Overstock.com on Bitcoin
At the beginning of the year, Overstock.com sought to adopt Bitcoin as a payment processing method for their business.
“On January 1st, our people said they could do it within 10 days if I gave them enough people,” says Byrne. “So we put a team of 40 people on it. We locked them in a room and slid pizzas under the door, and gave them hotel rooms when they needed them. The technique of swarming to form a team was incredibly efficient.”
This is a company that did $1.3 billion in sales in 2013. They added a completely new payment method to their site in 10 days, including legal, and front end user interaction. That's pretty great. I wonder what their results have been?
Well, we found out. From the Coinbase blog, Overstock's Bitcoin processor:
"Today, we are excited to announce that Overstock.com has surpassed $1,000,000 of sales in bitcoin transactions."
Not an enormous amount, considering the overall sales expected in those 50 days. Quick napkin math says that Bitcoin sales probably amounted to a little over 0.5% of Overstock.com's sales during that period of time. What else?
"The average order size for a bitcoin customer ($226) was 34% greater compared to customers paying in USD ($168)."
That's pretty good. More than that, it's huge – but we can honestly chalk that up to the exuberance of people with a cause trying to promote it. Also, possibly people who have recently come into more money (Bitcoin's rapid rise in value over 2013) being able to spend it in a legitimate fashion.
"...over half of all customers paying in bitcoin were new to Overstock.com (58%), having never purchased goods from the site before."
Well that's pretty fantastic, actually. That means that nearly 60% of the growth from Bitcoin adoption is straight revenue growth, and didn't cannibalize from existing customers. However, we can still probably attribute these gains to people having a great outlet for their new-found wealth, can't we? It seems the most likely explanation, but it is still great for their bottom line.
What I was most interested in, though, was what this did for Overstock.com's payment processing. Bitcoin has the nice advantage that it doesn't require the traditional clearinghouse pricing - so let's see what that saves them.
"Net profitability has also improved, with processing fee for bitcoin transactions averaging less than 1% vs. ~ 2.2% plus $0.20 for credit card card transactions. For a low-margin, high volume business like Overstock.com, these savings are substantial and, ultimately, return greater value to shareholders."
Of all of the information presented, this should be the most exciting to businesses thinking about adopting Bitcoin processing: it literally saves you more than 1.2% on every single purchase. Think about the math behind that for a company like Overstock that did $1.3 billion in 2013, with a net income of $88 million. If they were to convert those sales to bitcoin, that 1.2% would have amounted to $15.6 million, or a 17.5% benefit to the company's net income for the year. That is absolutely staggering.
I think this is what I find most frustrating about explaining what Bitcoin does for business. The second it gets mentioned in conversation, people tend to be in one of two camps:
- "A fad, not real money, have fun getting your stuff stolen, hur hur hur." folks.
- "Yeah, bitcoin's awesome, I can't wait for its value to go to the moon!" folks.
I'll admit I used to be in the latter category, however, it's become extremely clear that the value of the currency is not as a store of wealth – its value is as a medium of exchange, the actual use of currency.
Even for a small business doing $2-300k in sales, rolling over to Bitcoin for processing could add up to $2400-3600 yearly if VISA/MasterCard purchases were swapped over to Bitcoin purchases. That's a lot of money for that kind of shop.
If Apple were to have adopted Bitcoin, imagine how much they could save on credit card processing for iTunes, where they try and group your purchases for a day or two so that they avoid eating processing fees on every single song or app purchase. $.20/transaction adds up fast when you're selling billions of songs and apps.
Widespread adoption is not going to happen overnight, but companies like Overstock.com are starting to show how Bitcoin can substantially improve a company's bottom line.