Seattle, Meet Shopobot: Amid Amazon Sales Tax Fight, Comparison-Shopping Startup Flees San Francisco
Seattle has already birthed a couple of early stage companies trying to help shoppers track the price swings and model rollouts of expensive electronic gadgets. Well, add another one to the mix—thanks in part to the national battle between Amazon.com and big-box retailers over collecting taxes for online sales.
I’m talking about Shopobot, which just set up shop in the TechStars/Founder’s Co-op building in South Lake Union, right next door to Amazon. Shopobot crawls product and price data around the Web and helps shoppers decide where to get the best deal on cameras, laptops, TVs, and other products.
The company got started in January when co-founder Dave Matthews (no, not that one) left his job at Microsoft and moved to the San Francisco area to join co-founder and longtime friend Julius Schorzman, also a former Seattleite. They originally were targeting book shopping online, until Matthews’ passion for photography led to an experiment tracking the price of camera gear. Voila! Shopobot’s mission was clear.
The startup got into the AngelPad accelerator program, and landed seed investments from Google Ventures, AOL Ventures, and others. The company’s public rollout was covered in the New York Times and other media.
With Seattle entrepreneur Dan Shapiro selling similar startup Sparkbuy to Google this spring, and Farecast co-founder Oren Etzioni now tackling electronics shopping with Decide.com, it was clear that this was now a hot area for startups to focus on.
So, everything seemed to be going fine—until the state-by-state battle over online sales tax collections re-emerged in California.
As I wrote in March, recession-hammered state governments are starting to eye online sales as a juicy source of revenue. That’s a problem because, until now, the national laws governing online sales tax collection meant that there was a pretty narrow set of circumstances in which officials could force a company to collect local taxes on its sales in a given state.
Amazon has been very aggressive in making sure the number of states in which it collects sales taxes is low, but bigger bricks-and-mortar retailers hate the price disadvantage and are pushing hard to make online sellers collect sales tax in more places.
In late June, California officials passed a law trying to force Amazon and other online sellers to collect sales tax on purchases from Golden State residents. Amazon promptly followed through with its threat to drop some 10,000 affiliate businesses, third-party portals that market Amazon products through their own sites.
That included Shopobot. Just like that, a major source of revenue for the little company was gone, stuck in a political battle between very big players. “All of a sudden, we were getting contacted by stores saying, ‘You’re located in California, we don’t want to work with you anymore,'” Matthews says.
Shopobot isn’t the only startup caught in this firing line. As Xconomy’s Wade Roush wrote in early June, online marketing company VigLink (also backed by Google Ventures) has faced similar questions about its revenue because of the sales-tax fight.
Shopobot’s Matthews and Schorzman didn’t have too many options. With the legal battle making their revenue source so uncertain, and with a strong background in the Seattle area—where Amazon already collects sales tax—they quickly decided to relocate to the Northwest.
“We could have gotten by without that source of revenue for a while,” Matthews says. “But just looking forward as a company, we didn’t want to have to fix this problem next year, or when we’re in the middle of a round of fundraising. We decided it’d be easier for us to solve this now while were small.”
Once the decision was made, the pair of entrepreneurs didn’t waste much time. They gave notice on their apartments, loaded up a truck, and headed up to Seattle. They’ve already made a hire here—a former Amazonian, actually—and are looking for more employees as they refocus on building the product. They moved into the new office the day after Labor Day.
The “punch line,” as Matthews says, was that California lawmakers and Amazon have now cut a deal that puts the entire sales tax question on hold for another year. But there’s still no certainty it will get solved in the next 12 months, with Amazon so intent on a national-scale solution that would essentially raise taxes on online purchases, and an upcoming presidential election cycle.
“And no, we’re not moving back to San Francisco,” Matthews says with a smile.
With all that turmoil behind them, Shopobot is back to work. Matthews says it’s hard to believe that something as apparently obvious as better product price-tracking hasn’t been solved yet, particularly with all of the experience in disrupting travel shopping that’s now old hat for consumers and businesses alike.
“The shocking thing is really that there isn’t a clear winner,” he says. “You don’t think of what app you use to shop online. You just go to a Web browser. It’s kind of amazing that this is still an open opportunity to really nail this, to take online shopping and really fix it from the user’s point of view.”