Fast Track Interview

Adrian Bye: Today, I’m talking with Matt Hill, who is the CEO of Shopit.com. Matt has a pretty diverse Internet marketing background. Matt, why don’t you tell us a little bit about yourself and the companies in which you have been involved?

Matt Hill: I’m originally from Canada. After I went to Boston College, I moved to California. In 1997, I started working at Shopping.com. I was introduced to that company and its founders through an investment opportunity. I went in as an early member of the founding team.

I learned everything I know about early e-commerce during my time in that first business. We raised over $15 million in a year-and-a-half period. We built the business over a nine-month period and added about a million SKUs to the database. In early 1999, we signed the company to the Compaq Computer Corporation.

After that, I went to work for a company funded in part by the Hong Kong government’s Asia Tech Fund. They were launching a company in San Francisco that had initially started as a B-to-B toy distribution company based in Hong Kong. I was tasked to be a liaison and help build the merchandising part of the business in San Francisco. I did that for about a year and a half. We raised a total of $18 million for that company and had a planned IPO. In the end, however, things did not work out as planned.

I ended up meeting Richard Rosenblatt, who had started a $20 million venture capital fund called Prime Ventures. I later joined as his partner and sourced deals. Early on, we were involved in a few good properties, one of which was with Jeff Tinsley, the founder of Reunion.com. While we didn’t actually perform the investment out of the fund, we’re all investors in Reunion.com.

We also invested in and ran a company called Superdudes, which was a kid’s gaming network where boys 14 and under create avatars and superhero characters to play Shockwave-type games online. We later sold Superdudes to Intermix.

Since then, we have had an opportunity to invest in 10 or 15 different companies. I sit on the board of three or four of them. One company I founded, which is still around today, is eForce Media. It’s a customer acquisition marketing company, also known as a lead gen company by some people. We have raised about $13 million from Clearstone, Ventures, and WTI.

Adrian Bye: Why would you raise money to start some of these companies rather than just do it yourself? And why would you raise money to start a lead generation company when you can generally begin without raising money?

Matt Hill: As founders of some of these companies, we put our own cash in first. However, the company often requires more than the first $500,000 or million dollars we put into the company.

With eForce, we were able to raise a large amount of capital because of our unique approach. I see the lead gen business very differently than a lot of people. In some verticals, huge operating deficiencies exist. Most lead gen companies operating in these verticals drop up to 40 percent of their leads on the floor because they’re not matching them appropriately with the retail client in that industry. For whatever reason, they don’t have nationwide coverage for those particular leads. When you cast a wide net on the Internet through advertising, you’re going to bring in leads or consumer requests for services from anywhere.

We built a system that focuses on higher yield management from a lead delivery standpoint. That’s why we built a lot of technology in the early years and raised the necessary capital.

Adrian Bye: How well does that actually work?

Matt Hill: A lot of people spend time driving traffic to a Web page and focusing on the conversion of that raw traffic. Very few people spend time focusing on how that consumer request actually was sold and monetized on the back end. While it’s mostly done on a traffic basis, it’s not done once the lead data has been created.

We have a series of algorithms that allow us to multi-sell the lead when it’s appropriate and directly sell them into other networks with coverage in those specific areas. For example, if somebody is buying a yellow Mustang on a Tuesday in Arkansas, we’ll know where that dealer is located. We are able to service all the aggregators, so they can dump their entire overflow inventory into us. We have a hundred sites, and we generate our own leads in all of these industries.

Adrian Bye: For Internet businesses, do you give venture capital a thumbs up or thumbs down?

Matt Hill: My advice to an entrepreneur is to analyze it closely. Venture capital for a small entrepreneur might be a really comfortable environment to initially move into because you have a lot of support, people on your board, and good advice. Once you grow in the business, the landscape changes especially if you’re trying to maneuver from a valuation standpoint in raising additional capital. It can be challenging. Specifically, major business decisions, strategic moves, partnerships, and M&A type activity can become more challenging because you signed up for preferences and rights that may prevent you from doing certain things.

Adrian Bye: Why don’t you tell us about Shopit?

Matt Hill: I really fell in love with this big box retail concept of the eToys, Amazon, Buy.com, and Shopping.com that were popping up in the late 90s. Then there was the next wave in e-commerce with the shopping comparison engines, such as PriceGrabber and Shopzilla

I thought to myself that the next evolution in e-commerce is going to be a hyper-distributed commerce platform or world that brings together social networking communities simply because they’re the fastest growing communities. It could be anywhere on the Internet. It could be bloggers. It could be anything from a commerce perspective that puts buyers and sellers together using the same type of intelligence that brings people together on Facebook.

If people are given the opportunity to transact in a simple way on the Internet, they will do so. For example, you may have a basketball or a pair of hockey skates that you wouldn’t have otherwise taken the time to sell by going through the process of registering with eBay and paying listing and transaction fees. However, if you are given the opportunity to simply upload the item on your Facebook page, blast it out to your network, and advertise in a simple way, you might do that. For an individual, e-commerce right now is time consuming, costly, and complicated. All we’re doing is removing those contingencies.

