>>In two decades of e-commerce in the US, we have produced only two standalone e-commerce companies of meaningful enterprise value: Amazon and eBay. One went public in 1997, the other in 1998. We haven’t had an IPO of an e-commerce company that has gotten to a two billion of market cap in fifteen years, let alone double digit billions.
That's the bad news. The good news: if you wanted to become a millionaire on the web with reasonable but not outsized risk, ecommerce has pretty much been your best bet for the last 15 years or so. Getting an ecommerce businesses to the $1m-$50m revenue range has been done by many folks during that time. They may not be IPOing, but I think they're happy.
Not to mention - there are literally ten thousand businesses making over $1,000,000 a year selling their products on Amazon alone. (Over 50% of total Amazon sales are 3rd party sellers, I've worked for 5 of them doing over $1,000,000))
Very true. At $DAY_JOB, I maintain the MWS integration and we do high 7 figures a year.
The problem is if your niche is profitable enough Amazon has a habit of moving in and knocking you off their site. So we only sell stuff we control the manufacturing for via Amazon because they've gone after our suppliers for anything else and then undercut us by $0.01.
Agreed - there are thousands (tens of thousands?) of E-Commerce sites that have revenues in excess of $1m. It is staggering when you scratch the surface.
There are other companies that have done well online in ecommerce. Niche focused companies like Newegg come to mind as a great example of how to compete and succeed. Monoprice is another.
Also, companies like Hayneedle have grown large on the model o focused niche e-commerce stores in lots of different verticals.
I don't think any store is going to come along and "destroy" amazon anytime soon. However, one area where other e-commerce retailers will exist is as sellers on the Amazon Marketplace. In some ways, Amazon becomes a large sales channel for online retailers in the same way that Facebook and AdWords are.
Fundamentally, I don't think Amazon cares who is selling what as long as they are making money and their customers are happy. Amazon, like eBay really gets that they are a platform that other sellers add a lot of value to.
Note that many of the successes were not venture funded. The extreme margins are just not there for these kinds of businesses to generate the returns needed for investors. The only hope is selling into a frothy market which is willing to ignore the financials and pay for the stock at a silly p/e.
A lot a good insights in this article. Some random thoughts:
We have a company here in SLO with a network of niche ecommerce sites (http://www.tennis-warehouse.com/ and similar). It was founded before Amazon and they're making a ton of money. You just don't hear about it in startupland.
Obviously the author is a little biased about the proprietary merch. angle. Personally, I think NastyGal and ModCloth (and similar like Ruche) are going to be big winners (i.e. IPO). They have huge loyalty and are already moving into the proprietary merchandise angle where the author puts Bonobos (NastyGal has their own line of clothes now).
I love Warby Parker but they will need to move beyond just glasses at some point.
One sector I've never understood is the flash sale sites. To me, they seem nothing more than an ecommerce version of Ross/TJ Maxx/Marhalls/outlet stores with some pretty CSS. Granted, TJX and Ross are both public companies with double-digit billion market caps, so there's something. I just never found them intriguing personally.
EBay seems like the one that really needs to get up-ended. I know a lot of startups are trying to do it via mobile–but is that the best route? I bet most of these other up-and-coming players still do the bulk of their business via desktop browsers vs smartphone (would LOVE any metrics anyone has on this).
Considering flash sale sites are emphasized in the article, I don't see how Groupon doesn't break the claim that there are no public ecommerce companies worth over 2B (Groupon market cap is around $4B)
Zulily's market cap is around $4.5B right now as well. I believe the criteria for that claim was that there are no other full-priced ecommerce companies breaking the $2B mark.
I started working in the "internet economy" around 2004, when the web was coming back. I worked on several small eccommerce projects and I read a lot of commentary. I really thought ecommerce imminent industrial revolution scale.
- Affiliate marketing was a buzzword.
Adwords ads placed by affiliates were common.
- Dropshipping was a buzzword.
It seemed like a matter of time before all factories would be dropshippers.
