Barriers to Entry in the Ecommerce Business
A Business Can Enjoy Some Protection Because of Entry Barriers
The Internet is all about democratization -- a place where the small guy can effectively fight against the giants and hope to win. Examples such as Google, Facebook, Twitter, Amazon, and eBay, among others bear testimony to that fact. And since two of the names in that list of five are e-commerce players, there is a belief that e-commerce, as an industry, has negligible barriers to entry. Here's why.
In an earlier article, I had shown how one could set up an e-commerce website in one day. And I know people who have set up e-commerce websites in the past and can do it in under an hour. Think about physical retail: you could not even have set up the signboard for a retail outlet in an hour. But this kind of thinking leads us to the wrong conclusions.
This is the crux of the issue. While setting up a physical store could be regarded as the time when one got into the retail business, I think that in the case of e-commerce, setting up a website cannot be seen in the same vein.
Of course, you need customers to have a business. I know several people who have turned e-commerce entrepreneurs overnight, and the next morning they have invested in pay-per-click advertising. It got traffic flooding to their doorstep. Some of it, naturally, converted.
Having Customers Is Also Not Enough to Call Yourself a Business
Traditionally, if you had a shop, and if you had customers, you could certainly be labeled as, "in business." But if you have had to pay customers (directly or indirectly) to come and buy from you, then it is more like a charade. And a charade does not make a business.
The earlier part of this article has focused on defining what is not an e-commerce business. Let us now talk about what is an e-commerce business. Given the specific economies involved in the e-commerce business, I think that one of the first characteristics of an e-commerce business would be a repeat customer. If a customer has a reason to come to you one more time, then you are showing characteristics of being a business.
You Are an E-commerce Business When You Have a Low Bounce Rate
Sure, you may have compelled visitors to visit you with an effective pay per click strategy. But once they visit, if many of them are encouraged to look around, then you are a serious destination. You could achieve this visitor interest with your choice of products, images, descriptions, or with any other instrument of customer engagement.
You Are an E-commerce Business When You Do Not Lose Money on Every Transaction
I find it irritating that the only way to be in the e-commerce business is by losing money. Getting money from investors rather than customers seems to me like a perilous route. Sure, one could think of it as a necessary evil to get started – but only to get started. I am not a fan of e-commerce professionals who think do not think twice flinging discounts and goodies in the general direction of the customer with a hope to capture so much market share that someday they will be very valuable, as opposed to profitable.
Though it might seem like there are no barriers to entry in e-commerce, I think that notion is erroneous. Just like e-commerce has opened up a new paradigm of existence, I think that new rules should be applied to evaluate e-commerce. And unless an e-commerce business can demonstrate some of the characteristics I have talked about, we cannot call it a business. And when we do apply my yardstick, then an e-commerce business is mighty difficult to set up.