One of these economic moats is a first-mover advantage, especially important for software, internet, and e-commerce companies. In e-commerce, gaining a critical mass of customers attracts more diverse sellers, which in turn attracts more buyers, and the cycle begins again. Additionally, having more historical customer data enables innovative companies to improve their offerings for buyers and sellers at a faster rate than their competitors.
It is no coincidence, then, that the following early e-commerce companies have generated such amazing long-term returns for shareholders that they are good bets to continue their success in the years to come.
Amazon.co.uk: this e-commerce grandfather still looks young
The company that basically invented the concept of e-commerce was Amazon.com (NASDAQ: AMZN). Founded in 1994 by Jeff Bezos originally as an online bookseller, Amazon quickly realized that it could sell just about anything on a new invention called “the Internet.”
Although Amazon is a heavyweight today, in the early 2000s it was just one of the many contenders for e-commerce. A watershed moment was Amazon’s introduction of Prime in 2005. In a shocking move, Prime offered free two-day shipping on millions of items for just $ 79 per year – an incredible bargain at the time.
Initially, the company lost money on Prime; However, Prime subscriptions eventually reached critical mass as demand for turbocharging was such that Amazon was able to develop a massive distribution footprint across the country at a rate its competitors did not want to match.
This leading infrastructure and customer base thus attracted more third-party sellers who wanted to join Prime and eventually started paying Amazon for the storage and shipping of their merchandise. Eventually, Amazon was also able to “lease” its digital data center infrastructure to other companies, forming Amazon Web Services.
In other words, the Prime offering was able to revive demand for Amazon, which then attracted more sellers, allowing Amazon to invest heavily in cutting-edge technology and delivery capabilities. that others could not match, which in turn became new businesses and themselves.
Over time, Amazon has added more deals to Prime, including an original video, credit card, and discounts at Whole Foods. Amazon has continued to increase the price of the Prime membership, which now costs $ 119 and has over 100 million members. More recently, Amazon improved its game by making Prime products eligible for free one-day shipping, up from two days.
While Amazon can be considered one of the premier ecommerce companies, the real first-mover advantage is the two-day free shipping, which has boosted demand and forever changed the game of American ecommerce.
Alibaba: massive scale repels upstarts
The first player in Chinese e-commerce was Alibaba (NYSE: BABA). The company operates several e-commerce sites, including Alibaba.com, which connects manufacturers with businesses around the world, Taobao, which facilitates customer-to-customer sales, to the eBayand Tmall, which facilitates business-to-business sales for large multinational brands.
Founded in 1999, Alibaba had such a first-mover advantage at the dawn of China’s burgeoning internet economy, a lead it was able to maintain even against impressive competitors. JD.com and Pinduoduo.
Indeed, Alibaba’s critical mass and extremely profitable operations have enabled it to invest in expanding the Alibaba ecosystem in payments, cloud and food delivery. Important innovations include the introduction of Ant Financial, which enabled the Alipay digital payment platform in China. Today, Alibaba owns 33% of Ant Financial.
While it can be said that JD.com, which has its own delivery and logistics infrastructure, has overtaken Alibaba in shipping, Alibaba’s sheer size has allowed it to improve and keep pace. . Alibaba recently bought a majority stake in Cainiao, Alibaba’s co-developed third-party logistics platform, which coordinates deliveries between third-party carriers.
Similar to Amazon’s purchase of Whole Foods, Alibaba also entered grocery stores by acquiring Sun Art retail, the largest supermarket and hypermarket operator in China. By linking the online experience to these physical mega-marketplaces, Alibaba has linked the digital and physical worlds in a concept it calls the “new retail”.
Finally, Alibaba’s first-mover advantage has enabled it to take a head start in the development of cloud computing in China, where it still holds the leading market share. The company’s Yokou Tudou video offering is also one of the top three video streaming services in China.
Despite intense competition and at an already massive size, Alibaba’s first-mover advantage and sticky ecosystem have kept it growing at a feverish pace. In the recently reported June quarter, Alibaba’s core business revenue increased 34%, with “new retail” grocery business up 80%. Cloud revenues grew 59% and Cainiao’s by 54%.
Finally, Etsy (NASDAQ: ETSY) has shown the ability of niche eCommerce sites to also reap first-come benefits. By limiting itself to being the go-to platform for artisanal products from small sellers, Etsy has carved out a market segment that isolates it somewhat from Amazon. While Amazon has become the go-to for all kinds of commercial products, Etsy touts its first-mover advantage in the “special” segment of the market.
Since its last quarter, Etsy has attracted 3.1 unique sellers and 60.3 million active buyers, with its recent growth turbocharged by the pandemic. Yet management still estimates that Etsy has only a 5% market share in a $ 100 billion market for “special” products in the United States, Western Europe and Australia.
Since many mom-and-pop retail stores have had to close or go online to supplement foot traffic, Etsy has benefited greatly from the pandemic-fueled second quarter. Revenue jumped 137% in the last quarter on a 147% growth in gross merchandise volume, with adjusted EBITDA growth of 279%. While this is of course in part attributable to face mask purchases, Etsy’s non-masked revenue still grew 93% in the quarter.
Etsy’s success shows that in e-commerce, a first-come advantage applies not only to mass retail, but also to niche segments of retail.