MKW1601 Assignment

“Communist Party”

Report on Threadless.com MKW1601: Introduction to eBusiness By: Tee Tze Mien Imesh Angelo Henegama Liyanage

“Italyc”

MKW1601: Introduction to e-Business

Abstract Crowd-sourcing is an innovative method of gathering the collective intelligence of a community. The Internet has enabled crowd sourcing to be carried out on a huge scale. Wikipedia, the Apache Web Server and the Linux operating system are some of the largest and well known collective efforts. This report will look into how Threadless.com applied these concepts to t-shirt design and became a highly profitable business in the process. The concept of Threadless would not be possible without the Internet, as its very existence is based on the collaboration of huge community that spans the entire globe which was inconceivable before the Internet. This report will attempt to gain a clearer view of how this company does business and what has caused their exponential growth within the last ten years.

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MKW1601: Introduction to e-Business

Table of Contents Abstract ....................................................................................................................... i Table of Contents ........................................................................................................ii List of Figures ..............................................................................................................ii 1.0

Introduction....................................................................................................... 1

1.1 History .............................................................................................................. 1 1.2 2.0

Purpose of system ........................................................................................ 1 E-business components ................................................................................... 2

2.1

Organization .................................................................................................. 2

2.1.1

Internal Organizational Functions ........................................................... 2

2.1.2

External Stakeholders............................................................................. 3

2.1.3

Business Processes ............................................................................... 4

2.2

Technology.................................................................................................... 4

2.2.1

Hardware & Software ............................................................................. 4

2.2.2

Payment Systems & Security Features .................................................. 5

2.3

Value of the system ....................................................................................... 6

2.3.1

Tangible Benefits .................................................................................... 6

2.3.2

Intangible Benefits .................................................................................. 7

2.3.3

Alignment with Company Strategy .......................................................... 7

3.0

Issues ............................................................................................................... 8

3.1

Security & Privacy Issues .............................................................................. 8

3.2

Marketing Issues ........................................................................................... 8

List of Figures Figure 1: Division of responsibilities at Threadless .................................................... 2

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MKW1601: Introduction to e-Business

1.0

Introduction

This report will examine the business model and supporting infrastructure of Threadless.com, a community driven t-shirt store. Threadless is a seller-side e-marketplace. It is a privately run online storefront that sells apparel. The company implements a community centric business model that it pioneered, in which the website is a platform for an on-going t-shirt design contest. The members of the site submit designs for t-shirts, other members in the community vote for them on a scale of zero to five, the most popular designs get printed and are made available for sale (Threadless, 2010b). The winners are reimbursed USD 2000 and USD 500 worth of store credit (Threadless, 2010d), at the time of writing, for the rights to their design (Threadless, 2010a). 1.1 History Threadless.com was founded in 2000 by Jake Nickell and Jacob DeHart with USD1000 of seed capital they won, fittingly, from a t-shirt design contest (Lawton, 2006). The company was incorporated in 2003 as skinnyCorp LLC in Chicago. In 2009 the company, with 50 employees, made a profit of nearly USD9 million (Burkitt, 2010). 1.2 Purpose of system The Threadless platform facilitates collaboration between members of the Threadless community and with the company. These collaborative features provide a test bed for new products and accurate market information in the form of feedback and votes. The Threadless design competition platform allows the company to minimize risks and costs. The user community that it has fostered in its forums can be seen as a feedback mechanism which lets the company know exactly what the market wants. Since only designs that the community votes for and pledges to buy are produced; the company knows that the product will sell, reducing risk and losses from printing unpopular products, in a market of rapidly changing trends (Ogawa & Piller, 2006;

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MKW1601: Introduction to e-Business von Hippel, 2005). According to two magazine articles the company has never produced a design that has not sold well (Chafkin, 2008; Weingarten, 2007).

