- The Long Cycle
- Wild Gyrations
- The New Economy: Down but Not Out
- Dot-Coms: From Deified to Demonized
- Dot-Coms Provided Many Lessons
- Internet Growth
- Early Days Yet in the Internet Revolution
- B2C Sites—Not All Failures
- The Dot-Com Model—Profits Are Essential
- Not the First Such Challenge: Radio Struggled Too
- The Future Is Bright
This chapter is from the book
This chapter is from the book
This chapter is from the book
B2C Sites—Not All Failures
The great Net shakeout does not imply that all dot-coms will fail. Many survivors have strong revenue streams and good prospects. The leading online retailers are, by any measure, big, successful companies. The three bellwether stocks that carry the standard for the B2C world—Amazon.com (a book, music, and more retailer), Yahoo! (a portal), and eBay (an auction site)—have become remarkable businesses. Despite the depressed advertising market in 2000–2001, Yahoo! still had revenues of more than $1 billion annually and operating margins of over 30 percent. The other dot-com bellwether, eBay, is also profitable and growing by more than 90 percent per year. Amazon.com restructured its business in early 2001, slashing payrolls and closing a warehouse and a call center in an effort to assure operating profits in the following year. All three e-businesses have expanded outside the U.S., dominating nearly every market they invaded. For example, with eBay's acquisition of iBazar—the French auction site—eBay became the undisputed online-auction victor in Europe. Yahoo! has local sites throughout Europe, Asia, and South America. Moreover, all three are already among the world's best-known brands.
Amazon.com has proved that an e-tailer can, in at least certain categories, beat the bricks-and-mortar competition. Shoppers love the virtually unlimited selection of books, music, and videos—complete with ratings and reviews—and its fast-growing electronics business turns around its inventory two to three times faster than offline competitors. Yahoo! invented the portal and used the Net to create a media behemoth that originates practically no content of its own. It has evolved from a simple directory to a media and commerce giant that has become a Web leader in everything from financial information to personal ads. eBay has proven that the Web is a terrific means to create an efficient market where none previously existed.
Consider how eBay compares to, for example, Sotheby's. eBay is solely an intermediary—it has no inventories and does not direct transactions. It simply provides the unattended software on a Web server that allows a seller to conduct an auction, receive payment, and ship the merchandise. No one at eBay is directly involved in the process. For what is essentially a mating service, bearing zero marginal cost to the company, eBay receives between 7 and 18 percent of the sale price. Its capacity to conduct auctions is nearly unlimited.
The model for Sotheby's is very different and far less efficient. Trained auctioneers and other personnel must assess, store, and handle the merchandise. Showroom space is limited, as is the number of auctions that can be conducted at any one time. Inventories are expensive to insure and the number of people who participate in the auction is limited. For all but the most expensive goods—and possibly even for them—the eBay site, which attracts a huge audience, is preferable for the seller; and it is the seller who chooses the locale and pays the fees. Network effects are strong. As eBay grew, more people wanted to use the site, encouraging further growth. This process allowed eBay to beat any fledgling competitors.
Without doubt, even the strongest of Internet players have had their problems and may find that they need a bricks-and-mortar connection to excel in the future. As the sector matures, its leadership may consist of fewer pure-play firms. For example, Yahoo! could well benefit from a traditional content producer, particularly as AOL has merged with Time Warner.