Dennis Scully: From Editor at Large, this is Business of Home. I'm your host, Dennis Scully. Every week, I'll be talking to leaders and innovators from all corners of the home industry. I hope you'll join me. You're probably listening to this podcast because you love the design industry. It's full of great stories, personalities, beauty and soul. It's also changing quickly and needs to evolve or risk being diminished. Our sponsor, Fuigo, is building tools to protect and preserve it. Go to Fuigo.com/boh, and enter the code BOH to get a free month of their project management software, and join the conversation at Fuigo.com, and now on with the show.
Dennis S.: My guest this week is David Rosenblatt. David is the CEO of 1stdibs. David, welcome.
David R.: Thank you for having me.
Dennis S.: 1stdibs starts 2001, Michael Bruno the founder, he goes to the Paris flea markets, take pictures of some objects there, puts them up on a site, gives the access to some friends and 1stdibs is sort of born, right? Is that sort of the origin of the story?
David R.: That's right.
Dennis S.: Okay. The business runs for about 10 years and then 2011 I guess, 1stdibs gets both a major investment from venture capital Benchmark, yes?
David R.: Yes.
Dennis S.: Okay, you can just correct me if I'm wrong on any of these facts.
David R.: So far so good.
Dennis S.: Okay. If I remember correctly, Benchmark shows up with around $60 million in the beginning and some oft the money goes to the founders, and some of the money goes into investment, and at some point, Benchmark reaches out to you and says, "Hey, we'd really love for you to come in and be the CEO of 1stdibs," yes?
David R.: Exactly.
Dennis S.: Okay, so tell me how that happened.
David R.: I got to know Benchmark by being on the board of Twitter. Benchmark was one of the early investors in Twitter and so it was fortuitous timing, on one hand, I had met Benchmark two years before, on the other hand, I was in the middle of two projects, two design projects for my family with my wife. Then those two worlds met when I got a call from one of the partners at Benchmark who said, "We're about to make an investment in this company called 1stdibs, and we're going to be looking for someone to come in and help professionalize the operation." The first person I called when I got that call was my interior designer who was helping us with these two projects and I said, "Hey, have you worked with or do you use 1stdibs?" He said, "Do I use 1stdibs? Half of both of your projects are from 1stdibs."
David R.: Almost immediately, the light bulb went off that here was this business that on one hand was not just relevant but kind of existentially important for the design community. Yet on the other hand, had such a low profile that someone like me who ultimately was the end consumer wasn't really that familiar with it. On that basis, I was very intrigued and I spent some time with Michael the founder and with the investor, Benchmark, and in many respects it was love at first sight. I felt like there was a tremendous amount of potential in the business and also that I personally could have a real impact on achieving it.
Dennis S.: Okay. Later we're going to talk about your extensive internet career that you had before getting to 1stdibs and why Benchmark was ultimately interesting in bringing you on but let's get right into you coming on board at 1stdibs, so it was love at first sight, you agree to come on as the CEO and what is the company like when you first get there? What was 1stdibs back in the day, 2011?
David R.: 1stdibs has, and Michael specifically had developed two assets, which are extremely difficult to find and very valuable among digital companies. One is they had a so-called network effect. A network effect simply means that you've created a network of customers and suppliers where the value to each of them grows as the size of the business grows. Meaning every time we add an additional supplier, we make the marketplace that much more valuable to buyers. Every time we add a new buyer, we make the marketplace that much more successful to sellers.
David R.: There are lots of examples of this but most of the very successful internet companies have that property. Everyone from a Facebook, to a Google, to a LinkedIn, to a Twitter have a so-called network effect.
Dennis S.: Right, okay.
David R.: The second thing that Michael had created was a very powerful brand that could accommodate growth both geographic and also in terms of the types of products that were marketed through the marketplace. What the company lacked were the things that I had the most experience in, which was a kind of highly professional, data-driven, technology-driven approach to building the business. When you look at most internet companies, the best ones tend to be technology-first companies, right?
Dennis S.: Right.
David R.: Who's the most important retailer in the world? It's Amazon, [inaudible 00:04:47] had no experience as a retailer before that company. Who's the most important media and information services company in the world? It's Google. Those founders were computer scientists, they weren't and on, and on, and on. Netflix is another example of that. Again, I felt like I could bring that philosophy and approach to the company and I felt that the marriage of those two things could create a truly special business, even more special than it already was.
