A Nourishing Storm
November 10, 2006
Aliza Earnshaw, Portland Business Journal — View Original Article
A small Portland company whose software has multiplied profits for its customers is now making money itself.
Monsoon Inc., formed four years ago using its founders' Best Buy credit cards, has been running profitably for two months. The company is also delivering the kind of growth its investors have been hoping for, doubling revenue this year and expecting to double again next year.
Monsoon's solid results have come after a significant change that slowed revenue temporarily, and after it raised $1.8 million in its first round of outside investment.
"We're beyond survival now," said co-founder and CEO Kanth Gopalpur. Monsoon, named for the heavy Indian rains that turn the dry fields of Gopalpur's home state of Karnataka, India, into a fertile rice bowl, is slated to expand over the next 18 months, both by hiring and by pushing into new markets.
Monsoon started out by creating software to help small companies -- some as small as one or two people -- sell books and electronic media such as games, CDs and DVDs over the Internet.
The software helps small sellers manage their inventory listings across multiple Web sites such as Amazon Marketplace in the United States, United Kingdom and Germany; Ebay Stores and Ebay Express; Alibris, Abebooks and Half.com.
Monsoon has "plenty of competition," according to Forrester Research analyst Tamara Mendelsohn. As consumers turn increasingly to the Internet to shop and compare prices, the marketplaces where small sellers offer their wares are increasing sales. In tandem with that, the market for software to manage an online business is growing, too.
But Monsoon offers an extra edge that others don't. The software surveys the entire marketplace at regular intervals, automatically repricing a seller's inventory in response to current pricing.
That facility assures inventory will move quickly, which is key to making money, said Greg Schwabe, a bookseller in Simi Valley, Calif., who has been using Monsoon's software for three years.
"Books are a commodity," said Schwabe. "You have to be the lowest-priced, or among the lowest, to move the book." Schwabe has his program set to reprice about 5,000 books every night. "We are turning them a lot quicker" since he started repricing regularly, he said.
Schwabe is also making more money. Books sell for 10 percent to 50 percent more on Amazon's German and U.K. Web sites, and Monsoon's software sets different prices for the same book, depending on where it is listed.
Between the efficiencies Monsoon brought to Schwabe's operation -- it enables rapid scanning of books into the inventory system, enabling sellers to handle many times more -- and the repricing utility, Schwabe's operation has tripled its sales and increased profits while increasing staffing by just two people, to a total of eight employees.
Gopalpur and founding partner Clark Hale, vice president of premium services, acquired their online bookselling experience working at Powell's Books. Gopalpur built the Powells.com site to the point where it now accounts for almost 30 percent of Powell's total sales. Hale developed a number of different systems for Powells.com, then moved with Gopalpur to music seller Django's, where the pair again built a successful Internet business.
Now the founders are moving Monsoon's software beyond books and electronic media to other markets. The company already has customers who sell electronic goods, tools and hardware, and office supplies. Monsoon is just beginning to work with automotive parts suppliers, adapting the software for that market.
In some of these new markets, pricing may not be the most important element. Printer cartridges and auto parts, for example, have to be carefully matched to product model numbers, to make sure a customer has ordered the right one and to help avert returns.
Powell's Books owner Michael Powell, who has invested in Monsoon and sits on the company's board, is confident that the company's software can be as useful in other markets as it has been for books.
"It's a sophisticated tool, and there are many success stories," he said. Though Powell's is not using Monsoon software now -- it was originally designed for much smaller sellers -- "we are in constant touch with Kanth to see if we could use it," Powell said.
Monsoon's new business model makes it easier to approach new markets where its products are not yet as well known as they are in the online book world.
Two years ago, the company was selling its software at prices that were prohibitive to small sellers, ranging from several thousand dollars to $50,000.
Monsoon switched tactics, and now sells its software for $1,000 to $8,000, depending on the level of complexity. The company also takes 3.5 percent to 3.9 percent of its customers' sales.
"Our transaction fees are higher than anyone else's," said Gopalpur. But the low up-front price makes it easy for smaller sellers to buy the technology.
The switch-over caused revenue growth to slow in 2005, though even then the company grew 25 percent.
Now Monsoon has both reliable recurring revenue and increased sales, because of the lower entry price. That should help them get into new markets, said Dennis Powers, a local management consultant who invested in the company.
"It allows the customer to get in at a lower cost and then migrate to the premium product," he said. "It's a better business model than when I first invested."
Both Powers and Powell like Gopalpur's conservative approach to business: focusing first on a single market and using that to refine the business model before moving on to new markets.
It also helps that Gopalpur loves a bargain. He has moved the company three times, each time finding an inexpensive sublease.
One move gave Monsoon not just space, but all of its furniture, purchased for "pennies on the dollar," Gopalpur said.
"Investors always like that," said Powers.
