Meet the Mighty Morphin' E-Commerce Rangers

There's only one directive that seems to hold true across the e-commerce landscape these days: to survive, literally, at all costs.

While some e-tailers are desperately seeking new revenue sources and better gross margins to stave off hostile investors, others are completely reinventing themselves, morphing their business models into entirely new entities.

But is changing a company's stripes from armadillo to zebra ever worthwhile, or is it just another fruitless attempt to keep the lions at bay?

"Mostly they're doing it out of sheer terror, and terror's a great motivator," IDC analyst Jonathan Gaw told the E-Commerce Times.

Examples of dot-coms reinventing themselves abound.

Dot-Chameleons

Take online delivery service provider Kozmo.com -- or at least, take its suffix. Last month, Kozmo laid off 60 employees and shed the dot-com part of its name, in realigning its business away from the Web and toward catalog and call center sales.

Software retailer Egghead switched from brick-and-mortar to click-only, while chic clothing store Lucy.com went the opposite direction, from brick-and-click to brick-only.

According to published reports, Lucy.com made the switch because of the marketing costs involved in doing business on the Web, not poor online sales.

Gym Dandy

After reportedly spending US$13 million on marketing in 2000, Lucy.com sold off its Web assets, but kept its brick-and-mortar store, called Lucy@crunch, inside a New York City gym.

For its part, Internet postage startup E-Stamps decided to get out of the floundering Internet postage business altogether, jumping into Web-based shipping and logistics -- although no name change is planned.

The list goes on and on, and includes companies switching from business-to-consumer (B2C) to business-to-business (B2B), or from B2B to infrastructure/application service provider (ASP).

Giant Shift

Even Microsoft (Nasdaq: MSFT) is beginning to change its colors, morphing from PC software vendor to a leader of Internet platforms, all the while fighting off a federal court's order that the company break into two.

According to many analysts, Microsoft gave yet another signal that its future lies in the .NET strategy -- and beyond the PC -- when it announced in February that Rick Belluzzo, the group vice president overseeing the development of the Windows.NET operating platform and the MSN Network of Web sites, will become Microsoft's president and chief operating officer.

Indeed, Steve Balog, director of global technology research for Merrill Lynch, recently assigned Internet stock analyst Henry Blodget to cover the software giant, saying in published reports that "we thought Henry could do a good job with Microsoft, since it is morphing more and more into the Internet space."

Identity Crisis

How can a company and its workers with one mission and set of job responsibilities possibly make a smooth transition to a brand new business model? The ability to adapt to shifting goals is key.

"The rules have changed somewhat," Yankee Group analyst Christine Loeber told the E-Commerce Times. "Success is gained by achieving profitability. The companies that are changing are adapting to these rules -- they're adapting from where they've been to what they need to do to be profitable long-term."

Said John Challenger, chief executive officer of job placement firm Challenger, Gray & Christmas: "I think these companies are searching for revenue and viability. They're still in start-up mode, and during a period of start-up you constantly morph as you look for where the gold is."

According to Challenger, the best companies "are creative and attentive to the marketplace, they listen to what their customers are looking for, and if that means bricks and clicks, or purely digital, that's okay –- they have to find a model that really works to create a revenue stream that outweighs their costs."

This Way Please

Will these changelings ever find the elusive pot of gold? IDC's Gaw said that depends on the goal behind their repositioning strategy.

"If they have the idea that maybe they should have been brick-and-click instead of a pure play or vice versa, that generally is not going to work," Gaw said. "It's difficult to go from pure play to brick because there's generally someone already in that market with a better brand name."

It's much easier for an established brick-and-mortar chain to open an online store, the analyst said. Moreover, the better strategy for a struggling e-tailer may be to sell its assets or partner with an established brick-and-mortar company.

Survivor Island

Still, giving in to a natural change when it presents itself may be the best bet. That was the case at Survivor.com, a domain name registered by a software company years ago, with no inkling that beginning in 2000, it would be inundanted with e-mail and Web traffic from fans of the hit CBS TV series "Survivor."

In response to traffic, Survivor.com decided to morph into a fan site for the series.

"Because of the huge volume of people looking for information about the Survivor TV show, we moved the software Web site while the show is running," a message on the Survivor.com Web site reads. "We will move it back after the show goes away. We have no idea when that might be."

Reinventing the Web

Unusual examples aside, e-tailers who adeptly leverage their various sales channels, rather than just chopping one off, will "fare best in the long run," according to Loeber.

Loeber pointed to Amazon.com as an example of a company that is reinventing itself by rethinking the product categories it sells online.

"Many products that have low gross margins or high shipping costs relative to revenue produced by their sales don't make sense to sell online," Loeber said.

In other words, it's not the sales channel that matters, but how well the company uses it.

"Kozmo's business model is inherently flawed [because] they're pinned down by their one-hour delivery promise," Loeber said. "Going to a catalog will help [Kozmo] customers become more aware of what they're doing, but they still have serious issues to deal with," Loeber said.