I got a chance to meet Simon Hsieh, the CEO of newegg.com, when he visited my strategy class on Monday. The success story of newegg.com was an eye-opening one. The founders basically started from almost nothing in 2001, right after the bubble, and achieved 1 billion dollars in revenue in 2005. Simon ascended from Strategy Officer role to the CEO post in early 2005. Here’s how they did it at newegg.com
What’s wrong with Dell’s model
For years, Dell had been in controlled of the electronc e-tailer market. Dell’s direct sales strategy focuses on low cost competition. This basically squeezed the profit margin to only roughly 5-6%. Apparently, Dell’s not the one who suffered from this model, it’s the suppliers. Dell would select electronic parts from suppliers then build and sell the computers under Dell brand. So to get business from Dell, the suppliers must compete in lowering the price to win over Dell’s favor. The effects are two folds: parts vendors have little left for R&D, Dell’s customers are limited to single selection. Maybe this is why Intel hasn’t been able to catch up with Moore’s law lately?
E-Marketer not E-Tailer
Realizing the flaws in Dell’s business model, the guys at newegg.com started out by positioning themselves as e-marketer rather than e-tailer. Simon himself emphasizes that the company’s position in the market is the key factor to any strategic decisions made at newegg.
Key #1: Keep the customer happy
Pretty straight forward isn’t it? The next question would then be, if this is so trivial, why not all “customers-loving” companies are successful. Newegg.com takes this principles to the core and take extra steps to ensure that their customers are not just happy, but extremely happy.
For example, if you have purchased items from newegg, you’ll be given an option for 3 days normal shipping and 2 days shipping (with extra cost). If you select 3 days option, newegg would try to deliver your package within 2 days. If you you select 2 days shipping, you should be getting your stuff by the next day. And unlike other e-business, newegg carry its own inventory. This is to guarantee that when you make a purchase, they have products in hand to deliver it to you. If a product item is out of stock, newegg will take down that items from the website. This is opposite to Amazon. Amazon doesn’t carry any inventory. When you purchase a book, Amazon would notify its supplier to ship it to you. There’s a high chance that the book’s out of stock and you’ll have to wait. This would never happen at newegg.com.
Last thing to note is newegg invests heavily in its call center in LA and distribution warehouse over the US. When newegg’s customers make phone call for support, they’ll be talking to people from their home country who get the same jokes. Newegg also take advantage from global sense. It expands its email support to China. As much as it sounds contradicting to local call center, having 24/7 email support in China takes advantage from different time zone. A customer emails a problem at night will get the answer by the next morning. On email, the human factor is not essential as long as the staffs can communicate effectively in English. The company itself also takes advantage from lower labor cost.
Key #2: Analytical ability
Newegg is taking the concept of customer feedback to the next level with a team of engineers and business intelligence engine. A team of engineers located in China (I can’t remember exactly if it’s in Chendu or Shanghai) wold work full time on crunching customers feedback data, applying analytics, and translating them to valuable information. And that’s not it. Newegg would also transfer this valuable knowledge to its partner vendors as well. This would provide a great opportunity for vendors to hear directly from the customers suggestions and comment on how to improve their products.
Key #3: Grow your partners
Growing together with partner vendors is another philosophy at newegg. As I mentioned above, newegg works very closely with its vendors to develop the right products to satisfy their customers. Now, you may notice that items on newegg.com are NOT the cheapest in the market. Teams of product managers at newegg would scan the market and price their products competitively. Newegg realizes the trade-off between squeezing a few dollars and wellbeing of its customers and vendors. This price margin would be channeled to improve customer services, product selection, and give vendors rooms to breathe. Building relationship is a key to newegg’s success.
Key #4: Getting the right people and invest in them
Simon emphasizes that people are the most important assets at newegg. Two important qualities are Professionalism and Passion. Professionalism is the most important since it provides the foundation of all business handling at newegg. Passion is the propeller that move the organization forward. A product manager at newegg would be given a product line (or type) to manage. The PM would be responsible for all aspects from pricing, inventory, promotions, and dealing with vendors. To fulfill this role, a PM would require the two qualities embedded within themselves.
Ethic is also another important aspect for business conduct at newegg. For example, newegg would fire its best employee if he or she goes out for lunch with vendors representatives that’s not paid for by newegg. This is to demonstrate that newegg treats its partners with honestly and fairness. Code of ethics are strict, it provides the basis of all decision making and employees behaviors.
Key #5: Preserve the core, stimulate the progress
Newegg.com is currently available in the US and a few Europeans countries. Why not go global? After all it’s internet business right? Simon notes that although the opportunities are tempting, he would never violate its core values and mission. In another word, newegg would not compete in a market where it cannot be the best at serving its customers. After the presentation, I had a conversation with Simon and asked him for key strategic decisions that he would consider in international expansion. Simon answered that first of all, laws and regulations in that country, and what they have to do to keep the same level of customer satisfaction as that in the US base.
Last word
Well, I hope I didn’t bore you. IMHO, newegg.com is an excellent case for any start-ups to follow. You don’t have to come up with breakthrough products or business ideas to be successful. It’s simply about finding the core values and doing what you can do best to innovate values from the business.
“Different isn’t always better, but better’s always different”
- Jonathan Schwartz, CEO Sun Microsystems
