Inside Overstock’s strategy shift from horizontal to vertical

There wasn’t some big lightbulb moment. And there was never a dramatic boardroom meeting where the future was determined ahead of time. Instead, Overstock’s strategy emerged gradually.

When Geoff Atkinson originally joined Overstock in 2005, they were a broad discount retailer that would sell you anything. By the time he left in 2011, they were squarely focused on Home & Garden. 

The reason behind this shift is a fascinating case study in how seemingly small details can have a huge impact: Overstock is a public company worth hundreds of millions of dollars, but their entire strategy turned on a discovery that SEO competition was a little weaker in Home & Garden than other categories.

Geoff Atkinson played a pivotal role in this story. As the SVP of Marketing, he worked with each corporate function to shape Overstock’s strategy through this critical phase of the business.

Today, he shares with us what he learned through it all, and what he’s up to now.

Early Overstock

Overstock was one of the first big eCommerce players. We sold everything you could imagine, from DVD players to wine glasses. 

It started right after the dot com bubble burst. Basically, we would buy inventory from all of the online retailers that were going bust — like Pets.com — and then sell it for cheap online.

It was a bunch of wheelers and dealers back then. You’d get a fax and then meet a guy who knew a guy who had a bunch of flat screen TVs. God knows where they came from. We would just back the truck up with a checkbook and buy the whole warehouse for $50k without even categorizing the goods. 

The company was all about buying cheap inventory, getting it online, and giving people deals. Customers used to come to Overstock.com for the hunt of trying to find a really good deal, similar to a TJ Maxx. 

Initial growth: TV marketing

At the beginning, our main customer acquisition channel was TV advertising. We used to have these commercials that were almost scandalous where a woman would talk about Overstock.com in a sultry way. 

We ran that TV spot for three months and our brand recognition went through the roof. The amount of people that were searching for Overstock really took off, and it made me appreciate the power of television.

But it was still an expensive way to acquire customers. And more importantly, hard to optimize because there isn’t much data for TV advertising. You never know exactly what’s working or why.

Channel shift

I remember the day I heard the term SEO. 

I had a phone call with a search expert, and he explained to me how it all worked:

Google has to index an enormous number of websites to produce the top result for a users’ search. The ranking for the websites takes into account a bunch of things: key terms, site authority, and several other factors. By optimizing your website to let Google understand it better, it gets ranked higher.

I was just like, “Wow. You can just make technical changes to your site so that Google can understand it, and then you get all of this free traffic? That sounds too good to be true.” But as he walked me through it more I started to understand why.

A light went off in my head: our site was bad for SEO right now, but we could make some simple changes that would put us way ahead of the competition. 

So I went to Patrick’s office (our CEO) and told him about all of this. Patrick agreed we should give it a shot, and we went from having a site that was almost impossible for Google to understand to having the perfect site for them. 

The SEO channel literally went from an idea, to a whiteboard, to a project plan, to implementation, to going live and actually working.

Your marketing channels influence your product

By researching the search volume and competition for various keywords, we could see where there was unmet demand on Google (which translated into unmet demand from customers). 

This is how we moved into the Home & Garden category. Brick & mortar retailers like Bed, Bath & Beyond and Crate & Barrel had lots of offline stores, but none of them had a good online presence. It just wasn’t their business model at the time. Online competitors like Amazon and Wayfair didn’t have significant market share in the category yet, either.

Through our keyword research, we found that people were searching for all of these things like bedding sheets, patio furniture and memory foam mattresses. And there wasn’t much competition in Google’s rankings. We saw this as a huge opportunity and moved quickly to create product pages in the Home & Garden category and built out the supply chain to support it. 

We ended up selling so many Home & Garden products that our entire company became known for them. If you think of Overstock today, you can’t help but think of them as a Home & Garden company. That category has become around 75% of the business, and it all began with a geeky SEO analyst sitting in front of his screen.

[Editor’s note: this is a great example of how each element in a value chain is interdependent with all the other elements!]

The Amazon in the room

Of course, the main competitor—in search results and just generally—was Amazon. They are one of the most strategic and intelligent companies out there, and by far the most strategic in the eCommerce space. 