Dennis S.: Okay. You mentioned Google, so maybe we'll use this time to actually explain to people what you had been doing prior to working on your apartments and your home and waiting for Benchmark to reach out to you. You had ultimately became the CEO of a company called Double Click, which was an internet advertising company that ultimately got bought out, well, it got bought out twice. Once by private equity but the second time around you were instrumental in selling it to Google for about $3.2 billion if I recall.
David R.: That's right.
Dennis S.: Right?
David R.: Mm-hmm (affirmative).
Dennis S.: You had really spent was it 10 years plus in this sort of advertising side of the internet?
David R.: Yeah, 12.
Dennis S.: 12 years.
David R.: Yeah.
Dennis S.: Okay. You were really expert in sort of building an organization, growing it, and also really understanding the impact that the internet was going to have on all these different businesses that it was disrupting, right?
David R.: Yeah, and what turns me on about the internet is its ability to reinvent an industry and I think we did that at Double Click with respect to the display advertising industry. Google obviously did that with respect to the kind of direct response or the search advertising industry and 1stdibs has the opportunity to do that for the luxury design industry.
Dennis S.: You really have the opportunity through 1stdibs to come in and really be the disruptor in this industry.
David R.: Right, and that was the, from my perspective, that was the commonality and the basis of my interest between 1stdibs and Double Click.
Dennis S.: Okay, so but when you got there, the business wasn't sort of as ready as you would've wanted it to be, right, to really be-
David R.: That's right. I think it lacked most of the characteristics again, of successful internet companies. It had these two properties in network effect and [crosstalk 00:07:08] ...
Dennis S.: Sure, and the network effect and the brand, yeah.
David R.: ... The hardest to accomplish, and so in that sense, it was a pretty special place. On the other hand, what had not happened was it had not been turned into a business that could realize its economic or its user potential. It was relatively small, a small number of customers, small revenue base, low traffic. There was no mobile presence, there was no kind of analytical infrastructure. We didn't know how many users the site had or its traffic. It took us almost a full day to deliver a single email blast or a customer base, something that should take you know, five seconds. Again, in all those respects, it wasn't really set up to realize its potential.
Dennis S.: Okay, and so you got in there and you thought, "Okay, I need what a year, to try and get this going before I can sort of relaunch the website," because I know you sort of came in and ultimately sort of relaunched the site with ort of enhanced capabilities and you started building a new team. How long were you there putting some of that in place?
David R.: The first priority was to create the infrastructure of the company.that included building teams so for example, I brought in very strong leaders for each division in the company. Our technology-driven division, our marketing division and so on. The second was putting in place the technology infrastructure so again, email delivery tools that were market standard. Analytical tools, Google Analytics so we could simply turn a light on and know exactly how customers were interacting with our business and other types of infrastructure as well.
David R.: That ultimately culminated in a relaunch of the site, which is about a year after I joined in early '13. As part of that relaunch, we tested a different business model. Up until that point, 1stdibs had been a so-called listings or advertising-based marketplace. Meaning, sellers paid a fee, which was practically fixed, not literally but essentially or effectively fixed in exchange for the right to list up to a certain number of items per month.
David R.: All contact between buyer and seller form that point on up to and including the purchase itself happened off platform. Meaning off 1stdibs. What we tested was an e-commerce model, where people could actually buy the product through the site. Initially, in the test, it was something of a Potemkin village of a purchase ability. Meaning, there was a purchase button but that basically sort of triggered an interaction between our customer service team and the buyer who then for the most part ended up manually fulfilling that order.
David R.: From the buyer's point of view, the important thing is, they felt like it was an e-commerce experience. We tested that experience on the website alongside the previous model. Meaning, the ability, giving buyers the ability to either call or email off platform. What happened was very quickly with no marketing whatsoever, we had a meaningful amount of orders each day at a pretty high price point, it was about $2,000 per item, which by internet standards is enormous.
Dennis S.: It's pretty high.
