Steve Case, the co-founder of America Online, is by any measure an Internet visionary. His private equity firm, Revolution, invested, in 2013, $40 million in Bigcommerce, a leading platform for small-to-midsize businesses. I recently spoke with him about that investment, as well as his outlook on SMB ecommerce generally.
Practical Ecommerce: You’re an astute, pioneering tech investor. Why invest in SMB ecommerce?
Steve Case: We look to invest in people and ideas that can change the world, and we look for big, swing-for-the-fences ideas. They may be small companies now, but we believe that they can be large companies over time because they’re focused on disrupting large sectors of the economy and impacting important aspects of people’s lives. That’s the starting front.
In terms of why we’re interested in ecommerce specifically, only about 10 percent of retail now happens through ecommerce. That’s growing and will continue to grow. We wanted to be well-positioned in that sector, so we made a number of ecommerce-related investments.
We also believe that we’re beginning to see the democratization of ecommerce. Some of the big players will continue to be significant, but there’s an opportunity for everybody to play if they have the tools that enable them to do that, both in terms of it being easy to get started and then easy to scale.
PEC: By our account, there are roughly 600 ecommerce platforms — licensed and hosted. Your company, via Revolution Growth, invested $40 million in Bigcommerce. Why did you pick Bigcommerce and not one of the others?
Case: We talked to a number [of platforms] when we were trying to understand the business. But we concluded Bigcommerce had the product and the platform and the people and the partners to emerge as the leader in the sector. They are the ones that we think can be the winner. We try to be helpful not just in terms of providing the investment capital, but also in terms of working to help expand their teams or establish new strategic alliances and things like that.
We believe Bigcommerce had the right solution. Some of that was because they had crafted the design of the platform in a very smart way and also been very thoughtful in trying to figure out ways to make it easy for people to get started and, also, easy for people to grow with the platform and stay with the platform. As a business expands, as its needs expand, Bigcommerce can expand with them.
Bigcommerce also recognizes that this is the kind of business where partnerships make sense. There’s an old African proverb that if you want to go quickly, you can go alone, but if you want to go far, you must go together. That applies in the ecommerce space as well. Rather than try to do everything themselves, Bigcommerce has tried to create a platform that leverages the innovation happening throughout the ecosystem — such as open APIs so people can have apps in the Bigcommerce platform and partnering with payment providers rather than trying to be a payment solution on their own.
That open approach and platform approach was a key reason why we invested. Bigcommerce had the right strategy, had the right team, had the right platform, and had the beginnings of the right partnerships to emerge as the leader in this space.
PEC: Once you make a $40 million investment in a platform like Bigcommerce, what do you do then? How closely are you involved?
Case: We do get involved in the company because, as I said, it’s partly about the investment capital, but partly what we try to do is work with the company, roll up our sleeves and try to be helpful. In this case, I joined the board of Bigcommerce and have been involved in thinking about its partnership strategy, the role partners played. It was important before; it’s even more important now because we are trying to establish a tapestry of alliances around Bigcommerce. That’s really where we think we can focus most of our efforts.
PEC: Many observers believe that ecommerce for smaller companies will be increasingly difficult. They cite the growing dominance of huge marketplace retailers, such as Amazon and Walmart. How can a smaller ecommerce company prosper in that environment?
Case: I’m bullish on the role that these smaller players can play. I certainly recognize that there are some dominant players like Amazon and Walmart. I think they’ll continue to have an important role. But we’re starting to see consumer preference for a wide variety of merchants, not just a few.
It’s not that surprising to me because we’ve seen the same kind of evolution over the past couple of decades in other sectors of the economy — things like restaurants, where there are certainly some large players like McDonald’s, Chipotle, and others. But there’s also a continuing, important role for smaller restaurants. Maybe a chef has one or two restaurants. Even though the big players have grown rapidly, there has still been an important role for the niche, specialized companies that are providing a different kind of experience.
Similarly, we’ve seen that idea of the long-tail with content, that there are certainly important media companies that have a significant presence in the market. But we’ve also seen an explosion in voices, an explosion through blogs and Twitter and Facebook and other social media platforms. There are now far more people providing content — being essentially journalists — sharing their point of view than a decade ago.
That proliferation of voices again suggests that consumer desire is not just a few media companies to play that role, not just a few restaurant chains to feed them, but a broad range of providers. We think the same dynamic is now happening in ecommerce.
The birth of platforms like Bigcommerce has enabled everybody to participate with very robust solutions that even a few years ago would have caused a lot of money and taken a lot of time. Now you can be up and running quickly and inexpensively through Bigcommerce.
I think that will accelerate the adoption around ecommerce and also accelerate this democratization of ecommerce and the development of the same long-tail phenomenon that we’ve seen in sectors like content also now applying to commerce.
PEC: Let’s discuss your investment firm, Revolution. Could you tell us about the company?
Case: We started Revolution about a decade ago. We have two parts of it: Revolution Ventures, which focuses on early-stage investment, investing really in startups, and Revolution Growth, which focuses on later-stage investing, what we think of as speedups. In Bigcommerce, given the scale they already had when we start talking to them, the $40 million investment came out of Revolution Growth. It is the largest investment we’ve made out of that fund. It shows our commitment to ecommerce and, specifically, our commitment to Bigcommerce.
