NET CLINIC: Back to basics

NET CLINIC: Back to basics

It was almost a year ago, when I was still editor of this esteemed publication that I first wrote about the impact would have on the local market when it finally arrived in Australia.

At that time, the hype around was still very much about its unique e-tail business model, which was based on the revenue it made from advertising and not on the margin it made from each sale.

The impact, I suggested at the time, was that we were heading towards a zero-margin environment and that a reseller's only road to prosperity would be through services.

I'll happily stand by my services mantra, but almost a year down the track we're nowhere near that zero-margin environment I envisaged, despite the entry of into Australia.

In fact, has noticeably backed away from its "zero-margin" business model. At the time I wrote that editorial, was plastered with advertisements. Now, there is a single small, square advertisement in the right hand corner.

In Australia, there isn't a single advertisement. Indeed has publicly declared it is not following the advertising-driven model in this country.

There has, however, been a lot of discussion about selling at a loss.

The reality is, though, that is selling at a pretty healthy margin on the vast majority of its products. Let's compare it to E-Store.

You can get a PalmVx for $699 at or you can pay $645 for it at E-Store.

You can get a Kodak DC215 digital camera (yes, that same one I mentioned in a previous column that I paid nearly $700 for less than six months ago!) for only $429 at E-Store, or if you'd prefer to pay $454 you can buy it from

Note, too the camera was a front-page item on, but was buried on E-Store. For all its marketing fluff about super cheap prices, in reality chose to sell at a loss on a couple of products to attract attention but is actually selling at a rather healthy margin on the rest of its stock.

Judging by those prices, it must be selling at least at 20 per cent mark-up.

A couple of things have happened since I wrote that editorial which mean, at least for the time being, the zero- margin model is not viable. Firstly, banner advertising has hardly proved itself a profitable revenue generator. More importantly, however, the Internet bubble has burst.

That set back a lot of businesses, my own included. I was about to set out raising capital for my e-commerce business when Nasdaq crashed. Not only is it now harder to raise money, but you have to give substantially more of your business away to get it.

Still, I view the crash as a positive. What the market now demands is profits.

It means you can't come in, backed by great wads of venture capital money, gatecrash a market, and simply burn money to buy a leadership position. Or, at least you can't do it for very long.

It means, thank goodness, that we're back to basics, that we're all in business to make a profit. For any business that has been built on a sound profit-making rationale, that has to be a relief.

In fact, I take my hat off to companies like E-Store, who resisted the temptation to go after additional capital to fund expensive advertising campaigns and expansion plans. Instead, they have grown quickly, but not too quickly and as a result of sensible expenditure are not only in a market-leading position, but are also running profitably.

Mind you, it wasn't too long ago that that was the way all businesses at least attempted to operate . . .

Philip Sim is CEO of e-commerce upstart enthdegree. He can be contacted at

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