Last Thursday, cable giant Comcast agreed to sell its majority stake in shopping channel QVC to Liberty Media for $7.9 billion, a deal that values the channel at about $14 billion. The corpses of eToys and Webvan have long been picked clean, and Amazon.com is struggling to turn a profit. But for 16 years, QVC has quietly been doing exactly what online retailers so loudly claimed they could do: use a cheap electronic medium to reach millions of customers, sell goods without stores, make interactive shopping fun, deploy sophisticated technology to save on inventory and shipping—and make money hand over fist.
QVC wasn't the first home-shopping channel—Home Shopping Network, which launched in 1977, beat it to the airwaves—but it has long been the best. Joseph Segel, a Philadelphia-based entrepreneur who had founded the Franklin Mint, thought he could create a less schlocky competitor to HSN. In 1986, he started QVC (Quality, Value, Convenience) and quickly linked up with Philadelphia-based cable company Comcast, which provided a small amount of cash, agreed to carry QVC on its systems, and helped convince other large cable firms to do the same. Within six months, QVC had raised $28 million in a public offering, leased satellite space from Pat Robertson's Christian Broadcasting Network, built studios in the far western exurbs of Philadelphia, and gone on the air. Even though it was initially available on less than 10 percent of the nation's cable homes, QVC racked up an astonishing $112.7 million in sales in its first year.
QVC grew rapidly. In the early 1990s, Hollywood impresario Barry Diller became chief executive officer. Viewing QVC's fabulous cash flow as a fuel for acquisitions, he tried to acquire Paramount in 1993. A year later, he sought to merge QVC with CBS. Comcast refused to go along with that scheme, teamed up with John Malone's Liberty Media to purchase the portion of QVC it didn't already own, and sent Diller packing. At that time, the company was valued at $1.4 billion. (Diller was so enamored of the home-shopping phenomenon that he later acquired Home Shopping Network.)
In the decade since, QVC has invested in call centers, a logistics system that can handle 300,000 packages a day, and a vast worldwide warehouse network that feeds operations in the U.K., Germany, and Japan. Today, QVC reaches 85 million U.S. homes—including 96 percent of cable homes—and 138 million homes around the world. In December 2000, QVC became the first interactive commerce company to notch $1 billion in sales for a quarter. QVC has also steadily expanded its product base from the old standbys of cheap jewelry and celebrity-endorsed clothing. In 2001, when the channel sold a record $80 million in a single day, the big sellers were Dell PCs. Today, it claims more total revenues (2002 sales, $4.4 billion) than any network save NBC, more than Bloomingdale's—and more than Amazon.com.
Of course, comparing today's QVC with today's Amazon may not be fair. But even if you compare them at the same stage of development, QVC still wins.
Last year was Amazon.com's seventh full year in business. According to its 2002 annual report, while revenues were a healthy $3.9 billion, income from operations was a paltry $64 million, and it reported a net loss of $149 million. Amazon reported gross margins of 25 percent and an operating income of just 1.6 percent of sales. It is also laden with $2.27 billion in debt.
QVC completed its seventh full year of operations in 1993. According to its 1993 annual report, it notched $1.07 billion in sales and net income of $55 million. Gross margins were a healthy 40.8 percent, and operating income was 28.4 percent of sales. QVC had essentially no debt. In other words, the tragically unhip QVC of 1993 (and the QVC of 2003) generated cash for its owners—and funded expansion through its own profits—while Amazon has gobbled up investor dollars.
Sure, QVC had some infrastructure advantages. Amazon was a pioneer in Internet commerce while everyone already knew how to use the hardware required to execute a purchase on QVC—a television and a telephone. And unlike pokey modems and early Web sites, QVC's technology worked reliably.
But QVC's advantage also lies in the overall shopping experience. In the end, watching QVC is a far richer and more satisfying event than shopping at Amazon.com. Customers can call in and chat with the hosts. Sales operators offer everyone who calls a friendly voice in the night. Purchasers are subject to the warmth of human suasion rather than the cool logic of data and text information. Online shoppers have to seek out Amazon and then search for items on it. By contrast, QVC reaches out to its customers. What's more, QVC offers more instant gratification to impulse buyers and serious shoppers alike. An insomniac with a credit card and a touch-tone telephone can make a purchase from the comfort of her couch. Despite all the hype, t-commerce still beats e-commerce.