Eye on eBay: Overstock Gets Friendly
One of last week's Catablast! recommendations--Overstock--was featured on Monday in the New York Times. Seems Overstock, the online closeout retailer that sells everything from name-brand sporting goods and books to down comforters and handbags, has chosen to implement a social networking feature to their storefront. Investors took the news to heart, shooting the seven year old company up $2 dollars.Following in the footsteps of retail giant Amazon, who recently hooked up with Friendster--1st mover in the social networking arena--Overstock hopes the addition of a feedback space for buyers and sellers will drive up revenues right in time for the holidays. Retail goods? Feedback forums? Online communities? Hmmm, anyone reminded of eBay?
And therein lies Overstock's Achilles heel, if you will. Yes, they have an interesting business model--leftover inventory pulled off the shelves and sold to you at a deep, deep discount, as high as 80%--and yes, thier CEO possesses that insatiable hunger I haven't seen since Taser International (TASR) took CNBC by storm--but what about Overstock's puny listings?
If Overstock (OSTK) is to get anywhere near eBay's montainous number of listings, Overstock must do everything in its power to maximize what the former CEO of 3Com called "network effects," a much absued term during the dot.com heyday, but nevertheless a main reason why e-commerce works in the first place. Network effects can be described as:"The network effect (or network externality) causes a good or
service to have a value to a potential customer dependent on the number of customers already owning that good or using that service. Ergo, it means that the total value of a good or service that possesses a network effect is roughly proportional to the square of the number of customers already owning that good or using that service." [Source: Wikipedia]
Buzz creates dollars, in other words. As Andy Choen notes in "The Perfect Store: Inside Ebay," eBay's early rivals were squandered precisely because they could not muster a sufficient number of listings. Overstock, recently valued at about a billion dollars, has a lot to accomplish before it topples the 800 pound gorrila. Like turn profitable, for starters.
[At the time of publication, the author did not own any shares in the companies mentioned in this story]
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