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Applebox - Sunday Surprise

We had a few late entries for the registration, most of them made it into the final list but a few missed out. So we thought let us cover them as a surprise package. These entries are not eligible for participation in the competition. So today's surprise entry is APPLEBOX .
Startup, Australia, Consulting, Venture
APPLEBOX is the easiest way to rent DVDs ever. It operates as a local store giving customers immediate access to find and watch DVDs as they always have, but our entire catalogue is online which means as well as browsing in-store, customers can browse and make selections from home or work as well. It has dramatically reduced the barn-like size of a Video Ezy to a small comfortable space without the racks and shelving.
All the stocks are held in high-density, behind-the-counter storage, and when customers find and select a movie our system allocates an available disc to them. The selected item is available for them to pick up by the end of the day. Search, book, pickup ... simple. The system operates in real-time, so if a movie is unavailable the storefront will place a red Out banner over the cover art.

This was created by sole founder Simon Gilligan. He describes:
Customers no longer need to walk along 50+ meters of racking to find a movie; Browsing is intelligent (by genre/actor/director) and with hi-res cover art (so there's no squinting at thumbnail images); Families/Couples/Friends can all a choose movie to watch from home without arguments and calls from the video shop 'Have you seen this?'; Our in-store experience has finally broken the 80's mold of a local video store and it looks and feels great!

Our reduced floor space (30sqm vs a typical 160+sqm) means lower fixed overheads, our high-density storage means greater stock carrying potential, and intelligent search gives new visibility to the long tail which is otherwise untapped within the traditional video store. Member activity is moved online and members are seeded into a community that will span all APPLEBOX stores and grow as new stores are added to the group. Members will also be able to rent movies across all stores giving them future access to a library unrivaled in size by any competitor.

Simon gives us more insights into his startup.
Q. How it started?
A. I had the idea of moving the local video store online over 5 years ago. It seemed like a logical evolution, but a step that none of the major chains had experimented with. Industry discussion about the future of home entertainment continued down the lines of Video on Demand (VOD) and mail order, but still no insight into how the local store (still the backbone of the industry) could be improved. 3 years ago I wrote a business plan to crystalise ideas and messed about with a prototype storefront. Still, no one had innovated with the local store, no one had tried this model, and by most reckonings, if it hasn't been done before it's a dud idea! Yet, with a mixed future of DVD rental and VOD coming down the line, it seemed to me the opportunity was strong to unseat traditional video stores as their margins become squeezed over time. APPLEBOX with its significantly lower overheads could grow as a viable offline delivery business in spite of the mature stage of the market, and slowly contracting revenues. Importantly, by moving members online, APPLEBOX could create a strong social community and still be in the game for future online developments.

Rather than sell the concept (and pick up the development) to Video Ezy/Blockbuster, I decided to bootstrap the business myself, create a flagship store and take it from there. I quit my day job and went onto APPLEBOX full-time.

Q. How long it took before it was up and running?
A. 2.5 years from committing full time to the project to the doors opening on my first store in September '07 (currently the only store). 2+ years of software development is quite scary, and totally against the Web 2.0 mantra of bang something together quickly, getting it out there and improving quickly. However for APPLEBOX to function it needed its own content management system, storefront catalogue, membership system, finance platform and operational data feeds. Plus time was spent putting together an application platform that I now re-use on other projects and consulting gigs.

Q. What stage of your start-up is, stealth mode, beta mode or fully functional?
A. Fully functional.

Q. What is the main objective/mission behind your venture?
A. Make APPLEBOX the easiest way to rent DVDs ever! I want to generate real competition for Video Ezy, so the advantages and services APPLEBOX delivers must be compelling.

Q. What services does it provide for consumers or customers?
A. DVD rental

Q. What is unique about your venture?
A. New convenience to renting DVDs locally. Customers can rent online (from home or work), yet the pickup can be immediate. Traditional video stores (eg Video Ezy) don't offer this convenience, and mail-order models (eg Quickflix) impose delayed delivery times that make spontaneous renting impossible.

Q. What market segment verticals you are targeting?
A. home entertainment, DVD rental

Q. What type of customers you are targeting?
A. All movie renters, but primarily those that are net savvy with broadband connections.

Q. What age group of people will benefit most?
A. All ages. We have reduced mobility pensioners who love APPLEBOX because they don't have to shuffle around a large store handling DVD covers (we've even taught a few how to use a mouse). We have kids who love making their own collections of movies and parents who love not having to drag 3 kids up and down isles. We have funky Gen Ys who do ALL their stuff online and pop into the store for a 2-minute pickup.

Q. How many users are using your services?
A. We have just hit a thousand registered members and have been open for 5 months.

Q. What sort of marketing you are using to spread the word?
A. APPLEBOX is 'hyperlocal' which means our target audience is geographically local to our store. We market through local school support, advertising in local rags, and letterbox drops, organise/sponsor local events and gain huge coverage through word of mouth.

Q. How are you measuring the success of your venture? Are there any special mechanisms/tools in place to monitor the progress?
A. Our success translates directly to our rentals and earnings. We measure website traffi
c via logs, frequency of access and duration between rentals. We'd like to measure more - for eg mean time from login to rental, number of logins with no rental achieved and so on.

