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Why e-commerce fads competing with Amazon eventually fade

It's hard to name a category of start-ups that has struggled to produce big, billion-dollar exits more than e-commerce.

Competing with Amazon isn't easy, it turns out, and aspiring Davids have turned to ever more novel strategies to differentiate themselves from Goliath. The problem? Like anything trendy, each new twist on the e-commerce model eventually goes out of style.

Perhaps you remember the great subscription commerce wave of 2012 — as I called it, stuff-in-a-box. It was a clever way to score recurring revenue by sending subscribers a container of curated stuff they didn't even know they wanted.

But it didn't take long for each new stuff-in-a-box start-up to feel increasingly ridiculous: subscription perfumes, dog toys, cured meats, even stilettos hawked by Kim Kardashian. Customers were often frustrated by the relentless barrage of products, with some not realizing they were being automatically charged each month for the goods.

Investors quickly realized the model was little more than a 21st century twist on the Jam of the Month club, and the subsequent shakeout, marked by mergers, shutdowns and pivots, happened quietly.

After subscription commerce came "content and commerce," a trend that peaked so fast it's more of a blip than a full-fledged fad.

The idea — tacking an editorial operation onto a store — failed to increase profits for most start-ups, and last year the leader of the pack, Thrillist, split its e-commerce and media businesses. Founder Ben Lerer conceded to technology website Re/code that it was "not the most productive" for the two to share resources.

Lately the hottest thing in e-commerce is "ClassPass for X," a trend that combines monthly subscription fees with experiences. (Millennials love experiences, I'm told.)

It follows the success of ClassPass, a well-funded start-up that sells unlimited fitness classes at participating studios for about $100 a month, depending on the market. (In the Los Angeles/Orange County market, the price of ClassPass was recently increased to $119 a month from $99).

There is already a ClassPass for hair blowouts (Vive; $65 per month), massages (Zeel's Zeelot program; cost varies) and live music (Jukely; $25 per month). It's too soon to call this new model a fad, but if past e-commerce innovations are any indication, it may not be long for this world.

All of these recent e-commerce models are descendants of the mother of all retail fads: flash sales. With the January acquisition of Gilt Groupe at a painfully low price — it raised $280 million but sold for just $250 million — the model has finally croaked.

Flash sales (and its cousin, daily deals) suffered from over-saturation. Copycats drove up the price of acquiring customers, which accelerated start-ups' burn rates and prompted shopper "deal fatigue."

When it became clear in 2012 that Groupon and Gilt would not live up to soaring expectations, copycats pivoted away from the model. But instead of focusing on the fundamentals (supply-chain management, say, or customer service), many of them simply latched onto the next hot strategy.

With such carnage, it's puzzling that so many e-commerce entrepreneurs continue to chase buzzy new business models.

But the explanation is simple: As long as there's an Amazon, there will be e-commerce fads. The Jeff Bezos-led behemoth has already won on price, selection and service. All that leaves is novelty.

Erin Griffith is a writer at Fortune.

erin.griffith@fortune.com

Twitter: @eringriffith

Copyright © 2016, Los Angeles Times
A version of this article appeared in print on February 02, 2016, in the Business section of the Los Angeles Times with the headline "E-commerce fads eventually fade - The trendy start-ups chase buzzy strategies but struggle to compete against Amazon. - THE DOWNLOAD" — Today's paperToday's paper | Subscribe
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