BUY.COM: ANYTHING YOU SELL, I CAN SELL CHEAPER
The Web retailer uses stealth technology to undercut rivals
To Internet shoppers, price matters. A lot. Just ask Scott A. Blum. The 34-year-old founder and chief executive of Buy.com reprices the 30,000 or so products in his online computer store daily, if necessary, so that he always has the lowest price. That way, when Internet-savvy shoppers use price-comparing Web technology to search out the best deal, Buy.com always comes up on the top of the list.
It's working. In the first 11 months that Buy.com has been shipping computer gear--through Oct. 31--sales topped $86 million. They are currently running close to $1 million a day, and Blum expects they will reach $120 million to $130 million for the calendar year. That puts the fledgling Aliso Viejo (Calif.) retailer on a pace to beat Conner Peripheral's $113 million record, set in 1987 in its first full-year sales.
Now, Blum has a plan aimed at extending the startup's torrid pace. On Nov. 16, he changed the name of his company to Buy.com from Buycomp.com and got into the book, movie, and video game markets, going head to head with the likes of Amazon.com and Reel.com with his Buybooks.com and Buymovies.com. To get a leg up, Buy.com is acquiring Internet retailer SpeedServe Inc. from Ingram Entertainment Inc., the country's largest video and video game distributor. In exchange, Ingram will get a 5% stake in the company, now worth about $20 million.
Buy.com is betting that its best-price guarantee will work as well for $15 books and movies as it does for $500 handheld computers. Blum reckons that if he dispenses with Web niceties--say, the community-like feel of book reviews and chats on rival Amazon.com's site--and sticks with bargain-basement deals, Buy.com will carve out new ground. ''We're going for someone who knows what they want and wants it for the best price,'' he says. ''We're trying to keep our site simple, effective, and easy to use--not cluttered with a lot of links and long reviews and stuff.'' In short, Blum figures cybernauts may browse at Amazon but plunk their money down at Buybooks.com.
Or will they? Some experts are doubtful. ''The surveys we do say that price is a huge factor in getting consumers to buy online,'' says analyst Nicole Vanderbilt of market researcher Jupiter Communications in New York. ''But with books and music, there's a different dynamic.'' Says Amazon.com CEO Jeffrey P. Bezos: ''Customers want selection, ease of use, and a low price--in that order.''
Who's right? To be sure, Blum is no novice to the startup scene, though his record is spotty. A college dropout, he started his first company, Microbanks, when he was 19, making memory modules for Apple Macintosh computers. He sold that outfit in 1987 for $2.5 million and founded Pinnacle Micro Inc. with his father, a retired Hewlett-Packard Co. executive. But Pinnacle, which made optical-storage systems for computers, ran into manufacturing problems. Two years ago, Blum and other Pinnacle officials settled charges by the Securities & Exchange Commission that the company had used improper accounting practices to inflate sales and earnings. In the settlement, Blum neither admitted nor denied any wrongdoing.
CEO SEARCH. Today, Blum's backers shrug off his run-in with the SEC. ''We like to invest in entrepreneurs with experience, good or bad. He ran into problems but learned a lot,'' says E. Scott Russell, a Buy.com director and general partner at Softbank Technology Ventures, which spent $20 million for a 10% stake in Buy.com in August. In October, parent Softbank Holdings Inc. came up with $40 million for an additional 10%, valuing the company at $400 million.
The blemish on Blum's track record, however, has prompted him to launch a search for a CEO who would have credibility with Wall Street. The company, which plans to go public early next year, should have a new chief executive in place by then. ''Because of my past, we're bringing in a new CEO with the intent of taking the company public early next year,'' Blum says. ''And I assembled a great board so that I could go to them to get answers.'' Ingram Entertainment CEO David B. Ingram resigned Nov. 6 from the board of Ingram Micro Inc., which packs and ships Buy.com orders, so that he could take a seat on Buy.com's board once his deal closes. Other directors include former Apple Computer CEO John Sculley and PepsiCo co-founder Donald Kendall Sr.
SECRET WEAPON. Blum's success does not depend solely on selling goods. With computer gear, he uses low prices to drive customers to his site, which then sells advertising to the manufacturers it represents. BuyPrinters.com, for example, has an opening page with 12 ads that go for $3,000 a month each, and there are more than 600 such pages on the BuyComp.com site. The company stocks no inventory. Instead, it depends on Ingram Micro in neighboring Santa Ana, Calif., to fill orders the same day.
Buy.com's secret weapon, though, is a stealth technology that allows its computers to crawl through other Web sites and ferret out rivals' prices. Instead of landing on their sites with a high-speed connection from a single Internet address--which would alert them and let them block Buy.com--the company has set up hundreds of accounts with Internet service providers, using low-speed modem connections. Each one hits a rival site no more than seven times, looking only like a curious consumer. Once the lowest price is determined, Buy.com undercuts it and sends it off to price-comparing search engines, which present it to shoppers the next day.
Blum's ambitions don't stop at books and movies either. Coming next year: music, with BuyMusic.com and even BuyJazzMusic.com. He has locked up the Internet addresses BuyCars.com, BuyInsurance.com, and even BuyCheeseburgers.com--all told, 3,000 Web addresses starting with ''Buy.'' And just in case there's any confusion about his game plan, he owns a couple of Web addresses that he's holding in reserve. One of them: 10percentoffAmazon.com.
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