Five Woot Execs Check Out, As Daily Deals Site Feels The Strain Under Owner Amazon

Posted: May 12, 2013 in eCommerce, GT, Social, Startup, Technology
Tags: , ,

20130512-211422.jpg
Woot, the daily deals site that Amazon bought in
2010 for $110 million, built a reputation for its “pile
‘em high, sell ‘em cheap” business model for shifting
goods. Now, the company is facing up to a shift of a
different kind: that of its own talent. In the last week,
TechCrunch has learned that five key executives are parting ways with the company. They include Darold Rydl, who had been president of
the company and one of its very first employees;
CTO Luke Duff, who has been the technical lead for
all things Woot since 2005; CFO Rene Gonzalez;
Dave Rutledge, who had been the creative lead on all
of Woot’s editorial content as president of Woot Workshop; and Jay Johnson, leading both the deals
and affiliate marketing divisions at the company as
director of deals.woot. Rydl and Gonzalez have
already left, and the other three have given notice but
will be with the company for another week. This
comes 11 months after founder and CEO Matt Rutledge (brother of Dave) also left the company. No, these six are not banding together for a new
startup. Rydl distributed a note to staff and then later
posted it on Facebook (we copy it below) describing a
desire for a change of scene, and we understand that
each is doing his own thing. (We have reached out to Amazon for a response to
this story.) But we have also been hearing another story about
what’s going on at Woot that may have spurred some
of these departures, simmering issues with Amazon
management that have finally started to boil over. “I
don’t think any of us ever envisioned leaving Woot,”
one person told me. “I thought I would stay there and grow with the company as the industry changed. But
there were a lot of frustrations.” These, we understand, are connected to a gradual set
of changes at the company over the years as it has
bedded down at Amazon. “Amazon wanted to come in
and do things in a different way, not considering the
importance of the other stuff,” I was told. It seems like one of the thorny points is Woot’s CEO,
Garth Mader, who had been put in place by Amazon
to work under Matt Rutledge, and was promoted after
Rutledge left. In short order, changes pushed through by Mader
have spread to various aspects of Woot’s business. Turning straw into gold The site, founded in 2004 by Matt Rutledge when it
was first incubated inside Rutledge’s preexisting
company Synapse Micro, was one of the pioneers of
the “daily deal” model of selling goods online. It did so
in an irreverent way aimed at disrupting the
relationship between buyer and seller by making it far less formal. The original concept was to sell one
“crap” item at a time that was at the end of its line
(consumer electronics was a mainstay) at a
competition-busting price, and then to launch another
product at midnight each day. Breaking up the pattern of single items for sale until
they sold out, once a month Woot also sold a “Bag of
Crap,” a group of items for a single price. Frank and
funny commentary ran through all of this, along with
an attempt to remain transparent with consumers
through forums and details about how much of an item was sold. All this brought a cadre of loyal users to the site —
some 5 million per month at its peak, according to
Rydl’s letter — rushing to buy things that, in a sense,
no one else wanted to buy. Turning straw into gold, as
Rydl describes it in his letter below. Today, things have changed. Woot no longer shares
data on how much of a product has sold. If you think
about it, that kind of transparency also runs counter
to how Amazon is about its own sales numbers for
specific products. Meanwhile, the Bag of Crap stopped getting sold
monthly, because it was deemed to be too much of a
strain on the system, and the server crashed every
time it was sold. “That wasn’t an acceptable customer
experience,” the source says Woot was told. “But
there were a million people trying to get 1,500 items, of course they would crash.” It didn’t make sense to
scale up the hardware to support something we did
once per month, he said. The workaround was that
the company ended up creating a scavenger hunt to
find a (less frequently offered) Bag of Crap, but given
that users had to “like” Woot on Facebook to get the first clue, “the perception for many was that it simply
went away.” Another change was more backend but crucial to
Woot’s business model. The company made a “big
push” to ship products using Amazon’s fulfillment
system but this proved inefficient and far less
profitable for the kinds of products that Woot sold.
The Woot method involved a big palette with the item able to be taken and thrown into a shipping box; the
Amazon method was less simple, if perhaps more
professional. “The end result was that our variable costs
quadrupled. We used to be able to sell
50,000-100,000 items per day at a lower price point,
but now we can’t profitably sell items under $10
because the variable cost for shipping got too high.”
It’s unclear whether at some point Woot will revert to what it had been doing in the past. However, there is more possible pain to come in this
area, with wider ramifications. Along with the push to
move product into fulfillment by Amazon, Woot
scaled down its warehouse operations but has never
communicated to the operations staff what the plan is
for them. Our source says that “has left the remaining operations staff with an uncertain future and has had
a dramatic effect on morale as others across the
company wonder if their group will also be shuttered
