The question is whether or not COOL can become a better company than these much larger rivals? I would have to say they certainly have a chance.
First, COOL does not have the overhead of a lot of the companies referenced in the article. They are strictly on the internet. This places COOL in the same difficult position as AMZN, brand name and brand loyalty. COOL has to create a brand name for itself.
Second, the high losses that COOL expects are based on the same reasoning as AMZN's (I am using AMZN as an example NOT as a comparable)high loss ratio to sales, advertising. We will get a better idea of the money COOL is spending on advertising when they report their earnings. I suggest that in order to get a more accurate picture of COOL pay close attention to the money being spent on advertising. Also worth considering is the money spent to grow internal operations as the company grows. This cost will lessen in the future as COOL reaches economies of scale in their business model.
Third, because of the way that COOL does business they can keep their product inventor costs low. They will be higher than say AMZN, KLB or CDnow because those products have a longer shelf life.
Fourth, while COOL is still a small company compared to Computer Wearhouse, MALL or any of the other computer re-sellers, COOL has for the most part fixed overhead costs in the long run, because of the structure of the business. Their only variable cost long term is advertising. These other companies business plans were not and are not based upon sole existence on the internet.
Fifth, COOL has the flexibility to change its product makeup very quickly because of its business model and inventor controls. This is not to say that something can not go wrong. COOL offers most of its hardware products within 24 hours, unique, and at cost of about 10 to 15% less than at retail stores. If COOL can capitalize on just 10% of the Dell online market that could amount to $100 this year alone in computer sales. In addition, COOL has down-loadable games. Not a huge market yet but growing.
Sixth, with the money from the IPO COOL should be able to buy good advertising time with some of the top sites. We saw an example of this today with COOL becoming the sole supplier to USA today online. USA Today gets the most hits of any online news paper and seems very willing to work with COOL from the press release.
Obviously one of the problems with COOL is that the business is not unique. But, and this is the point worth considering, will COOL do their business plan correctly and surpass these other companies. With good advertising and good consumer loyalty this should not be to difficult. From the reaction I have heard from people who have bought products from COOL they have been very pleased.
Just some thoughts.
Brent
P.S. The article you referred to sure did seem really negative. That particular article was only a point of view piece not very factual. Except it did point out the COOL had 45% revenue growth which far exceeded all of the other companies mentioned in the article. Hmmm |
