Web Masters Episode #89: Amir Ashkenazi


Aaron Dinin:

I’m guessing, for the majority of you listening, you do a significant chunk of your purchasing at amazon.com, or at the very least, a site like it. Amazon may or may not be the cheapest, but you’re pretty sure it’ll have what you want. You know delivery will be quick and the price will be competitive.

Remember, it took a lot of years for early web users to even get comfortable buying stuff from the internet. That’s because E-commerce didn’t begin as a better option for most retail purchases. In fact, in the beginning, E-commerce was pretty crummy. It was hard to navigate, shipping times were slow, and yeah, lots of fraud.

That means, it had to evolve over time into becoming something that was clearly a better option than traditional, in-person commerce.

Amir Ashkenazi:

First of all, let’s go back in time. We’re talking about ’97. E-commerce is in infancy. Just the idea of putting your credit card online seemed to be crazy. There were few shops, and I was absolutely fascinated by the idea, not because I liked shopping, exactly, because I don’t like shopping. Because I don’t like the experience of getting into the car and ride between shops, and try to find the product that she wants in the physical world.

I got really excited. I think from entrepreneurship perspective, those transformations always open opportunities. When such massive transformations happen, there is an opportunity to develop new services that we couldn’t even dream about before.

What we dreamt about is comparison shopping, is the ability to compare thousands of stores with a click of a button to make sure that you get the best price and the best reviews and so on, to make an informed buying decision.

Aaron Dinin:

That was Amir Ashkenazi. He’s an entrepreneur who gave consumers one very good reason for why they should want to shop online. It was the ability to comparison shop at enormous scale, not just across a handful of stores, but hundreds or even thousands of different stores, and all of it without leaving your house.

All you needed to do was point your web browser toward Shopping.com. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Hi there and welcome to Web Masters. This is the podcast that teaches about entrepreneurship by sharing conversations with the internet’s most impactful innovators and creators. I’m the host, Aaron Dinin. I’m a serial entrepreneur and I teach entrepreneurship at Duke University.

I’m also an online shopper, and of course, so are you because, well, pretty much everyone is these days. Not too long ago in history, really only a couple decades ago, that would have been an important distinction. On this episode, we’re going to talk with one of the people who helped consumers make that transition, and we’re going to do it right after a quick message about our sponsor.

Web Masters is being brought to you with help and support from our sponsor, Latona’s. Latona’s is a boutique mergers and acquisitions broker that specializes in helping people buy and sell cash flow-positive internet businesses and digital assets.

A lot of those types of businesses involve what this episode is focused on, meaning E-commerce businesses like Amazon FBAs, Shopify storefronts and Etsy shops. Of course, those aren’t the only types of internet businesses. It could be a content website, a SaaS app, maybe even a domain portfolio. Whatever the case, if it’s a profitable internet business and you’re thinking of selling it, talk to Latona’s.

Their team of expert brokers can help you get it sold for a great price. Latona’s can also help if you’re hoping to buy an internet business. All you need to do is check out their website where you’ll find listings for all the profitable internet businesses they’re currently helping to sell. That website is latonas.com, L-A-T-O-N-A-S.com.

If you think about commerce on a much broader scale than you’re probably used to, I’m talking thousands and thousands of years, for most of human history, we bought things in person. That began to shift slightly as things like mail order catalogs emerged, which by the way was actually, probably a lot earlier than you think, somewhere around the 1500s. Though, the first mail order company that looked like we’d expect today, didn’t come around until the mid 19th century.

Even then, the majority of purchases, especially things we might consider more regular types of household items, those were done in person. In that sense, E-commerce has represented a massive shift in the way people buy stuff. Despite this shift, one thing has remained constant from the offline to the online purchasing world, and that’s our desire for a good deal.

If we can spend less when we’re buying something, then of course we want to. E-commerce made that type of bargain hunting possible at an enormous scale. One of the companies of the early shift to commerce that thrived on consumer desire for a better bargain was a company called DealTime. It’s actually the company that became Shopping.com.

It was founded by an entrepreneur named Amir Ashkenazi. When I say entrepreneur, I mean someone who genuinely identifies with the core purpose of entrepreneurship, which is, of course helping solve problems.

Amir Ashkenazi:

I’m Amir Ashkenazi. I’m entrepreneur since 1997. I wake up every morning, frustrated with all kind of things, all kind of problems in the real world. From time to time, I find projects that I really want to work on, where I think the future is going to be different. I just want to close this gap. I want to develop the product or the solution that actually bring us to a better future.