2.0

E-business components

2.1

Organization

2.1.1 Internal Organizational Functions Since Threadless.com has a high dependence on their ever growing community of over a million members, much of the product design and marketing work is crowd sourced (Schauer, 2009), as illustrated in Figure 1. They also have a strong company culture of internalizing as much of their work as possible, which they call the ‘Do-First Work Ethic’ (Behance Team, 2010). “The company had never advertised, employed no professional designers, used no modelling agency or fashion photographers, had no sales force” (Chafkin, 2008). This allows them to maintain very low costs. Threadless

Community

Marketing

Company

Product Designs

Order Fulfilment

Marketing

Viral Marketing

Submission

Manufacturing (Outsourced)

Brand Management

Voting

Critiqing

Shipping (Outsourced)

E-mail Newsletters

Platform Development

Warehousing

Figure 1: Division of responsibilities at Threadless

The few functions that the company does carry out are: marketing, order fulfilment and platform development. Order-fulfilment will be discussed in section 2.1.3. While most of the above-the-line marketing is done by their users through social networks

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MKW1601: Introduction to e-Business and word of mouth (viral marketing) the company carries out the essential below-theline marketing that converts a visitor to the site into a customer. They do this by reflecting fun and quirky brand personality in their web design. Additionally since only a limited number of t-shirts of a certain design gets printed and are only on sale for a limited amount of time, there is a sense of urgency to make a purchase (Wu, 2010). Much of the company’s web applications have been built in house and the have web designers and developer on staff so that they can create tailor-made features just the way their community demands it, which would not be possible with off the shelf software. Brand management is another important business process at Threadless. The company needs to maintain a high standard for their products and all other content. This is the reason why the final decision of which t-shirts get printed is at the company’s discretion. They need to maintain consistency and avoid legal issues with their designs (Behance Team, 2010). 2.1.2 External Stakeholders The Threadless community can be considered the largest stakeholder in the company. Without it the company would not get any designs to print or have a business to run. Therefore it is essential that they maintain a good relationship with their customers. All employees are encouraged to be active on the forums, their blogs and external social networking sites in order to maintain the community. The flat organisational structure of the company allows any member of the community to speak to the CEO or a warehouse worker directly. No move is made by the company without the approval of the community. The shipping company that the company uses is United Parcel Service (UPS) and well as the U.S Postal Service (USPS). Local deliveries can be shipped using either company but international orders are handled exclusively by UPS (Threadless, 2011). In 2008 Threadless attracted an investment from Insight Venture Partners, a venture capital firm (Chafkin, 2008). Therefore the company has to now answer to their investors as well as their community.

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MKW1601: Introduction to e-Business The company has moved their website hosting offshore to Rackspace Hosting as the website has grown too rapidly to be hosted themselves (Rackspace Hosting, 2011). Evidence from their privacy policy points to them employing a third party to handle its e-mail marketing campaigns (Threadless, 2010c). Shirts Our Business Ltd (SOB Ltd) is another important outsourcing partner as they print the shirts for the company (Threadless, 2005). 2.1.3 Business Processes The order fulfilment process at Threadless is as follows. Threadless places orders for a limited amount of t-shirts that win the weekly competition. These t-shirt are delivered to their warehouse and stocked. After the products are in the warehouse, the website offers them for sale. Each order that comes in is sent to the warehouse staff who packs it. This information will include SKU number so that the packers know exactly what items need to go into a package and has allowed them to maintain an accuracy rate of 99.7%. While an item is being packed the warehouse staff check it for damages as a form of quality assurance (Multichannel Merchant, 2011). A shipping label is then automatically generated, printed and attached to the package, which is then sent to the shipping company (Somewhat Frank, 2008). Customer relationship management is part of the corporate culture at Threadless. Each employee is active on its forums and therefore serves as customer service representatives. While the community and help sections of the website help the customer satisfaction process, customers can also contact the company’s official customer service agents exclusively by email (Somewhat Frank, 2008). 2.2

Technology

2.2.1 Hardware & Software According to a case study by Threadless’ hosting provider, Rackspace Hosting, at the time of writing the website’s hosting infrastructure is as follows: 18 Dell PowerEdge 2850 dual-processor Intel Xeon Servers running Red Hat Enterprise Linux, a Cisco CSS 11503 Load Balancer, a Cisco Pix 525UR firewall, a Storage Area Network, managed backup service and a custom Rackspace monitoring

