Video chat startup Lutebox dumps plan A, goes shopping

What do you do when you realize that everyone else is doing what you want to do, but they’re doing it better? That’s the problem that that Ali Ahmed, the CEO of London-based video chatting startup Lutebox has been staring straight in the face for the past few months.
The service, which went into alpha last September, had been building for a while around a simple-yet-complex idea: talking with your friends while you all watch a premium video online. Then along came Google+ (s GOOG), with its hangouts. And then came Airtime, with its idea of videochats around shared experiences.
Suddenly things looked a little trickier. Ahmed’s response?
Change direction and raise $500,000 from a syndicate of private investors to keep pushing the service into a new shape. The new, reinvigorated Lutebox — which goes into open beta on Wednesday — is no longer organizing itself around video, but instead wants to tap into another buzzy trend: social shopping.
“What we realized,” Ahmed told me, “Was that we didn’t have incredibly valuable content, and that we couldn’t afford to get it. We’re not Netflix (s NFLX), who can afford to pay millions to Warner Bros or Fox to get the latest movies.”
Instead he took cues from Pinterest and Fancy, developing a platform where you can talk to your friends about things you want to buy. You can see where he’s coming from: shopping in real-life is often a social experience, where you show your friends what you’re interested in and make collective decisions. What if that could apply online too?
To be honest, though, this is not actually as radical a change for Lutebox as it may seem: the core of the product is still a videochat service, where you can talk to up to six friends simultaneously about what’s on the page in front of you. The difference is what the subject of your chat can be. Now the site has added a shopping mall, where you can search for items from a range of different retailers (all U.K.-based at the moment) and discuss them with friends.
That means it’s got a better commercial model (Lutebox doesn’t have the same up-front costs as it did for video, and earns affiliate fees on every purchase made through its service) but it still faces some substantial obstacles.
The first is a broad one: is videochat really what people want to do? So many people have thrown themselves onto this bonfire, and yet — unsurprisingly — they’ve nearly all ended up being burned. While they may prove useful from time to time, videochats remain a niche pursuit. And videochats about specific topics narrow the field even more. Even Airtime, which had been hyped thanks to the involvement of Facebook (s FB) investor Sean Parker and Napster creator Shawn Fanning, met with a muted response.

And then there’s the platform problem.

Lutebox is not a plugin that allows you to launch a chat on, say, an Amazon (s AMZN) page. No, it requires you (and your friends) to be signed in to its service, and looking through its own catalog of stores. That means it has to become a destination, something which will require some serious and work to reduce the friction. The search needs a lot of work, the discovery requires some deep thinking, and the inventory needs to be carefully managed.
And if wants to follow in the footsteps of Pinterest and the like, I suspect that is going to need to appeal deeply to a specific user base, which means it is going to have to narrow itself even further to get more items in from specific, more popular stores. For example, I can see it having some use for fashion retail, but probably not for purchasing electrical equipment. Right now it’s a grab bag of items from across the board.
Still, it’s only just gone into beta — so there is clearly time and now money to work on improvements. If the site can overcome the natural inertia of videochat — perhaps by allowing people to talk not just with their friends, but also trusted guides (why not launch a chat with a fashion stylist, say, for advice on the dress you’re looking at?) it may be able to carve out a corner of the market.
And if it can partner with a retailer to produce a white label service, that may have some value too. (Ahmed says it’s a possibility, but he is not talking to retailers about it yet).
So, plenty of challenges. But I’ll give them time to take a breath: right now they’re still reeling from the decision to shift from video to shopping.
“The stress around the decision to pivot, it’s tough because you’ve invested so much time and energy and belief into something,” Ahmed told me. “We had 250 testers in alpha, who were using it a lot — but it was a realization, more than anything, that it wasn’t useful for users. It all boils down to that.”