Aaron Dinin:

It’s interesting to me, how you so clearly identify with being an entrepreneur. I find some of the guests I talk with on the show, really embrace that term, like you, and others tend to shy away from it. Why or how are you so sure that’s what you actually are?

Amir Ashkenazi:

I think I’m very fortunate to find, relatively early, my passion for really building things. Entrepreneurship, when you grow up and it becomes a job, is a fantastic job. If you just think about it, people give us money to work on the things we are really passionate about, and collaborate with amazing people, work on really complex technologies. At the end of the day, keep a lot of the upside that is generated from those activities.

I really can’t think about any other job that I want to do. You know, when people think about, “Should I go to entrepreneurship?” they think, “Oh, I’m going to invest my time,” but time is the only thing that you don’t invest. This is going to pass at a predefined speed. The question is only, what do you do with this time? If you do something that you love, then you don’t work a day.

Aaron Dinin:

When did you decide computers and technology were things you loved?

Amir Ashkenazi:

Very early. I worked on PDP-11. That’s probably something you don’t even remember, but there was huge computer called PDP-11. It used big cards to make programs. Then very early, at the age, I think I was 12, I got Sinclair ZX81. Amazing machine, one kilobyte of memory. It’s about one page of basic code that you can write on this.

Just the ability to tell this machine what to do and see the machine doing it so persistently was fascinating. Then I remember, then developing games. I guess every programmer starts with some games and some utilities that will help me to organize my life.

Obviously, the computers got to improve. I got the Apple IIc and then the IBM and so on. Computers were part of my life from a very early stage. I enjoyed programming. It’s a lot about problem solving. Code is just the language that you use to describe your solution, but it’s really what you want to build with that, is exciting.

Aaron Dinin:

And Shopping.com, or really it started as DealTime, I guess. Was that your first entrepreneurial attempt at solving a problem with code?

Amir Ashkenazi:

First of all, I went to learn computer science just because law school did not accept me. Computer science was the second best option. Then I felt I’m going to be software engineer. I had my first job as a software engineer, moved to the second job. Then I met an amazing guy. His name is Nahum Sharfman. Unfortunately, he passed away 13 years ago.

He was the one to introduce me to entrepreneurship, to teach me everything I know today about entrepreneurship. Also, just in general, to be a model of, what does it mean to start a company? What does it mean to motivate people? Get everybody working as a team towards a shared goal.

Nahum was the CEO of the company I worked at, and I was head of research. I developed a new technology. It was a, kind of a computer language for creating tiny widgets. It can be a TV show reminder or a sports score feed, or an E-commerce, or a alert, kind of mechanism that alerted you when this product you want, reached a certain price level.

That eventually became Shopping.com, as we realized that this tiny widget, the one that searches the web and finds the best price for you is the one that people want more than all the others.

Aaron Dinin:

I should mention, the person Amir alluded to, the CEO of the company Amir was originally working for when he developed the DealTime widget was a man named Dr. Nahum Sharfman. He was a respected Israeli entrepreneur, who along with his wife, tragically died in a plane crash in 2009. Nahum was CEO of DealTime while Amir was CTO.

As you heard, Amir mentioned, as CTO, he developed a widget technology they tried using for a variety of purposes, but they quickly found that price tracking was the thing people were most interested in, which in retrospect, I suppose shouldn’t have been very surprising, considering just how fundamental bargain hunting is to shopping, in general.

Amir Ashkenazi:

As entrepreneur, in the first phases you’re in search of product/market fit. You’re making sure, validating that you provide a real solution to a real problem. We never had this problem with Shopping.com. The aha moment was when user was landing on a page full of merchants they recognized, with the price of the product, compared down to how much would it be with tax and with shipping and so on, and you don’t have to explain anything more.

We got a lot of repeat traffic from people who’ve seen it already, and we got amazing conversion from first user to loyal frequent user. On top of that, obviously we had marketing machine to grow it at the speed that is required.

In general, the game is all about growth, and you’re using different tactics to grow your numbers. Most of those are product-driven, improvements in the product to do it, but some of this is just marketing. Yeah, the momentum was there because product/market fit was very solid and very clear.

Aaron Dinin:

You mentioned having grown the company by leveraging, I believe the term you used was the internet marketing machine. Could you talk a bit more about that? How did people initially discover DealTime?