Adrian Bye: Let’s say I have a basketball I want to sell, and I upload the photo to my Facebook page. Does that mean that only my friends see it? How does that get published? How do people search for it?

Matt Hill: If you’re in Santa Monica, California, and upload your basketball to sell, we’re going to immediately show you the 25 people on Facebook from Santa Monica that are interested in buying your basketball. We’re also going to show you the 38 people on MySpace that live in Santa Monica and are interested in buying a basketball. The only reason we know all that information is because we’re extracting it from two sources. One is from all the people who have already installed the Shopit application on their Facebook, MySpace, or Bebo page. The other source is from the publisher networks within those social networks.

For example, we know where the people live because open APIs from the social networks feed some profile information. We can also gather information through other applications and APIs. We know things about a person that can become commerce-related information. For example, Joe lives in Santa Monica. He’s 27 years old. He plays for the basketball club of Santa Monica and wears Nike shoes. He drinks Slurpees on Thursdays and beer on Fridays.

Eventually we’ll be able to tell you whether this person previously searched for a basketball. At that point, we’ll be able to say, “Here are all the people that have previously searched for basketballs, and these are the people you should target.” It is similar to the way Reunion.com operates in connecting people after they pay. We’re going to allow people to buy small incremental units of advertising to connect to these buyers through other networks.

The most important thing about Shopit is that it’s a community agnostic platform. It operates and connects buyers and sellers from Facebook to MySpace to Bebo to Hi5 to Xanga to the huge blogger world. It synchronizes your profile anywhere you are. If you’re selling something on your store on Bebo, you can launch the application on Facebook, and all your products will show up there.

We will bring buyers and sellers together based on information we have from these social networks. It’s really just connecting a buyer and seller based on specific data about the seller’s item.

Adrian Bye: Let’s say you and I don’t know each other, but I want to sell that basketball in Santa Monica. It would look at your profile and see you’re registered on MySpace with the keyword basketball on your profile. When I’m trying to sell, will it send you a message to let you know that I have basketball for sale?

Matt Hill: It will advertise through one of my applications or send a message to my mobile phone or anywhere else. It’s a very targeted, specific ad network for e-commerce.

Adrian Bye: How will it not turn into spam?

Matt Hill: There’s a function where you can turn any messaging on and off. If we’re sending the message to you via e-mail, we’re going to say, “We noticed you’re excited about basketballs. Would you like to hear about people selling basketballs?” If you say yes, great. It’s just targeted advertising. There’s no secret recipe.

They can also remove it at a Facebook level by making a profile private or shutting off specific things, such as “Yes, I’m involved in horse riding, but I don’t really want to tell people or show people about that.” We would then message them saying, “There’s a horse riding club in Santa Monica. There’s 45 people buying and selling that are connected with this club.” Then if you want to, you would connect to them.

Adrian Bye: How many users do you have so far?

Matt Hill: Right now, we have 165,000 stores or users. Each store has a user, and each user has a store. You become a user when the Shopit application installs on your MySpace, Facebook, or Bebo page.

We hope to have a million stores or users by the end of the year. We’re the fastest growing e-commerce application on Facebook. We’re about 15 times the size of eBay on Facebook, probably because we are free and easier to use. The number of new stores in the network daily ranges in the thousands growing into the tens of thousands.

Adrian Bye: That’s just virally driven?

Matt Hill: Yes. For example, Matt loaded the shopping store. Now, Jimmy loads the shopping store. People are treating it like a real business. We’re noticing that 88 percent of the people installing the store application are uploading products to sell within a two to three-day period.

Adrian Bye: Can you talk about the actual numbers of transactions?

Matt Hill: We don’t charge transaction fees, so that number is not as relevant for us.

Adrian Bye: How do you make money?

Matt Hill: It’s an advertising network. Similar to the way you would buy a Google keyword as a small advertiser to promote your Web site in a search engine, you’re going to promote your basketball by buying small amounts of advertising. For one dollar, two dollars, or three dollars, we’re going to show you the people to whom you can advertise directly. Then we’re going to say, “Come in, buy the small advertising units, and create your ad.” It’s a console you access through your profile on Facebook or MySpace. Then you can create your ad and upload your picture.

Adrian Bye: Basically, the items you are selling get free promotions to your friends linked to your profile. If you want wider access to other people, you can buy some small amount of advertising?

Matt Hill: Absolutely correct. We have a lot of eBay power sellers uploading thousands of products. We even put a button on our homepage to import your entire eBay catalog in one click. These power sellers don’t want to pay fees, and it costs them nothing to do that.

The first thing they want to do with their expendable money is buy advertising. They say, “Where do I buy advertising? How do I promote my items? I don’t have a big network on MySpace, but I want to reach the 150 million people on MySpace. How do I do that?” We can take those products they are selling on eBay and syndicate them through other publisher networks.

It’s a big opportunity. We want six million people spending a dollar a week on advertising, and we’re going to make it easy for them. We’re going to give them the advertising for free because it is paid for by partners. We have lead generation opportunities and partnerships with companies like Revolution Money.

People are signing up for this because there is a world out there demanding free commerce. We’re not trying to drive traffic to our site. Instead, we have gone to where the traffic is located.