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MKW1601: Introduction to e-Business solution (Rackspace Hosting, 2011). Their web applications used to be based on PHP but they have migrated to a fully Python system (PyCon, 2011). Specific information on the their backend infrastructure however could not be found as they utilize order fulfilment software that was developed in house (Behance Team, 2010; Somewhat Frank, 2008). Therefore all details regarding the back-end system will largely be based on assumption. The order fulfilment system would consist of a method of communicating to the warehouse staff all details regarding an order (Turban, 2010). For this process they must utilize fast, high volume printers along with 3D or 2D barcodes and scanners to ensure that each shipping label is in a format compatible with the shippers system. The company may also use RFID tags to help locate products. The company will also have to make extensive use of media creation tools such as the Adobe Creative Suite and CorelDraw in order to get designs ready to be printed as well as to design their website and e-mails. They must also have a method of monitoring the status of their off-site servers in real-time which would require a high bandwidth connection to their hosting provider. They might need to use special Raster Image Processing (RIP) software to carry out colour separation in order to get designs ready to print. 2.2.2 Payment Systems & Security Features Threadless uses a shopping cart that they developed themselves since they have many customization options that would be too difficult or expensive to build into most pre-packaged systems (Gray, 2011). The website uses a mix of encrypted and non-encrypted pages. The storefront itself is not encrypted but the shopping cart and payment processing pages are encrypted using Secure Socket Layer technology version 3.1 and their security certificate is issued by Twarte CA. They are also certified by TRUSTe for their data privacy measures. The company does not disclose which credit card processor they use to accept payments. They accept payments from Visa, MasterCard American Express, Discover cards and through Paypal.

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MKW1601: Introduction to e-Business 2.3

Value of the system

2.3.1 Tangible Benefits The main benefit that can be seen in Threadless’ system is that it minimizes costs and risk. By crowdsourcing their designs, Threadless does not need a team of professional designers on staff. To produce the same amount of artwork that its community produces internally would be a herculean task. Furthermore, they successfully minimize wastage by implementing their online voting system. This system is extremely valuable in managing risk. As the voting process weeds out all potentially unappealing products there is a lower amount of risk associated with the investment of producing the t-shirts (Ogawa & Piller, 2006). Furthermore, the system provides Threadless with a high profit margin. According to Chafkin, Threadless’ reliance on crowdsourcing and outsourcing production allows them to maintain a profit margin of 30% (2008). Another benefit of the system adopted by Threadless is that the community markets their products for them, increasing sales and market share. Apart from allowing contestants to use social networks like Twitter and Facebook to gather votes from their friends to win the design competition; Threadless has devised a system that keeps their community involved and growing. The designers are encouraged to ask their friends to vote for their designs, eventually those friends would turn into customers and the creative few submit their own designs. Threadless also rewards their buyers with store credit when they invite friends who make purchases. Customers that are photographed modelling the Threadless t-shirts are also rewarded for uploading their photos onto the website to attract more visitors. This loyalty is consistent with the findings of a study into online repurchase habits of consumers; which found that the intention to repurchase depends perceived value, ease of use, usefulness, reputation, privacy, trust, reliability and functionality (Chai, Eze, & Ndubisi, 2011). These features helped the user base to grow from 70,000 members at the end of 2004 to more than 700,000 at the end of 2009 (Tidd & Bessant, 2009) and contributes to the average daily sales figure of 1,550 (Weingarten, 2007).