The biggest difference between us and Amazon was that they could go into a category and operate at negative margins. Most of these categories were a commodity business, so the lowest prices win. And Amazon won a lot.

How were they able to operate at a loss? Two things: Amazon Prime and advertising. 

The Amazon Prime membership is 100% margin. When a customer signs up, there’s no additional cost to the company. The customer just has access to Prime services. So while the products themselves might have negative margins, Prime makes up for it. 

Amazon was also the first to really figure out advertising throughout their site. When you search for products on Amazon, the first thing you see is advertised products. For the ad buyers, it’s actually some of the most effective advertising spend because the customer is right at the point of purchase. They’re not just casually searching on Google - they are past that and onto price comparing for an item that they are ready to buy. Similar to Prime, all that advertising money is pure margin for Amazon.

This is what created their flywheel around cheap prices. Amazon offers the lower prices, then more customers shop on Amazon, then advertising becomes more effective with more customer pageviews, and more people sign up for Prime, which circles back to Amazon being able to offer even lower prices.

If you’re the low-cost provider in a commodity business, it’s amazing, and if you’re not, you’re going to struggle. That’s what we realized with a bunch of these categories. We couldn’t compete on price so we had to focus elsewhere.

Amazon was bolder and more strategic than anyone else so we started to proactively identify new categories to go after.

How it all turned out

We were able to successfully incorporate a lot of these ideas into our strategy, too. 

We launched Club O, which gave regular customers free shipping, free returns, and 5% cash back on every purchase, for $20 a year. We also grew our advertising business into a big source of revenue. 

These helped us operate at lower margins and compete with Amazon and Wayfair’s rock-bottom pricing strategy. But it was still tough, because of the difference in culture and financing between these companies.

Overstock was created by Patrick, who is personal friends with Warren Buffet and his father, Jack, was the CEO of GEICO. The company was run with financial discipline. It was different than the go for broke/ growth mentality of Amazon.

Amazon led this wave of companies eschewing profits, raising huge sums of capital, and chasing growth above all else. This is a risky strategy because you have to be able to stomach massive losses. But the theory is, if you can outlast everyone, you will eventually be left with little competition and be able to deliver profits.

This is a hard strategy to compete with.

Now, Overstock is more focused on their crypto business, which started after I left. Last year they even said they’d consider selling the retail business “if it makes sense.”

It’s a little sad to hear, but I’m proud of all the work we did. We grew SEO from zero to a $300 million dollar channel, and in the process, shaped the entire company’s strategy.

Huckabuy: solving technical SEO

After spending seven years at Overstock, I decided to take my next step. I liked working with small, growing businesses and had learned a lot about SEO, so I started Huckabuy. 

At first, it was a comparison shopping engine. We would drive traffic to the site using content, then monetized through a bunch of affiliate links that compared different products. 

Shortly after we started it, Google flipped the switch on affiliate sites and our initial business model was broken. We weren’t ranking very high anymore and our affiliate revenue tanked. 

However, along the way we had built some software to automate a few technical aspects of our SEO strategy. By chance, a few companies reached out to ask about licensing our software. And that lucky break is why Huckabuy is a software company today. 

The original product was the automation of structured data markup, which Google relies on to understand your site more clearly. They also use it to power things like the knowledge graph and voice search. Finally, Google rewards the use of structured data by qualifying your content for “rich results” like ratings, reviews, FAQs, and videos embedded in the search listings to help your website stand out from the competition.

Another thing we help with is dynamic rendering. Google made a big change when they announced that you could provide an optimized version of your website, just for them. That’s what our SEO Cloud software is for. It takes a crazy page that has 100 JavaScript tags and converts it into a flat HTML version that Google can read. And low and behold, if you give Google what they want, they’ll send you a lot of traffic.

SEO services is a $75 billion industry but has an NPS of zero. You’d rather go to the dentist then deal with your SEO agency. The problem is the agencies don’t have the technical chops or access to make the fundamental changes that cause growth and they end up using old school tactics that just run up the clock. 

You can sustain a moat in SEO just by listening to what Google is saying. If you stay ahead and are aligned with where Google is trending, you’re on a good track. And that’s what we do at Huckabuy. 

Geoff Atkinson is the CEO of Huckabuy. You can follow him on twitter @geoffatkinson.

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