The Wal-Mart Future
Business-to-consumer retail Websites were going to be really big. Consumers were
going to be dazzled by the combination of lower prices and the ability to purchase
products from anywhere. The Web was supposed to be the best retail environment the
world had ever seen.
This imagined future success created an astonishingly optimistic investment climate,
where people believed that any amount of money spent on growth was bound to pay off
later. You could build a $5 million Website, buy a Super Bowl ad for $70,000 per
second, sell your wares at cost, give away shipping, and rest assured the markets
would support you all the way.
The end of this ideal was crushing, as every advantage of B-to-C turned out to have
a deflationary downside. Customers lured to your site by low prices could just as
easily by lured away by lower prices elsewhere. And the lack of geographic segmentation
meant that everyone else could reach your potential customers as easily as you could.
Like a scientist who invents a universal solvent and then has nowhere to keep it,
online retail businesses couldn't find a way to contain the deflationary currents
they unleashed, ultimately diminishing their own bottom lines.
B-to-C: Not so bad after all
The interpreters of all things Internet began to tell us that ecommerce was much
more than silly old B-to-C. The real action was going to be in B-to-B-to-C or B-to-G
or B-to-B exchanges or even E-to-E, the newly minted "exchange-to-exchange" sectors.
So we have the newly received wisdom. B-to-C is a bad business to be in, and only
ecommerce companies that operate far, far from the consumer will prosper.
This, of course, is nonsense. Selling to consumers cannot, by definition, be bad
business. Individual companies can fail, but B-to-C as a sector cannot.
Money comes from consumers. If you sell screws to Seagate Technology, which sells
hard disks to Dell Computer, which sells Web servers to Amazon.com, everybody in that
chain is getting paid because Amazon sells books to consumers. Everything in B-to-B
markets–steel, software, whatever–is being sold somewhere down the line to a company
that sells to consumers.
When the market began punishing B-to-C stocks, it became attractive to see the consumer
as the disposable endpoint of all this great B-to-B activity, but that is exactly
backward. The B-to-B market is playing with the consumers' money, and without those
revenues flowing upstream in a daisy chain of accounts receivable and accounts payable,
everything else dries up.
The fundamental problem to date with B-to-C is that it pursued an inflationary path to
a deflationary ideal. The original assessment was correct: the Web is the best retail
environment the world has ever seen, because it is deflationary. However, this means
businesses with trendy loft headquarters, high burn rates, and $2 million Super Bowl
ads are precisely the wrong companies to be building efficient businesses that lower
both consumer prices and internal costs.
The future of B-to-C used to look like boo.com–uncontrolled spending by founders who
thought that the stock market would support them no matter how much cash they burned
I've seen the future...
Now the future looks like Wal-Mart, a company that enjoys global sales rivaled by only
Exxon Mobil and General Motors.
Wal-Mart recently challenged standard operating procedure by pulling its Website down
for a few weeks for renovation. While not everyone understood the brilliance of this
move–fuckedcompany.com tut-tutted that "No pure-ecommerce company would ever do that"
–anyone who has ever had the misfortune to retool a Website while leaving it open for
business knows that it can cost millions more than simply taking the old site down first.
The religion of 24/7 uptime, however, forbids these kinds of cost savings.
Wal-Mart's managers took the site down anyway, in the same way they'd close a store for
remodeling, because they know that the easiest way to make a dollar is to avoid spending
one, and because they don't care how people do it in Silicon Valley. Running a B-to-C
organization for the long haul means saving money wherever you can. Indeed, making a
commitment to steadily lowering costs as well as prices is the only way to make B-to-C
(or B-to-B or E-to-E, for that matter) work.
Despite all of the obstacles, the B-to-C sector is going to be huge. But it won't be
dominated by companies trying to spend their way to savings.
It's too early to know if the Wal-Mart of the Web will be the same Wal-Mart we know.
But it isn't too early to know that the businesses that succeed in the B-to-C sector
will invest in holding down costs and forcing their suppliers to do the same, rather
than those that invest in high-priced staffs and expensive ad campaigns.
The deflationary pressures the Web unleashes can be put to good use, but only by
companies that embrace cost control for themselves, not just for their customers.