David R.: Right, I mean when you look at kind of standard e-commerce AOV, I don't know what it is, I don't even know if it's published. My guess would be that it's somewhere between $30 and $50. The ability to sell a very expensive product online was rare and we had validated that we had the ability to do that. We began to think about the implication of a switch from an advertising model to an e-commerce model and as we built out the e-commerce experience and learned more about that, we reached the conclusion that this was a fundamentally better model, not just for buyers and sellers as they exist today but importantly for the direction-
Dennis S.: To how you were going to grow.
David R.: Well, and also in the future, what the in particular the buyer's expectations would be.
Dennis S.: Okay.
David R.: Let me elaborate a little bit on that.
Dennis S.: Okay.
David R.: In the simplest sense, and e-commerce monetization model, again, I'm wary of using all these kind of internet lingo but it's relevant in this case.
Dennis S.: Sure, okay.
David R.: Aligns the incentive in the marketplace in this case, 1stdibs with those of buyers and sellers. In a listing and subscription model, which is what we had been before in an advertising model. We're insensitive to whether or not sellers sell. We get paid no matter what.
Dennis S.: Right.
David R.: In an e-commerce model, our incentive matches up perfectly with those of the seller. We want to sell as much as possible at the lowest possible return rate and with the goal of creating as many repeat buyers as possible. Conversely on the demand side, an e-commerce model allows us to deliver services and benefits, which are increasingly regarded and we believed the time would be regarded from buyers as table stakes, meaning as necessary, which were impossible to deliver in an advertising model so for example, the ability to provide insured shipping, the ability to provide returns, the ability to allow buyers to buy through a mobile app. The ability to of buyers to find product through the Google search engine in addition to navigating directly to 1stdibs, and many, many more things.
David R.: Those are all things that are much easier to deliver in the context of an e-commerce model. Again, when you put it all together, we felt like the switch to an e-commerce model would allow us to not only create a better customer experience but also to scale the business, to grow it profitably in a way that we couldn't in the old model.
Dennis S.: Okay, so in the beginning, it was really a site that was very dealer-focused and vendor-focused, right, and it had really been built to facilitate the process for them and make it as easy as possible, right? Your challenge was to make it all about the customer, whether it's designers or consumers or whoever was your ultimate customer and you had a mix of both and you still do, right? It was really about your changing that whole dynamic and I know that not everybody was on board with that in the beginning. I know that there are things that you probably can't talk about. I'll just say I Know Michael Bruno, that was probably when he was ready to leave when he heard that the shift was going to take place with the model.
Dennis S.: At some point, you're dealing with the challenge and you and I talked about this a little bit, the challenge of coming as sort of the first CEO after a founder-led company, right, and how you sort of gingerly start to maneuver and kind of make some of these changes that you know are necessary but you know are going to sort of ruffle some feathers. How do you navigate that?
David R.: Let me just go back quickly actually to this switch in business model, because I think it's also important to say that one of the premises of the switch is that as Google has often said, one's competition on the internet, whether one realizes it or not, is always one click away. What that means is, before the internet, many businesses including many dealers themselves, but this is also true of other industries like newspapers, media companies and so on, were able to compete successfully by cornering supply.
David R.: The challenge with those business models is they navigate to the internet is that the consumer doesn't rely on the intermediary as much to get supply. Meaning I don't have to go to a given dealer to get a certain creator in this case. I can go on Google, I can go on the internet and anywhere where that creator is available, all over the world, Google is going to find it meaning I'm going to find it.
Dennis S.: Right.
David R.: Okay, so the premise is that the basis of competition as the world and the buyer in particular shifts from offline to online also changes. Previously, the most important thing was cornering unique and valuable supply. Post-internet, the most important thing is to create a fantastic and less risky customer, whether it's an interior designer professional or a consumer buying experience because that buyer unlike before, can now buy something just as easily whether it's in Paris, in London, LA, Sydney, or wherever.
David R.: Like many marketplaces, 1stdibs grew up and I think it needed to in retrospect by being very, very focused on its suppliers. Today, we are focused on its suppliers but the greatest service that we can provide our suppliers is generating demand. In order to generate demand, we have to create a fantastic buying experience and again as I said before, the primary way that we feel that we can accomplish that is by switching the model to an e-commerce experience. That switch as you've pointed out was not universally popular, it was a difficult adjustment for our dealers in particular because they went from paying on an effective basis, a very, very low ...
