Hats Off: An E-Tailer Who’s Doing It Right

When each of your 200,000 customers gets a hand-signed “thank-you” note in every order box, you’d think they’d notice. Sadly, according to Darryl Collins, CEO of Belfast, Ireland-based online video retailer BlackStar.co.uk, “People don’t really realize how good we are until something goes wrong.”

That’s certainly true of this reporter, who called to say that a video had arrived that wasn’t working. In an hour I got an e-mail apologizing rather profusely. The next day I got a phone call, saying, “We’re very sorry, but we’ve had to special order the replacement, it should be here tomorrow.” And a while later, an impossibly indecipherably Irish accented voice called to tell me that they’d express-mailed the replacement.

“Let me get this straight,” I said, “you’re saying that this problem, which you had nothing to do with, rates one e-mail, two long-distance phone calls and free upgraded shipping?”

Yup. And another e-mail followed, confirming that the order had been shipped.

Now that’s customer service, and it might be the reason that in the crazy, mixed-up, topsy-turvy world that was the e-commerce private equity market this June, BlackStar wrapped up a second round of financing to the tune of €6.2 million.

This is a company to watch.

BlackStar took on a niche in what may have seemed to others to be an impossible-to-conquer market, competing against a certain e- commerce giant named after a swath of Brazil, Columbia and Peru. BlackStar moved on the fact that an online source of PAL-formatted videotapes was lacking in the UK. Amazon.com’s primary market, the US, sold tapes formatted in the US NTSC standard.

That was back in early 1998. And in the same fashion as Amazon founder Jeff Bezos, the team that would become BlackStar had been working to figure out something web-related to do since well before then. When Collins, a former film producer, along with a pre-Netscape era web developer Tony Bowden and former ad-man Jeremy Glover, saw their chance, they pounced, launching the primordial BlackStar site in March 1998.

The corporate history says that they slapped up the first website in just seven days (they make a joke about one of the team having a theology background, but others have run with that so we won’t stoop so low) and within the month they had £2,000 worth of sales. Although Collins refuses to say anything about revenues other than that they’re “substantial, ” sources close to the company confirmed that monthly revenues by this November are in excess of £1.25 million and growing.

In August 1999, BlackStar finally got around to their first venture capital investment, raising £3.8 million from Atlas Venture and Tarrant Venture (an arm of David Bonderman’s Texas Pacific Group). This June, they raised that £6.2 million through IBI Corporate Finance, Dublin, which is planning to fund the business to profitability in 2001. Backers of that second round included Atlas Ventures, Tarrant Venture, Goodbody’s Stockbrokers and a range of private investors through Davy’s Stockbrokers in Dublin.

The stats are impressive: With 100 employees in Belfast and in London, BlackStar claims well over a half million unique visits and more than 6 million page impressions a month and more than 200,000 customers.

Collins credits much of this to the aforementioned customer service, in addition to the fact that worldwide postage is included in the price. “In the beginning, we didn’t have any money and had to be different, and we reckoned that the attraction of buying online was superb,” he said.

“But when you got to the end and someone slapped on $10 for shipping it gave the customers one final ‘do-I-really-want-this’ hurdle before they clicked the ‘buy’ button. So we said, ‘let’s be a bit smarter.’ The price on the site is the one on your credit card, and psychologically it works very well.”

That great customer service platform, by the way, was developed in house, and is constantly under refinement. But the company doesn’t plan to re-license the software it created, effectively cutting off a large potential revenue stream. They fear that licensing software would put them in the position of making it look pretty and dealing with customers who won’t be as forgiving of the system’s bugs as are BlackStar employees, who put up with the constant tweaking and the prioritized bug fixes as a matter of course.

BlackStar said that it will continue doing what it does best: making money by passing on good deals it negotiates with the studios, offering good value (its mainstay offer is a 20% discount on pre- orders, which are delivered on the day of release; others include two-for- one and three-for-£20) and especially keeping up standards of customer service.

Customers seem to notice. BlackStar has added 50,000 customers since July, and people seem to notice the good service. As e-tailers spend hundreds to earn tens, and burn through cash like, well, like e-tailers burning through cash, it’s highly refreshing to see a company paying attention to the basics.

The natural question, then, is when is the company going public? It had planned initial pubic offering on the London Stock Exchange for late this year, but announced in July that it would postpone until market conditions improved. And at the same time it touted the fact that it managed to raise more than £6 million at a time when vultures were circling a bloodbath of tech stocks.

In the past BlackStar has shown another encouraging sign – patience. It waited for a first round of funding until revenues were solidified and for a second round funding until expansion was justified. So there’s reason to suspect that postponing the IPO wasn’t cowardice, but rather cunning.

Stay tuned.