Bringing the world’s inventory online

One of the great things about the Internet is that it gives you access. This access comes in many aspect of our needs. Information, entertainment, shopping, these might be the most common.

The area that I’m most excited about is something I call digitalization of offline inventory. By this I mean that thanks to the Internet you get access to products or services it would normally be difficult to find and buy. In more detail, I’m referring to things like:

  1. hotel rooms
  2. car rentals
  3. flights
  4. venue tickets
  5. doctor appointments
  6. cleaning services
  7. shipping containers
  8. and many more

This process of digitalization strated a long time ago and it is not a new trend. You could already book a hotel room online a decade ago maybe even two decades ago. Your selection was probably very limited but it was possible to do that. What has changed today is that the available digital inventory is much greater. Not only in quantity of a particular category but also in the quantity of available categories.

Hotel rooms are a great example of the progress we’ve made. The largest booking website in world — booking.com has aggregated the inventory of more than 800 000 hotels. This is great, but still there are probably 5x more accommodations which are not yet digitalized. There are a number of software companies trying to bring that “long tail” online. It will take years before we reach the whole available inventory.

Hotels are probably the most digitally advanced industry. Think about the opportunity of digitalizing other verticals which are still in their infancy.

What makes this digitalization process possible is the proliferation of software. Over the last few decades we have gone from mainframes to vertical SaaS.

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The new wave of vertical SaaS companies will allow for more inventory to be digitalized and made available online. By vertical SaaS I mean industry specific solutions. The “systems of record” where the inventory plays a central role.

Software and platforms

The challenge in digitalizing inventory is twofold. You need vertical specific software to turn analog inventory to digital eg. available tickets at a local theater. This “software” runs the calendar at the theater. Holds the information on all the available shows. Manages tickets. A theater using this software might have a website where customers can search through the available shows and buy tickets. On a micro level it does the job well.

What if you would like to search through the available shows in your city. The task becomes more complex. If all the theaters would use this type of software you would have to check website by website to be able to choose a show. This is not very efficient.

To make this experience much better, a website (platform) which aggregates all this available inventory would make much sense. Instead of checking all the theater websites you would only need to go to one. On the website you would have all the available inventory — ready to be searched through and purchased. The platform could start with one city, scale to a country, a region and finally aggregate the global inventory of available shows in theaters around the world.

This software and platform approach is already unfolding. Again, you can best observe it in the hotel industry. For example HotelRunner acting as the software digitalizing room inventory and Booking.com serving as the platform to aggregate that digital inventory. Both companies have two very different business models. Focusing on their core value proposition they are able to coexist and form a value chain that makes the process of booking a hotel room super easy.

Sometimes his software and platform approach can morph into a hybrid model where the software vendor is also a consumer facing platform. Uber and AirBnB are probably the most distinct of examples. But there are other companies taking a similar approach.

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StyleSeat is taking advantage of this model in the beauty and wellness industry. They offer software to salons to manage customers and the booking process. On the other side they have built a platform to aggregate the inventory digitalized by their customers.

The first approach is closer to the mantra of being focused on one business model and executing it extremely well. The later approach is closer to the “full stack” model, where one company focuses on the entire value chain.

The growth opportunity

Throughout my post I mentioned a few times that in most verticals this digitalization is still in its infancy. I belive this process will continue to unfold for decades to come.

There are some trends that are already accelerating this effort:

  1. Consumerization of software
    There are close to 300 milion businesses worldwide. Great number of those businesses are really small and local. In order to survive they will need to transition to digital. This transition could be as simple as uploading a restaurant menu to Yelp or as complex as implementing a cloud based POS system like Vend. Software is moving to the cloud, and being offered as a “simple/affordable” service. In a couple of years probably all restaurant menus will be digital and available on food delivery sites, review sites, lunch apps and many other digital outlets.
  2. Digital society
    Bringing connectivity to the rest of population is a race to connect the whole of society. Initiatives by Facebook, Google, and other great companies are bringing us closer to the visition of a truly connected world. With this connectivity comes the digitalization of many of our daily rutines. Local transport, financial services, education, these are just some key areas. In some places today, and in most places “tomorrow” access to inventory will by forced by huge demand from consumers. An early sign of this might be the waiting time for an Uber in a city with a low penetration of drivers.
  3. User experience
    In a fast moving world only one thing is constant. We still have only 24 hours in a day. Many people complain that they wish they had more time to do the things they enjoy. Some of this “available” time can be gained through a better user experience around accessing inventory. Instead of hanging on the phone for 20 minutes to book a time at a hairdresser you want to be able to tap once and book a slot. On a micro level 20 minutes might not seem as much. It is only when you take the macro approach that it starts to make a difference. Saving 20 minutes every day is a big deal. It makes even more of an impact when you consider the increase in productivity.

Being a B2B SaaS focused VC I am very excited about the future. Starting with hotels and moving down the pyramid we will see many great companies being created over the next years. I’m a believer in a focused approach. This is why IMHO we will see many SaaS companies helping digitalize inventory across various verticals. With all this digital inventory finally available, I am convinced we will also see a number of platforms trying to aggregate it. No matter if you are working on software or a platform — the future is bright.

Written by

I’m a Partner at Innovation Nest, a seed VC fund focused on B2B Software. Helping SaaS founders with growth strategies and tactics.

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