Re: Barrier to entry.

From: Rob Frankel <rob_at_robfrankel.com>
Date: Mon 27 Mar 2000 18:24:34 -0800

ROB FRANKEL WROTE:
> I'd disagree here. Amazon has no barrier to entry
> from where I sit.

TO WHICH JAMES SANTAGATA REPLIED:
> Amazon has several barriers to entry. Please consider
> the following:
> 1) Differentiation via a solid brand -- they created
> and own the category of "online bookstore".

Okay...are booksamillion and bn.com shaking in their
boots? I think not.

JAMES SANTAGATA CONTINUED:
> 2) Patent: The USPTO just awarded Amazon the patent for
> their 1-Click technology. It's very powerful and B&N
> has decided not to fight this patent for now.

Technology is no big deal. It may be convenient, but
it's hardly the stuff that's gets people to stand up
and swear allegiance. Besides, name one web technology
that was supposed to be invincible and hasn't been
surpassed since the claim was made.

> 3) Technology: highly scalable, available system.
> Excellent search functions and shopping cart.

Puleese...everyone has that or something like it. Or
promises it. But again, it's not the stuff on which
you hang your branding hat. Can you imagine hearing
this on your radio: "Amazon.com! Where you find
highly scalable technology, excellent search functions
and shopping cart"? Nah.

> 4) Switching costs: one click is easy to use, my info
> is already in Amazon's database. I don't want to have
> to re-input all of this at B&N for instance.
> Psychological switching costs: Amazon has not done
> anything to incentivize me to leave the fold and B&N
> has not done anything to incentivize me to join their
> fold. So, put, I'll stay.

Inertia is no substitute for good branding. The way
you say it, it almost makes me think that if Amazon
were to suddenly withdraw their one click system,
you'd leave. As opposed to Apple, who (can anyone
remember this?) pissed off an entire nation with their
VX series and still managed to enlist fans.

> 5) Supplier relations: Amazon not only has strong
> relationships with material suppliers, but also with
> the investment/VC community. They were able to cajole
> the investment community to think twice and thrice
> before underwriting the B&N IPO. Amazon also was able
> to send out disconcerting press releases before the B&N
> IPO which really hurt B&N's share price.

Now THAT was funny! Anyone who thinks that VC's are
any more intelligent than your garden variety prep
school dropout has to be kidding! Trust me, I've done
enough road shows to know. Can you say, "Iridium?"

My favorite Broadway quote (I only have one) from
Fiddler On The Roof (IF I were a rich man): "And it
wouldn't make one bit of difference if I answered
right or wrong/When you're rich they think you really
know!

ROB FRANKEL WROTE:
> In fact, it could be argued that Amazon's
> lack of focus has actually made it more vulnerable
> than ever.

TO WHICH JAMES SANTAGATA REPLIED:
> In some ways, I agree that Amazon may be weakening
> themselves and opening themselves up for attack. On the
> other hand, the competitors seem to be quite impotent
> as well.

Welcome to my consulting practice.

> For external focus, the concern is branding. Amazon may
> have started to wade into the dreaded "bland extension"
> trap with Zshops and auctions.
>
> The addition of drugstore.com should not impact
> Amazon's brand, since it is not marketed as Amazon's
> drugstore.com.

Doesn't that strike you as weird? If Amazon WERE a great
brand, it SHOULD be Amazon Drugs!

JAMES SANTAGATA WROTE:
> eBay did the same for "online auctions" and Yahoo!
> did the same for "search engines".

ROB FRANKEL RESPONDED:
> Ummm, no. Both of them were first movers, so they got
> the major share of attention. From that they got a
> lot of business.

TO WHICH JAMES THEN REPLIED:
> Attention alone won't give you business. Many people
> had never heard of Owala juice before E-coli killed and
> sickened several people. Awareness jumped, business
> plummeted. Not all awareness is created equal. Not all
> awareness is welcomed.

That wasn't my point. This is what I said:

> But if you look carefully, what BOTH
> did was legitimze the market for each of their
> categories, inviting tons more competitive search
> engines and auction sites.
> Which means they FOSTERED entry, rather than
> creating a barrier.

Rob Frankel, http://www.robfrankel.com
Author, "The Revenge of Brand X: How to Build A Big Time Brand on the
Web or Anywhere Else" on sale at http://www.revengeofbrandx.com
Subscribe to FrankelBiz for FREE at:
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Received on Mon Mar 27 2000 - 20:24:34 CST