What we look for are great entrepreneurs with disruptive ideas that have the potential to change how we live our everyday lives and restructure — disrupt, if you will — key sectors of the economy.
We look at things in a fairly broad context. We’ve invested in dozens of companies over the past decade. It’s been a lot of fun. This is informed by my own experience as a co-founder of America Online, or AOL, now 30 years ago.
We believed that someday the Internet would become part of everyday life. But, at the time, only 3 percent of people were online. When we said we wanted to get America online, we knew it’s going to take a while. It took us a decade, but finally people realized the importance of it.
Finally, we were able to establish the partnerships that propel us. The Internet took off. At its peak, AOL benefited from that, as more than half of all the Internet traffic in the United States in the late 1990s went through AOL. We saw firsthand, as an entrepreneur, the power of an idea, the power of betting on a company relatively early that had a big idea, and the power of partnerships that surrounded AOL.
That same philosophy applies to what we do at Revolution. We look for those breakthrough ideas from terrific entrepreneurs who have already built great teams, but maybe we can help them take those teams to the next level, helping recruit on the people front. We believe in partnerships, so maybe there are ways we can leverage the network.
We want to be helpful on the policy front because we think the next wave of companies, a third wave of the Internet, will have more of a connection with governments, as buyers or regulators.
Those are the opportunities we look for, where we believe in the idea, believe it has the potential to be a significant company. We also believe that we can add some value in some discreet areas beyond just being an investor.
PEC: You mentioned at the onset that you had invested in other ecommerce companies, in addition to Bigcommerce. Are you able to say what those are?
Case: There have been a variety of companies. We actually were involved in the birth of ecommerce now more than two decades ago. It’s amusing to think now, but I remember going to conferences back then where there’d be a pretty vigorous debate whether ecommerce would ever take off. There were certainly some bullish views, but the cynical view was that nobody would ever feel comfortable entering their credit card online because of the fear of hackers.
Now, we’re at a point where not only do people willingly put their credit card online, but they ask the providers, the merchants, to save the credit card information so they won’t have to enter it again. Now they don’t mind those merchants tracking their purchases so they can recommend other products that might be of interest. It just shows you how quickly this whole phenomenon has evolved.
Over the last couple of years, we’ve had a couple of other investments, specifically in ecommerce, from our growth fund. One is a company called Lolly Wolly Doodle that’s pioneered the use of social media — initially Facebook but has now expanded — as a way to create demand for their apparel products, which target young girls.
We’ve also invested in CustomInk, which has been in the group t-shirt business — the ability to buy 50 or 100 of these customized t-shirts. That’s growing quite rapidly, and they’re moving into some other sectors.
We’ve also, through our venture activity, Revolution Ventures, invested in Booker, which is providing a booking platform for a variety of different providers.
Though our largest investment is in Bigcommerce for the reasons I mentioned.
PEC: We have a couple of questions related to macro issues that could affect the continued growth of ecommerce, especially for smaller companies. The first one, online payments, you’ve alluded to. Credit card processing statements are difficult to understand; credit card processing rates can vary from one merchant account provider to the next. Fraud is always a risk. What’s the future of online payments?
Case: The whole online sector continues to grow rapidly. Online payments have got to be parcel that. It will need to continue to evolve so that it is easy and safe for merchants as well as being convenient and affordable for customers.
A strategy at Bigcommerce has been to not do this on your own but to partner with other companies. There are already partnerships between Bigcommerce and companies like PayPal and Stripe. Recently, Bigcommerce did another round of investment, and one of the investors in the company was American Express, which is another example of a mainstream payment provider recognizing that things are changing in the commerce space, specifically in the ecommerce space.
PEC: The second macro question relates to sales taxes. The shift from brick-and-mortar retailing to online has put local taxing districts in a financial bind. There’s a mishmash of state laws to address the issue, which complicates the problem for merchants. Congress has gotten involved but hasn’t enacted legislation to date. What’s the answer for ecommerce sales taxes?
Case: I was involved 20-plus years ago in trying to get the Congress not to tax ecommerce because, in the early days, it was important that there not be any constraints put in place or bottlenecks or barriers put in place that might slow the growth of ecommerce.
It is still, currently, only 10 percent of retail, but, clearly, it’s growing rapidly. It’s not surprising that Congress is now taking a fresh look at it. I don’t know exactly what they should do. I’ve not been involved recently in discussions with Congress on these issues, but I think, ultimately, it’s more of a federal solution. It isn’t the kind of patchwork of inconsistent state laws as you referenced.
PEC: Anything else?
Case: The reason we’re so excited is we’ve seen the evolution of ecommerce over the past couple of decades. We’ve seen it go from an idea that had its cynics and critics who didn’t believe it would ever get off the ground to now being a pretty significant industry and a pretty significant and growing sector of commerce overall. But there’s still a lot of opportunities to grow.
We’re big believers in empowering merchants to be players in ecommerce. That’s a key driver behind our investment with Bigcommerce. We want to make sure everybody has the tools to compete on a global stage and do it inexpensively.