Rudelle Blogging

Despite the fact that traditional e-commerce assets are becoming a commodity, it does not mean necessarily that all large e-retailers will be excluded from the game. As a matter of fact, it might be quite the opposite. In this new web 2.0 ecosystem, mainstream large e-retailers will have a key role: to become the trusted third party for a given category.
In any case, this is the fascinating bet of Amazon which is reinventing its business with at an impressive pace (still badly understood by the vast majority of financial analysts).
The underlying idea is the following: in two or three clicks, I almost always manage to find a certain Joe who will offer me a book $3 lower than my usual e-bookseller. The only thing which retains me to deal with this Joe (unknown to me), it’s the fear (perfectly justified) that Joe will badly perform (or worse will cheat on me) this very transaction.
Now if Joe is registered on Amazon market place, the picture is very different. Amazon’s brand should guarantee transparency, effectiveness and reliability of the transaction. As a result, I can now buy Joe’s book with very little to worry about. And of course, Amazon prefers to gain a 5% commission on the transaction between me and Joe that nothing at all.
The idea of Amazon is simple: better to integrate all the Joes in Amazon’s ecosystem rather than let them develop out of control in the cyberspace. With this trusted third party role, Amazon hopes to stay in the financial transaction loop. Eventually, it is the only important thing for Amazon.
In this frame, Amazon took two years ago an amazing decision: to offer free of charge of its entire product catalogue (through Web services) to the developers’ community. When one knows that for a retailer, its product catalogue is supposed to be one of its main assets, one measures how radical this decision was.
But the logic is always the same: better to have all the Joes developing their revolutionary merchandising concepts using Amazon catalogue, rather than with others. This open API concept opened to all kinds of mashups is clearly one of the main features of these new Web 2.0 sites. Still, it remains extremely rare for e-commerce sites.
This shows that e-commerce 2.0 is still lagging well behind Web 2.0 in general. For this reason, 2007 is likely to be a crucial year where the most dynamic e-retailers will widen the gap with their followers.

The Wal-Mart type large big retailers built up their amazing success mastering three key functions: sourcing, merchandising and logistics. This combination of factors allowed them to crush down traditional mum and dad retailers and to impose a new model.
The first generation of e-commerce sites adapted this wining model on line. After a difficult start in the late 90’s learning the specificities of the Internet channel, large on line retailers today successfully master the three key area of expertise: sourcing, logistics and merchandising. Thanks to a critical mass of increasingly mature buyers, most of them now experience high volumes and attractive profitability. With a 30% growth per annum which does not seem to slow down, e-commerce has a bright future.
However, this nice picture is likely to break into pieces in the coming years. First of all, in the flat world of the Internet, the fortress of sourcing is disaggregating with an amazing speed. The most obscure manufacturers are increasingly easy to spot on line. With little work and a good vertical specialization, almost anyone can source the best product in the most remote place of the virtual world.
Regarding logistics, the growth of Fedex, UPS and other large shipping companies also makes it easy for any individual to send anything anywhere, being as reliable as any big corporation.
Furthermore, the growing maturity of many Internet technologies (which belongs to the Web 2.0 wave) is combining with the collapse of band-width and storage costs. This opens the door to an exponential growth of innovative e-merchandising concepts. New tools make it possible to create on line shops are indeed becoming so simple and powerful. Any single individual entrepreneur can unleash his marketing creativity for a very low investment. As a result, new innovative merchandising concepts are launched every day on the web at a extremely rapid pace.
Without saying that price comparisons are so easy on Internet. This makes it is much more difficult for an e-merchant to replicate a classical tactic of brick and mortar retailers: lure customers with some huge discounts on a couple of very visible products, and generate fat margins derived from impulse purchases.
The combination of these strong trends has a crucial consequence: selling on the Internet has become a commodity. We see the rise of a huge world ecosystem of small entrepreneurs who invest into all possible e-commerce niches. This army of anonymous Joes whose cost structures are close to zero, represents a very serious threat for the large e-retailers. This had made the fortune of an eBay, but the phenomenon goes today well beyond auctions.
Nevertheless, in this second e-commerce revolution, the large e-retailers have a very smart card to play. I will get back to this in my next post.