Card Stores, Odeko, and Acquisitions
the hottest SMB market: gambling on Pokemon cards
Rough guess: what do you think the sports and trading card market is valued at? The answer is more than you think. Potentially vastly more. It’s in the tens of billions.
There’s a mixture of players in the market that I’m hoping to do a deep dive on soon, but the market structure and its growth has fascinated me. A lot of the action is concentrated around Pokemon cards. These Pokemon cards usually retail for anywhere between 4.50 dollars a pack. Good luck getting them at that price!
Allegedly, every single time these cards are stocked at a large retailer, they are sold out within minutes. Subsequently? It’s not uncommon for card packs to be priced at 2-2x their MSRP. This is for one key reason: your pack might contain a card worth several hundred dollars. And because even trading card markets are somewhat rational, pricing trends towards the discounted future revenue from your card pack.
Many of these cards show up online, but most of them are showing up at local card stores. If you walk into a card store right now, there will be anywhere between 10-20 people hanging out, ripping open packs, and haggling with the store employees for individual cards.
There are now thousands of local shops (at least 5,000 but likely far more) with seemingly unimpressive retail footprints, but are easily raking in $2-3m in topline revenue a year. How long does this all last? I’m not sure. Let’s explore more in a deep dive this week. My initial hunch however is that it will last longer than you think and it points to several trends that others have written about.
Third Places (a millennial buzzword to mean a spot to hangout with friends) are growing in importance. Hanging out at the card shop is a new pastime.
People want to work for themselves and have fun doing it. You know what’s fun? Constant dopamine hits from negotiating card prices. This experience is so fun that one of the top performing games right now is a trading card shop simulator.1
Physical goods in a digital world: Trading cards seem to resonate because they have value as a physical artifact. You either own the HoloFoil Charizard or the Mickey Mantle card or you don’t.
We will dive more into the landscape and what it means for thinking through SMB formation later this week.
Odeko
Odeko recently raised $126m in Series E funding. It’s a company that has flown somewhat under the radar but that has a very cool product and a strategy.
Odeko helps SMBs, specifically coffee shops, with one of the problems that gives owners headaches: keeping inventory in stock and handling the ordering process.
Starbucks and Chipotle have teams to optimize inventory levels, known suppliers to hound, and robust supply chains that are optimized. SMBs? They have a local grocery store to run into if the milk gets low. But when you as an SMB have a dozen things to think about every single day, anything you can do to remove the mental cost of thinking about inventory is a massive deal.
And that’s where Odeko came in. Odeko is a supply chain for local SMBs focused on overnight delivery. In order to solve for overnight delivery, you need a few core competencies.
A tech-led way for SMBs to order goods. Odeko solves this through a SaaS solution.
A robust way to deliver goods overnight: Odeko solves this through buying and building local distribution facilities.
Odeko doesn’t get airtime for being a tech-enabled rollup, but that’s a part of how they have assembled scale.
And I love how they think about it. What they have solved with their operation and technology is a far better way to secure consistent usage of their distribution network than legacy distribution facilities. That in turn increases the value of every distribution point you add to the network, makes forecasting demand far easier internally, and that in turn unlocks capital that you can put to work growing the network.
Acquisitions as Repositioning
Here’s a question:
Why are large companies acquiring AI companies at seemingly high rates? Because at first glance, this would seem like a bit of a narrative violation.
Everyone knows certain reasons: Accelerate R&D, talent acquisition, GTM success, etc. But, here’s one (speculative) reason that may get more airtime over the next few years:
Buyers know what they are getting with SaaS. They’re getting a product to manage a specific set of data or workflows. They have a software budget for this category. They are aware that they will have to manage the solution, fill it with data, and ultimately still perform most of the work associated with whatever workflow they are accomplishing.
AI companies are selling more of a service. It does the work and it’s better to treat it as a coworker or a service provider. Historically that is budget that SaaS companies have not been privy to. The key question is then: to what extent can SaaS companies capture service budgets and get their buyers to see them in that light? You could potentially build a service offering. But what if your buyers don’t perceive what you are doing? After all, you’ve been a software provider for a long time.
Well perhaps the right answer is to acquire. It might be far easier to message “we bought this AI solution that is transformative for how you perform medical billing” vs. “we built this AI solution that you’re going to treat as another feature of our platform.”
Both can work, but I do wonder if this becomes a material trend to help reposition SaaS companies and their product lines going forward.
That’s all for Tuesday! Plenty more content coming down the pipe so make sure to subscribe.
Perhaps Steam simulators are a leading indicator for growing sectors. Who knew!