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ReplyYes just launched a second channel, Origin Bound, selling graphic novels via text message.

A new Seattle company called ReplyYes, a Madrona Venture Labs spinoff specializing in technology for buying products via text message, is emerging from stealth mode today with the news that it has raised $2.5 million in funding and reached $1 million in sales in eight months through its first “conversational commerce” channel, focused on vinyl records.

Dave Cotter

The early momentum shows the potential of artificial intelligence chatbots, supplemented by human agents, to engage with consumers and adapt to their preferences over time, said ReplyYes CEO Dave Cotter, the Seattle startup veteran, SquareHub co-founder and former Amazon general manager who is leading the new company.

It’s part of a growing trend toward text-based chatbots for e-commerce and customer support. Facebook this week announced a chatbot platform that lets businesses offer automated customer support via its Messenger platform. Microsoft recently demonstrated the ability to use a chatbot in Skype to book a hotel room, as an example of the tools it’s offering to software developers. Madrona is also a backer of Peach, the Seattle startup that uses a similar text-based approach for lunch deliveries.

ReplyYes’s first channel, The Edit, has 45,000 users, Cotter said. Each person get a daily text message with a personalized vinyl record suggestion. Users can reply “yes” to purchase the item, or help the chatbot learn their preferences by responding “Like” or “Dislike.” If users have more complex requests or needs, a human agent takes over to help.

A personalized vinyl record pick from The Edit, the first channel from ReplyYes.

“It’s ridiculously frictionless,” Cotter said.

The company has just launched its second text-based storefront, Origin Bound, which applies the same approach to graphic novels. ReplyYes plans to ultimately support hundreds of retail channels based on its chat platform, including its own channels and others from third-party retailers.

ReplyYes was spun out of Madrona Venture Labs, the startup incubator operated by Seattle-based venture capital firm Madrona Venture Group. ReplyYes announced today that it has raised $2.5 million in funding from Madrona, Lowercase Capital, MESA Ventures, Ore Ventures, FJ Labs, Bob Nelson, Francois Kress, and Lorne Michaels’ investment arm Broadway Video Ventures.

Cotter said one key to success so far has been the blended approach of artificial intelligence chatbots supplemented by human agents. “Companies that try to create tech at the chat level that is 100 percent machine, they’re going to fail and they’re going to miss the nuances of communication,” he said. “If you’re going to embark down this path, it’s critical that you think about the hybrid solution.”

He noted that some customers engage in long conversations with The Edit’s human agents, chatting over text about the meaning of album lyrics, and even asking for relationship advice, among other personal conversations. One secret they’ve learned is to focus not on the immediate transaction but instead on customer engagement.

“We’re a very mixed model in that way,” Cotter said. “In the e-commerce world, people who come to your site and don’t buy are often a negative, whereas for us, we really are investing in the long-term relationship.”

The company also mixes up how the recommendations are generated each day — sometimes focusing on a user’s favorite artist or similar artist, or instead using the preferences of other users with similar tastes. “By alternating the focus of the recommendation, we are able to generate serendipitous experience that allows users to discover and rediscover products that are relevant to them,” Cotter said.

ReplyYes has 12 people on its team so far, and Cotter says the company is also working to expand the platform beyond text messaging to Facebook Messenger and Twitter.

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