Lessons for Entrepreneurs from Yahoo’s Decline

The NYT has a piece about Marissa Mayer of Yahoo in which they discuss the company’s troubles. They also nicely sum up the 3 business models of the Internet:

Generally speaking, there are only a few ways to make money on the Internet. There are e-commerce companies and marketplaces — think Amazon, eBay and Uber — that profit from transactions occurring on their platforms. Hardware companies, like Apple or Fitbit, profit from gadgets. For everyone else, though, it more or less comes down to advertising.

So…ecommerce, hardware and advertising. Which one would you choose? Before you decide, from the same article:

In many ways, Yahoo’s decline from a $128 billion company to one worth virtually nothing is entirely natural. Yahoo grew into a colossus by solving a problem that no longer exists. And while Yahoo’s products have undeniably improved, and its culture has become more innovative, it’s unlikely that Mayer can reverse an inevitability unless she creates the next iPod. All breakthrough companies, after all, will eventually plateau and then decline.

With ecommerce aka the business of selling things, you have an opportunity to create a lasting business. This is unlike say advertising, when the business modus operandi is essentially money following eyeballs, way more vulnerable to competitors in a way selling physical things can’t be. The big advertising platforms of today like Google, Facebook and others will eventually follow the same path as Yahoo one would suspect – cost per click and overall internet advertising rates fall every year and the mediums used to advertise change too. (mobile being the next big one)

But before you dive into ecommerce and selling physical things online, remember though to think about this point:

In the technology industry, things move fast.

Ecommerce, and the technology component of selling things online, means that the pace of change is relentless. Selling online used to be selling to people via browser – we now know a third of ecommerce is via mobile. So as a merchant how do you approach this?

The answer is largely the direction ecommerce is heading; multi-channel. Diversifying revenue between online and offline is as good a hedge as there is in retail today. That’s why brick and mortar stores are shuttering whilst simultaneously switching their focus to online. And vice-versa, we’re seeing more and more online only outfits take their first steps into physical retail.

Finally on Yahoo, the ironic thing in all of this? They purchased Paul Graham’s ecommerce software provider Viaweb way back – one of the first ecommerce platforms on the web. (and now run it as largely forgotten Yahoo Small Business)

Given the vast majority of their market cap derives from ecommerce giant Alibaba, maybe the best advice for Mayer and Yahoo would be to switch focus back to ecommerce from advertising? Yes those margins are not nearly as good and ecommerce requires more effort to ‘scale’, but if it means survival, then does it matter if you’re no longer hip?

State of Mobile Commerce in One Slide

If you’re running an ecommerce business and you’re unsure on mobile, this slide from Business Insider’s Henry Blodget really brings home how important it is:

Mobile Ecommerce

Already since iPhone started the smartphone revolution in the late 2000’s, mobile represents fully one third of ecommerce traffic. Click through to read the entire deck, well worth 5 minutes of your time.

Why Brand is Hard but also a Must

A very useful post from Shopify on ecommerce for anyone starting out makes a particularly acute reference to branding. They note:

Eric is right that creating a good brand makes people more loyal. When they know and trust your products, people start to care about your work. Once you build a following, you no longer have to compete on price. You probably want to be more than simply an internet reseller, or someone whose products can easily fit in on a shelf of Walmart.

This is crucial. Competing on price is probably as bad a strategy as one can follow online. Offline, it’s barely profitable but at least it’s not as vulnerable as it is online. So build a brand.

Confirmation the UK is the Place to Sell Online

I’ve talked about the largest markets for online shopping – namely China and the US – and in absolute terms, these two countries present huge opportunity. That said, as has been mentioned previously, it’s the United Kingdom that is in actual fact the place to sell online. The FT confirms this with new data:

Consumers in the UK spend almost £2,000 online for goods each year on average — 50 per cent more than the next-highest valued market of Australia — boosted by widespread broadband access and the experience of home shopping.

So, if you’re looking at selling into a market that’s wealthy and has the propensity to buy your products online, look no further than Britain.

Selling on Amazon? You Compete with Amazon

As Wired notes:

Compared to the other industries Amazon is competing in, diapers can seem like a fairly small thing, and yet, this move signals a much larger shift for Amazon, because Elements positions Amazon as a competitor to some of the very brands who sell their goods on Amazon. If Amazon were to expand that approach to other consumer products, it could be very bad news for the millions of merchants who treat Amazon as their own storefront.

This has been the case for some-time actually; essentially since the year 2000 when they formally launched ‘zshops’. We know this today off course as it’s third party marketplace and sellers; folks who list their goods on the website alongside Amazon sku’s.

This announcement that Amazon is now selling diapers, coupled with KindleFire, as well as less well known AmazonBasics products, is possibly pointing to the fact that the private label strategy they’ve long ignored is coming to fruition.

What does it mean for suppliers as well as third party sellers? No different from selling to Walmart or any other mass merchandising outfit; it’s a channel, and you compete.

Ecommerce Online and Offline Paradox

The Wall Streety Journal has highlighted the problem that many folks now investing in ecommerce are starting to realize; stores are actually more profitable in many cases.

The example used, Primark, is actually very interesting. Here we have a retailer that is completely ignoring ecommerce and instead investing all their resources in stores – and doing a great job. This quote from the finance director sums up their position:

“We are not in the business of doing something and not making any money on it,” said John Bason, finance director of Primark’s parent, Associated British Foods PLC.

This could be determined as a shot at Amazon and other ecommerce players who operate a near zero margins as a result of a focus on volume. But the paradox we are discussing, as stated by Kohl’s CEO:

“If you don’t play online, you are making a pretty big mistake, because that is where the market is moving,” said Kohl’s Chief Executive Kevin Mansell.

So confusing right? The WSJ article notes a critical point, one that many thinking about the online-offline paradox should think about carefully:

One reason for lower online margins at Kohl’s is its low prices. Retailers that sell inexpensive goods are at a particular disadvantage on the Web, because it costs roughly the same to warehouse and distribute lower-priced items as it does higher-priced items of the same size.

This is economics of selling dictate whether you sell online, offline or both. That is the bottom line and current state of retail as we know it.