Chapter Two: Revenge of the Incumbents

Chapter Two: Revenge of the Incumbents

          
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Chapter Two: Revenge of the Incumbents

Consumer & Retail, Marketing & Sales
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  • In This Article
    • In the late 1990s, it seemed that any start-up with Internet pretensions could command an astonishing amount of capital.
    • After 2000, when valuations collapsed, venture capital dried up, and the surviving e-commerce start-ups were struggling, the old rules of business came back with a vengeance.
    • Brand-name players with established reach, loyal customers, and high-quality products found they could make their move.
     

    A few years ago, it seemed that any start-up with Internet pretensions—no matter how fuzzy its business model or inexperienced its management team—could command an astonishing amount of capital. Reality emerged as the Grim Reaper in the spring of 2000, when valuations collapsed and venture capital dried up. Today the surviving e-commerce start-ups are struggling, as the old rules of business have come back with a vengeance. A market that the pundits deemed winnable by all was reclassified as winnable by none.

    “Revenge of the Incumbents.” Brand-name players with established reach, loyal customers, and high-quality products are now finding that they can make their move. In fact, some traditional retailers that have ventured online are discovering that their profits are larger on the Internet than in the bricks-and-mortar world. The reason: price realization and the cost of goods are the same online and offline, but the cost of online marketing and promotion can be lower than the cost of a mass-marketing television campaign or the print and postage of a direct marketing campaign. Those economics have translated into operating profits as high as 40 percent.

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    • Senior Partner & Managing Director
    • Toronto
    • Alumnus
    • Toronto
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