Innovations in online retail models - II

Expedia is the leading online travel agent in the US having an approximate 5 per cent share of the overall $247 bn US travel market in 2007. Expedia has developed a niche for itself in the leisure segment of the market by offering customised vacations to price sensitive customers at cheaper rates than traditional travel agents. This has been done by strategic tie-ups with suppliers and leveraging economies of scale.
   Little or no ownership of inventory (thanks to the reliance on strategic alliances / networks) and minimal physical presence have resulted in the achievement of EBIDTA margins of about 25 per cent which are way above the industry average of 10 –15 per cent.
  Online models have also been successful in categories such as jewellery, that require high customer involvement and where a physical store model would have earlier seemed indispensable.
  Blue Nile (revenue of $319mn in 2007) is a leading online seller of jewellery in the US. The company has adopted a virtual model in which it does not put any of its capital at risk and carries little inventory. It provides a shop window for suppliers and simply takes a cut when a transaction occurs. This model enables it to sell at 30-40 per cent below the price of a traditional jewellery store and 50 per cent below the high-end shops.
   The key feature of Blue Nile is its focus on on-site consumer education via online tools like guides to diamond grading. Most of the diamonds sold on the site come with Gemological Institute of America or the American Gem Society Laboratories certifications and a 30-day return policy. This innovative business model has enabled Blue Nile to become one of the top ten specialty jewellery retailers in the US, confounding predictions that luxury and e-commerce would never mix.Technology can be a key driver in online retailing. For example, Amazon, a leading online retailer of books, has launched a new service that allows customers to buy products and compare prices through their mobile phones, in addition to the internet.