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MKW1601: Introduction to e-Business 2.3.2 Intangible Benefits Threadless builds a strong online community among its customers through forums and blogs, which in turn creates customer loyalty. The more loyal the customers, the more likely they will make repeat purchases. The size of the Threadless, which is the biggest of its kind, serves as a barrier to entry for imitator sites which will need to build their communities from scratch. Threadless also delivers their weekly newsletters to customers who subscribe to it. This serves to update the customers on what is new on the website. Customers can also subscribe to updates using RSS, Twitter or Facebook. This benefits the company because it keeps their customers up to date with their products and brings users who have not been to the site lately, back to it. The members of the community help each other when they have a problem; therefore the amount of customer service work Threadless has to do is minimized. This leads to higher and faster customer satisfaction than if an employee has to respond to each and every customer service call. By using store credit programs the company seeks to improve customer stickiness by giving customers reasons to return to the Threadless store. 2.3.3 Alignment with Company Strategy Threadless’ strategy is to not just sell t-shirts but to give their customers an opportunity to participate in something that is exciting and interesting (Weingarten, 2007). One of the designers with a winning design mentioned that it is not about the prize money, but it is more about sense of achievement when his designs were printed on t-shirts and sold (Tidd & Bessant, 2009). Their company motto is ‘to be awesome’. This informal motto reflects the fact that the strategy of the company is to keep its community happy, and that is future strategies will depend on where the community wants them to go.

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MKW1601: Introduction to e-Business

3.0

Issues

3.1

Security & Privacy Issues

Since much of the advertising for Threadless is done through viral marketing, most of the sites visitors follow “shortened” hyperlinks (bit.ly etc.) from social networks to get to the site. This can be easily abused to take unsuspecting users to site that can serve malware or sites that phish for personal information. Threadless has outsourced their e-mail campaign management to a third party (Threadless, 2010c) and therefore it may be difficult to ensure that the third party would not abuse the mailing list. 3.2

Marketing Issues

Threadless faces strong competition from other sites that have cloned their concept of a t-shirt design contest. La Fraise, DesignByHumans and SpringLeap.com are a few of these sites. Threadless also face a risk of counterfeiters. Since their designs are readily available online, other t-shirt companies might produce “counterfeit” versions of the original designs and sell them as one of their own. Their community helps to fight these counterfeiters by posting photos whenever they come across one and reports it to the company (Gray, 2011). A technological problem that the website suffers from is that their search feature is only useful when the customer knows the name of a design, which is often arbitrary. However if a customer tries to find design that they saw but cannot remembers its name the search function is unhelpful (PyCon, 2011). Since the company announced that they will be launching retail stores, they were criticized by their community who were worried about channel conflict and Threadless designs becoming too common. The company responded to these criticisms by stressing the fact that the stores will serves only as a physical embodiment of the website, carrying only a limited number of items, not as a replacement for the web store (Behance Team, 2010).

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MKW1601: Introduction to e-Business

4.0

Conclusion

Threadless seems to have found the right balance between corporate transparency and crowd sourcing to make their community feel like they are involved and a part of the company while still being able to be profitable. Their community may become a double edged sword in the future as they will need to pace their growth in order to maintain a feeling of exclusivity; consumers may leave the community if Threadless designs become too common. Another problem with internet communities is that they can be quite fickle and a large majority of users may move to the ‘next big thing’. However the cash prizes and limited print runs may help to hold onto their core customers for many years to come.

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MKW1601: Introduction to e-Business References

