New-found competitiveness for Small- to Medium-Sized Companies
The outlook for smaller companies is much stronger today than it was at Amazon's founding. That's because several of the advantages enjoyed at the time by Amazon have been commoditized or made easier and less expensive to implement.
As the number of users has climbed since 1995, smaller businesses can now take a market-maturing step and segment their customers in an ever-finer fashion (Rangan 1992). While no one can compete with Amazon on sheer number of SKU's, specialist suppliers can seek customers "at the fringe," and develop expertise in esoteric areas in which Amazon or other mass-market retailers cannot offer the same focus or expertise.
The ability to go after smaller niche markets has been augmented by recent changes in the Web -- both in terms of finding customers and completing transactions. This is the so-called "long tail," which means that, while most customers are purchasers of mass-merchandise items, those same customers or others may be in the market for highly-specialized products (Anderson 2006). Chris Anderson, in "The Long Tail," illustrates a number of examples where mass marketing is now giving way to narrow marketing, made possible by the ubiquity of the internet and the availability of highly-targeted advertising.
Online retailers, whether large or small, have the opportunity to turn "long-tail" markets into "steep-tail" markets, which means that it is possible to develop products which develop a following quickly (Tucker 2007).
Since modern search engines are based on popularity and links, as a product or company establishes a reputation quickly, that reputation is multiplied by the search-engine preference effect. Of course, this can be stimulated by "SOE," or search-engine optimization software or human efforts, but the results are dramatic whether generated through actual consumer preference or through search engine manipulation.
Modern-day smaller competitors: Look big while staying small
As compared to 1995, small companies do not need to establish the entire business system in-house. That is, the advantages of reaching customers, logistics and supply can be facilitated by the internet.
Old-model business system
The Old Paradigm for Smaller Businesses
In the "old" paradigm, the costs of entry were fairly high. Companies needed to create their own supply networks through personal contacts, telephones and faxes. It would have been very difficult in the past for companies to be able to find better, cheaper and/or faster sourcing in far-flung places like China or South Africa. Today, with search engines and online commerce, it is much easier to find, screen and conduct business with clients anywhere in the world.
Ordering was similarly difficult. Customers looking for a product were faced with a daunting series of data searches, starting with Yellow Pages and "1-800" numbers, making it difficult to find and sort through product providers in an efficient or cost-comparative way.
Finally, fulfillment required that suppliers develop their own warehousing. if, for example, a broad-based purveyor (think Harry & David, or Williams of Sonoma) wanted to provide a series of goods to a customer, they would have to have a significant stock on hand, be able to store, find, pick and pack, then have their own arrangement for shipping to the customer. This cumbersome system added costs in two important areas: (1) the costs of shipping from diverse suppliers to the warehouse, and (2) the costs of order fulfillment at the warehouse, to and including the shipping to the final customer.
The New Paradigm for Small Businesses
Retailers and online sellers are able to source online as well. Everything from search ("where can I find a left-handed putter which costs less than $50?") to screening, selection and pricing/delivery negotiations can be handled online, sight unseen. One of the reasons for China's emergence as a manufacturer to the world is the ease of contact and concluding supply agreements with small- to medium Chinese manufacturers. The costs of such sourcing has gone down as the costs of finding and concluding deals has improved. There are still some obstacles, including language, payment and shipping, but the costs are a good deal less.
Order-taking has also become automated for the smaller supplier. The customer, once he/she has found the product he wants, can place an order using online tools such as E-Bay or Google purchasing software or Paypal, which enables even the small retailer to accept credit cards and be assured of payment. Advertising to find customers can now be highly targeted through Google, Yahoo, MSN and other online advertisers who deliver highly-targeted customers who are more likely to buy. Since the cost is paid per "click-through," the smaller, highly-targeted supplier can compete with the mega-retailers for customers without a high fixed cost usually associated with advertising.
Logistics has been an area that has improved more than any other for small suppliers. The benefits available to sellers online include:
Another revolution in supply is drop shipping. The supplier to the e-retailer can retain the goods and ship directly to the customer.
The cost of it has declined to the point where small e-retailers can afford it, and realize the gains in productivity (INTRA 2007)
The above-mentioned services made available by mass logistics concerns, such as UPS and FedEx, bring advantages to small retailers who can even outsource warehousing and order fulfillment.
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