Dennis S.: Next to nothing.
David R.: ... Right, to paying a much higher commission, right?
Dennis S.: Right.
David R.: That understandably is a really, really tough transition. There are also kind of operational and branding transitions that we had to make as well in order to facilitate this process and those weren't popular either. Like any business model change, it was disruptive to the incumbent participants, right?
Dennis S.: Right.
David R.: Of all constituencies within the company in some cases, among our supply side, among some of our buyers as well but we did it because we believe that in five years, in 10 years, the alternative is not just sub-standard performance, it's obsolescence and as we've seen in other parts of the retail industry, ultimately bankruptcy.
Dennis S.: Right. Okay, so you knew these changes had to be made and to that point, tell me about the culture that you were trying to build within the organization, to make these changes and to sort of bring about somewhat of a new world order internally at 1stdibs.
David R.: Well, the biggest transition that we had to make from the company as I said prior to my joining and afterwards is adopting many of the characteristics that are common to successful internet companies. Again, we wanted to create a business that was a technology-driven and data-driven hat or technology-driven and data-driven culture where we made decisions not because we felt subjectively based on our own experience that one way is better than another or because a single or a few customers call in and tell us they don't like something or they do like something and instead look at what the data tells us.
David R.: Very often, that leads to kind of counter-intuitive conclusions. That was the most important thing and that's a hard thing for any company to do, even companies that are sort of native digital and internet companies, it can be a difficult thing to do and even for companies that originated in that way, it's difficult to maintain that culture. It's hard to come back from a customer meeting where somebody has, a big customer has a very specific suggestion for you and says, "I like it when the website is this color instead of that color, and the color you picked is a real turn off."
Dennis S.: Sure.
David R.: To force yourself to say rather than respond to that one individual response, we're going to take a step back and we're going to look at how our customers kind of on the whole respond to something. We test quite a bit and that's pretty core to our culture.
Dennis S.: Okay, so very data-driven and you're not making anecdotal decisions, you're looking at the data.
David R.: Right, we try to.
Dennis S.: You try to. Okay, that's the value that you're trying to instill in your team, is come to me with the numbers and we can talk about changes that we're going to make. Okay, so-
David R.: By the way, that does not come with the expense of customer satisfaction.
Dennis S.: No, no, of course.
David R.: We survey customers six ways of Sunday but hopefully taking and effective data-driven approach will produce a better customer experience than reacting to anecdotal feedback that we pick up in the field.
Dennis S.: Sure, and to your point, you knew that ultimately that in order for this company to be successful, one, you had to build out the site's capabilities. I remember back when you sort of first came on, my friends that were there would say to me, "Oh, we just keep hiring all these engineers," right, because I guess you needed a lot of people to make that site better in the early days, right?
David R.: That's right. I mean again, with us as with most websites, it's a hell of a lot more complex to operate than it looks and we have all-in, I think we have 100 engineers or so and every time one of our partners, ie a seller or one of our interior designer customers walks into the office, the first reaction is always, "God, I didn't realize how many people you have, how complicated it is to do this stuff." When you actually walk through what's required, this business is just inherently much more complicated than many other businesses. When you compare this experience for example, to that of selling a book or something like that, right, each order can be bought at a fixed price, the listed price, or it can be bought via negotiated process.
David R.: There can be a trade-only price or a consumer price. It can be an order which we facilitate, we first facilitate the shipping or one in which the dealer does or one in which the buyer does. It can be within one currency or between across currencies and it varies in many, many other respects as well. When you put it all together and include things like platform choice, is it bought via our app, via our mobile website, via our desktop website, all of those things create a mind-numbing number of variations and all those things need to work perfectly for customers or they may never come back.
Dennis S.: There were so many challenges, what was the biggest challenge for you in the very beginning? What was sort of bothering you the most about the process or what did you most want to change and it wasn't easy to do?
David R.: I think coming to grips with this conversion from an advertising-oriented business to an e-commerce business was really complex and difficult. It was difficult emotionally, and it was difficult intellectually. If you look at the history of other internet businesses, there have been almost none that have successfully made that migration. There have been many who have tried, there are many who are trying right now. One of our investors who has a long and successful track record in investing across industries and across digital industries and across continents even has come up with one example in Australia, a real estate company, one that I'm not personally familiar with.
