E-commerce 2.0, or How the New New Mom & Pop Shop will beat the crap out of Wal-Mart

Jeremy Liew at Lightspeed Venture Partners just wrote an interesting post on E-Commerce 2.0 that describes how the various pieces of retailer logistics & supply chain are being web-enabled.  According to his Jeremy, now is a great time to be starting an internet retailer business -- startup costs are low, tech skills rqmts aren't high, and there are lots of great tools that enable a small team (or even individual) to run an online operation.  the playing field has been leveled, and almost anyone can jump in.

Having occasionally dabbled in E-Commerce at PayPal and also in the late 90's with my own small consulting firm, i'd have to agree we've come a long way since the birth of internet commerce perhaps 10-12 years back.  And my guess is he's right -- the opportunities both vertical & horizontal are plentiful, the tools are very good, and the technology & capital required are minimal. 

However, for those same reasons i wonder: are these really venture capital deals?  Feels more like a lot of $500k-$5M businesses that require only a small business loan, or perhaps an angel investment.  Probably not much more than $5-25K to get started, and if you play it right you could be cash-flow profitable in a few months, certainly under a year.

I guess if you really want to build to scale, it might still require a large marketing budget to create a competitive brand, and maybe that's where the VCs come in -- or perhaps, an eBay or Amazon corp venture fund?  I'm always puzzled none of the big internet retailer platform companies have started venture arms to invest in their areas of interest / expertise.  Seems like a missed opportunity.  Altho they're active on the M&A side, and Amazon has been doing some amazing things with EC2 & S3, feels like they could all be getting in the game (and helping stimulate growth of their own platform) by investing in startups aligned with their business. 

I briefly looked into getting a small $25-50M fund started at eBay before i left in 2004, but even though there was already a strategy group doing a lot of technology research & evaluation, i couldn't seem to interest anyone in putting money where our mouths were.  And yet, eBay seems very active on the buy side.  Guess they'd rather pay $200M-$2B for a few known quantities than to build 100 ventures @ $200K-$2M a pop.  i think they were wrong to not start a fund, but eBay has always been pretty conservative... perhaps that's the cultural DNA that results from being a monopoly for so long.  oh well.  in general i think their acquisitions have been good ones, if occasionally a bit expensive.

Still, corp & venture strategy aside -- i'd say this is a great opportunity for the Mom & Pop Shop 2.0 to fight back against Wal-Mart with all the advanced internet tools & supply chain optimization now available.  Rather than trying to build swing-for-the-fences $500M e-commerce ventures, i think now is a great time to be building small $1-10M internet businesses with laser-like focus on just one product line or vertical.  Focus on something very narrow & specific, and then beat the hell out of the competition by simply doing it better than anyone else.  I call this strategy "niche to win", and i think it's a great way for little guys to kick ass.  Here's hoping they do :)

Comments

[Donna]

Stumbled upon your site while researching an article on mom and pop's moving online. Great blog. I will book mark it for sure-- I just started using Amazon Webstore for fun- perhaps I will grow it into a business with my own inventory- here's what I have so far- www.thedreamdrawer.com. Keep up the good work!

[Randy Smythe]

I agree! I think the concept of "The Long Tail" works in the start-up arena also. I have spoken with several start-ups over the last several months who are concentrating on a service or market niche for ecommerce. Most are bootstrapping but their needs a small.

The big deals are out their but large corps like eBay, Yahoo and others would put themselves in much better position if they mined the Long Tail.