- Google had just made online advertising make sense
- Amazon had survived the bust
- Hosted carts were getting good.
Joel Spolsky (2001)- Indeed during the recent dotcom mania a bunch of quack business writers suggested that the company of the future would be totally virtual -- just a trendy couple sipping Chardonnay in their living room outsourcing everything. - I was one of these believers.
But, I didn't believe that there were long term businesses to be had gluing together all these things. If all the eccommerce "site" was going to be doing was paying affiliates and forwarding orders to dropshipping suppliers, that could be all automated. If all affiliate marketers were doing was pointing links to products, they could be 'eaten" by a product search engine like (the promising new Google Products).
Eventually what we would have is factories, postmen & search engines. All the intermediaries wouldn't be necessary.
What I thought I was seeing was the etherialization of the entire retail-to-manufacturing chain. When a product starts getting produced, it puts itself on the ether. People buy it. It gets shipped factory-to-consumer. The efficiencies are mind boggling.
It turned out that all the details I thought would be solved, turned out to be bigger barriers than expected. Even a small-medium retailer that wants to buy direct from factories, will have a hard time, never mind the consumer. Online transactions still suck. Shipping still sucks (in many places). The experience is still "of.f"
That kind of "etheriazation" didn't even happen for digital products.
But, I think that we are still moving in that direction. The Alibaba group IPO is a hint at steps in that direction. They are working closer to the manufacturer end of the manufacturer-consumer chain.
"Modern supply chains" is a big and hard to understand part of the transition too: H&M, Zara, Dell, Tesla. These are all examples.
I'm not sure how to wrap it all up. I think that retail is being eaten by software, but it isn't happening on the 5-10 schedule we expect from "eaten by software" revolutions.
I disagree that it is futile to compete with Amazon without a "proprietary X" strategy. Their competitive strategy is well known, and there are some major weaknesses to it...most notably, that it becomes a bigger and more obvious bluff as they stick their hands into more pies. They actually have a very delicate balancing act to perform: maintaining enough profit to convey to shareholders that they arent a sinking ship, but aggressivly expanding and investing in areas that require significant acquisition of expertise. They have the cash flow to survive a long protracted battle, but they would definitely take the hit in their share price...and considering they now have an army of employees that are paid a significant share of their compensation in the form of stock, there is significant cultural resistance to agressively losing money as a form of compeitition.
Personal pet peeve, publishers not putting dates on the articles anymore. This article popped up here on HN over a year ago. Great piece, but I'd love to see dates so I know if stuff is still relevant or fresh. /rant
Shopify isn't an ecommerce store–it's an ecommerce infrastructure provider.
My only beef with shopify is that I don't see any of these fast growing etailers using them. I know why (makes no sense to give up that kind of % when you're at huge scale) and I wonder if it will hurt them in the long run. They seem to just help people with the MVP of their store.
While there are no billion dollar revenue businesses on Shopify yet, it's really easy to underestimate the size of many of it's stores. Also I'm not sure what percentage you are referring to, we don't take one. We make a minuscule amount on the credit card transactions but we really pass economies of scale savings there to our customers.
We constantly have larger retailers replatform to Shopify who previously were spending 100k or more on their ecommerce software.
I don't think it's surprising at all. Shopify is software, off the shelf. Most retailers that fit into their model will probably get as good or better a result with shopify as they would on a sub $100k budget with custom software.
Beyond a certain scale, (a) the benefits from controlling the software get bigger and (you don't have to do shipping, promotions, inventory, UI etc in a way that is supported by shopify) (b) the cost of doing your own software is less of a barrier.
Benefits like accessibility to non technical people don't mean anything once you hire specialists to be in charge of things. T
Off the shelf software that a non specialist can use makes sense for SMBs. That's shopify's target market.
