As we have discussed in the past, the cheapest price may not be the best
option for the blind computer user.  buy.com may be great for books and
cd's, but we often need assistance in selection, service, support, and
installation.  Remember that one is not buying a product with technology,
but a partner who shares our goal of information access.  Paying a little
more may well be worth the cost to make sure the entire system works well
together for years to come.  For example, one can easily select modems and
video cards that do not work with the adapted technology that the blind
use.

kelly





Fortune
   Magazine Issue: January 11, 1998
   Vol. 139, No. 1

                              Above the Crowd




   Buy.com May Fail, but if It Succeeds, Retailing May Never Be the Same
   To become the leading e-commerce portal, Buy.com is selling consumer
   products at cost, and profiting through ads.

   J. William Gurley

   If you gave it away, would you be satisfied?
   --Sammy Hagar

   A few months ago I suggested that in a world where Wall Street seems
   to value revenues and growth more than profits, the ultimate business
   would be to create a Website that sells dollars for 85 cents. As the
   argument went, you could always make up the difference through ad
   revenues. This is pretty similar to what an entrepreneur named Scott
   Blum has actually done. Blum, CEO of Buy.com, is selling consumer
   products at or below cost, and trying to create a brand synonymous
   with low price--with the hope of becoming the leading E-commerce
   portal. He even plans to make up the deficit through advertising.

                                                            Talk About It
                          Will e-commerce change retailing as we know it?

                                Speak Here!

   Founded as BuyComp.com in October 1996, the company first focused on
   selling computer products at cut-rate prices. Since Blum doesn't want
   to touch inventory, he chose to have wholesalers ship products
   directly to his customers. In mid-November, Blum acquired SpeedServ, a
   lesser-known online retailer of books and video, from Ingram, and then
   changed the name of his company to Buy.com. Blum wants to expand into
   many different product categories; he has purchased more than 2,000
   domain names that begin with B-U-Y, as well as www.10percentoff
   amazon.com.

   Buy.com's tag line, "The lowest prices on Earth," may be the most
   precise positioning statement ever. The company is ruthlessly
   committed to being the price leader--even if this means losing money
   on every sale. Its technology searches competitors' sites to make sure
   Buy.com has the lowest prices on the Web. And as far as I can tell, it
   does: 3Com's Palm III Organizer, for instance, sells for $249 on
   Buy.com: At Cyberian Outpost it's $300, $330 at CompUSA, and $369 on
   3Com's own Website.

   The company sold $15 million of products in October and is forecasting
   sales of $19 million in December. At this pace Blum believes Buy.com
   can break Compaq's first-year sales record of $111 million, making it
   the fastest-growing company in U.S. history. Of course, revenues may
   not be the proper metric for measuring the success of a company with a
   potentially negative gross margin. If all you're interested in is
   revenue growth, you could sell a high-priced commodity like oil or
   steel below cost and probably hit $1 billion in your first year.

   It's easy to be skeptical of this seemingly crazy new model.
   Predictably, competitors who believe in the standard notion of selling
   goods at a profit blast the idea. It's unproven, says Julie
   Wainwright, CEO of Reel.com. Others point out that retailing is about
   more than just pricing and that Buy.com comes up short on other
   important metrics, such as customer service, ease of use, and overall
   customer experience.

   True enough. But there's a lot more to learn by considering the
   implications of Buy.com's success than by taking the safe route and
   predicting its failure.

   First of all, if Buy.com succeeds, we'll have proof that it is
   possible to build a brand completely on price. Selection, customer
   service, and user experience all matter, of course, but on the Web it
   is very simple for a consumer to experience these things on one site
   and close his transaction with another--the low-price leader. Several
   Websites offer extraordinary amounts of research on expensive
   brand-name products such as computers and cameras, but their prices
   aren't extraordinary. Buy.com's are, making it a logical final
   destination for any shopper.

   Second, Buy.com's success could change the very way wholesalers and
   distributors conceptualize their businesses. Sure, extreme discounting
   by one reseller raises the eyebrows of a distributor's other
   customers. But most distributors will accept this discomfort rather
   than lose sales created by that reseller. The virtual reseller may
   lose money, but the distributor still receives its standard margin.
   Even manufacturers don't seem to mind having their products used as a
   loss leader--provided it's the reseller that takes the bath.

   Capital is the natural limit to a business model in which you lose
   money on every sale. However, the company has raised $60 million from
   Softbank, the Japanese conglomerate that backed Yahoo and E-Trade.
   Based on its employee size of about 100 people, the company should
   have operating expenses of $12 million. Even if it loses money on each
   sale and spends marginally on advertising, Buy.com should be able to
   run for more than a year.

   Other than lack of capital, there is little restricting Buy.com's
   growth. Unlike traditional retailers, Web-based sellers are not slowed
   by the friction of store growth and local marketing. Brand messages
   can spread like wildfire via bulletin boards and E-mail. More
   important, the virtual reseller--which accepts orders and passes them
   to someone else for fulfillment--is limited only by the capacity of
   its partners' inventory.

   Buy.com's success would have an impact on all kinds of
   retailers--starting with Buy.com itself. If the company proves that
   the ad space on a product order form is almost as valuable as the
   product being ordered, another virtual reseller is sure to enter the
   market with even lower prices. That kind of pricing could intensify
   competition between wholesalers and Net retailers. Barnes & Noble's
   acquisition of Ingram Books may be the first in many
   channel-consolidation mergers. Brick-and-mortar resellers, pressured
   by the contraction of the customer supply chain, may be forced to
   restructure. Finally, manufacturers may be increasingly pressured to
   drop-ship directly to the consumer. Of course, there is one big
   winner: you. It's never been a better time to be a customer.
   _________________________________________________________________

   J. William Gurley is a partner with Hummer Winblad, a venture capital
   firm. To receive an expanded version of his column, Above the Crowd,
   visit www.news.com; to subscribe to the E-mail distribution list, send
   E-mail to [log in to unmask] with the following in the message
   body: subscribe atc-dispatch. If you have feedback, please send it to
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