Behance Team. (2010). Threadless: The Do-First Work Ethic. The 99% Retrieved September 27, 2011, from http://the99percent.com/videos/6299/ThreadlessThe-Do-First-Work-Ethic Burkitt, L. (2010). Need To Build A Community? Learn From Threadless. Forbes. Retrieved from Forbes.com website: http://www.forbes.com/2010/01/06/threadless-t-shirt-communitycrowdsourcing-cmo-network-threadless.html Chafkin, M. (2008, June 1). The Customer is the Company: How Threadless Uses Crowdsourcing. Inc. Retrieved September 18, 2011, from http://www.inc.com/magazine/20080601/the-customer-is-the-company.html Chai, H. L., Eze, U. C., & Ndubisi, N. O. (2011). Analyzing key determinants of online repurchase intentions. Asia Pacific Journal of Marketing and Logistics, 23(2), 200-221. doi: 10.1108/13555851111120498 Gray, J. (Producer). (2011, January 16). DC72: Threadless. Design Chats. [Video] Retrieved from http://designchat.info/dc_72-threadless/ Lawton, J. (2006, December 11). Web T-Shirt Company Builds a Community, Business. National Public Radio: Morning Edition Retrieved September 18, 2011 [Radio broadcast transcript], from http://www.npr.org/templates/transcript/transcript.php?storyId=6607681 Multichannel Merchant. (2011, April 13). How Threadless.com Makes Warehouse Work Fun Retrieved September 27, 2011, from http://multichannelmerchant.com/opsandfulfillment/advisor/threadlesscomwarehouse-fun-0413jt1/?cid=nl_of_advisor Ogawa, S., & Piller, F. (2006). Reducing the Risks of New Product Development. MIT Sloan Management Review, 47(2), 65-71. PyCon. (2011, March 14). PyCon 2011: Going Full Python - Threadless. PyCon US Videos Retrieved September 27, 2011, from http://blip.tv/pycon-us-videos2009-2010-2011/pycon-2011-going-full-python-threadless-4900820 Rackspace Hosting. (2011). skinnyCorp Inc.: skinnyCorp's Growth Presents a Challenge for Rackspace. Retrieved from Rackspace website: http://c1776742.cdn.cloudfiles.rackspacecloud.com/downloads/pdfs/casestudi es/casestudy-skinnycorp.pdf 10

MKW1601: Introduction to e-Business Schauer, B. (2009). Pirate this: breakthrough mindsets from the web. Journal of Business Strategy, 30(2), 28-39. doi: 10.1108/02756660910942445 Somewhat Frank. (2008, February 24). skinnyCorp Threadless Office Tour. Somewhat Frank Video Adventures Retrieved September 27, 2011, from http://blip.tv/somewhat-frank-video-adventures/skinnycorp-threadless-officetour-696491 Threadless. (2005, March 7). A special treat from our printer... Retrieved September 27, 2011, from http://www.threadless.com/news/16/A_special_treat_from_our_printer Threadless. (2010a, November 3). Do I keep the rights to my artwork? Retrieved September 25, 2011, from http://support.threadless.com/ics/support/KBAnswer.asp?questionID=19 Threadless. (2010b, November 11). How does Threadless work? Retrieved September 25, 2011, from http://support.threadless.com/ics/support/KBAnswer.asp?questionID=66 Threadless. (2010c, July 23). Threadless.com Privacy Policy Retrieved September 27, 2011, from http://www.threadless.com/privacypolicy Threadless. (2010d, August 9). What do I receive for a winning design? Retrieved September 25, 2011, from http://support.threadless.com/ics/support/KBAnswer.asp?questionID=26 Threadless. (2011, February 9). What are my shipping options? Retrieved September 25, 2011, from http://support.threadless.com/ics/support/KBAnswer.asp?questionID=12 Tidd, J., & Bessant, J. (2009). Threadless.com. Managing Innovation Retrieved September 27, 2011, from http://www.managinginnovation.com/case_studies/Threadless.pdf Turban, E. (2010). Electronic Commerce 2010: A Managerial Perspective (Global ed.). Upper Saddle River, N.J: Pearson Education. von Hippel, E. (2005). Democratizing Innovation. Cambridge, Mass.: MIT Press. Weingarten, M. (2007, June 18). 'Project Runway' for the t-shirt crowd. Online t-shirt retailer Threadless went XXL by making its customers part of a self-fueling marketing machine, reports Business 2.0. Business 2.0 Magazine Retrieved 18 September, 2011, from

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MKW1601: Introduction to e-Business http://money.cnn.com/magazines/business2/business2_archive/2007/06/01/1 00050978/index.htm?postversion=2007061806 Wu, J. (2010). Co-design Communities Online: Turning Public Creativity into Wearable and Sellable Fashions. Fashion Practice, 2(1), 85-104. doi: 10.2752/175693810X12640026716474

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