Net backlash
The power of real-world stores has reasserted itself recently in
two arenas: drugstores and coffee shops. Drugstore.com announced
last month that real-world drugstore Rite Aid would buy 25% of the
company. According to an insightful analysis in Fortune [1], this
merger confirms Drugstore.com's inability to build a compelling
drug business on the Net alone. And why not? Pharmacy benefit management
companies, or PBMs, which process prescription drug insurance claims.
They're the companies that make it possible for you to pay $5 for
a bottle of prescription drugs that might cost $25 or $50 without
a prescription card. When the PBMs refused to play ball with Drugstore.com,
it had no alternative but to form an alliance with a real-world
drugstore -- or give up access to a potentially huge customer base.
And now, Starbucks' Net plans have come under severe criticism
-- and those plans may have contributed to the beating Starbucks
took in the stock market last week [2]. Analysts and journalists
seemed to agree that Starbucks was overreaching itself by trying
to build out an Internet presence.
The trend I'm seeing here is that there is such a thing as being
*too* Internet-driven. Real-world stores can't just jump onto the
Internet bandwagon and wait for their stock prices to soar. Conversely,
Net startups can't expect to take on well-ensconced real-world rivals
and win overnight, particularly when those rivals are backed up
by partners that are well dug-in.
So in that vein, here's another battle to look forward to: Episode
2 of Amazon.com vs. WalMart: WalMart Strikes Back [3].
[1] Drug
test
[2] Starbucks'
Net strategy called weak brew
[3] Look
out Amazon, Wal-Mart's coming
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Are reports on the DEATH OF EBAY premature? Reader Serge Wilson
(serge.wilson@freemerchant.com) sent in this cogent argument about
how defensible eBay's market position is. It's long, but worth reading,
so, with his permission, I'm citing Serge's message almost verbatim:
Here are my .02 on eBay and, for the record, I have been spewing
this line of thought since their first mini-outages.
For eBay to die, or lose the auction game, they will have to
be physically destroyed, by a terrorist or act of God. eBay staked
claim to the most defensible territory on the Net, Auctions, and
absolutely will not be caught, EVER, no matter what the competition
throws at them or how often they have massive outages.
Every other business space on the net can have the Leader (in
many cases, the trailblazer) knocked off by a better mousetrap,
more funding, or a fickle surfership. Let's look at some examples:
Amazon: selling lots of books. Buy.com has got cheaper goods
and (for now) free shipping in many cases. They can be had. Barnes
& Noble just wasn't a good competitor, but one will come along...
Companies like Fatbrain with better content will chip away at
the Amazon beast as fast as it tries to add new services/products.
ToysRUs new website (now 1/2 VC owned) will be sure to upset the
eToys apple cart when it debuts.
Content Sites: these are all vulnerable. Who's going to bite
the dust when Allbusiness.com goes on-line? We shall see.
The basic truth about almost every web model is that someone
can come along and do it better, faster, cheaper or with more
style. The newcomer will get the business -- some of it, maybe
all of it.
There is one exception: auctions.
eBay is brilliant. They never wasted resources on anything other
than being the #1 place where buyers and sellers get together.
The didn't waste money on a fancy user interface. They didn't
waste money on trying to expand their offering into other areas.
They didn't waste money on these things because they realized
that the only place on the Internet where being the FIRST and
the BIGGEST really matters: auctions. eBay has worked itself into
the only fully defensible business model on the web.
OK, so you're a buyer. Where are you going to go to look for
what you want? To a dozen sites that don't have diddly-squat,
or to eBay where they have 12 of what you are looking for?
OK, so you're a seller, where are you going to post your item?
Remember, this is an auction, so you have to honor the winning
bid -- you can't list it on more than one service. Do you list
it on a piddly auction service because it is (free, better looking,
whatever) where there arent enough bidders to drive the price
-- if you get a bidder at all? Or do you go to eBay, where you
are almost guaranteed a sale along with a decent price.
Both these questions are no-brainers. eBay is the #1 place where
buyers and sellers get together. eBay is where is *inventory*
is and ebay is where the *customers* are. So long as eBay leads
in one of those two catagories, it will lead in the other. That
kind of makes it impossible to topple. Did you see a mass defection
during or after the outage? Nope. Is eBay's inventory 2.3 million
items? Yep. They say what doesn't kill you makes you stronger
and, in eBay's case, this is the truth. Nobody realized how large
a gravitational pull eBay had on their buyers and sellers until
they had the meltdown. Now everyone knows. If you ask me, Amazon,
Yahoo!, etc., are going to have to rethink how much energy they
want to put into trying to dethrone eBay. It just aint gonna happen.
If this is turns into an ego match it will be like Novell trying
to compete with Microsoft by buying Corel and rebirthing as an
applications software developer. 1 year and $850M later, Novell
put down it's slingshot and limped away. Amazon should start cutting
back on those radio ads and start figuring out how to make money
selling books at no cost.
eBay is going to remain the king of auctions because of the real
and painful cost of discontinuing use of its service. If you are
a customer, you stop getting what you want. If you are a sell,
you lose your access to the best and biggest shopping index on
the planet. It *sucks* to leave eBay, and nobody will. The *only*
way eBay will go down is in a massive air strike a la Belgrade
and I wouldn't be surprised at all if Meg is building an underground
bunker.
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NET
PROPHET: Sites that fail to scale
from the July 5, 1999 issue of InfoWorld
CEOS AND CIOS are beginning to learn what Webmasters have known
all along: Building, launching, and managing a Web site is a complicated
endeavor, fraught with dangers, delays, and cost overruns. ... click
for more ...
----------
~ Back issues ~
Mind your wallet - direct vendors
get a clue - Net demographics - PCs, silk purses, and sow's ears
(6.28.1999)
Day of reckoning - Net taxes -
Net stocks - RosettaNet's secrets of internetworking (6.21.1999)
The whole dang
archive...
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