
E-Commerce Is A Bear - bkudria
https://medium.com/what-i-learned-building/d233f02d52a5?attempt=2
======
arbuge
>>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.

~~~
cm2012
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))

~~~
opendais
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.

~~~
cm2012
Exactly that. I worked with the manufacturers themselves in jewelry,
furniture, and apparel.

------
programminggeek
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.

~~~
hagbardgroup
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.

------
callmeed
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/](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).

~~~
deadghost
I hate ebay and I still use it. Ebay has a very _strong_ moat.

------
rebel
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)

~~~
seanlinehan
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.

------
netcan
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.

~~~
marcosdumay
> Eventually what we would have is factories, postmen & search engines.

Agreed. And Amazon is a search engine.

------
saosebastiao
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.

------
brianbreslin
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

------
peteforde
Very strange to not mention Shopify in an article like this. They will almost
certainly clear a $2B valuation when they IPO.

~~~
callmeed
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.

~~~
netcan
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.

------
artumi-richard
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.

[0] [http://www.online4baby.com/4baby-sleigh-cot-with-drawer-
whit...](http://www.online4baby.com/4baby-sleigh-cot-with-drawer-white)

[1] [http://amzn.to/1mcLcZC](http://amzn.to/1mcLcZC)

~~~
Pxtl
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.

------
dirtyaura
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.

------
andyidsinga
> 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!

------
damian2000
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.

------
Theodores
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.

------
amac
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.

------
tbirdz
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.

[1]: [http://www.cnbc.com/id/101598851](http://www.cnbc.com/id/101598851)

------
x0x0
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.

------
ForHackernews
No mention of Etsy?

~~~
sleepyhead
Nope, no mention of Etsy in that article.

------
emrehan
I think there is a message lying on the closing story: The only chance of
success for an e-commerce company is not to be pursued by Amazon.

~~~
ForHackernews
Or just get big enough to get bought out by Amazon. I guess it depends what
kind of "success" you're aiming at.

------
j1o1h1n
Wait another ten minutes till the Alibaba IPO?

------
gtirloni
_I’m not a stock picker, but I’m long Amazon, very long_

 _I’m extremely long this business model_

What does "long" mean here?

~~~
jh3
He expects Amazon and its business model to rise in value.

------
galaxyLogic
What about anti-monopoly legislation? I didn't see that mentioned in the
article, did I miss it?

~~~
davedx
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."

~~~
galaxyLogic
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.

~~~
opendais
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.

------
hagbardgroup
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.

------
dueprocess
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.

~~~
rkda
There's a good profile at Business Week

[http://www.businessweek.com/magazine/content/10_42/b41990627...](http://www.businessweek.com/magazine/content/10_42/b4199062749187.htm)