Amir Ashkenazi:

The method we used were actually classic methods from the old world. If you look at the campaigns we ran, for example in ’99, if you walked in a street in New York, you’re very likely to see a bus all wrapped with a DealTime logo, just driving, taking people from one place to another. That was, we thought, a good marketing approach.

We bought full page ads in The Wall Street Journal because that will increase brand awareness and then they’ll think about us when they want to buy something. It’s only later that we realized that the internet itself is a very powerful place for marketing. Maybe one of the most impressive technologies we’ve built is a fully automated machine for marketing that would assess in real time, the lifetime value of a customer, and will know how much to bid on every queue or on every customer, on services like, what was the beginning of Google.

That machine managed over 80,000 keyword campaigns. It was so sophisticated that it knew exactly what to buy at what price. It, honestly surprised us because sometimes it would bid on products that we didn’t have an ad in Shopping.com, because the machine noticed that people that come on this keyword actually click on other listing coming from Google.

This roundtrip is another way of making money. The transformation was from classic marketing tactics, buses, newspaper ads, billboards, to very sophisticated internet marketing.

Aaron Dinin:

At what point does it evolve from DealTime, the price alert tool to Shopping.com, which was, I believe, more of a comparison shopping tool?

It was really funny. You know, we sat on the name, Shopping.com for quite some time. We actually got into the part of a business development deal. The head of business development, Curt Cimei was negotiating with AltaVista, and there was a small gap in the terms. We didn’t know how to bridge it. We knew they have the name, Shopping.com.

Then in the middle of, one of those calls and discussions, “You know what? If you put the domain name in, we have a deal.” They thought about it for, maybe two minutes and they said yes. This is how we got the name. We didn’t even realize how big it is when we got it. We sat on it for, probably two, three years before we actually started using it.

We rebranded the company after acquiring another company called Epinions, and we wanted to unify the services into a new branded service. Then we took a naming agency. They suggested few, but they also said, “You know what? You can also just use Shopping.com that you already have.” In hindsight, that was totally stupid, to pay them $100,000 to say that was the right name and we had it all the time.

Aaron Dinin:

You heard Amir mention that, before becoming Shopping.com, they acquired a company called Epinions. Epinions was a popular consumer review website launched during the late ’90’s dotcom bubble. DealTime was able to acquire it, in part because Epinions was struggling to maintain profitability in the wake of the bubble bursting.

Amir and DealTime also had to figure out how to navigate the bubble burst, which unlike a lot of other companies from around that time, was something that they successfully managed, not that it was easy.

Amir Ashkenazi:

When the bubble burst, we were just two weeks away from an IPO that, I’m so glad we did not have. We would have crashed completely. The company was totally not ready to become a public company, which we became few years later in 2004.

In 2000, we filed the S-1, but we were not ready, really to be a public company. We realized fairly quickly that the game has changed. That the cheap money available from investors will not be available anymore. That we need to turn the company profitable very quickly.

The year after that was, I think the best business goal possible. We took an entire leadership team to offsite in Florida. It was the last time we spent money for stupid reasons, and we just discussed the plan of, how do we actually turn Shopping.com to be profitable?

We came out from this offsite with a plan that we executed on for a year, and we climbed this mountain. Every month, we had more revenue and more profit, but also less cash, and it was very stressful. We crossed to profitability, really as we almost running out of cash. We were very lucky. Two or three months late, we would not have survived.

Aaron Dinin:

Could you talk about the business model behind Shopping.com? I’m pretty sure I can guess what it was, but I’d love an explanation from you regarding how the company made money?

Amir Ashkenazi:

Very much like Google, we have search results. The order of search results, very much like Google is influenced by how much you pay for the services. In Google, the top three or four places are for paid customers, and the order is determined by bid. We had a very similar mechanism in Shopping.com.

It’s a very interesting business model because it allowed us to extract fair value for the services without knowing much about the economics of our customers, because the competition between the providers made sure that we are actually getting the highest revenue possible from the merchant that is doing the best job in converting those leads to actual customers, and has the margins to actually pay for the placement in Shopping.com.

When you try to negotiate with merchants, they’re always going to tell you, “Oh, I lose money on you every day. I lose money. Okay, so let’s stop working together.” They said, “No, no, no, no, no. No. Please keep me on the site.” You know he’s not losing money on this. Just by having them compete with one another, we were able to extract fair value for the service.

