You Can Lead a Company to the Internet ...

You Can Lead a Company to the Internet ...

You Can Lead a Company to the Internet ...

Moneybox
Commentary about business and finance.
April 27 1999 7:03 PM

You Can Lead a Company to the Internet ...

As Slate's own Paul Krugman puts it, one of the basic principles of economics is that if a $20 bill is lying on the ground, someone is going to pick it up pretty quickly. In other words, with so many people out there trying to make money, very few--if any--profit-making opportunities will be overlooked. On the other hand, the fact that someone will recognize a good business idea for what it is doesn't necessarily mean that everyone will. And oddly, it sometimes seems that the people who are least likely to recognize the value of a new idea are the very ones who will be hurt the most when it succeeds.

Advertisement

Take Toys R Us, whose stock got a little boost today from the announcement that it would be creating a new distinct Internet sales unit. Toys R Us has been selling toys over the Net for almost a year, but it has been unable to translate its strong brand recognition in the bricks-and-mortar world into strength on the Internet. Its sales still trail those of eToys, which is an Internet-only operation, and it hasn't shown any commitment at all to the Net portion of its business.

In the broadest sense, Toys R Us has been blinkered by its size and its investment in "real" stores. With the exception of books and CDs, it's hard to think of anything that's easier to sell over the Net than toys, which are prepackaged goods generally purchased by adults who are getting very clear instructions about exactly what they're supposed to buy. To generalize wildly, toy stores aren't really about browsing. So it makes sense that toys would translate well to the Net.

Toys R Us realized this enough to start selling on the Internet, but didn't realize it enough to set up the Net business as a separate unit. Even stranger is how half-hearted the Toys R Us site seems. You go to eToys, and it's relatively easy to find what you want, and when you find it, it's very easy to order. But at the Toys R Us site, you can quickly get locked into a procession of screens that seem designed to make actually buying harder, not easier.

The site is now being redesigned, but the real question is: What took you so long? All you have to do is check out the eToys site to realize that its presentation is better, in the sense that it's simpler and more conducive to buying. So what kept Toys R Us from seeing that?

Advertisement

The same might be said of barnesandnoble.com--which can now also be found at bn.com--and borders.com in comparison with Amazon.com. I don't know if Amazon.com deserves its lofty valuation--though with every new shipment of books I order from it, I become less skeptical--but there's no question that shopping there is a breeze. It's not the prettiest site, I guess, but everything is where it should be. And its account service is excellent. You can check on the progress of your order and make changes with ease. At barnesandnoble.com, by contrast, you can't actually check on your order on the Net. You have to call an operator to do that.

The truth is I have no idea why this should be the case. The technological hurdles hardly seem too high. And the value to a customer of having complete online access to her account seems indubitable. So what's been keeping B&N from just copying Amazon?

I don't have a good answer to any of these questions. But I do wonder if the word "copying" isn't part of the problem. Generally, emulation is not the best route to profitability. You have to differentiate yourself from your competitors in order to create a real competitive advantage. So it's possible that mimicking a competitor's successes seems like a poor strategy.

But let's state the obvious: Differentiation works only if you're different in a better way. For a long time, Jaguar was different from other luxury cars, because it broke down a lot more and was a lot harder to service. That didn't earn it more customers. And making Jaguars more reliable wasn't a concession to competitors. It was just a matter of coming to terms with reality. In the same way, it's hard to see why companies like Toys R Us and Barnes & Noble haven't just visited their competitors' Web sites, said, "This works, this works, and this works. Let's copy them exactly," and then used their brand names to win market share. Unless they really would rather leave those $20 bills lying there.