1Mby1M Incubation Radar 2010: ShopSocially, Mountain View/London

Deal Radar, which has covered various aspects of the emerging area of social commerce, looks today at ShopSocially, a shopping recommendation engine and a site where friends can give and get shopping advice. It also has a social commerce platform that retailers can integrate into their own sites to harness the power of social recommendations. The aim is to turn purchases into conversations and social endorsement, driving significant ‘friend referred’ traffic back to the retailer’s site.

The company, which has offices in Mountain View, London, and Pune, just launched its beta product this month. Jai Rawat, CEO and cofounder, comes from an Internet, online shopping, and e-commerce background. He was the founder of Obongo, which was acquired by America Online in 2001. Obongo was an early online identity management and single sign-on solutions company. Samir Palnitkar, president and cofounder, is a veteran of four startups. Rawat and Palnitkar got the idea for ShopSocially discussing how to build a social shopping platform that would use the friend networks that already existed on Facebook.

Once users register on the site, they can share as much or as little purchasing information – product, price, merchant, and so forth – as they feel is appropriate. Users can also earn points by sharing recommendations, asking friends questions, and inviting friends to join ShopSocially. These points unlock badges ranging from “Newbie” to “Social Superstar.”

ShopSocially’s business model is based on affiliate revenues. Since buyers use ShopSocially to make buying decisions, when ShopSocially sends traffic to the retailer, it gets paid a commission when the buyer makes a purchase. Affiliate commissions range from 5% for low margin items like electronics to 20% for soft goods such as clothes, shoes, and so forth.

ShopSocially estimates that it can make an average of $5,000 a month a merchant in affiliate revenues. Assuming 1 million merchants worldwide, that is a market of $5 billion per year. The top target segments are online retailers, travel sites, hotel sites, movie sites, and any site that has content that is shareable and suitable for social media. One of the biggest clients thus far is HBO.

When the company was founded, there were many websites, that also relied on the concept of and used the words “social shopping.” Kaboodle and ThisNext, established players in social shopping, are two such sites. Recent entrants are Fling it Girl, which focuses on fashion, and Kazowie, where friends can share gift registries, buyers’ guides, and polls. ShopSocially believes that these sites represent the second generation of online shopping. They tried to create their own communities where people would befriend others within that community. This meant, however, that users would have to develop a trust relationship with the community members. ShopSocially takes a different approach in that it uses Facebook as a platform to import existing networks, networks where trust has already been established between friends. The founders believe that their approach represents the core of ShopSocially’s value proposition. More than trust among friends is needed, however: The space has not been without trust and security problems. In April, Blippy, which allows users to automatically post purchases to the site, had a security breach where users’ credit card numbers were posted on Google.

Rawat and Palnitkar put in personal money to fund the development until ShopSocially launched in October 2010. When the concept was proven and they managed to get a few retailers convinced of its validity, they raised a $1.1 million Series A round led by Valhalla Partners. Other angels followed in this round. The money will be used to create a robust website with additional features for users. ShopSocially may seek to raise money in the future but for now is focusing on getting the business going. As the product just launched, the company is just beginning to ramp and is not yet profitable. Revenues are less than $250,000 a year.

The company wants to grow by getting a large number of retailers to plug into ShopSocially’s social commerce platform. Once a lot of data builds up in the system, there is intrinsic value in the aggregated data. Also, they need to get more users by exploiting the inherent virality in the ShopSocially offering. To date, users have made about 10,000 recommendations on the site.

Right now, the goal is to make ShopSocially, a viable, profitable, cash-positive business without burning up too much investor cash. The founders believe that the opportunities in social shopping are numerous – affiliate commissions, value of data, advertising, coupon distribution, and so forth.

It is possible to envision ShopSocially as a shopping network with tens of millions of users. Whether ShopSocially makes an IPO or is acquired is something that cannot be planned, say the founders. At this point, they are focused on building a profitable and highly scalable business.

Recommended Readings
Deal Radar 2010: ResellerRatings.com
Deal Radar 2010: LivingSocial
ShopSocially Taps Into Your Social Graph For Product Recommendations (from TechCrunch)

This segment is a part in the series : 1Mby1M Incubation Radar 2010