Fab.com and the Value of Online Word of Mouth

Jason Goldberg is the chief executive and founder of Fab.com, an e-commerce site that constantly monitors the impact of its social marketing.

From The New York Times:

BUMBLEBEE-STRIPED or polka-dotted, neon orange or neo-argyle, socks of all types are selling out fast on Fab.com, a popular design e-tailer. Gung-ho for hosiery, its fans are even posting sock images on Pinterest and tagging them on Tumblr blogs.

“It’s Happy Socks Day at Fab,” says Jason Goldberg, the company’s chief executive and founder, as he checks digital dashboards on his iMac screen that continually chart customer sharing and spending. “It’s socktastic!”

Fab.com is a pioneer in social retailing, the kind of e-commerce site that encourages shoppers to discover and select products through crowd-sourcing. It sends out e-mails daily, alerting design mavens to flash sales of whimsical, limited-edition items — like candy-colored typewriters or clear plastic coasters embedded with gummi bears — and offering a variety of ways to share their favorites with friends. Founded last June, Fab has already racked up more than 4.5 million members, who collectively shell out about $400,000 on a typical day, the company said.

But behind that fast success is a new social media math.

Mr. Goldberg is among a new generation of e-commerce executives determined to measure the impact of social marketing and act on it in nearly real time. He keeps constant track of how many people visit Fab.com from, say, Facebook, Pinterest and Google Plus. He gauges Twitter posts that mention the site’s newest items as harbingers of next-day sales. He regularly blogs about the company’s revenue, product trends, app use and leading sources of traffic. He has also hired two customer analytics start-ups to determine the current and potential value of Fab.com shoppers.

“On typical e-commerce sites, every single piece of real estate is calculated to measure the return on investment of each pixel,” Mr. Goldberg says. “But social media marketing needs to be measured differently than traditional marketing. We need different ways to measure sharing.”

With headquarters in the West Village of Manhattan that offer a sweeping view of the Hudson River, Fab.com is a marriage of instinct and analytics. Mr. Goldberg and a co-founder, Bradford Shellhammer, started the site last summer after an earlier joint project, a gay social network called Fabulis.com, failed to gain traction. Their subsequent plan was to build an e-commerce design powerhouse through word of mouth, a kind of seamlessly shareable Ikea.

Mr. Shellhammer, the chief creative officer, is the tastemaker with a knack for identifying conversation pieces — like, say, Beardo, a knitted hat for beards — that can send thousands of people shopping and sharing daily. Mr. Goldberg, meanwhile, is the number cruncher who, at every stage of the company’s development, seeks metrics to expand sales and brand engagement. In fact, even before the pair introduced Fab.com, Mr. Goldberg began measuring the financial impact of online word of mouth.

To create an audience before the shopping site even went live, the company bought ads on Facebook, inviting “influencers” who liked certain flash-sale sites, design magazines, design blogs or designers to join. But rather than simply calculating how much it cost to acquire each new member, Mr. Goldberg set about examining the ripple effects. After seeing an ad, he says, each person who joined typically invited three friends to join as well — resulting in one additional membership, on average.

“It was basically ‘Buy one, get one free,’ “ he says. “We were looking at the viral coefficient of the ad, so suddenly your costs went way down.”

By the time Fab.com was up and running, it had signed up about 175,000 members. Of those, he says, 30,000 came from ads — at an acquisition cost of about $2.50 per member.

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