This week, Yahoo! launched a major expansion of its shopping channel,
Yahoo! Shopping, a
centralized place where Yahoo! users can choose from among 2 million
products offered by more
than 2,700 merchants, allowing consumers to add items to a single
shopping cart and make
purchases in one check out. The Yahoo! offering cuts across 14
categories, including apparel, books,
electronics, music, and movies from FAO Schwarz, Egghead.com, Inc.,
Tower Records, Dean &
DeLuca, Service Merchandise Co., Tweeds and The Vermont Teddy Bear
Company. To get a sense for
just how important commerce revenue has become to the portal companies,
just listen to Jeff Mallet,
Yahoo!'s COO: online shopping is "fundamental to our business, every
bit as important as search and
directory functions."
For its part, AOL announced that it is launching new holiday shopping
channel features and seasonal
programming (this on top of the addition of 40 new retail partners two
weeks ago). AOL Wishbooks,
a gift reminder service (PlanetAll anyone?), and customer service
personnel will help AOL members
find any of the 5 million products being offered on the service.
So what's the furor all about? Why all the heavy breathing about
on-line sales this time around, when
last year's optimists ended up mouthing the sad reality that consumers
were happy to "spy and not
buy" for Christmas '97? In short, this year is different, in both the
attitudes that consumers bring to
the on-line shopping experience to the motivations and understanding of
the retailers that are trying
to lure them there. From our perspective, a successful on-line retail
season will be a function of two
relatively simple factors: (1) that an abundance of goods and services
are available for purchase and
(2) that consumers are showing a willingness to purchase them online.
To the first, the market has most certainly responded; AOL's 5 million
gifts, Yahoo!'s 2 million, and
the 260+ press releases associated with on-line shopping in the last
two weeks suggests that, for every
consumer desire, their is a gift to fulfill it. This should set up a
nice positive feedback loop; stores
attract more buyers and more buyers attract more stores. Consumer
acceptance and retailer
motivation drives sales.
Not to be under-appreciated is these retailers' offerings are either
the layout of the Web site nor the
resources (marketing, logistics, etc.) placed behind them. This year,
aspiring Web merchants are
creating sites that take advantage of the medium (convenience,
cross-selling, better selection, pricing,
and delivery options, etc.) and are backing them up with logistics and
inventory expertise to make
sure the sites work from one end (order) to the other (delivery). Last
year, this was most certainly
not the case for the vast bulk of sites (as we can attest first hand).
There seems to be mounting evidence (both quantitative and qualitative)
that consumers are more
willing than ever to purchase goods online this season (Forrester
believes that the number of
households that will transact in 1998 will be close to 9 million
against 4.5 million in 1997). Further,
evidence suggests that, once an on-line purchase is made, consumers
return with greater frequency
and buy in greater size, which augurs well for those retailers that can
gain a foothold in this holiday
season (no wonder the Gap is everywhere we look on the Net).
Of course, willingness is a necessary, but not sufficient, condition
for success, since willingness needs
to translate into purchases. To this end, we are heartened, again, by
the quantum leap in the quality
and consistency of the retailing sites themselves; gone are the fancy
graphics, java scripts, and lengthy
audio files (for the most part) that don't emphasize the convenience,
speed, selection, and cost of the
on-line experience. Don't underestimate the impact that even these site
alterations can have on the
top-line for any of these Internet retailers, since even small changes
in conversion (from browser to
buyer) can result in great gains to the top line.
So it seems to us that we have the right recipe for a great on-line
holiday shopping season; motivated
retailers (who rightly sense the importance, even beyond this holiday
season, of on-line retailing) and
pre-disposed consumers. There can be no doubt that the holiday shopping
season will be much
stronger than last season; the question is, just how strong can it be.
For our part, we believe it could
be enormous, especially for the leaders in the space (Amazon in
particular) who have timed their
offerings and skill sets to match the opportunity that is presenting
itself this November and
December.
And to take a look even further out on the horizon, we'll be looking
for off-line retailers who are,
today, still largely testing the on-line waters (e.g. Wal-Mart, JC
Penney) to size up the on-line
successes of this holiday season and acquire or partner with some of
the smaller holiday retailers once
we enter the new year. We would view this is analogous to this past
summer's traditional media
buying/partnering frenzy (read: NBC, Disney) that drove Internet stocks
into a tizzy.
It's clear that we're still pretty far away from determining who will
be the category killers in certain
on-line retail segments, which suggests that it could be a Macy's or a
Wal-Mart that cracks the code,
or a Amazon.com, or even, dare we suggest, some Internet start-up that
hasn't even been created yet.
Which is part of the reason we appreciate our jobs so much; who else.,
save for John Glenn, gets to sit
astride such fundamental shifts not once, but possibly twice?
Trend Watch
Value Chain Re-organization
The news that Barnes & Noble (BKS - not rated) is seeking to purchase
privately held Ingram Book
Group for $600mm, the nation's largest distributor of books, sent some
shock waves through the
book industry that will continue to be felt for some time to come.
Beyond the initial reaction,
however, we think the transaction represents an object lesson in
Internet cause and effect.
As we like to state repeatedly, we believe that the Internet changes
the game not just for companies,
but for entire industries. We would extend this belief specifically by
suggesting that the BKS-Ingram
deal comes as the direct result of Amazon's success in selling books
on-line. Or, to put it more
technically, Amazon's re-ordering of the book industry value chain is
causing ripples through the
industry, up to, and most decidedly including, actually causing the
BKS-Ingram deal.
As background, we tend to view every industry within the simple
framework of an industry value
chain; defined by several constituents from the front end (let's say
book buying consumers) and the
back end (let's say book publishers) and consisting of as many players
as can be identified easily (in
the book industry their are really only four: publishers, distributors,
retailers, and the consumer.
The concept of the industry value chain is not novel; Michael Porter
popularized the concept
industry value chains in the mid-80's in his book, Competitive Advantage
. He described the concept
of an industry value chain as the interaction of an individual firm's
value chain with that of its
suppliers, its channel partners, and customers, calling this business
interaction the value system. He
went on to suggest that a firm could markedly improve its competitive
profile by embracing this
concept and coordinating its industry value system around its own
processes. |
