Rising Startups of E-Commerce

When you think of successful e-commerce startups, Amazon.com (Nasdaq: AMZN), Yahoo! (Nasdaq: YHOO) and eBay (Nasdaq: EBAY) no doubt come to mind. But these online giants have long since moved past the startup phase.

Which companies are the new "rising startups" of e-commerce? A new breed of online retailer is making noise in a growing market with strategies that leverage the fundamental benefits of the Web.

Pure Play Companies Dwindle

Venture capitalists have been burned too many times in the Internet economy, so the number of pure-play dot-coms is dwindling. However, certain types of Web-based companies are catching consumers' eyes.

Matchmaking sites like Match.com and job hunting sites like Monster.com are performing well because they thrive on the Net's ability to bring together diverse people from diverse places.

On the retail side, reseller sites -- such as SmartBargains.com, Overstock.com and MoonBuzz.com -- are attracting cost-conscious consumers who hope to purchase overstocks at deep discounts.

"These sites are hot," GartnerG2 (NYSE: IT) research director Geri Spieler told the E-Commerce Times. "They are getting products -- some new, some returned -- and selling them for great prices. It's amazing stuff, like authentic jewelry and consumer electronics."

Catalogers Cashing In

Catalogers, too, are cashing in on the Web. Lands' End (NYSE: LE) and Victoria's Secret are among the most successful players in a segment of online retail that is performing especially well.

"Expanding to the online world means your customers can get more real-time information," said Lisa Strand, director and chief analyst of e-commerce at Nielsen//NetRatings. "Customers can get a view of the items in stock and what colors and sizes are available online."

Multichannel Selling

No one is predicting the death of the traditional dot-com, but it is clear that multichannel players are experiencing the most growth.

"A pure dot-com that just sells over the Internet is not as well positioned as companies that are used to selling through multiple channels," Andrew Bartels, Giga Information Group research leader, told the E-Commerce Times.

Where Webvan failed, for example, brick-and-mortar grocers Albertson's and Safeway are filling the void with new online ventures. Wal-Mart, Target and Kmart all have launched online components of their retail businesses, and Sears recently purchased Lands' End to beef up its Web presence.

Where Are the Little Guys?

With Amazon, eBay and Yahoo! continuing to experience growth, do the little guys even have a chance? Analysts seem to think so. Although the online branches of traditional retailers tend to be the most successful dot-coms, there are some exceptions.

Backed by a consortium of airlines, Orbitz (NYSE: OWW) came out of nowhere to grab market share from industry leaders in the online travel industry, one of the most mature e-commerce segments.

"The success of Orbitz is a lesson for other industries," said Strand. "Things are not necessarily set online. There is still a lot of room for movement and growth."

Supporting E-Commerce

On the support end of the industry, Global Sports has emerged as profitable over the past three years. The company, which recently changed its name to GSI Commerce, provides outsourcing for e-commerce players and has struck deals with Kmart, Nickelodeon and Shoe Carnival, among others.

The company's strategy is somewhat like Amazon's, Bartels noted. About 20 percent of Amazon's business is contracting with such companies as Toys "R" Us and Borders to provide online operations management, and 80 percent is selling its own merchandise.

Conversely, GSI's business is about 70 percent supporting other brands and 30 percent developing its own brands, such as online jewelry seller Ashford.com. The company posted pro forma and GAAP (generally accepted accounting principles) profitability in the fourth quarter of 2001.

"GSI has done well because they have a mix of revenue streams," said Bartels. "Besides their own brands, they provide an outsourced solution that has been helpful to other companies, and they are doing so at a cheaper cost."

Dot-Com Rebound

With such companies as GSI providing cost-effective products, analysts said there is still hope for pure dot-coms. The next rising stars of e-commerce will be those companies that leverage the inherent benefits of the Web.

"Startups actually have a fair opportunity to get online and get their products sold," said Strand. "They may not necessarily become the next Amazon.com, but they can better their business by driving sales through the online channel."