Aaron Dinin:

Your value proposition to merchants was that you had the eyeballs. If they wanted access to those eyeballs, they had to pay. Meaning, I’m guessing, getting your customer, the merchants was, probably pretty easy. Was that the case?

Amir Ashkenazi:

It is the easiest job in the world, because if you have a service that directly contributes to revenue and profit of your customers, you have product/market fit by definition. You have everybody interested in the service. Getting the merchants was not difficult. Getting the users was more difficult because of competition. Just in general, it’s a very noisy environment it is today.

It was even back then from an advertising point of view. It’s hard to get the attention of users to your offering.

Aaron Dinin:

Which means you were having to solve the two-sided marketplace problem that’s so difficult to deal with in business. You solved that problem in a great way by listing all your merchants for free in order to attract the users. Then once you had the users, charging merchants to maintain their position?

Amir Ashkenazi:

Yeah. It’s a marketplace, and in a marketplace you need to get both sides. The trick we used to get the merchant side is simply to list everybody for free, initially. Only then introduce the bidding mechanism that allowed the paying customers to appear at the top. We still listed everybody, but the conversion to click was much higher at the top.

People are lazy. They’re clicking one of the first option. This is how Google is making billions and this is how we made our revenue as well.

Aaron Dinin:

I love that solution. That’s a really great way to handle the two-sided marketplace problem. Okay, so you had that marketplace built. You had the traction. You were profitable even, right? You said you eventually, actually did complete the IPO in 2004, but you sold Shopiing.com to eBay. How did that deal come about?

Amir Ashkenazi:

eBay was a partner for a long period of time before the acquisition. In general, I think this is the best way to created M&A opportunities, is work closely with your potential acquirers for a long period of time. When they approached us, they knew everything about the business already, and the process itself went very quickly.

What they were trying to do with Shopping.com is, actually get out of the auction, only to a fixed price marketplace, is one.

Aaron Dinin:

What I’m trying to understand is, I guess, why did you decide to sell, especially if you had this growing, profitable company at the forefront of the E-commerce boom?

Amir Ashkenazi:

The answer is that we have seen the limit of this model. First of all, Amazon emerged as the big winner in E-commerce. More importantly, shoppers trusted Amazon so much that they didn’t even feel the need to do comparison shopping. Maybe we’re not getting the best price, but we know it’s going to arrive on time, and its price is going to be reasonable, and that you can return it if you want. There are other aspects even more important than optimizing the price to the last cent.

We saw this trend. We were concerned about this, long term. While the business was still growing fast, when you see a ceiling to the potential, you can try to optimize. Maybe we could have run for a few more years and add to the value of the company, but if you can’t see a company that is running 10 and 20 years from now, it leads you to finding other strategic opportunities.

The excitement comes from building a long-term entity that is sustainable and functional, and will add value for many, many years. When you don’t see it, this is where you start to be more open to M&A conversations.

Aaron Dinin:

If I could just say, it’s kind of incredible, you were to able to recognize Amazon’s impending dominance that early. I mean, 2006-ish, Amazon wasn’t the Amazon we know today. How did you recognize what was going to happen?

Amir Ashkenazi:

It is the conversations with shoppers and the way they talked about Amazon, and the level of trust that you’ve seen, even in the early days. Even 2005, it was clear that comparison shopping as a category is challenged.

Aaron Dinin:

I guess, along the same lines then, of course because you’re clearly good at recognizing consumer trend lines early, how did you originally recognize the massive opportunity of E-commerce?

Amir Ashkenazi:

The real answer is that you don’t have. You work off your gut feeling and you work off the anecdote evidence that you have seen shopping interact with, listening to your customers and understanding that, in this new world of E-commerce, it makes sense. This is why it’s going to be huge, simply because it makes sense, because it saves people time, it saves people money. They enjoy the experience.

When you read all of those research papers about the future of X, it’s too late. You need to feel it sooner. Then you need just to open your ears and eyes to real feedback from real customers to validate your theory about how the future is going to look like.

If you see that you don’t need any research paper, you just go on your gut feeling and you make the investment, you build a product that you think is right. In a cycle, continuously to update it with more feedback that you’re getting from the market, sometimes it works. Sometimes it doesn’t.

