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Working in the Bubble

Wednesday, 19 January 2011 | By Oliver Milman

Martin Hosking knew at an early stage that the internet would change the way we live, but struggled to carve out the right business opportunity until he co-founded RedBubble, the online arts community.

 

Identifying a start-up opportunity isn’t the same as clearly articulating the position and aims of the business that follows. It’s a lesson that Hosking learned firsthand at his previous online start-up, search firm Looksmart.

 

“The most important thing is to have a compelling and significant proposition for consumers,” he says.

 

“I don’t think LookSmart ever clearly articulated that.

 

“When we started RedBubble, we had a clear view that the artists were the main people we wanted to serve and we haven’t deviated from that.

 

“We wanted to provide a real way of getting their material out to a wider audience and share their wonderful content. The internet gives a capacity for them to share and we can do that.”

 

Early adopter

 

There is certainly no ambiguity about the brand RedBubble seeks to project. The company’s office in the Melbourne suburb of Richmond mirrors its website – understated enough to avoid being garish but packed to the rafters with some of the most intriguing art you’ll ever see in one location.

 

Hosking looks every inch the dot com entrepreneur in regulation black t-shirt and glasses. But, unlike some of the up-and-coming online tyros, Hosking is very much the real deal. He took a leap that involved faith rather than bandwagons.

 

Realising the potential of the internet in the mid-1990s, Hosking set aside a career as a diplomat and consultant to become a web entrepreneur.

 

It was simply not a move people made back in 1995, but for Hosking the opportunity was clear.

 

“My feeling was that the internet was going to have such a seismic impact upon the world that I really needed to be involved in it,” he recalls.

 

“I made the decision early on in 1995 that I was going to do something on the internet. It wasn’t a leap into entrepreneurship as such. It was a leap into the internet.”

 

Hosking became part of the launch team of Looksmart led by its founders, Evan Thornley and Tracey Ellery. The business, headquartered in San Francisco, aimed to solve the problem of search in the nascent world of online surfing.

 

“What we thought was that the search experience was fundamentally flawed – and it was,” he says.

 

“It was very difficult in 1995 to find anything on the internet. We thought that that a far more compelling human touch was required.

 

“It took a long time for us to get traction as a company and then Google came along and solved the problem in a way that people hadn’t solved it before. They understood the distinctiveness of the internet.”

 

Hosking stayed with Looksmart until 2001, subsequently becoming chairman of Aconex, an online construction management firm. He still holds the role.

 

The beginning of the Bubble

 

In 2006, he devised the concept for RedBubble with co-founders Paul Vanzella, who handles high end design, and Peter Styles, who has a logistics background. Styles departed the business last year.

 

Hosking, who is also managing director of the company, says the inspiration came from the rise of sites such as Facebook and YouTube, as well as the emergence of blogging sites such as Wordpress.

 

“What we were interested in was the interaction between the social networks and the content networks,” he explains.

 

“Facebook doesn’t serve the world’s work, it serves the needs of individuals. The content is always subservient to the individual. It can’t exist in its own right.

 

“What we wanted to do was for content to exist in its own right and be validated in the same way as YouTube. On YouTube, you go through the site, see the videos and have little interaction with the people who made them.

 

“We chose art because it’s content that lends itself to sharing. It’s something we were passionate about too. At LookSmart, we were never our own consumers. That’s always a big danger.”

 

Money matters

 

Hosking spent two months conducting research and writing a business plan which he then presented to a series of business angels, including former Realestate.com.au chief Simon Baker.

 

The business managed to raise $2 million, which it used to immediately hire a nine-strong team to develop the site, as well as a smattering of search engine marketing , events and direct link-ups with universities. Further rounds of funding have followed.

 

“It was certainly an ambitious project and it remains and ambitious project,” says Hosking. “It’s not a $50,000 website that can be funded on a shoestring. It was more complex than that.

 

“Some things you can do on a shoestring, some you can’t. The danger in Australia is that you don’t raise enough money for what you want to do. It has certainly not been a cheap exercise for us.”

 

The co-founders devised a business model that encouraged artists to feature their work on the site. RedBubble has a base price for each item - $25 for a t-shirt, for example – which it keeps, with artists allowed to keep 100% of the margin on anything they charge customers above this price. RedBubble handles all of the manufacturing and distribution.

 

Hosking says that some artists were initially wary about copyright concerns (which RedBubble has allayed with watermarking technology) and the inherent shyness of some artists to display their work on a rapidly-growing online portal.

