Overstock's Moat

You'd think I was setting this up. George saw my Overstock post and commented his opinion that Overstock does not posses a moat, so like Netflix, I'll post my thoughts on Overstock's moat.

Shoppers

Overstock is a more shopper friendly site than most. At Amazon you know what you want and go search for it then buy it.

Overstock's site is geared more towards the shopping experience, of looking through all the deals for the day and things on big sales.

It has a more random selection of items then Amazon, because it's all overstocked stuff. It would be like going to a thrift store (in Utah it would be like going to DI, I guess in other parts of the country it's like Tuesday Morning or Big Lots) where a lot of the fun is in just shopping and looking around for good deals.

This is the main reason my Mom and Grandma like looking through it. About a year ago they were looking for a rug for a house in Chicago where my Grandma lives, they could never find one that they liked in combination with the best price, but when my mom looked on Overstock she found a good rug they both liked for a fraction of the price and low shipping costs. They were afraid it would take weeks to get to the house, but it was there inside one.

There are tons of stories like this, it is the reason women love the site, and probably the reason Wall St. doesn't understand it. Hoping she won't read this I'll add that I think my mom may be addicted to Overstock. We get 3-4 packages a week, but we actually save money because the stuff that is purchased is at a huge discount, and shipping is low.

Customer Service

This used to be a huge vice for Overstock. Because, they sell the overstocked inventory there can be a lot of stuff wrong with it. In the past their customer service was not friendly and generally pissed people off.

But, Byrne re-vamped the whole thing and they have been in the top five of the American Express customer service survey each of the past two years.

This great customer service allows them to take an angry customer, make her happy, then make her want to come back to the site and buy more.

The Ultimate Question: Driving Good Profits and True Growth

I'm not sure when exactly Byrne read this book, but for the past year or two he's been updating Overstock's progress on it in the conference calls.

I won't go deeply into the mechanics of the book - that would take a whole post on its own - the gist of it is:

A company can never be successful if it does not make customers happy. When customers are happy they become promoters of the store and tell all their friends to go there.

The book is about the Net Promoter Score, the author found that companies with high Net Promoter Scores, like Harley Davidson, eBay, or Costco, can use their customers to fuel growth, as opposed to banks or brokerages who get bad profits, like hidden charges, that undermine growth.

Byrne has been changing Overstock to become a Net Promoter and has been tracking its progress on the conference calls, it is currently not as high as the great companies like HOG, but is doing better than the majority of US companies.

A Different Brand

Overstock does not have as valuable a brand as Amazon, but it does have a valuable brand. Overstock has spent a lot of money since it was started (ironically it spent a lot less than Amazon did to get to a similar revenue level) to develop its brand through marketing and technology expenses.

As before stated Overstock is where you go to shop and find random under priced stuff.

Better than eBay for Stores

Overstock doesn't really compete with eBay (though it does have an auction site that isn't nearly as big as eBay so we'll ignore that here), because it isn't logical for companies to sell their inventory on eBay.

If it sells it on Overstock, Overstock collects the money and takes the risks.

On eBay it would have to use Paypal and deal with every customer individually.

Lets say Nike has a bunch of shoes it can't sell, if it goes to sell them on eBay it will have to make its own page for them - and one new page for each separate item it wants to sell. Then hope enough people search eBay for Nike shoes to buy all of them. Most people on eBay think they are buying something from someone like them self so they will want a low price and will bid for a low price. The when someone buys the item Nike will have to deal with that person's paypal address (usually) collect the money from them and then send the shoes. Basically, they do all the work then eBay takes a commission. If the person doesn't like the shoes they call Nike directly and Nike has to pay more people for customer service, then Nike has to refund the person separately through the Paypal account, then get the shoes back from the customer, who may not buy Nike shoes again because the customer service might be bad since Nike just had to start this new division.

If Nike used Overstock it would call them up say hey we've got a bunch of shoes we need to sell, Overstock says ok send me a pic. Then Overstock puts the item up on their website, and promotes it in the deal of the day, because of this a lot of customers see this and buy it. Overstock takes the money from the customer and deals with all the processing etc. (with eBay they have to pay a commission to eBay and to Paypal). The Overstock tells Nike where to send the shoes, covering the cost of the shipping and Nike does. Overstock then sends the money to Nike, in this case Overstock did the work and then took a commission. If the customer doesn't like the shoes they call up Overstock who has award winning customer service and Overstock gives them their money back.

First mover

Overstock is the first mover and by far the top-dog in the online liquidation business. They have spent billions developing their brand and relationships with suppliers over the past nine years to set themselves up as a player in online shopping.

Because of Overstocks culture of cutting costs a potential competitor would have probably have to pay more than they did to set-up a comparable site, get relationships with suppliers, and turn their customers into promoters.

Because, they company would likely lose a lot of money in the first bunch of years Overstock would have the high ground in defending their castle.

In other news

I set-up an Amazon.com a-store where I will be putting all the books I read and recommend.

It's currently a work in progress, but already has a lot of gems.