(sa/art) Why TSIG.com is NOT only an eTAILOR..
redherring.com
EXCERPTS from
Who will buy Buy.com?
By Phil Harvey, Reporter
Redherring.com, January 29, 2000
..But Buy.com is not alone. Its challenges are indicative of similar threats facing all B2C e-tailers. "If you are Buy.com or some other low-margin business, you'd better be a master of keeping overhead down," says Barry Parr, an e-commerce analyst with IT market researcher IDC.
In recent months, Wall Street has pummeled online stores for their mounting losses, misguided attempts at brand-building, and a general shortsightedness regarding what it takes to build a sustainable business. Analysts sense a shakeout in several B2C categories, because investors have propped up too many businesses with indistinguishable names chasing the same commodity: low-margin goods. "How much per year do people really spend on pet kibbles anyway?" asks one analyst....
...Yet it was only a year or so that the initial wave of B2C companies took the market by storm, catching their brick-and-mortar counterparts off guard. A Dataquest study predicted that B2C sales would hit $147 billion in 2003. Investors swarmed to the sector, sending new issues such as Value America (Nasdaq: VUSA), a Buy.com competitor, to more than $74 a share on its first day of trading in April 1999. In late December, the company restructured, laid off 47 percent of its workforce, and watched helplessly as its stock dropped below $6 per share.
What changed? For starters, "this year the better-branded bricks-and-mortar companies stopped making excuses and did something about [the Web retailers]," Mr. Kostadinov says.
Those later Web entrants led to more competitors than ever online...upped the ante on how loud each of the new entrants would have to scream to get attention. Case in point: Computer.com, a site for novice computer users, has spent $3 million of its $5.8 million first round of funding on TV commercials that will run during ABC's Super Bowl coverage. But it will be only one of many dot-coms advertising during the game
Another inflection point for B2C companies comes once they get the attention they pay for. "Sometimes customer growth can be a mixed blessing," says Joe Sawyer, an e-commerce analyst with Forrester Research (Nasdaq: FORR). With each new customer comes the need for companies to add support, invest more in their Web sites, improve delivery, add Web site capacity, and invest in site features such as personalization.
The need to continually update and spend on Web site technology presents B2C e-tailers with another challenge -- in many cases they're spending more per year to maintain their Web stores than they did to build them in the first place. According to Forrester, a U.S. retail Web site that can handle around 10,000 transactions a day will cost some $40 million to build and more than $48 million per year to maintain.....
... it's no wonder analysts are glum about Buy.com's chances at striking it rich in the public markets next month....
It's easy to see why Buy.com changed its business model. The company lost $17.8 million in 1998 and $80.5 million for the first nine months of last year.
When Buy.com began, it would supplement its below-cost sales of computer equipment and other goods with advertising revenue. Now, the company uses a few loss leader items to draw customers in, assuming that the longer customers stick around, the greater their chances of buying higher margin items.
....Wall Street's reaction to Buy.com, in lieu of all the disastrous B2C plays out there now, may not be favorable. "The first time I read the prospectus, I had to laugh," says Mr. Kostadinov. I just don't think it's a good long-term strategy to base your business solely on price," he says |