 

“That (shyness) was the number one impediment to us,” he says.

 

“It was the difference between 40-50% growth rate, which we’ve always enjoyed, and a 300% growth rate.

 

“That’s the difference between exponential growth and more linear growth. I suppose we are somewhere between exponential and linear.”

Having a cutting-edge model where RedBubble acts as a conduit for a community of artists rather than as a traditional retailer, also has its drawbacks. Hosking again underlines the importance of formulating a strong purpose for a business and communicating that.

 

“Start-ups need to be very clear on their value proposition,” he says. “What are you delivering and how does your business model flow from that?

 

“We have a clear proposition but it’s hard to communicate sometimes. Our model is very rare. I can’t think of anyone else who is doing it the way we are.

 

“That’s a good and bad thing. A good thing in that we’re out on our own, a bad thing in that it can be hard to communicate that.”

 

Going global

 

RedBubble’s growth has been exceptional, and not just in Australia. Hosking says that from “very early on” he didn’t want to be part of an Australia-only business.

 

RedBubble has established a foothold in the US and UK markets, with Hosking travelling to both countries to arrange local logistics and manufacturing. RedBubble’s strongest growth is now in the US, where, according to Alexa, it is among the 3000 most popular websites in the country.

 

RedBubble now commands an audience of two million users a month, with more than 100,000 artists submitting their work to the site. Hosking is reluctant to reveal financial figures, but says that Christmas 2010 was 40% up on the previous festive period after RedBubble managed to iron out troublesome supply chain problems.

 

Doing something different

 

Hosking isn’t afraid to admit that RedBubble could be squeezing a few more dollars out of such an impressive international customer base. Most notably, the site has shunned the opportunity to sell advertising space.

 

However, for Hosking, the RedBubble opportunity was about doing something new that he was passionate about, rather than ruthlessly monetise it.

 

“There would’ve been a lot of easier ways to make money than build RedBubble but there aren’t nearly as many interesting ways to do something as compelling,” he says.

 

“RedBubble as a site, as a company, creates an enormous amount of value and we capture just a small portion of that.

 

“RedBubble has two million unique visitors a month, which makes it one of the largest websites in Australia. If we were purely an eCommerce company we’d turn over several more million dollars than we do, but a lot of what we do creates value for the community as a whole.

 

“I’m comfortable with that, doing good in the world and monetising it later. There’s a well-trodden path for Australian entrepreneurs where they see what works overseas and replicate it.

 

“It’s worked for real estate agents, employment companies and travel agents – it’s created a lot of wealth and done a lot of good. (But) that wasn’t nearly as interesting to me as doing something genuinely compelling and new.

 

“If I’m a t-shirt designer in the UK, I can now get my designs to a global audience in a way I could never do before.

 

“That’s a very different model than getting a few designers, getting their t-shirts printed in China and selling them off in Target. It’s a very different model and I don’t think a Target would think about the online experience in a sufficiently different way to their offline experience.”

 

Slumbering giants

 

Hosking says he’s surprised that the major retailers haven’t devoted more “resources and energy” to online shopping, but points out that their reticence has allowed start-ups like his to flourish.

 

“Gerry Harvey has had a lifetime of understanding what makes shopping in-store work and that experience is only partially relevant to selling online,” he says.

 

“That’s a hard shift for a company and I don’t think they’ll make those shifts easily. They are moving quite slowly and that allows start-ups, including ourselves, to move quite quickly.

 

“Companies often try to replicate what works offline online and that very rarely works. It’s only when you get a distinctive online experience that you get something compelling.

 

“eBay is a classic example – it wouldn’t have come to the attention of any of the major retailers to have a strange auction model like eBay.

 

“If you get a good offline experience, you look at online and say ‘well, look at all the things you lose’ – the interaction, the human touch and immediacy and so on.

 

“But, at the same time, you gain a lot and in the case of RedBubble, we are constantly looking at what the gains are and how to create a compelling value proposition for customers.”

 

Future plans

 

Hosking says that RedBubble will look for an IPO in the “foreseeable future” but insists that he will never walk away from the business. His goals remain lofty – a community of 100 million globally is achievable, he claims.

 

“The goal remains to create a sizeable community of artists that is reaching out to a global audience,” he says.

 

“That goal remains undiminished. It’s an important, enjoyable experience for people. And me. It’s incredibly challenging and incredibly rewarding.”
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