Better by Half
Maybe the problem with all those failed dot-coms is that they tried too hard. It turns out that at least one way to succeed as a retailer on the Internet is to let your customers do most of the work, not keep any inventory in stock, and sit back and watch the money roll in.
At least, that seems to be working for Half.com, an online seller of used books, CDs, DVDs, games and videos. The year-old company offers more than 10 million items on its fixed-price Web site. Sellers hold all the merchandise and send it directly to buyers.
While dot-coms continue to self-destruct and industry bigwigs such as Amazon.com and Yahoo! struggle to boost profitability and grow their businesses, Half and its parent company, eBay, the Internets biggest auction site, have been able not only to survive online but to thrive. Both have sidestepped the Internet downturn, relying on a business model that casts them as brokers between buyers and sellers and relieving them from the burdens of having to own costly inventory or operate their own warehouses.
That approach has paid off for eBay. The revenue of the Webs leading auction site topped $430 million last year, up 92 percent from 1999. It now has more than 22.5 million registered users.
Half is hoping its twist on person-to-person selling will pay off as well. "Weve created an incredible way to recycle old stuff and make some money at it," says Josh Kopelman, Halfs founder and president. "We estimate that everyone has about $500 to $1,500 worth of value in used books, CDs and videos sitting in their basement, attic or garage."
If an item sells, Half takes a commission of 15 percent of the sale. It also makes money by charging buyers higher shipping and handling fees than it reimburses the seller.
Kopelman, a 29-year-old University of Pennsylvania graduate and high-tech entrepreneur, first thought up the fixed-price business model for low-cost, used items in late 1999 when he found a previously read copy of John Grishams The Testament up for bid on eBay for as low as $1. The same hardcover book cost more than $20 in bookstores.
Halfs business model takes real advantage of the endless possibilities of the Internet by hooking up far-flung buyers and sellers of mass-produced commodity items, Kopelman says.
"Half has established a value for used books, compact discs, DVDs and videos that never existed before," says Robert E. Hall, a Stanford University economist. "It works splendidly. They found something that people really wanted."
The companys success with the fixed-price model also spurred established online retailers such as Amazon to adopt a fixed-price model for used books, Hall says.
Kopelman launched Half in January 2000, after company executives talked the town of Halfway, Ore., into renaming itself Half.com in exchange for $75,000 and 22 computers. The marketing stunt made national headlines and put Half.com, the Web site, on the map. Within six months, the company had signed 250,000 registered users and was the 18th largest e-commerce store.
All of that got the attention of eBay. The auction behemoth bought the suburban Philadelphia start-up last June for $300 million in stock. "They got a real deal," Kopelman says.
With very little national advertising, Half has succeeded primarily through word of mouth. Thats because the site, which made the list of the top 10 e-commerce sites during the holiday shopping season, appeals to thousands of buyers and sellers who want to transact business quickly. It was ranked No. 10 on the list of sites at which consumers say they spent the most holiday money, according to a survey by market research firm The NPD Group. The list was topped by Amazon and eBay.
In addition, about one in eight online shoppers visited Half in December, making it the third most visited shopping site for the month, behind eBay and Amazon, according to PC Data. And Half ranked second behind Amazon in customer satisfaction, according to a report by research firms Nielsen//NetRatings and Harris Interactive.
Consumers like the site because its fast and efficient, Hall says. Instead of waiting a week or longer to bid for a used book or CD in an auction, buyers can find the item quickly on Half and decide how much they are willing to pay for it, he says. "Its a lot more convenient than eBay," Hall says.
The company got its name because of its pledge to only offer goods at half-off their retail price. The policy has since fallen by the wayside because used DVDs generally sell for a lot more than half of their original price.
Half also doesnt have to worry about fraud as much, because the company bills the buyer and then pays the seller by check at the end of every month or bimonthly, depending on the volume of goods sold. That means the seller doesnt have to deal with the hassle of collecting from multiple buyers. Half also offers a buyer-protection guarantee on all sales.
Duffelbag.com, an online used-CD seller based in Nashville, Tenn., prefers Half over auctions because Half requires only a few keystrokes to get an item listed, says Rob Baker, Duffelbags manager. "We sell more CDs with them than on our site."
A large portion of Halfs sellers are small businesses, such as used book and CD sellers and video stores looking to get rid of excess inventory. But it also caters to individuals just looking to get rid of extra stuff around the house, Kopelman says.
EBay does not break out sales of subsidiaries such as Half, so its difficult to get a clear picture of how Half is doing financially. However, Meg Whitman, eBays chief executive, has said Half is not yet profitable, and the company makes just a small contribution to eBays revenue so far. But she expects that to change soon.
The next step on the road to higher profits is to sell stuff with higher profit margins, such as consumer electronics, Kopelman says. Yet, those items open up all kinds of issues that Half doesnt have to deal with currently. To sell used books, CDs, videos and games, a seller simply types in the items international standard book number or universal product code. Half then instantly creates a listing with a picture of the item and information about it, including its original list price. The seller then selects what condition the item is in from excellent to poor and chooses a list price.
The jury is still out on whether consumers who buy used books online will also be willing to buy a used camera or cellular phone at a fixed price if the condition is difficult to judge.
Yet even in this difficult environment for dot-coms, Half continues to thrive. The company recently hired a 20-person technology team to join its 120 employees. Kopelman even sees the economic slowdown as a boon for business. "Even if the economy takes a downturn, our business model could be an advantage," Kopelman says. "Half is a great way to earn some extra cash to pay off credit-card bills."