Dennis S.: Okay.
David R.: Point being, it's a difficult thing to do. No one had really done it ever before and here, we were saying not only are we going to do it, but we're going to do it in spite of the fact that again, many of our constituencies reacted negatively and in very emotional terms. We're going to do it though because we feel that that's the right thing and it's not only the right thing for us, it's the right thing for our customers. That was difficult because every time we went on the road to explain what we were doing and every time we made a change in the direction of that model, we had disappointment and again, just on a person basis, that can be tough to hear over many years.
Dennis S.: Sure. You know, it's interesting that you use the word emotional because I think it was very emotional for a lot of people, and I know the people that reached out to us felt like you guys were, I don't know, just this mean culture that was taking things away from them and as you talked about, every change that you made probably felt like it was something was being taken away from them because yes, you needed to change this structure around in order to make it more efficient and ultimately better for them but that didn't feel that way as it was happening.
David R.: That's right, and we felt and still do feel strongly that there is no alternative, that the alternative is obsolescence, whether that obsolescence takes place quickly or whether it takes place slowly and painfully and gradually over many years, we don't know, right?
Dennis S.: Right.
David R.: It's difficult to make that case, right, particularly when the historical model was a known thing and for many of our customers on both sides had been a successful one, right?
Dennis S.: Yes, absolutely. They thought they were doing just fine before you got there.
David R.: That's right but you know as we've seen in almost every other retail industry, it's eventually that ends and usually, the incumbents realize that it's come to an end too late. We believe that we've anticipated this change and that we have put our sellers and buyers into a position where they can benefit from it actually. The problem and the challenge is, it requires a change in how they do business both from the interior designer and the supplier, whether it's a brand, a gallery, or a dealer.
Dennis S.: Let's talk about the interior designer. What changed for them in this whole process because they were a core part of your business, right?
David R.: Yeah, well, the interior designer exists in a world that is already changing in respective of us, right?
Dennis S.: Absolutely.
David R.: So much of the interior design business was predicated on the fact that their client, the consumer did not have access to certain kinds of product and would never be able to find out that product cost, right?
Dennis S.: Right.
David R.: In many respects, the economic model of the interior designer industry is a function of their procurement services rather than their design services, right?
Dennis S.: Sure.
David R.: The sort of proposition is we're good at design but also, how we get paid is we'll get you this product and we'll have this sort of secret price that you're never going to find out and that's how we get paid for our design services, and the problem is again, in this industry as in many other industries, digital undermines that. All of a sudden, the consumer does have access to that product and does have access to that price. How do you justify a significant discount when a consumer can go to a place like 1stdibs or many other places and in one second, not only know the price of that product but also how it compares to alternative products as well.
Dennis S.: Yes, and to hear designers tell it all their clients are on your site at two o'clock in the morning, you'll have to tell me if you have data showing that two o'clock in the morning is a heavy traffic time for you but all the designers tell me, "Yes, my client is just shopping on 1stdibs and it's making it difficult for my business."
David R.: Yeah, so that's right.
Dennis S.: Right?
David R.: That's right, and I think it does present a challenge for them. I would also say though again, we're not the agent of that change, right?
Dennis S.: Right.
David R.: We're a participant in a marketplace that's undergoing a change that's identical to almost every if not every other industry, right?
Dennis S.: Right.
David R.: The internet shines a light, it creates transparency where it didn't exist before. Again, if it's not us, it's others and it would be others if it weren't just an inevitability. It's a natural law. We believe at 1stdibs strongly in the viability and the importance of the interior design industry and we are committed doing everything possible to help them manage this transition successfully. Our business depends on it and the business of our suppliers depends on it. When you think about it, we sell both contemporary as well as vintage and antique obviously but in the vintage and antique business, you're talking about, and this sounds unromantic, but one way to think about the vintage and antique industry is it's mostly very expensive used product.
David R.: I can't tell you how many times we've gotten notes from customers after a sale complaining about the fact that there was a crack in a mirror they bought or there was wear and tear on the arm of a couch or something like that.
Dennis S.: But it's been used.