Aaron Dinin:

Well, and from the outside, looking in, I find myself wondering if DealTime and Shopping.com actually played an important role in the fact that E-commerce worked. I mean, just thinking about the early days of E-commerce, people had to build trust in the entire ecosystem. Giving consumers something they were familiar with, this ability to bargain hunt and comparison shop and feel confident they were getting the best price.

It seems like, that particular ability would have been an important thing E-commerce consumers needed in order to feel comfortable and familiar with the new technology.

Amir Ashkenazi:

Any time you solve an important problem, you remove friction from processes, you accelerate the growth and the adoption of new technologies and new services. If you think about what we did, I think we instilled a lot of trust in consumers, because they had complete and unlimited access to information. Reviews about the merchants, reviews about the products, pricing information to make informed buy decisions with just few clicks.

I wouldn’t say that E-commerce would not have been E-commerce without DealTime, but yeah, we had a little bit of contribution to the acceleration of it.

Aaron Dinin:

Yeah. Shopping.com didn’t make E-commerce successful, but I think Amir is right. His company almost certainly accelerated the adoption of E-commerce, which is a pretty cool accomplishment for an entrepreneur. Amir saw a problem, solved it. In doing so, moved the entire world forward.

Unfortunately, for Amir, the problem he solved was somewhat temporary. As he noted, once consumers built trust and comfort with E-commerce, their interest in bargain hunting and comparison shopping diminished, Amir and his team, smartly sold Shopping.com before most other people recognized the impending decline of the market opportunity.

As Amir told me, Shopping.com could have taken a different path. That’s one he sometimes regrets not pursuing.

Amir Ashkenazi:

From a business perspective, I think the biggest mistake of Shopping.com is not pursuing opportunities that existed, like creating the platform for merchants to build their own store. It was obvious back then that, we had the technology to do it. We had the user base that will adopt it, but we had a narrative to make smart buying decisions.

Sometimes this narrative, it’s not even the focus, it’s the narrative, it’s the mission statement that is locking you to a path that is more narrow than what we can take.

Aaron Dinin:

Are you saying Shopping.com could have turned into something much bigger, much more fundamental to E-commerce?

Amir Ashkenazi:

I think the interesting point is that, how many opportunities we actually did not pursue. You think about, for example, we use crowdsourcing information, and how many companies started as a result of this, from a TripAdvisor to Glassdoor and so on?

In our conversations with merchants, it was very clear that building a store is very difficult. Look what Shopify did. They built an amazing business just on making that simple, or the challenge with processing transactions. Each one of those areas actually became the multi-billion dollar industry of its own.

I think this is a lesson for entrepreneurs, in general, is that in your path, you learn a lot about your market, the challenges. It opens new opportunities, sometimes better even than the opportunity you are on.

Aaron Dinin:

That’s right. On your entrepreneurial journey, if you’re successful, you’ll almost certainly encounter other potential opportunities. While I wouldn’t advise anyone to take their eye off the prize, so to speak, I think Amir’s caution is an important one too. Stay flexible because what you’re seeing as you build something great might actually be an even bigger opportunity to build something better. Because of your current success, you might be uniquely positioned to take advantage of it.

To be fair, I suppose we should all be as fortunate as Amir was in our entrepreneurial shortcomings. After all, a $634-million exit, which was what eBay paid for Shopping.com doesn’t sound like too bad of an outcome. Plus, Amir helped accelerate the adoption of one of the most important commercial transitions in all of human history. That’s a pretty cool claim to fame, right?

Considering all of that, he was still willing to take a bit of time to share his story with all of us. I want to thank him for doing that.

If you’d like to see what kinds of things he’s working on these days, you can find him on Twitter. He’s @AmirTime. Get it, like DealTime? I love it. This podcast is on Twitter too, but without nearly as clever a name. It’s just at @WebMastersPod. I’m on Twitter with an equally dull screen name. It’s @AaronDinin. That’s A-A-R-O-N D-I-N-I-N, or find me on my website where I post lots of other content about startups and entrepreneurship. It’s aarondinin.com.

A quick thanks to our audio engineer, Ryan Higgs for his help pulling together this episode, and a thanks to our sponsor, Latona’s for their support. If you’re in the market to buy or sell an internet business, be sure to check out latonas.com.

Similarly, if you are in the market for a great podcast, well, you found one. Be sure you’re subscribed so you get the next episode as soon as it’s released. In the meantime, you can check out our archive of entrepreneur stories wherever you listen to podcasts. I’ll meet you over in one of those episodes because this one is done and it’s time for me to sign off.