Forget the notion that anyone with a good idea can launch a hot Internet start-up. The new online retailers are betting that only the big and well-financed among them will survive.
Forget the notion that anyone with a good idea and a computer can launch a hot Internet start-up. Some of the savviest new Web players are betting that only the big--and well financed--will survive
Don Kendall Jr. yearns for the sting of arrows in his back. Several years ago, when the Internet as Wild West was the cliché of choice, a spineful of quivers was the presumed fate of electronic-commerce pioneers venturing into uncharted territory. Had Kendall started GreenTree Nutrition Inc. back then, he would have faced terrifying uncertainties surrounding unproven revenue models, not-ready-for-prime-time technology, and the doubtful viability of the on-line marketplace. But he would also have had the luxury of time. Time to experiment. Time to evolve. Time to build a brand. "We could have gotten smart under the radar and learned as we went along," says Kendall. "That's what Amazon.com did."
But Kendall is launching GreenTree, an on-line seller of dietary supplements, now, in an era of E-commerce that--for retailers, anyway--is rapidly approaching the end of Manifest Destiny. While opportunity abounds for start-ups with niche or novel offerings, on the Internet some traditional consumer-goods categories are already dominated by Amazonian forests in which a few towering brands blot out the light from entrepreneurial shrubs. Meanwhile, the pundits who used to argue over what works on the Web--"content is king"; "community is king"; "advertising is king"; "personalization is king"; "commerce is king"--have reached consensus: they're all king. As a result, ambitious companies like GreenTree believe that they have to be all things to all people and that they have to be all those things right now.
In both scale and strategy, GreenTree exemplifies the new professionalism of Web business. Small stores considering how or whether to go on-line, as well as start-up electronic retailers who believe that a Web address plus E-commerce technology automatically equals profits, need to recognize what they're likely to be up against. "The dollars at stake are such that an amateur approach to on-line retailing is no longer sufficient," says Ken Smith, director of on-line retail and distribution strategies at the Internet strategy consulting firm Mainspring. He adds, "You now need business knowledge, marketing savvy, understanding of capital markets, and great Web sites, along with state-of-the-art technology." Peter Cohan, author of Net Profit: How to Invest and Compete in the Real World of Internet Business, lays out the stakes succinctly: "Whoever establishes the dominant brand in a given sector first, wins. Numbers two, three, and four will get bought out, or run out of cash and close down."
GreenTree hopes to be first by becoming the ultimate destination site for its category, what Jim Sterne, president of the Internet consulting firm Target Marketing, calls a "hub." Hubs are built around transaction capabilities, similar to the way portals like Yahoo! and Excite have grown up around search engines. But hubs' attractions focus on a specific subject and include bountiful content and community areas, where customers can share enthusiasms or concerns. GreenTree's offerings include an ever-expanding library of original articles, personalized health-related newsletters, and--the pièce de résistance--a mechanism for customizing vitamins on-line coupled with the back-end capability of manufacturing them. "They are trying to become the news, weather, and sports of herbal medicine," says Sterne. "It remains to be seen whether it's worth the investment."
And it's been quite an investment---$14 million to date, most of which came from high-profile angels and venture capitalists. But that figure is surpassed by that of GreenTree's chief competitor, MotherNature.com, which stands at almost $23 million after two rounds of financing. Like GreenTree, MotherNature.com is distributing its millions among a palette of products and services--not surprising, as it shares its competitor's goal of being huge right out of the gate. "Just as happened in store retail, there will be a few companies that will win, creating a lot of wealth and excitement in the process," says MotherNature.com's CEO, Michael Barach. "The ones that survive are going to become the Wal-Marts of this medium."
Some experts, however, say the desire to wield Wal-Mart-esque power on the Web may be misguided: that trying to do so much on such a grand scale is just too expensive. Others contend that the ease with which prices can be compared on-line, using services such as CompareNet and Amazon.com's Shop the Web, means that consumers may throng enthusiastically through the megastores' doors, gorge gratefully on their offerings, and then throng elsewhere in search of a dollar off on ginkgo tablets. "I think there are a lot of customers concerned only about price," says Shelley Taylor of Shelley Taylor & Associates, a Web-research and management consulting firm headquartered in London. "More and more people will go to a content-rich site, do research on products, and then buy at another site for less."