The appeal of any Internet business is directly linked to the appeal of the next best alternative. In the case of retail Internet businesses this is shopping offline. There are a number of Internet businesses that would have an incremental chance of success because either the customer or the business finds the offline alternative unappealing. Specifically:
Stores with broad appeal but small geographic coverage. Hamleys claims to be 'the finest toy store in the world'. They are certainly one of the best known and have a wonderful selection of over 40,000 toys. Until Hamleys.com came along, the only alternative for most shoppers was to go to its Regent Street flagship store. If you live in Glasgow or Spain this alternative is an unattractive prospect. For companies like Hamleys, eCommerce represents a significant untapped opportunity.
Ranges with low sales density and high inventory costs. JCPenny.com has an Internet offer for special-sized women including plus, tall and petite sizes on its Web site. In addition to these ranges they have also launched a separate just4meplus site specialising in larger female sizes. These products are targeted at niche segments and unlikely to achieve the sales density in stores to justify the cost of the selling space. Furniture.com offers a significantly greater range of furniture products than bricks and mortar stores. This is cost effective, as Internet retailers like furniture.com do not need to hold inventory in stores to illustrate their product ranges. With both of these examples, a single distribution point and an Internet site create a highly cost effective channel.
Boring shopping. Let's face it, shopping for grocery items is boring for most people. The first Internet retailer to make this process easy and simple gets my order.
When entrepreneurs have evaluated the most attractive geographic and product markets and identified the attractive customers within them, they will need to find competitive advantage. The biggest and best ideas will be in the 'white space', an area that is not occupied by a credible player in the market. The key questions to be answered are:
Who are the competitive candidates online? The starting point for any competitive review will be an Internet search for potential competitors. If you want to set up a wedding business visit some of the key search engines and type in wedding. You will find many competitors.
Don't despair, 99% of these sites will not be credible sites. A further – and fast – review of these sites will be required to establish those that are. Offline candidates are potential competition and also a potential exit strategy for investors, as they may want to buy the site. Consider very carefully how you will compete against the offline players. Often there is an opportunity to offer better prices. This alone can be a competitive edge for Internet players as the established businesses find it difficult to undermine their store-based pricing policy. Try not to rely on this unless you can build enough scale to be the 'category killer', or your margins will be low. Which of these candidates are credible? Spend a couple of hours checking the major offerings by searching the portal sites to see which firms they have linked into their sites. If you find a potential competitor, search the industry publications (for example redherring.com, wired.com) to see how much money they have raised. These publications will usually discuss other competitors to the site you have found. This 'big site down' approach will lead you to the major players.
As soon as you have defined the likely sources of product supply, call those key suppliers and find out if they have any Internet offerings. Most suppliers will usually be happy to disclose this information. Assuming that there are competitors out there, start-ups will need to prove that they can effectively beat them in the market. A start-up competitive checklist should include a comparison of:
Are you differentiated in a sustainable way? Map the competitive sites against your offering to see where you are competitive in each country. It may be that you are competitive because you are content rich, or perhaps because of your breadth of offering. The key to Internet success is to ensure that your competitive edge can not be replicated by the competition. Established Internet businesses can react very quickly to minor changes in the competitive landscape, consequently a competitive edge in a business plan may not be there by the time you get to market. If you have developed a strategic asset or perhaps a partnership with a major player who adds something your competition can't, always ask for exclusivity to stop it being replicated. Nobody will invest in ideas that can be copied by established businesses.
Strike the right balance between globalism and commercialism. (Steve Case, Chairman, AOL) An effective competitive review will give a good indication of the likelihood of success in entering any particular market. Once you have established that there is cross border opportunity, you now have to decide the best way to enter the new market. The single greatest consideration is whether to launch with a local, regional, or global offer. Whatever you do you should think big and scale fast.
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