David R.: Yeah, so the interior design industry is so important for its role in educating the buyer, right?
Dennis S.: Right.
David R.: Without that education, how will new generations of qualified buyers ever gain an appreciation let alone become customers of so much of the product we well and it applies not only to the so-called secondary market, the vintage and antique market, but also the contemporary design market because there will always be substitute products that are much, much cheaper than those items that are sold by luxury design brands. The role of the interior designer cannot be overstated both in general for the industry as a whole and also for our business specifically. We think a lot about how they can maintain viability in a more transparent digitally-driven world.
Dennis S.: Right. I'm going to take a quick break so that we can pause for a word from our sponsor, but we'll be right back.
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Dennis S.: So what do you do as a business to support the interior designer? I know you have a trade program and it sounds like you've signed up a lot designers for that. Tell me what you do to support the design industry.
David R.: Yeah, so we do have a trade business and it's been successful. We have 45,000 designers signed up for it. They do get access to many of the things that designers get access to from other suppliers as well. Most important, net price, which as the consumer is not available to the consumer. To take a step back, because the trade and the consumer are such different customer types, customers segments and have such different needs, we've created two completely different experiences for them on the website. The website that consumer listeners of this podcast go to and see, is completely different than that which the interior designer sees. Different color scheme, different prices, different services and benefits, different experience in total. Over time, those two are becoming more divergent, not less divergent.
Dennis S.: Right.
David R.: What we try to do is create a kind of pricing and service bundle that appeals to the unique needs to the interior design industry so part of that is as I said, the access to the now price, which the consumer doesn't have. We have other benefits that are available only to designers, logistics services, which involve bundling orders for example, which consumers typically don't have or don't value as much. We offer a much more generous returns policy because at the end of the day, designers are spending somebody else's money. Very often if their client changes their mind, they're stuck with a product, we want to kind of alleviate that concern, mitigate that risk.
David R.: We offer promotional benefits to interior designers importantly, so one of the things that's very difficult in that business is winning new customers. We have a lot of those customers, we have over five million people coming to the site every month, a vast majority of whom are not interior designers. Most of those are eligible clients for interior designers. We give them an editorial presence. We allow them to showcase their portfolio to tell their story. We give so-called distribution through Instagram and other social media channels.
David R.: That in particular is important because if you switch gears for a second and think about the traditional media industry like the kind of big name Homebooks, those business are undergoing the same pressures that the New York Times and every other Washington Post and so on, every other print-oriented magazine and newspaper is going through. Meaning, circulation is under a lot of pressure. The publishing frequency is decreasing. There's a limited amount of capacity in these books to showcase projects and to tell stories and so on.
David R.: We feel we can compensate for that actually and meet the customer where the customer is moving, which is digital. We also offer to compliment our digital presence, we offer it because we think it's important in this industry, several print outlets, both catalogs and also editorial products that we publish fairly frequently. Again, those are all examples of services that are specific to interior designers and are not as relevant to consumers.
David R.: Our strategy, which I think by the way over time applies to brands as well, is rather than pick a lane, say trade only or consumer only, is to segment demand, segment one's customer base, and offer a different set of products and services to consumers than to the trade, and then that way, capture both rather than only focus on one at the expense of the other.
Dennis S.: Right, but you recognize how important the trade business is for you over the long term and as you said earlier, who is going to educate consumers about these higher-end products if it's not designers? Who is going to be able to navigate and here we go, we're going to talk about new and custom on the site, who is going to help consumers to navigate the world of custom if it's not designers? Let's talk about that? How long has new and custom been on the site?
David R.: This is another example of one of the strategic changes that we made to the business once my team and I took over. One of them we haven't talked about is we globalize the business. When Benchmark made its investment and this team joined, the so-called supply side of 1stdibs was 95% from the US. Today, it's about 50/50 US and non-US. Primarily, although not exclusively Europe. I think that's an important dimension of the business.
Dennis S.: Absolutely.
David R.: For the most part, we sell one of a kind luxury design and for our buyer, they need to know if they're interested in a given product or creator, they need to know where it is, in respective of where it is and they're willing to pay for it to be delivered. That's one important change.
