Is it Too Late to Start an Ecommerce Business Today?
Do Ecommerce Giants Have Sustainable Competitive Advantages?
Every other week one hears about some ecommerce business raising a 100 million dollar round from investors. We hear of ecommerce businesses planning to go public with a valuation of billions. News about the skyrocketing sales growth of ecommerce giants has become commonplace. When people hear this, some are filled with amazement, and even disbelief. Others maintain that founders of ecommerce giants are visionary business leaders who created mountains of wealth from nothingness.
Still others worry that this is all a big fat bubble that is going to burst soon. But the one question on everyone's mind is:
Can One Start Out in Ecommerce Today and Still Make It Big?
The biggest ecommerce giants did not even exist two decades ago. This is unlike most of the offline business giants that have existed for more than a century. That encourages me to explore the opportunity of setting up a new ecommerce business today, with the aspiration of soon giving Amazon.com a run for its money.
"Surely You Can't Set Up an Amazon.com Today!"
That sentiment is easy to understand. The most famous ecommerce brand in the world is not going to be easy to replicate, even in a substantially long period. But that begs the question:
What Really Is the Competitive Advantage of Amazon.com, and Is It Sustainable?
So that one does not make a superficial analysis, let us go down the list point by point:
The World's Foremost Ecommerce Brand
Brands are not created overnight. So matching up to Amazon.com's brand equity is going to be tough. But Amazon.com is not one of these eternal brands that your great grandfather knew about as a teenager. What I am alluding to is the fact that online consumers are more fickle in their brand preferences.
If you ask me to produce irrefutable evidence to that effect, I would fall short. But it is my observation, and opinion, that online brands have not yet managed to create relationships with consumers as strong as some physical brands have. I can easily imagine that, over a five-year period, a brand could emerge that would be as strong as Amazon.com. In fact, I feel that before we reach the year 2020, we will read headlines that express astonishment that some "upstart brand" has threatened the brand power of Amazon.com. Keep this prediction in mind -- I am confident that I will be back in a couple of years, gloating about the accuracy of my crystal ball gazing.
Technology That Works – Always
Amazon.com is given credit for running highly reliable technology, but I think that is not enough. Their scalable architecture has given rise to an entire new paradigm in load balancing and elastic web architecture. This is tough to replicate. Luckily, Amazon.com, Rackspace, and other public cloud providers are today in a position to accommodate the needs of an upcoming ecommerce giant. So technology is also not a sustainable competitive advantage.
I have always maintained that low price is not a valid ecommerce strategy.
Amazon.com's low prices are driven by the favorable pricing it receives from suppliers. That does present a chick and egg situation for a new player, but we can be reasonably sure that if you had similar volumes as Amazon.com, you too would get similar cost advantages. Within the period from now to 2020, we could see some new players rise in volumes substantially. When that happens, then this too would not be a sustainable competitive advantage for Amazon.com.
Long Story Short, It May Be Difficult but a New Player Could Compete With Present Day Ecommerce Giants
I could continue my tirade against the sustainability of the competitive advantages of present day ecommerce giants, but a closer examination will show that the same advantages of the online paradigm that allowed present day giants to emerge can cause them to fail tomorrow.