Not at all:
1. He is talking about how people actually make money out of E-Commerce - that is driving sales and ensuring you have a margin on what you sell. It is very myopic to believe that the technology underlying the E-Commerce solution will drive the success of E-Commerce (a situation all to common on Hacker News - yes I am aware it is technology focussed, but not the exclusion of everything)
2. Andy Dunn has backed Spree Commerce through Ayr, Bonobos, Red Swan. I imagine, he has done that because he believes proprietary all in one platform solutions have inherent limitations. Spree Commerce has the opportunity to significantly disrupt the Shopify model (and likely will impact their valuation and/or longevity).
I don't believe there is going to be a time when amazon can suddenly flip a switch and start bringing in mountains of profit, and then maintain that for a prolonged period, in it's retail business.
It will be too easy to compete in some areas, indeed it's fairly easy to compete (with amazon) in some areas already.
My customer sells pushchairs (strollers) and prams and cots and so on. There is a thriving independent e-commerce environment in the UK with baby goods.
Amazon is supposed to be this cost-cutting behemoth that through market forces and a willingness to operate on razor slim margins will wipe out any and all competition.
Online4Baby can sell a sleigh cot bed with a drawer at £150 and Amazon's closest is at £179, even with it's 3rd party sellers.
That's just one product, but the continued existence and growth of the independent baby e-commerce operators in the UK is proof that there are areas where you can compete today. And when amazon flip the switch there will be more areas where you can compete.
What I've seen is that it's when the UK supermarkets entered the market, after one of them bought a competitor, that has had the greatest impact over the last 5 years or so.
Outside of the USA, Amazon stinks at selling everything but their core media goods - DVDs, books, CDs, etc.
I shop for just about anything on Amazon outside of those core products here in Canada, and the prices are mediocre-to-terrible. I think a big component is that merchants get their semi-official status with Amazon (whatever that's called) and then see the opportunity to fill out every possible gap in Amazon's product catalogue with a tidy mark-up.
Fantastic article. I love when somebody who has been working on a particular business area writes a casual post like this with lots of hard-earned wisdom in it.
For example, like Marc Andreessen I've been believing that e-commerce will eat a big part of retail sooner than people realise and it will have huge impact on employment and how cities work. But I hadn't understand how tough the entry is for new players, because of Amazon's dominance and low margins.
> and if their everyday low prices are available to the entire country via a mechanical turk algorithm which is guaranteed to beat you, how do you compete?
...i think this is an incorrect usage of "mechanical turk". this would imply a person behind the 'algorithm' making it go, and, chuckling to myself as i write this, the answer to the question on how to compete might be to make an algorithm that does not i fact work like a mechanical turk!
I think there's more of an overlap between eBay and Amazon than mentioned in the article. I sometimes go to eBay if I want something for a lower price than on Amazon (often direct from China) and don't mind waiting for slower delivery times.
He also doesn't mention the new style specialist market sites like tindie and etsy which I think is a new category of retailer. They allow specialist suppliers come together and sell to a captive audience.
E-commerce is pretty big if you consider all of those normal retailers that have customers checking things online before they get to the store. If you sell specialist goods or expensive home electricals then those people coming through the door have invariably checked you out online first. However, those sales are recorded as High Street sales, from walk-ins, not 'e-commerce sales'. It is the bricks and mortar stores that dominate e-commerce with the exception of online-only Amazon.
A lot of suppliers don't want to deal with online only stores. To do so upsets their other retailers so you have to be bricks and mortar to get the suppliers. Plus you have to sell at their prices. There are exceptions, the out of date, end of line overstock items can go to 'flash sales' sites but not the new model year stuff.
Dunn is correct in his thesis, though it's nothing new with respect to the fact it's been happening in offline retail since forever. It's a given that companies who sell their own stuff will have better gross margin than those who sell other people's stuff.
A relevant comparison right now would be between private label and mass merchandising i.e luxury brands and discounters. Both are selling in essence commodity goods and both are doing very well right now but adopt a completely different approach to retailing.
Alibaba is also a huge player in e-commerce, who just filed for a nominal $1 billion market cap IPO, though it's estimated to be in the $200 billion range. [1]
However, Alibaba was founded in 1999, so it was founded around the same time as ebay and amazon, so this might actually further support the author's point.
fta, what does this mean? Bonobos is going to sell in-store or on someone else's site?
