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Vstore: E-tailing for the Masses

In the new Internet economy, every user will be an e-tailer if Vstore.com and a rash of competitors have their way.

Affiliate programs such as those offered by Amazon.com and CDNow have allowed site owners to sell each other their favorite words and music, but Vstore.com envisions an expansion of that model to nearly every consumer product on the planet.

Let's say you're an aspiring William Tell and you've built a web site that's all about archery. Like a million other personal interest sites, it's a labor of love where passion shines through and everybody who signs your guestbook raves about the animated GIF showing the arrow slicing the apple into six neat pieces.

But after a fashion, the number of hours you've put into the site and the hosting fees start to mount up a lot faster than the small change from your banner exchange, especially in today's world where click-through rates are doing a great imitation of the Leonid meteor shower. You've got to start making a few bucks off your abiding love or else.

Like a lot of e-tail wannabes, you signed up as an Amazon affiliate, but the occasional $1.62 representing a 12% commission on "Death of An Arrow Salesman" leaves you feeling shafted. After some basic reading, you learn one of the fundamental things about sales: the more items you have to sell, the more you'll sell.

You conclude that if you could just build a complete archery e-tail experience, you could hit a bulls-eye with your visitors that could help you hit your income target.

With the right wholesale connections and a lot more time and money, you could set up an e-store for free using one of the services like eCongo which VC Watch profiled Oct. 29. But to go this route, you have to buy the merchandise wholesale, get it shipped to you, re-package it and re-ship it to your customer. Then, there's all the accounting, licenses, sales tax and returns, business permits etc. Not to mention the survivalist in Idaho who calls you up with the Horst Wessel song marching along in the background to complain that the crossbow you sold him won't penetrate body armor.

If you don't want to go there, you can head off to Vstore.com which offers people like you more than a million different products you can stock in your virtual store. The concept has been a fave rave: more than 60,000 individual stores have been opened since Vstore.com debuted in June. In addition to commissions that range upward to 25% depending on the products, having their own Vstore allows the e-tailers to keep the user traffic at their own sites rather than hand it off to another site and risk losing the viewers for good.

"This is a concept that has a lot of momentum," said Forrester Research analyst Jim Nail. "With traditional banner ads, people have to make the mental decision that a purchase opportunity is more interesting than what they came to the site to do." But, he says, embedding the purchase opportunity into the content of the site results in higher sales. Nail says the conversion rate (the number of people who click on a buying opportunity and eventually go on to make a purchase) of embedded sales is about 4 percent, roughly double the 2 percent of banner ads.

On the down side, the seamless side-by-side coziness of content and commerce remains a fundamental conflict of interest that the Web has yet to deal with effectively. The increasing corrosion of banner advertising effectiveness and the lack of an effective micropayment system has increased financial pressures on content sites at every level to incorporate commerce even at the expense of ethical concerns.

But that unresolvedissue has not kept the venture capital away. Vstore.com has raised $35 million in two funding rounds, the most recent being $26 million on Nov. 1 with a syndicate lead by Archery Capital that included Benchmark Capital, Pequot Capital Management, CMGI @Ventures and corporate investor Excel Communications. Benchmark, Pequot and CMGI previously invested $9 million in June 1999.

NUTSHELL:

Company Name: Vstore.com
Address: 1351 Washington Blvd., Suite 500, Stamford, Conn. 06902
Phone: (203) 323-1669
Fax: (203) 323-2331
Contact email address: customerservice@vstore.com
Web address: www.vstore.com
Employees: approximately 70
Total Funding: $35 million
Investors: Archery Capital, Benchmark Capital, Pequot Capital Management, CMGI @Ventures, Excel Communications.
Market Opportunity: Consumer e-commerce, $80 billion (U.S.) -- Forrester Research


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