Q. What is the monetizing/revenue model? Is there any new model, that is being tried?
A. We earn cash per DVD rented. However, our real strength is operating with reduced fixed overheads. With a similar turnover to any standard video store, it's our reduced fixed overheads that give us new profitability.

Q. Which are the main competitors or major players in this market segment?
A. Main competitors are :
  • Video Ezy, Blockbuster, Civic Video and any other local video store
  • all retail outlets offering DVD sales eg Coles, Woolworths, JB HiFi
  • Quickflix and BigbondMovies.
Q. What are the main technologies used behind this start-up?
A. The technologies we use are a J2EE backend (with hibernate/spring/acegi/axis frameworks, Apache, MySQL and JBoss). Our development process is model-driven using UML (modelled in magicDraw) and the generator Andromeda to deliver our services architecture. Our storefront is a custom stateless html/javascript client (a paradigm variously referred to as Serverless AJAX, SOFEA - Service Oriented Front End Architecture or SOUI - Service Oriented User Interface), and we use the domAPI widget library for our GUI controls (buttons/sliders/animations and grids/tabs/treeviews for our internal systems).

Q. What has been the easiest to use, out of the box and most helpful technology?
A. Google apps. Our email, documents, and spreadsheets all run through Google apps that allow us to work remotely and manage an operational DVD store without any dedicated in-store infrastructure.

Q. Are you using a lot of open-source toolsets for this?
A. Lots. Our J2EE stack (hibernate/spring/acegi/axis), MDA generator (androMDA), Firefox as our main browser development platform, our application infrastructure (apache/mysql/JBoss), our production OS of Linux are all open source.

Q. What is your operating environment (operating system) and what type of database you are using?
A. We develop on both OS X and Win XP, deploy to SUSE Linux and run MySQL.

Q. How often do you catch up with others trying similar things and where do you catch up. Do you have dedicated communities in your city?
A. Rarely catch up with others beyond my immediate connections, and I'm not aware of any ongoing dedicated communities here in Melbourne. Which is a shame. Sydney seems to have a more sociable startup community than Melbourne. Whilst there are plenty of Melbourne startups, no one seems to have spearheaded a regular meetup (unless I've missed it!)

Q. How much money is needed upfront to start a venture?
A. Enough money to take you to break even (or a funding event)! That's going to vary per venture of course. APPLEBOX has 2 aspects to it, one is software development and the other is setting up an operational retail space. As founder and core developer (of 2), 2 years of my time is 2 years absence of wages, but in absolute terms is the minimum I can live on whilst servicing existing debt and drawing down on my mortgage (yikes!). It is however a significant saving on hiring developers to do the work (at the expense of time to market), and for me was the difference between getting the venture off the ground or not. Setting up our first APPLEBOX retail space including stock, wages, and time ... we were lucky to get away with it for about $80k. Then we need enough cash in hand to tide us through to break even on the first store.

What are the main barriers in general for people starting their venture in Australia?
Lack of small-cap entrepreneurial support = funding. I haven't pursued funding as yet, but it seems angels/VCs here don't really engage in the startup space. That probably comes from the limitations of their own funding structures, reduced time in the game and maybe a perception that Aussie products can't go global?

Q. What are your thoughts on the future trends of your service and the market segment you are in?
A. Could write an essay on this one! The DVD rental market is mature and over the next 10 years will rationalise as rental revenue slowly contracts alongside public uptake of more retail and emergent VOD. The final balance between physical rental, retail and VOD is up for debate, although one thing is clear - the heyday of the 300 sqm video store earning big dollars on rental is over. The market has already turned and the traditional video store needs to adapt. Rental margins are falling, and lease and labour costs are rising. Downsizing isn't the answer, as reduced stock holding reduces a store's capacity to earn. The APPLEBOX model on the other hand offers new retail opportunities with reduced floor space, reduced labour costs, cleaner/greener operations and co-location potential. We think this can carry local rentals through for another 10 years, and in the meantime move members online, ready for future developments.

When most analysts look at mail order and VOD developments, they fail to recognise the absolute behemoth that local video stores are today. Admittedly they are a ramshackle bunch, fragmented in ownership and operation where a member can't even borrow from another store in the same chain. However, they collectively hold close to 5 million active memberships across the country. Being generous to mail-order companies (Quickflix/BigpondMovies), who might collectively hold 100,000 members, that's still only 2% of the local store market. The numbers are staggering and it will take a significant amount of time for even the most fantastic VOD experience to make inroads. Additionally, with Blu-ray victorious in the high-definition war, a future of high-capacity discs and outstanding playback resolution will create a benchmark that pirated content and VOD will need to meet (which in our broadband-crippled country, may take some time to achieve).

Q. Do you have any advice for people who want to start their venture?
A. Believe in yourself and don't listen to the naysayers. Keep your vision strong but be brutally aware of the steps needed to get there. Be prepared to do everything but don't try and do it alone.

Thanks, Simon for sharing your thoughts. Unfortunately, we can't add your venture into the competition, but we look forward to hearing from you in future on the progress of Applebox. All the best.


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