Horizontal vs. Vertical E-Commerce
Should You Be a Specialist, or Should You Sell Everything to Everyone?
Classic marketing cries itself hoarse telling you to differentiate yourself. Marketing pundits proclaim that being everything to everybody is no longer a valid strategy, and it probably never was. The most valuable and well-capitalized e-commerce businesses in the world are the horizontal plays: businesses such as Amazon and eBay that sell almost everything.
Very simply, horizontal e-commerce businesses are those that sell products from a large number of categories. The most famous horizontal e-commerce business is Amazon.com It sells books, furniture, food, grocery, apparel, toys, software, music, gadgets, and a whole lot more.
Horizontal e-commerce businesses present themselves as a one-stop shop and communicate convenience as a strong benefit. They also tend to find supply chain or scale advantages that help them offer great prices.
Unlike horizontal plays, vertical e-commerce players are specialists. So an online retailer that only sells baby products is a vertical e-commerce business, so is one that only sells shoes. It is akin to the "category killer" that traditional retailers understand.
Vertical e-commerce players rely on being able to showcase the product better. Since they focus on one, or few, product categories, they can engineer the user experience in a way that highlights the special features of the product category. At least that's what they should do. For instance, a precious stones retailer should include images of how the stone glitters in different light conditions. Likewise, an online pharmacy for over-the-counter products might be able to write product descriptions that are more apt to pharmaceuticals.
Their product category usually categorizes vertical e-commerce businesses. That means all niche e-commerce plays need don't need to be vertical e-commerce businesses. For instance, hyperlocal e-commerce players are niche players. In this case, the niche is the locality in which they operate. But hyperlocal etailers do not automatically get the term vertical attached to them.
The Better Method
In the beginning market participants were happy being horizontal. The idea was that adding categories only occupied bits and bytes and not real floor space; not even square inches in a product catalog. So might as well sell everything. The coming of the serious vertical players heralded the next wave of e-commerce. The term "category killer" aptly describes what some retail professionals think of large specialist retailers.
It's not only about focusing narrowly on a product category. It is also about choosing a category that is suitable for vertical e-commerce. As an extreme example, selling handcrafted artisan-made goods offers several opportunities to showcase the product in a way that the more or less standardized templates of horizontal e-commerce players will not be able to compete against.
Challenges to Setting Up a Horizontal E-commerce Business
Another important point to consider is that some of the largest horizontal e-commerce businesses are now too big to confront head-on. Jet.com has announced big plans that some say could threaten Amazon.com. But such initiatives are the exceptions.
So a case could be made that vertical e-commerce businesses are the way to go.
If you agree, then make sure of at least the following two points:
- The addressable market is large enough for you to someday reach a scale that you find rewarding.
- The chosen vertical is complex enough for horizontal players to avoid, or at least not be able to do justice.