Focus is Necessary!

Source: BW

It’s Diapers.com’s focus that makes it dangerous. The same focus allowed Zappos.com to dominate the shoe business on the Internet, a success that led to Amazon’s $1 billion-plus purchase of the company in November 2009. “An intense focus on a category enables efficiencies that even Amazon would have trouble replicating,” says Rohan. “You can optimize your business. I think specialization with scale is going to be the central theme for e-commerce for this decade.”

Specialization works for companies like Quidsi and Zappos because they build relationships with recurring customers, and because they can get their product out quickly. Bharara and Lore, for instance, are experimenting with local city storage of most-ordered items, so that a case of diapers might appear at the door within hours. Amazon can’t move its huge selection into urban areas, but most Diapers.com customers are selecting from a small and predictable range. Specialization also works because you can design a website targeted to a particular audience. Start at the home page, and you’re almost done shopping.

So much work has to go into efficiency because shipping diapers and household goods is a hard way to make money. Shawn C. Milne is an Internet analyst at Janney Capital Markets, and when he talks about Quidsi and Amazon, he talks about scale, scale, scale. “It’s all about driving high volume over fixed costs,” he says, meaning you’ve got to spend a lot and sell a lot. “These are not 15 to 20 percent operating margin businesses, these are 5 to 7 percent peak operating margins.” That’s a low return, but it’s a return in a business that’s been growing at around 10 percent annually while retail overall has been slumping.

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