Musea, I found the article interesting from a number of perspectives. First, it underscore the importance of internet retailers in establishing strong relations with strong portals. This is akin to advertising using media with the greatest reach. But secondly, the article is interesting for what it didn't discuss, and that was profitability. What fascinates me about Barnesandnoble.com is the fact that it is a joint venture between Bertelsman and Barnes and Noble. I believe that in effect the establishment of the web presence is simply a way to sell direct from the publisher (like Bertelsman which owns Random House)or the wholesaler/distributor (like Barnes and Noble which will shortly own Ingram). In other words, I believe that this combination reaffirms the notion that web-based selling must be an extension of existing profit centers, not a replacement for them. I believe that this paradigm has been largely ignored in discussions about the internet.
If you think about it you will realize that internet sales to the retail consumer offers only one advantage to the retailer: he can avoid having multiple physical sales outlets (with associated rent and overhead) and replace them with a few efficient distribution centers. But that does not obviate the need for carrying inventory, because publishers and wholesalers will not drop ship on tiny orders, and retail customers are unwilling to suffer lengthy delays while the net retailers accumulate sufficient orders for the sale. The implications for companies selling books, cd, videos, and software should be sobering for investors. If what I foresee materializes, many of the current crop of internet companies like Amazon will fold because they cannot generate operating profits because they are too low on the distribution chain. This is a consequence of the sheer number of SKUs they need to maintain. On the other hand, internet sales will be encouraged by companies like Barnes and Noble and Bertelsman because they are near the top og the distribution chain.
This also explains why companies like Dell do exceedingly well using the internet. The very limited number of required SKUs, plus their ability to team with other companies to integrate drop-shipped items (large ticket items like printers and monitors) creates a natural competitive advantage over their traditional rivals.
Sorry for rambling on, but it is Saturday.
TTFN,
CTC |
