each of these issues. The company, for instance, claims that one of their followers is 27 times more valuable than a Facebook follower.
If this is the case, and Caplan really has solved these issues, then OpenSky could prove to be a very important business. Creating a social network based around commerce is one of the holy grails of the consumer web industry. Many point to Pinterest’s potential in this regard, and its lofty $2.5 billion valuation is an indication of the value investors place in this potential. Facebook, Twitter and Instagram don’t sell stuff, they sell ads that hopefully, eventually, lead people to buy stuff. If a social network could dispose of this step and simply figure out a way to get people to buy things right on the site, the theory goes, that would be a very valuable property.
Yet Pinterest still hasn’t figured out how to turn itself into an e-commerce machine. Other companies, most notably Fancy, seem to be pushing in a similar direction as OpenSky. Fancy recently raised $53 million at a rumored $600 valuation. While the numbers that OpenSky provided look promising, they haven’t disclosed their revenues beyond asserting that there are several sellers doing more than $100,000 a year and that marketplace sales grow 35% each month. Caplan says that 100 merchants join each day, along with 1,000 members. That’s respectable, but hardly viral. And Caplan says he doesn’t intend to spend on marketing anytime soon.
Caplan calls OpenSky a “lean team” at 47 employees, nearly all of them focused on the website and technology. In total, the company has raised $49 million, which leaves one wondering: are his investors nervous?
“It doesn’t make me nervous at all,” counters Bob Davis, an OpenSky director and partner at Highland Capital Partners. “The concept of a business adapting and molding to the marketplace is what great businesses do.”