We’re on the record as saying that we’ve raised the last capital we need to
get to profitability.
The irony is a big part of how we’re getting there is by exiting standalone
e-commerce.
I guess this covers what he thinks of government involvement? "Hell no, this is America. We’re capitalists and we’re fighters, and today’s David is tomorrow’s Goliath."
US has had good anti-monopoly legislation and enforcement of it in the past including Standard Oil, Telecoms, and Microsoft and even Intel. It seems odd not to mention that possibility with Amazon, if they are a monopoly.
Amazon will never have more of the ecommerce market than Google does and Google isn't going to be broken up either.
The Internet creates the illusion of choice and non-technical people don't understand the gravity of the network effects involved. If Amazon had 67% of the ecommerce market, they'd be virtually impossible to dislodge as they'd just squeeze their suppliers like Walmart does, etc.
E-commerce is the catalog business. It is confusing to call it 'e-commerce' because you will conceptually lose the smooth progression from the printed catalogs to the web.
The Sears stores were, in fact, add-ons that appeared after the catalogs became ubiquitous.
This assertion:
>Said differently, if your business is standalone e-commerce selling third-party brands, good luck. You can’t generate enough operating profit to scale beyond getting noticed, counter-attacked, and at best acquired. You are forced into stay right where you are.
...is basically correct for most categories. It's really hard for businesses like Macy's and JC Penny and the rest which are primarily retail businesses to compete in the catalog business. Amazon in particular is moving into apparel and is doing a capable job of it for brands that their customers are already familiar with.
Is this true for the venture funded web catalog business? Yeah, but venture economics are usually terrible for web catalogs, and there are many venture corpses built upon dumb assumptions about 'branding' to attest to this.
The linked puff piece in this article praises NastyGal, which is, again, a venture funded catalog. It is a nice catalog with excellent photography, fast load speeds, and OK copywriting. The selection is also solid with an oft-changing inventory, but I would worry about the bad demographics and limited spending power of the target market. It wasn't so long ago that a similar brand with a similar style (American Apparel) was the new hotness. AA collapsed because of the reversal in commercial real estate and the prolapse in the spending power of its target market. Escalating advertising costs, high shipping costs, and bad market demographics threaten the venture funded nuCatalog model. Why do today's young women buy stuff from Forever 21 etc.? It's because they have no money.
"I'm starting a pants catalog and putting it on the web" sounds a lot less ~web 3.6 future internets~ than something about butt algorithms and personalization. What it still amounts to is selling pants through the mail. Catalogs on the web are a fantastic opportunity for everyone except for venture capitalists, in my view, just because the economics are not venture economics, and VCs are just killing each other pointlessly by bidding up advertising and labor costs for everyone. The opportunity is there, but these are not opportunities that venture investors are really well suited to navigate.
"We sell $80 khakis that fit" is not a great USP because Banana Republic does this also.
The big problem with selling fitted clothes via catalog is that unless the customers are familiar with your fits, they will tend to shy away from fitted clothes, and will instead stick to accessories or items with well-standardized fits like shoes. They bring up all these brands that do well selling via internet catalog that do so because they have elastic waistbands. Lululemons have some wiggle on the fit in the way that men's khakis do not.
Fitted clothes now have a nightmarish sizing problem due to retailers attempting to make fat people feel better about their hyperfattitude by making the sizes on everything totally nonstandard. This has some unfortunate spillover effects online as everyone has to modify their fits.
Andy's article mentioned Marc Lore and Vinit Bharara. Are there any books about their story building Diapers.com? I'd settle for a well-written longform article.
That's the bad news. The good news: if you wanted to become a millionaire on the web with reasonable but not outsized risk, ecommerce has pretty much been your best bet for the last 15 years or so. Getting an ecommerce businesses to the $1m-$50m revenue range has been done by many folks during that time. They may not be IPOing, but I think they're happy.