E-Commerce Spawns Networks of Frenemies
Why more Web merchants now work cautiously with their competitors.
As marketing chief for a small chain of Southern furniture stores, Robert Hodgson almost laughed when he first heard the pitch. A representative from BedroomFurniture.com, a longtime foe of all local furniture retailers, had called with a proposition. What if Hodgson’s chain, Brashears, with its three brick-and-mortar showrooms in Missouri and Arkansas, began paying the national website to steer potential customers his way? The proposal struck him as almost comically naïve. “I definitely had to consider all sorts of questions,” Hodgson recalls. Most obviously: if the customer leads were really so great, why would a competitor sell them to him?
That was a year ago. Today, a customer in northern Arkansas who starts hunting for the perfect bureau stands a good chance of browsing at BedroomFurniture.com but buying where locals have been going for the last 75 years–at a Brashears store.
BedroomFurniture.com will still happily sell to such shoppers directly. But when its servers notice a customer spending a lot of time researching without putting any items in an online cart–or putting lots of stuff in the cart without ever buying–the website changes tack, alerting the customer to a place to buy that item in his or her own neighborhood. The company now has deals with more than 100 local brick-and-mortar stores.
Welcome to one of the growing networks of “frenemies” that are cropping up across dozens of industries. In many ways, the idea of marketing your competitor’s products online is a natural extension of Amazon’s “coöpetition” business model. The e-commerce pioneer has long made it easy for its customers to buy goods from thousands of smaller retailers. Search Amazon for an iPhone power cord, and Amazon won’t just offer a path to a competitor’s website but will handle the whole transaction on that site. In September it extended that model further, announcing a new “Amazon Payments” business that will let it run the billing systems of other websites.
But while Amazon’s version of sharing customers seems to be a great deal for Amazon, it can be an unstable relationship for the smaller partner. Online retailer Ben Swett, who until recently ran an online gardening supply store, was always wary of his partnership with the site. “I would sell an item on Amazon and once it became popular, Amazon would start selling the exact same thing,” Swett says. Amazon declined to comment on its online strategy.
Skepticism about such arrangements is inevitable, says John Mulliken, who oversees the “GetItNearMe” system that BedroomFurniture.com uses to partner with former brick-and-mortar foes. He sometimes promises stores that he’ll send them customers for a few weeks without charge so they can see the quality of the sales leads. Unlike the Web traffic that comes from Google, Yahoo, and other generic search engines, which tend to attract people just starting to search for furniture, BedroomFurniture.com is able to serve up customers who are further along in the process and better informed, he says.
Dozens of other online retailers are rolling out similar programs. GetItNearMe is a subsidiary of Boston-based CSN Stores, which owns and operates about 200 specialty retail sites such as Cookware.com and BedroomFurniture.com. Total revenue last year was $250 million. About six months ago, the company began to offer the GetItNearMe service to outside websites and retailers.
Helping sell your rival’s products online is a new twist on an old insight–that it sometimes makes sense to coöperate with competitors. Barry Nalebuff, the Yale professor who cowrote the 1996 bestseller Coopetition, says that as the Internet continues to evolve, online sellers like BedroomFurniture.com will continue inventing new ways to work with their traditional competitors. “Maybe it has discovered what its business model really is,” Nalebuff says of that retailer. “The company thought that its business was selling furniture, but that’s a hard thing to do well [online]. So instead maybe it becomes more of a Yellow Pages, and the traditional brick-and-mortar stores become its customers.”
This business model is also a form of hyper-relevant advertising. Online upstarts are essentially attempting to out-Google Google by discovering better ways to precisely identify valuable customer niches and then sell them to the right marketer. The potential reward for peeling off even a little piece of Google’s business is huge: the search giant’s market value now tops $150 billion.
CSN Stores, for instance, had long struggled with the fact that most people come to their sites just to browse. For years the company’s goal was always the same: turn those browsers into buyers. Now it’s slightly different, says Mulliken: to turn those browsers into the biggest profit, regardless of whether they buy anything directly from the company.
As for the psychological hurdle of persuading retailers to trust their online competitors, Mulliken predicts it will quickly fall once stores get a taste of the new traffic the deals generate. “Once you have the results,” he says, “so what if we are competitors? We are driving your business.”