John Barker Despite the heady trillion-dollar predictions for e-commerce, the reality is that life is hard for dot.com companies. The promise of great riches has produced hordes of wannabe sites, often grossly over-funded but run by inexperienced people. Even worse, the bricks and mortar outlets are starting to fight back. In this situation you can lie back and die, or attack. One of Europe’s leading retailers of digital versatile discs (DVDs) retaliated last week with a strategy that could have major implications. DVDplus has abandoned the cost-plus model, saying: “Here is the cost; if you like the service then leave us a tip.” This concept it calls the “e-tip”. All the DVDs on its website (www.dvdplus. co.uk) are now listed at cost (the price it pays for the DVD) plus postage and packing, also at cost. Its profits depend on whether the customer leaves a tip. Bryan Welsh, managing director of DVDplus, said: “For the first time in retailing history we’re giving customers the power to decide how much to pay. We believe we offer the best service in the business, so our customers will be happy to buy DVDs at cost, and leave an e-tip in appreciation of that service.
“If you don’t think we’re doing the best job in the business then don’t leave us an e- tip. We are prepared to live or die by the e-tip.”
Is this the last act of a dying business or an innovation that will transform e- commerce? The latter seems more likely because the results so far have been astonishing. Since the launch of last week’s initiative, the number of visitors to the site has tripled and the amount of business has doubled. The most important statistic is that half of them left a tip. These are early days but Welsh is pleased. DVDplus was set up in 1998 by a bunch of top ex-Intel employees who describe themselves as new generation retailers and are exclusively Web-based. They see the benefits of their operation as wide selection (every title launched in the United Kingdom) and convenience (open 24 hours a day). On the face of it the proposition is compelling and the product is ideal for e- commerce. The DVD has been hailed as the fastest growing consumer electronics product of all time. Growth in Europe is outstripping even that in the United States. Vastly increased quality of audio and video are two of the factors propelling this new format, which is challenging the dominance of the video cassette. Sadly for the dot.coms, the success of DVD has not gone unnoticed by the traditional retailers. Even supermarkets are vying for a slice of the burgeoning market. No longer is the Internet always the cheapest option, given the massive buying power of the supermarkets. Welsh says: “When Asda is offering ‘Two DVDs for oe20’ it is not easy to compete.” Dixons, too, is keen to jump on the bandwagon. Back in the 1980s it missed out on becoming a destination site for CDs and is determined to avoid that happening with DVDs.
The DVD market is still in its infancy and it is dominated by the Hollywood blockbuster titles. They are an impulse buy for the Saturday shopper. Thus, Internet sales of DVD titles are not booming in many markets, and e-retailers are having a rough time. It would seem that the Internet-savvy early adopters are not typical consumers of DVD titles. They are a different breed – often film buffs who prefer to buy a title direct from the US. The people who buy DVDs at the moment are TV addicts. They could be reached via that device but “it costs close to $1,6-million to get access through OpenTV and we don’t have that sort of money,” says Welsh. While DVDplus is still growing, this latest act is a bold move to capture the market. Welsh admits that it is a desperate gamble to gain volume. “We have done the research,” he says, “we think it will work. If it doesn’t we could be out of business next year”.
By moving to a cost-plus approach, DVDplus is hoping to treble its volume and cover its overheads. In the process it could wipe out some of its competition. Who’d be a dot.com company?