BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

November 30 2010
by Todd Hixon

The Back Waters of eCommerce

Internet retail sales are up 20% yr/yr for the four days after Thanksgiving, 2010.  Mobile web and commerce have unprecedented momentum, argues Mary Meeker in yet another excellent Internet Trends presentation.  [What a regret, by the way, that she is becoming a VC; it’s like Alice Rivlin joining Fox News.]

This has produced high-intensity conflict at the frontier of  eCommerce, e.g., Google is (rumored to be) splashing out gigabucks for GroupOn, (TechCrunch report here). Almost any major internet player you can name has a “flash commerce” offering now:  PayPal (eBay) has a new offering, and I just noticed this must-have on Amazon:

Amidst all this flash and hubbub, we see another trend in eCommerce that attracts us as investors.  eMerchants are getting traction in some of the last bastions of the retail world:  businesses that are complicated and regulated.  These are big markets, and they frequently have big profit pools concealed in them.  eMerchants are finding ways to penetrate and disrupt them.

Prescription pharmaceuticals are a good example: a complex, regulated, non-transparent business.  Until recently, selling drugs on the web made me think of “v1agra” e-mails and gray deals from Canada.  That is changing rapidly for two reasons.  First, the riff-raff are getting run out of Dodge:  the major search engines now refuse to sell clicks to pharmacies lacking the “VIPPS” certification from the U.S. board of pharmacy.  Second, it turns out that retailing of generic drugs, a $60B rapidly growing market in the U.S., is ripe for disruption.  Take Simvastatin as an example (a cholesterol management drug), one of the most frequently prescribed generics. For a 30 day supply, the consumer economics are:

* Source: HealthWarehouse.com

Enormous channel margin makes generic pharmaceuticals an attractive eCommerce play for sophisticated eMerchants who can work through the challenges of regulatory compliance and building consumer trust.  [The channel margins for branded drugs are almost zero, in contrast.  One can only guess how that came to be.]  And, there are many customers who care about drug prices:  uninsured, under-insured, high-copay, high-deductible, Medicare donut-hole, etc.  The Wall Street Journal recently reported that the percentage of prescriptions abandoned (usually due to cost) about doubled in the last three years (article here).

We’ve not invested in a legitimate pharmaceutical eMerchant, but we are interested.  We have invested in two other companies that are developing complex eCommerce categories and have the potential to disrupt large businesses:

  • Moda Operandi sells premier fashion merchandise ahead of the season at full price to women around the world who want complete selection and unique looks.
  • MyWinesDirect sells high-quality, reasonably priced wine legally, direct to 80% of the U.S. population.  It’s business model delivers both good value and good margin by removing middlemen.

E Commerce is a big ocean. There are more billion dollar businesses to be built by fishing the quiet lagoons that the first wave left behind.

COMMENTS

December 1 2010
by Alex Murphy

Todd,

I especially like your last point. With companies ready to pivot on an early signal from customers, markets and customer / retailer problems that were teed up to be solved are left behind for the next generation of businesses by the first generation chasing cash flow and the elusive brass ring in a different lagoon.

December 14 2010
by dotcomweavers

Year to Year the usage of Ecommerce increases gradually and the purchase on online increases aswell. Anyway thanks for sharing the Valuable information.

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