David R.: The second though important and probably more philosophical change was 1stdibs is very much a marketplace for antique and vintage furniture when this team joined. We felt like there was an opportunity to convert it into a marketplace for luxury design Rit Large, where design included products like contemporary design. It's an industry that is six or seven times bigger than the vintage and antique market. It shares the same buyer as luxury vintage and antique so we already had a relationship with the buyer. The suppliers, the brands in that industry had the same distribution and marketing challenges that vintage and antique dealers had before 1stdibs. Meaning, it's a fragment in an industry and it was very difficult for them to market to new buyers.
David R.: On both sides, we felt like we could add real value, we could help designers, and high net worth consumers in particular, find in a single place the right kind of product and then similarly, we could help match make brands with the right type of buyer. Then secondly, we felt like as with the vintage and antique buying process, we could eliminate much of the friction associated with that.
David R.: Our approach as been to add to the marketplace both individual creators, artisans for the most part, and then also alongside those creators, brands. Then present a kind of integrated proposition to the buyer.
Dennis S.: Okay. These artisans are how you deliver custom product to the end user? Is that-
David R.: Well, both the brands and the artisans have a choice of offering either customized product or off the shelf ready to ship product and we do both.
Dennis S.: Okay, and custom is an incredibly complicated and challenging business. I've been in the custom furniture business in the past, so how are you finding that, how are you navigating the challenges of the custom business? If you had to layer on additional support within your open operation to provide that?
David R.: Like most internet businesses, we like to start simple and get more complicated over time.
Dennis S.: Okay.
David R.: Right now, we have the same kind of selling platform or product for both new and custom and also vintage and antique. Over time, those two will diverge. They're more different than they look from 30,000 feet so for example, our entire technology infrastructure assumes that there's only one version of each product. Obviously, that's not true in new and custom, right? New and custom has multiple SKUs per product so that technology can support both of those things or rather adapting from supporting one of a kind to having multiple SKUs is much more complicated than it looks. That's one of the changes that we're making right now.
Dennis S.: Okay.
David R.: As a result, we do allow again, new and custom sellers to offer both customized product and non-customizable product. Today, we see a lot of demand for non-customizable product. Again, over time as our product matures, we'll be able to support more complexity.
Dennis S.: How big a market do you think that potentially represents for you? This sort of new and custom, I mean all of these other things that you might be able to offer, how big does that look to you?
David R.: When you look at the total market size both digital and non-digital, the new and custom market just in the luxury category alone is somewhere plus or minus kind of five, six times the size of vintage and antique. Again, our belief is give the people what they want. Create a platform that allows qualified buyers, interior designers and high net worth buyers to be able to buy what they want in the way that they want.
Dennis S.: Okay.
David R.: We'll let the market decide.
Dennis S.: Is part of the way that they want having some kind of a physical space, I know that you're at 200 Lex in the New York Design Center and I know a lot of designers have loved having that space and being able to interact with product there, I don't know if that's a long-term place for you but is that a key part of the business model having some kind of physical presence?
David R.: Yeah, I think both models digital only and also digital online plus offline can do well. They're different businesses but there's a role for each. If you look at our dealer base already, they have a substantial percentage of them have already migrated to primarily digital business models. What do I mean by that? In the most concrete terms, that means closing their store and instead, having a warehouse in a cheaper location like Long Island City or Eastbay or a place like that. Then either selling through a showroom, which is probably the most common is selling through the internet. That can work.
David R.: For the most part, dealers who have made that transition tell us they have a more profitable business today than they had before because they obviously don't have the expense of maintaining a store in a high-rent district like Madison Avenue or a place like that and instead, that they have the much lower cost of maintaining a web business. However at the same time, we sell furniture, right?
Dennis S.: Yeah.
David R.: We sell things people sit on and eat on and sleep on and so on. There is a role for retail. It's important. We have a retail presence now via a partner, NYDC, the New York Design Center and we will have that, we will have a retail presence for a long time. The form will likely change over time. One of the things that's really important for us is to figure out how the digital experience and the retail experience come together because there are real limitations to retail and that's why retail is under pressure in most industries. You can only show a limited amount of inventory is the most obvious one.
Dennis S.: Sure.
David R.: We would like to offer the best retail while using the internet to mitigate the downside of retail, which is limited selection and that's a project that we're working on now.
