InformationWeek
Defining The Business Value Of Technology
June 7, 1999
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Egghead.com had accumulated almost 760,000 customers by December 1998, up from 460,000 in March 1998, and had processed 790,000 orders. Analysts predict that by the end of 2003, Egghead.com will have 3.7 million customers and will process 6.3 million orders. The USBancorp Piper Jaffray report projects that Egghead.com's revenue will grow from about $144 million in 1999 to $841 million in 2003, although the analysts predict the company will suffer earnings losses this year and next.
Competition's Toll
As a traditional retailer, Egghead at one point had more than 2,500 employees and more than 200 retail stores in 30 states. Its revenue peaked in 1995 at $862.5 million. But a year later, competition from the computer superstores that dominated the market by the mid-1990s was taking its toll.
In 1996, Egghead sold its direct-sales business, which operated independently of the retail stores, and revenue plunged to $403.8 million. Sales shrank in 1997 to $360.7 million and fell to $293 million a year later.
The metamorphosis into an Internet-only retailer began in January 1997, and required the management of difficult, concurrent actions. "We didn't have a clean slate to start with," Orban says. "We had a legacy business. For more than a year and a half, we had to deal with the legacy issues of closing stores, liquidating inventories, and laying off people. We also had to deal with issues of acquiring a company [SurplusDirect]. All those things took time and energy to consolidate and pull together."
Within three months of unveiling its new business strategy, 70 Egghead retail stores were closed. A few months later, the company paid $36 million to acquire SurplusDirect, a company that sold overstock computer products through direct mail and two Web sites, SurplusDirect.com and Surplusauction.com. A short time later, Egghead transformed its informational Web site into an electronic-commerce site.
During this period, Egghead executives also worked on building a chain of computer superstores to replace its boutique software shops. The first Egghead Computer Surplus store opened in late 1996 and three more superstores opened for business in 1997.
Egghead officials soon realized that building the superstore business would be slow and expensive, and that the company's best chance for success was to focus on Internet sales. The transformation into an electronic retailer was completed in January 1998, when Egghead closed its remaining 80 stores and introduced its Egghead.com site.
Internet-Only Technology
Developing the technology to run an Internet-only business was among the most difficult aspects of the transition, Orban says. Egghead took advantage of the Surplus-Direct sites it had acquired. "We sell goods on auction and on what we call a catalog area, so that customers can shop in either fixed- price or auction environments," says Orban. "You see more and more companies getting into auction business. We happen to be a pioneer. It's more difficult to implement because the technology behind the auction environment is different than that behind a catalog site."
Two key strategies to increase Egghead.com's exposure to Web surfers are its marketing and affiliate relationships. Egghead.com is visible, either through co-marketing or advertising agreements, to Web users visiting various Web sites, including America Online, @Home Network, CNet, Doubleclick, GeoCities, Microsoft Network, Netscape, Yahoo, and ZDNet.
For example, Egghead.com is MSN Shopping's premier computer software merchant, and Egg-head.com advertises on various MSN sites. Through a marketing agreement, Egghead.com is also a featured auction site on the @Home Network.
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