Stylefeeder’s Execs on How to Do A Lot with A Little—Part 2

Yesterday we published Part 1 of our interview with Philip Jacob, founder of Cambridge, MA-based StyleFeeder, and Shergul Arshad, the startup’s vice president of business development. The two men talked about the remarkable growth of the personalized shopping site, which has taken in $3.5 million in venture capital since 2007 and is already profitable. In Part 2 below, Jacobs and Arshad share their changing perspectives on Facebook (where StyleFeeder has a popular third-party shopping application), the evolution of the company’s machine-learning technology, and the different ways StyleFeeder caters to male and female audiences.

Xconomy: You said you had a million registered users. Does that include all the people who access StyleFeeder from inside Facebook?

Shergul Arshad: No, if you count Facebook the number is much higher. 2.5 million people have installed the StyleFeeder app on Facebook. But usership goes up and down depending on the latest bug or redesign that Facebook is going through. It’s not fair to count all those.

X: How important is Facebook for you these days as a channel? At one time it was your main source of new members, wasn’t it?

Phil Jacob: It’s no longer what it once was. Facebook has really deemphasized applications through a series of user-interface changes that make it impossible at this point to scale to the level that a Slide or a RockYou got to. We still have people using it, and there is this viral nature where people can see what other people have posted to their Facebook feed, and it does drive some traffic, but the window of opportunity for third-party apps is gone. But it was a huge success for us, in terms of driving awareness and registered users. It was the single best thing we’ve done from a growth standpoint.

X: What are your thoughts about the direction Facebook has taken?

PJ: It’s interesting. They have this “verified app” program, and we just got rejected, even though we are the largest shopping app on Facebook, because we have clothes on our site, and one of the pieces of clothing we have are thongs. Out of 14 million products, that is the one that got us rejected.

So Facebook is in a weird situation. I think they are struggling for a number of reasons. Their capital costs are just crazy—at one point they were spending $2 million a week just on new storage for their photos…I don’t want to get into an East Coast versus West Coast thing, but I think there is also a difference in mentality that occurs when you actually start focusing on revenue. Everybody can get aligned behind that; we can have conversations with investors and the conversations are so much easier because they’re not asking who are you, what are you—the numbers are there. But if you keep changing your goal as time goes on, there’s always some other metric that seems to be the important one. Facebook seems to keep shifting, which I think is dangerous for them.

X: Their most recent redesign seems to have been conceived to make them more like Twitter—which, ironically, is another West Coast startup without a revenue focus.

SA: It was publicized that they at one point wanted to buy Twitter, and it seems like somebody pretty high up within Facebook said, “If we can’t buy them, we can clobber them at their own game.” I think, personally, that has caused a lot of backlash. People use the tools in different ways. I used to benefit from both Facebook and Twitter greatly, but I think Facebook is starting to be in a position where by constantly prompting people for status updates, you just get more and more inane banter. By suppressing the third-party apps, Facebook is in many ways biting the hand that was feeding them. With an app like poker, a lot of college-aged people can play poker all day, and that was driving page views and ad sales, which is their core revenue model. But if you suppress poker in favor of inane banter, you’ve put the page views toward banter creation versus extracting value.

X: At the beginning, a big part of StyleFeeder’s story was around the machine-learning algorithms that Jason Rennie from MIT built to power your recommendation engine. Have you continued to refine and tweak that engine?

PJ: We don’t make dramatic changes to it. It works quite well the way it’s built. What I’m more interested in—and we have a big effort ongoing right now, with a product launch coming in another six weeks or so—is understanding more about the products we have on the site. We have thousands of data feeds coming to us, and as you might imagine, there is a varying level of data quality between Amazon at one end andsome small online shoe vendor at the other. A shoes website, for example, might have all their products categorized as shoes, even though some of them are backpacks. We have built some machine learning facilities to understand what products really are and fit them into our own hierarchy. So that’s our big effort, understanding more about the products we have, rather than understanding more about the users, where we are actually much farther ahead.

That has a number of applications. It goes beyond just showing shoes instead of backpacks—it also allows us to present different kinds of search interfaces. So, if you came along and said you were interested in Flight of the Conchords, the New Zealand musical comedy act, we could say “Do you want a T-shirt, a CD, a DVD?” Even better, we could predict, “You don’t seem to order a lot of DVDs, so I’m going to reorder the search results.” There’s a bunch of stuff we could do with that.

X: How is it that you think you’ve been able to stay successful even in such a terrible economy?

SA: I was at a presentation a few weeks ago and they were saying that even in a down economy, the “affordable luxuries”—a purse, a skirt, clothing, shoes—have grown market share year after year. Jewelry, autos, homes, and other very expensive things have plummeted. We happen to be very well positioned because a lot of the affordable luxuries are where people are still spending high amounts. Plus, we are relatively small, so the type of growth we can effect by just drawing in a few more Google visitors is enormous.

X: I have to confess that I’m not a huge user of StyleFeeder, because I’m not usually looking for product recommendations. I know what I want, I go in to a store or a website and buy it, and I’m out.

PJ: That’s because you’re a man. And it’s actually been frustrating over the years, as we were raising money, trying to talk to venture capitalists—who are almost all men and who shop the same way you do. Women browse a lot more and tend to be less direct, more circuitous. There is this idea called the “savannah hypothesis of shopping” that says men are hunters and women are gatherers, and we totally see that on the site. As you rate products on the site, and as you add things to your style feed or wish list, those are strong signals, and we can predict your gender with an accuracy rate of 95 percent just from these things you do as a user.

SA: But even for you, if you knew exactly what you were looking for, like this exact Bell bicycle helmet, and the ones we show you aren’t quite right, right below it we are going to show you another 15 items, and there is a high likelihood that one of those will be something you like. So it’s adding value, even for you.

X: You make money mainly on the affiliate fees paid by online retailers, right?

S: Yes, 80 percent of our revenue is from affiliate fees. We are in the top 2 or 3 percent of publishers within networks like Commission Junction and LinkShare, which puts us on a par with sites that have been around much longer.

X: I’m not familiar with those names.

PJ: By and large we don’t have direct relationships with all of these thousands of merchants. Affiliate marketing is a whole industry that handles transaction tracking and management, data feed uploads, all of that. Commission Junction is a huge player, as is LinkShare.

If you tag your products with the right affiliate code, they will track the online reporting for clicks and revenue. A lot of the value these networks can add is in facilitating introductions. We started out with no relationships in the retail industry. Now, with their help, I’d say that at the top 70 or 100 retailers—a BlueFly or a Macy’s or a Target or an Amazon or a Wal-Mart—I know somebody at all of those companies, and they are giving us more favorable commission rates. We’re pushing close to 8 percent per transaction with some of them.

X: It sounds like you really couldn’t exist without the affiliate marketing industry.

PJ: StyleFeeder couldn’t exist without cloud computing, venture capital, or affiliate programs.

SA: Well, it could exist, but it would just require a different capital structure. You’d have to have more people like myself calling on all of the retailers and setting up the data streams one at a time.

PJ: And instead of $3.5 million in venture capital you’d need $15 million.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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