Dennis S.: Well, and that's part of why Gary Friedman at RH has built these enormous galleries, right, as he wants to be able to show as much of his inventory in one location. The new New York location is going to be a 90,000 square foot gallery that he thinks in a couple of years is going to generate $100 million in revenue, and he's probably not wrong.
David R.: Yeah, so the fundamental difference between the Restoration Hardware and a company like 1stdibs, is we sell different things, right?
Dennis S.: Right.
David R.: They're a retailer so they curate a very small selection of products comparatively and so therefore it's possible to offer that in a retail experience. The downside of that experience independent of without respect to the quality, the relative quality of what products they sell versus what our best dealers and brands offer is the same limitation you have in every market like apparel, which is you have limited choice. We sell, we have I think now almost 800,000 individual products on the marketplace, right? I don't know how many SKUs Restoration Hardware has but it's a tiny fraction of that.
Dennis S.: Tiny fraction of that, yeah.
David R.: What people seek when they come to 1stdibs is in part, uniqueness, they don't want their house or their living room or their public areas to look the same as their neighbor's, which is part of the reason why in general, the luxury design industry is a fragmented one, right?
Dennis S.: Right.
David R.: We want to consolidate that and offer the broadest possible choice to our buyers. That breadth of inventory cannot be accommodated in a single retial footprint no matter how big it is.
Dennis S.: Of course.
David R.: What we want to do is be able to offer a kind of taste of that, while not sacrificing the breadth for which the internet is the right medium.
Dennis S.: Okay. I know we are just about to run out of time and you have to race out of here, but so do you stay luxury? Is that the market you're going to be in because 1stdibs was the company that I feel really proved to people that you could sell a $200,000 chandelier online and 1stdibs would deliver it to you sight unseen, so is luxury where you stay?
David R.: Our core business is the sale as I started this conversation with, of unique luxury design. We will stay a purveyor of unique luxury design.
Dennis S.: Okay. Do you grow through acquisition, do you ultimately get acquired by somebody? Where do you ultimately see this going?
David R.: I never think about that. I never think about the exit. I'm asked all the time, "What will the exit be for 1stdibs?"
Dennis S.: Sure.
David R.: The lesson I learned in my last company is if you build a great business the exit takes care of itself, right?
Dennis S.: Right.
David R.: The most important thing is that we serve our customers both buyers and suppliers as well as humanly possible and we held both of them in our case, successfully navigate the transition from an offline world to an online world. If we do that, again, our future will take care of itself.
Dennis S.: Okay, so what's the biggest thing you're working on right now that's going to help grow your business and as you say, make it even better for your partners in the business going forward?
David R.: I don't think there's any single magic bullet.
Dennis S.: Okay, so it's not 3D renderings, it's not-
David R.: No, I mean, look, we have on our app in particular, we experiment with different types of kind of virtualization and I think that, that will be an important part of the industry and if you look at the industry 10 years from now, it's going to be, this is one of the reasons why e-commerce is going to continue to grow its share because as technology improves, it will be able to deliver a better and better experience versus offline. The difference is, we'll become more and more narrow.
David R.: There isn't any single silver bullet, as is true in many businesses. At a strategic level, we grow by expanding our geographic footprint, which is really important and our so-called vertical or our category footprint. You know, contemporary design is an example of that. Then secondly, one of our core goals has always been to eliminate friction and risk associated with the purchase of luxury design and that's not something which changes overnight. Hopefully we get better every day, every week, every month, every quarter, every year, so far we have. As long as we continue to maintain our focus and we continue to invest aggressively towards that goal, we'll be able to do that.
Dennis S.: Right, and you've got generous backers, so you've got plenty of time to continue to figure this out, yes?
David R.: That's right.
Dennis S.: Okay. That's a great place to leave it. My guest has been David Rosenblatt, the CEO of 1stdibs. Thank you.
David R.: Thank you very much.
Dennis S.: This was great.
Dennis S.: Thank you again for joining us. The show is Business of Home and I'm Dennis Scully. If you like what you hear please feel free to subscribe and most of all leave us a review on iTunes. It really helps to grow our audience. Thanks again to our sponsor and our producer. You can find us on editoratlarge.com or Facebook or Instagram. We'll see you next week.