Business Models - Merchant Model

MERCHANT MODEL

Perhaps the most well-known e-commerce business model, Internet-based merchandising is what comes to mind for many when the subject of e-commerce is raised. One of the most successful online merchants using this model, Amazon.com, began operating as a business-to-consumer (B2C) Internet company by selling books online from a database that exceeded one-million titles by the end of 1996. Amazon's wide selection, along with its practice of discounting books by 10 to 30 percent, were key factors in its success. The firm developed one-click shopping technology, which allowed returning shoppers to purchase an item with a single click. Although the site experienced meteoric growth from its inception in 1995 to the end of the decade, analysts in late 1999 began to question whether or not Amazon.com would ever attain profitability. Consequently, the company's stock prices plunged and founder Jeff Bezos was forced to defend the viability of his business model. The world's largest online retailer, with vast offerings that include books, CDs, and electronics, Amazon began to offer business-to-business (B2B) services in 2000 by selling the technology it had developed and employed so successfully. For example, it helped Toysrus.com strengthen its Internet infrastructure after the toy retailer found itself unable to keep pace with holiday orders in 1999.

Unlike Amazon, catalog clothing company Landsend.com was run by a traditional brick-and-mortar parent, Lands' End Inc. Landsend.com began selling 100 items on the Internet in 1995. The firm decided to move into Internet sales after examining the demographics of typical Lands' End shoppers. Many Lands' End shoppers owned PCs, and they were twice as likely to have online access as the rest of the population. Also, they typically were between 35 and 54 years of age, college educated, employed in a professional or managerial position, and earned an average household income of $60,000. Within three years, sales from Landsend.com had reached $18 million, and the online venture had achieved consistent profitability. The firm added technology to its site that allowed shoppers to build their own outfits; create three-dimensional models of their body shape to see which articles of clothing were best suited to that shape; and establish personalized accounts that would store billing and shipping information to streamline future online purchases.

In 1999, Landsend.com launched Lands' End Live, an innovative live customer service program that offered online shoppers real-time personal assistance 24 hours a day, seven days a week. By then, Landsend.com had evolved into the leading online apparel site. Its success prompted the firm to expand its business model and begin offering Web site development services to firms like the Saturn division of General Motors Corp. and RadioShack. In 2001, online sales totaled $218 million, accounting for roughly 16 percent of the total revenues secured by Lands' End Inc.

By targeting more lucrative clients, both Amazon.com and Landsend.com followed a pattern typical of Internet retailers after the dot-com shakeup. According to Daniel Levine, columnist for the Sacramento Business Journal, "For surviving business-to-consumer companies, that approach represents a shift to business-to-business and to selling the technology they developed as a service to businesses."