INDEPTH: Redbubble CEO talks going public and going global
Internet Retailing caught up with Redbubble CEO, Martin Hosking, just before shares in the online marketplace began trading on the ASX.
Internet Retailing: What has lead to the company going public?
Martin Hosking: I think the thing about going public for Redbubble is we’ve actually been around for 10 years and so I’ve had investors from the beginning of that period. Going public, for my mind, is a step on the way, it’s not the end of a journey, it’s just the continuation of a journey which we’ve been on. It’s a change because suddenly we have access to much larger capital markets and a much more diverse pool of investors, but the company itself just continues. Specifically what we are thinking about in terms of going public was improving the balance sheet, because as a private company the business has been self-funding for a number of years. We raised our first institutional capital only last year. So raising the money from the stock market has improved the balance sheet. It also gives my early investors access to liquidity and most staff also have equity in the company.
IR: Redbubble is quite a global company, why choose to list on the ASX?
MH: I know Mike Cannon-Brookes and Scott Farquhar have been critical of the ASX in terms of whether or not the ASX will value companies appropriately. I was also the chairman of Aconex which listed a bit over 18 months ago, it is a collaboration for construction and engineering projects, and in that instance what we saw was once it listed it then took a while for the market to value the company appropriately but they did come to that. From my point of view I think the investors are there, they are looking for the opportunities here in Australia and they are prepared to put the time in to understand opportunities.
For me specifically, I’ve always seen Redbubble at least as an Australian-based company. We’ve got very large international operations but the base of the company is here in Melbourne and in Australia. It just made more sense to be listing here rather than an offshore listing, provided I could be confident the valuations would be fair, and I think I can be confident of that.
IR: How do changes in the Aussie dollar impact Redbubble?
MH: We get a bit of an advantage as the Australian dollar falls, as a company. Australian artists would get an advantage as well if the Australian dollar is falling. Overall, we are relatively naturally hedged and by that I mean because manufacturing is outsourced in the markets in which we sell, movements in the Australian dollar don’t have dramatic impact upon our bottom line. They impact our top sales line, the dollar falls then our sales in Australian dollars goes up because 93 per cent of all sales are offshore, but in terms of the bottom line it is less dramatic.
IR: As far as channels, or points of contact with consumers go, do you see Redbubble staying as a pureplay online marketplace?
MH: Yeah. This is really to do with focus, as a company you can always do many things. For us the online opportunity is just so large and the market is so large that it just makes more sense to be doing this. I can imagine a time perhaps in the distant future where that is not the case, but it would be a long way from now. I think real-world retail is a very different kind of business and you have to think about it quite differently. I’m not saying we wouldn’t rule it out, we’ve had a presence at SXSW, Comic Con in New York and here in Melbourne. We also do a real world gallery with our artists in residence but these are more marketing and brand related rather than to specifically generate sales.
IR: What are your goals for 2016?
MH: The thing about a marketplace, and this is really the difference between a marketplace and traditional retailers, or online retailers, is that marketplaces have strong organic growth models. The more sellers you have, the more buyers you have. Our job as a company is to nurture that ecosystem. Marketplaces are very hard to get going. Anybody who has started a marketplace whether it’s Seek or REA or Carsales know they are hard to get going, but once they get going they get that natural network effect occurring. In our case it took about four years before we saw the strong ongoing organic growth model, so our job as a company is to continue to nurture that. About 70 per cent of all sales come from free sources, and 30 per cent are paid. So we get better at developing that organic growth model as we go forward and also that we get increasingly efficient with the paid as well.
Specific sorts of initiatives which we have going is that we launched the German website in February, the French site will be launching in the next week or so in beta and we are in beta for a number of weeks, and a Spanish site will be launching later in the year. We’ll be launching a range of new products so within the next 14 months or so, something in the order of 20 new products will launch and a lot of those are focusing on women’s apparel product which have been really great for us as we move more into the sort of high-end fashion line items.
More than 50 per cent of traffic comes from mobile devices, our consumers tend to be heavy users of mobile and so continuing to improve the mobile experience is important to us.
We are investing more in the artists’ services side of the business, so we want to attract more and different artists. The artists who want to design women’s apparel products are different to some of our historical artists on Rebubble who may have been more interested in pure t-shirts for example. So broadening the base of the artists and continuing to serve the artists better. Also localising production, so we try to keep production as local to our customers as possible so that people can order a product and have it delivered within as short a time as possible.