as more Amazon services are used. The fear is that
soon, all Woot employees will be asked to move to
Seattle [from its current HQ in Carrollton, TX, north of Dallas] or they will be replaced by Amazon services.” The bigger picture for daily deals To be fair, there have been other pressures on Woot’s
business that have less connection to Amazon’s
ownership. Daily deals, as we have seen with
Groupon and Living Social, have become less
fashionable, partly because of an oversupply of
companies working in this space. “The fact that so many retailers started doing these
kinds of promotions and started pushing so many
emails I think led to fatigue,” our source says. Woot
resisted emails, until two years ago, but “even then a
small percentage came from there. Most still came
from direct traffic, from people hitting the site every day to be engaged with the content.” That direct traffic on the site, nevertheless, is down
nearly 30 percent year on year, and is continuing to
decline. But ironically, because Woot is selling significantly
more items now than it did in the past, this hasn’t
impacted business. In fact, Woot’s revenues have
been growing at a 20 percent rate over the last two
years, and 2013 appears to be shaping up in the
same range. Specifically, through Woot Plus, its flash-sales section, the site now offers more than 400
SKUs every day instead of six a year ago. (Amazon does not break out how individual
businesses are performing in its earnings
statements.) The Zappos fairy tale The story of how Woot was acquired and subsumed
into Amazon can be a cautionary tale for other
startups. Our source says that Woot had envisioned it
would follow in the path of Zappos, the shoe and
fashion e-commerce site that was acquired the year
before Woot for $1.2 billion. Into that sale was built the idea that Amazon would stay hands-off. At the
time of the acquisition, Zappos CEO Tony Hseih
noted in a letter to employees: “We plan to continue to run Zappos the way we have
always run Zappos — continuing to do what we
believe is best for our brand, our culture, and our
business. From a practical point of view, it will be as
if we are switching out our current shareholders and
board of directors for a new one, even though the technical legal structure may be different.” Indeed, while some of Amazon’s acquisitions still do
get to do things their own way, more or less, there are
others that have been held to more integration. This is, of course, to be expected: Amazon’s wafer-
thin-margin business model is predicated on
economies of scale, so it doesn’t make much sense
to run different organizations within it in ways contrary
to that. “Maybe because we were only a $110 million
transaction, we didn’t have as much leeway in how
things worked out for us,” our source said. But that
brings a mixed fate: “The core reason we’re all leaving
Woot is because we’ve lost the ability to do what’s
best for our brand and culture. The business will no doubt continue to grow because Woot can leverage
Amazon systems, but Woot will look more and more
like Amazon until it is unrecognizable.” Rydl’s letter: “In the summer of 2003, a little group of three started
kicking around ideas, hoping to let a little wholesale
company [to] move a ton of crap. None of us believed
the guy in a DeLorean who stood out front yelling
“THIS IS WHERE IT ALL BEGINS, YOU GUYS!!!” In
retrospect, we probably shouldn’t have called the cops on him. Our bad, guy. But anyway, that little project soon garnered
international acclaim and earned the love and
adoration of millions of fanatical customers, all of
them begging us for the crap no one else wanted.
Every day, I felt fortunate to be around the sort of
people who could turn straw into gold. But today, after lots of soul searching, I’ve decided to
take up new challenges. Tomorrow I leave Woot to
embark in a new direction. No destination is clear, no
course is plotted, but I remember the excitement of
starting something from scratch, and I can’t ignore
the urge to go create something new. With my parting words, I want to make it clear: each
of you should be proud of your contribution to
Woot.com. With the simplest business idea ever (and
no advertising dollars to spend) we attracted over 5
million customers, managed well over a billion dollars
in sales, and spawned an entirely new industry.. from SCRATCH. We grew from a team of 15 to over 200
people in multiple states, and we even earned the
attention of the biggest internet company in the world,
a company that decided that it would be safer to flat
out buy us instead of trying to compete. Few people
in this world have accomplished what we did – always remember to reflect on these wins and celebrate
them. In the world of retail, you guys are the freakin’
Justice League. Please know that I am so incredibly proud of each of
you and what we’ve all accomplished together. And
understand I didn’t arrive at this decision easily.
Nevertheless, I know my decision is right. I leave you
all in the capable hands of my hand-picked leadership
team – I am 100% certain that they are ready to take the lead. Although you may miss me with your hearts,
day-to-day you’ll never feel a thing. And please, keep
any tears off the product in the interest of optimizing
the customer experience. More seriously, I still consider my time at Woot to be
one of the best things I’ve done, and I’m proud to
have worked with all of you over the years. My love
for Woot runs deep and eternal. Keep doing great
things. After all, you’ve done so many
already…..what’s one more?

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