Diapers War

So i love Businessweek; there’s always something great on their site to read about. 🙂

This week their cover article is about the diapers war between Diapers.com and Amazon. 🙂 Actually, it’s really about trying to compete with uber-giant Amazon in the online marketplace.

Amazon is quite good at what they do; they can pretty much give you the best price on anything you’d be interested in buying online. The article mentions that within minutes of going live on the web, Soap.com was hit by Amazon price bots:

When Quidsi launched Soap.com in July, adding an additional 25,000 products to their lineup, the site was strafed almost from the minute it went live by price bots dispatched by Amazon. Quidsi network operators watched in amazement as Amazon pinged their site to find out what they were charging for each of the 25,000 new items they initially offered, and then adjusted its prices accordingly. 

How are you going to compete against that?

So this Businessweek article offers a suggestion: specialization.

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. 

So let’s look at this; the cause of being able to compete with Amazon in the online marketplace is specialization.

So like we always say: you know you have found the cause of something if, when the cause is in place, you get the result. If i light a match, i get fire. If i try to light an ice cube, i don’t. Isn’t that cause an effect? If i do something, and don’t get the result i want, in what sense could i call that thing a cause if it doesn’t produce a result?

So… is specialization the cause for being able to compete in the online marketplace? This article itself gives us a counter example:

“I’ve seen everything from Pets.com to every other crazy idea go up and down,” says Rohan, who has covered the Internet retail since 1999.

and…

Mick Mountz… also worked at Webvan, the company that lost $1 billion from 1999 to 2001 trying to be the first to build an efficient online grocery store delivery system. “The problem with Webvan,..

So much for specialization being the cause of being competitive. And what about the biggest example? Amazon.com itself. They sell everything, and they’re certainly successful. So how can specialization be the cause for success?

Okay, so specialization is not an instant, certain cause for success. What about the benefits that specialzation can bring with it?

Specialization works for companies like Quidsi and Zappos because they build relationships with recurring customers, and because they can get their product out quickly. 

Amazon doesn’t get their product out quickly? They don’t build relationships with recurring customers? Because if they do, then specialization doesn’t have the market cornered on these things either.

So don’t specialize? We’re not saying that either: some companies specialize, and they’re successful. Some companies don’t, and they’re successful. Some companies don’t specialize, and they’re not successful. Some companies don’t, and they are. So what that proves is there’s no relationship between a company specializing in a certain product and being successful.

If you want to be successful, there’s only one way: help other people first.

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