IR: So that’s a key part of the logistics component?
MH: Absolutely. The great advantage of print on demand technology, which is the basis for Redbubble, is that every single product is created when the customer orders it.
IR: So it’s already paid for?
MH: It’s paid before it’s manufactured, exactly. There’s no wastage in that system. Traditional retailers actually have this enormous amount of wastage through traditional retail systems. Bad for the environment, bad for their bottom line, bad for everybody to be honest. Whereas in our case, every single product the customer wants it and has a use for it.
The disadvantage of that is that customers expect that to occur but they want it as quickly as possible. If we don’t start manufacturing until you ordered it, it’s different to just picking it off the shelf and delivering it to you. The single thing we can do to improve that more than anything is actually making sure the manufacturing partners are local to where the customers are. That’s a big part of our push.
IR: When you are launching a new site in different countries such as France and Spain, is it just a matter of re-skinning the existing site?
MH: No. It’s much more complicated than that because it is user-generated content. To give you a scale of the problem, we’ve got more than 10 million images in Redbubble and somewhere between 5000 and 7000 new images are added every day. A traditional retailer may have 5000 SKUs, we get that every single day. So we have to translate all of that user-generated content. Sites which have user-generated content have historically been much slower to internationalise because you have to find a way to translate that enormous volume of data.
We’ve had to develop in-house to translate that enormous volume of data in real time. That’s the challenge which we’ve had, that’s been a huge technology investment effort for us. To translate the skin of a site, that’s a three or four day job. To put in place an automated translation engine which can handle the quantity of data that’s been many, many months in the making.
IR: Let’s talk about search and search filters within the site.
MH: That’s an ongoing investment, it relates to quantity of data which we have. The biggest complaint from customers is that it is hard to find things. You’ll do a search and get a lot of results and the one you may be interested in may be lower down. A lot of the work which is going on in search is around allowing multiple filtering options. We’ve already made progress on that in terms of how you dice each product option to make it sensible. There is data science team which works on that and also how you order in response to that.
IR: Is there a role for machine learning in that case?
MH: Yes there is. The role for machine learning in our case, the primary role which we are putting it to is seeing how people respond to the search results which they get given and then re-ordering based on the response. So if people aren’t clicking on things even though it may look like it’s relevant, we’ll assume it’s not relevant so that they fall away. The science area are working on and are already implementing how the results improve based upon users responses to those results.
IR: Is there any specific piece of technology which you are excited about?
MH: There are two bits, the first one I have already mentioned, I think the work which we had to do in relation to the multi-lingual capabilities that was exciting and innovative and it required Redbubble to build it from the ground up. The quantity of data, even the number of users on a monthly basis are well beyond what most normal e-commerce platforms could handle and no e-commerce platform can handle the sheer volume of images which we get. It’s all built in-house. That part of it I am excited about fundamentally and then layering onto that the translation component.
The second thing which is new for us is we have migrated the site. We had been on a hosted environment, we are now entirely within Amazon Web Services but we are also refining how we use AWS as well. That’s giving us the scalability which we need because the issue with being multi-lingual for us is that the Google crawler needs to crawl, literally in our case billions of pages, so making sure we are giving enough bandwidth to the crawler to crawl not only the English site but the German site, the French site, the Spanish site, that’s required us to scale well beyond a normal hosted environment. Migrating to Amazon Web Services allows us to scale the site to handle that multi-lingual environment. I don’t think there is any other Australian e-commerce company which would have the volume of traffic and the volume of data which we have.
IR: We haven’t talked much about art, do you see yourselves as part of the art community?
MH: Yes I do. But this is the nature of art itself, if you think of art that is only hung on gallery walls then we are largely not that. But I think of art as something by which people add meaning to their lives, add creativity into their lives. This broader decorative arts movement or the creative arts movement, we are very, very much a part of that and that has deep roots. Art in that context is a thing people have produced whether or not it was on your whaling ship carvings or the art of William Morris of the 19th Century which is all to do with tapestries and materials. We are definitely part of that art movement and that is saying ‘ok people, you don’t have to be paying thousands of dollars to have art in your life.’ A laptop top skin can be creative and artistic and it improves the nature of that product for you. We are part of that art movement, I don’t pretend we participate much in the very high-end art movement, but I also don’t think the high end art movement defines what art is.