The Internet is about information. Success on the Internet is about aggregating that information, so that people can use it. Broad site offerings capture mindshare, making the site one of the first places a net surfer thinks to go. It may seem quaintly mid-1999 to say it now, but the key to successful operation on the Internet remains mindshare. Those companies that bought mindshare early still have it, although some paid too dear a price. Nevertheless, they have created an extremely valuable intangible asset for themselves.
It's not just a matter of having a name people know. Heck, people knew the names Toys 'R' Us (NYSE: TOY) and Pets.com, but their sites failed. The site has to be regarded as a destination. The Internet is an enormous, loosely connected agglomeration of attractions. The destinations are the places that offer the most return for the least effort, the places that simplify the experience.
Amazon, the first mover
Amazon.com (Nasdaq: AMZN) has tried to be that place. It got out of the gate quickly, built a great interface, established credibility, and created its patented "1-Click" system. It's simple and friendly. It also spent way too much on distribution capacity, anticipating too rapid of an internal expansion. Still, it built a simple, trusted, comprehensive destination, and that has significant value.
Toys 'R' Us recognized Amazon's reach and capabilities. Toysrus.com could not reach profitability on its own, since its offering was limited. It had a chance, however, if it rode in Amazon's wake. That's why it partnered with Amazon rather than sink more money into a losing venture. By doing so, however, the company essentially surrendered its online brand. It has abandoned the field to Amazon. Others will probably follow suit; if not Wal-Mart (NYSE: WMT), which would likely be an unworkable deal, then Best Buy (NYSE: BBY). If you can't beat 'em, join 'em.
The problem in Amazon's case is that it has endangered its sustainability by investing in weak companies (such as drugstore.com (Nasdaq: DSCM) and the now-defunct living.com) and unprofitable product lines. It will have to work hard just to continue operations. That opens the door for other companies ready to attack its potential markets by offering even more aggregation of products.
eBay, the next Amazon
The site that is rapidly becoming known as The Place To Find Anything is eBay (Nasdaq: EBAY). Its listings as diverse as species of cockroaches, ranging from first-edition books to thousand-year-old fossils. Trouble is, it doesn't have the simplicity that Amazon does. You have to bid and wait and bid and wait, then send a check to a third party whom you don't know, who may or may not send you what you bid for, which may or may not be in the promised condition.
That's still the image that many people have of eBay. They see it as a Turkish bazaar, where the stuff is garbage, you have to haggle for a price, and no one can be trusted. eBay is taking steps toward creating simplicity, however. It has instituted online payment by credit card through Billpoint. It has added the "Buy it now" feature, which lets a buyer obtain the item immediately at a fixed price. It pursued that model further by purchasing Half.com, a fixed-price seller of books, music, movies, and games.
Earlier this week, the wind told a story about how eBay may introduce storefronts, offering individuals and companies a place to put their goods for sale at a fixed price. Dame Rumor didn't elaborate on how eBay would charge these clients, by item as usual or a set rate. It's impossible, therefore, to comment on how such a move might serve the company.
It doesn't seem unreasonable, however, to speculate that eBay may offer its sellers a corner, in which they could sell stuff at a fixed price. It would give buyers confidence in the legitimacy of the sellers and eliminate the hassle of the auction format. It would be a shame to see eBay abandon auctions entirely, but adding a fixed-price area would expand offerings without cannibalizing sales, which was the danger with Amazon's zShops.
eBay is clearly out to overthrow Amazon as the premiere e-tailer. eBay CEO Meg Whitman said in a Motley Fool Radio interview that the company's strategy is to create "a global trading platform where practically anyone can buy practically anything." In order to reach this goal, she realizes that it is necessary to expand into other pricing formats, such as fixed or named prices, and make it easier and more reliable to make the trade.
If eBay can do those things, if it can add simplicity to the mindshare it has built on the back of its enormous range of offerings, then it can achieve ultimate destination status and its realm of operations will be limitless. At that time, all companies would do well to join eBay rather than fight it. It was to convey this vision that Whitman issued her revenue estimate of $3 billion in 2005.
I don't see what was so imperative about conveying this message that Whitman felt obliged to put that kind of pressure on the company, but I like to see her thinking big. There are huge rewards for the company that becomes The Destination for Internet Retailing. My money is on eBay.
Brian Lund looks for first-edition Richard Brautigan books on eBay every few weeks. One day, someone will list Trout Fishing In America for $5, and life will be good. Brian owns shares of eBay. The Motley Fool is investors writing for investors.
