Full circle



The spectacular rise of the dot.coms was one of the great business phenomena of the late 1990s. So too was the dramatic downfall of many online start-ups, first dazzled then disillusioned by the multitude of get-rich-quick schemes in the e-marketplace.
In OP terms, Value America, once much hyped, saw perhaps the steepest fall from grace. Indeed, Shoplet. com’s founder/chairman/CEO Tony Ellison partly blames the likes of Value America for the ongoing scepticism that online businesses are often perceived with.
He says: "Companies like Value America and their pump and dump operation are one of the reasons why there is still such a black cloud hovering over dot.coms today. When I mention Shoplet.com, I have to qualify that we’re a profitable enterprise, otherwise I will get stares. It’s a frightening notion and I think that notion is going to live with us for a long time."
That said, attitudes are clearly changing and the online experience is very much here to stay and Ellison is the first to admit that. "I believe we have witnessed the first experimental phase which was in large part the Darwinistic weeding of the weak, an exfoliation of bad business ideas and disappearance of the get-rich-quick mentality. While there will be many more phases along the way, none will be as dramatic as the first one we witnessed just a few years back."
In Darwinistic speak, Shoplet.com is clearly a survivor. Having been created in the very early days of the ecommerce revolution in 1994, it has become one of the prominent players in the US OP industry, competing with other online players, the OP superstores and to a lesser extent with the independent dealer community. Around 90 per cent of its 2.2 million registered customers are small to medium-sized businesses (SMBs).
Shoplet.com is in the enviable position of having reported 33 consecutive quarters of profitability – it hasn’t looked back since it first became profitable in 1997 and is still growing in triple digits. Ellison declines to be specific about the firm’s annual revenues and only goes as far to say that the current run rate is in the mid eight-figure numbers – somewhere around the $50 million mark.
In online terms, 11 years in business is a lifetime and Ellison attributes a number of factors to his company’s success, not least the experience he gained in his previous career at investment firm Goldman Sachs. He says: "Working at Goldman Sachs has been a valuable experience for me, a) from a management and b) from a culture point of view, and I used a lot of this knowledge when I started Shoplet.
"I decided to go for this career move, because I felt that ecommerce as a new medium offered to level the playing field for small existing offline businesses as well as start-ups and the SMB customer. The concept of starting an e-marketplace where small and medium-sized businesses could procure all office related products in a frictionless environment made sense."
It’s the whole package that makes Shoplet.com a success, he adds. "We afford our customers a very expensive e-procurement transaction for free. They come to rely on it to save time and streamline their purchasing process which includes online approval process, setting budgets, setting company procurement rules, converting quotes electronically, and much more. It’s an approach that is very unique to us."
Unlike most other OP resellers, Shoplet.com’s product portfolio started in IT and moved to traditional office, jan/san and breakroom supplies as well as office furniture later on. It’s the combination of all these categories that makes Shoplet.com appealing.
Ellison says: "One of the things that differentiates us from the rest is our wide range of products. Independent dealers and the big boys are dabbling in IT software/hardware and EOS products. We come from the IT world and have migrated to office supplies and furniture, etc. We do not see a single direct competitor that sells the product range that we sell or markets online like we do. I know of very few OP players online that sell an Avery label, Sharpie marker, Rubbermaid shed and a high-end Cisco server all under one e-marketplace."
And vendors appear to benefit as well, he adds. "Shoplet helps vendors to promote their products on a large e-marketplace. The promoting vendors benefit from better ROIs, rapid introduction of new products to the marketplace, and they capitalise from the shift from offline to online and gain instant access to results. Due to the substantial cost between a print campaign vs an online campaign, many of the promoting vendors use Shoplet as a test bed for many of their new products."
There’s one area, however, where Shoplet.com is up against formidable and, at least until recently, virtually unbeatable competition: the contract stationers in their business dealings with the US Federal government. Shoplet.com has been keen to tap into the vast potential of government contracts and over the past 18 months or so has been awarded three government services administration (GSA) contracts for several of its product categories.
And while Ellison is pleased to say that the GSA business has already become very important to its overall success, generating millions of dollars, he admits it’s been a challenge – firstly getting the contracts and then marketing them to the GSA.
Ellison says: "The US government wants small firms to bid for its business, but entry into the GS market is made almost impossible for small business. It’s not easy to get the contract awarded and once you have it, it’s like any marketplace – you need to be able to market.
"Shoplet stands to lose like any other independent dealer from so-called ‘contract bundling’. This occurs when Federal agencies combine contracts that become too large for small businesses to bid on or participate in as prime contractors. This process translates into millions of dollars of lost revenue for small businesses.
"We continuously run into blanket purchasing agreements (BPAs) that are using the big boys’ part numbers, as opposed to part numbers from the manufacturer. This excludes independent dealers from bidding for the BPAs. The Federal government has missed its small business contracting goal for the fourth year in a row now."
And while the likes of NOPA have contributed substantially towards changing the mindset of Federal agencies and convinced them that independent dealers – and medium-sized companies like Shoplet – can compete against the power channel, much work remains to be done in this area.
When it comes to the general direction that the industry is heading in, however, Ellison thinks himself lucky to have the ‘first mover advantage’: "One cannot ignore the shift that is currently taking place in our industry. Many bricks and mortar companies rush to migrate their offline customers to online in order to reduce transaction costs. But apart from the big boys, nobody else seems to have a very cohesive strategy in the online sector at the moment. They just see it as a way of taking orders online."
But who are the potential competitors? Just the usual suspects, moving from off- to online? Or is there perhaps another shift on the horizon? As the likes of Wal-Mart in the US and Tesco in the UK are increasingly encroaching on the traditional OP reseller’s pad, swiftly followed by Sam’s Club and FedEx Kinko’s which would also like a piece of the pie – where does this scenario take us when transplanted into the online world? Will eBay become a growing threat, for example?
Says Ellison: "It’s a fascinating thought. From my point of view, when you have a solid foundation and a solid business model, you don’t look at the competition as a threat – it’s healthy to have it. eBay is an innovator and is looking at new ways to go to market. I can see that companies that have been stagnant in their development might be worried about Wal-Mart, Tesco, eBay, etc. But if your business model works, the likes of eBay will be complementary because they will be bringing lots more people online. It’s just another catalyst."