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A “Behind-the-Scenes” E-Commerce Power February 14, 2007

Posted by Kira in outsourcing, Technology.
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Michael Rubin, an entrepreneur since the age of 13, is taking on a new business challenge- the world of e-commerce.  His latest endeavor is GSI Commerce (GSIC) which handles e-commerce operations for a variety of retailers including Sports Authority, Modells, Reebok, NASCAR, Estee Lauder, Palm, Ace Hardware, and Linens ‘n Things.  By outsourcing their commerce websites to GSI, their customers are relieved of the burden of building and maintaining costly infrastructure and because GSI bears all the costs, the customer’s e-commerce operations are profitable from day one.  Being in e-commerce means that GSI competes with Amazon.  Rubin’s business is built around outsourcing whereas Amazon has had to transition to an outsourcing model which is harder to do.  Rubin believes that outsourcing is the future of e-commerce and GSI will be able to take on Amazon.  When you order something from Toys ‘R’ Us it comes in an Amazon box, but if you order something from Linens ‘n Things it comes in a Linens ‘n Things box.  The difference is that GSI’s clients still reflect their brand, look, and feel.  Although GSI is not consistently profitable yet, revenues have been growing steadily. 

            I think that a main reason why GSI may be able to compete with Amazon is because they are a business to business player and do not want to build their own brand.  As a B2B player, GSI is happy to be behind the scenes and help connect buyers and sellers using the internet.  There is always tension between Amazon’s consumer business and their client’s consumer business.  This makes GSI more attractive since they are not in direct competition with their client’s business.  GSI’s priority is making their client’s business as successful as possible.  B2B commerce allows companies to reduce their operating costs and improve product quality.  Since GSI incurs all costs, companies have nothing to lose which may be a competitive advantage over Amazon.

Although it is not as common yet to outsource e-commerce as it is to outsource a material input, this is a good strategy for companies that need to manage interdependencies, reduce uncertainty, and reduce infrastructure costs.  The growth of outsourcing also shows the increasing use of mediating technology as a way of doing business.

I am curious to follow GSI to see if they do become profitable and to see how they will compare with Amazon.  I am also interested to see if Amazon makes any changes in order to stay ahead of outsourcing e-commerce.  Will GSI be able to compete with the buzz associated with Amazon?  How strong really is Amazon’s customer loyalty? 

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Comments»

1. Lady - February 14, 2007

Well at first glance, I would say that although GSI is doing well right now, I think that it is a huge risk to be taking on such huge costs. But I guess sometimes you have to take risks in order to be succesful. In addition, I think it may be hard for them to compete with Amazon just because of the reputation that Amazon has created for themselves. To be honest, I have never heard of GSI, maybe because I haven’t had to purchase anything from Linen N’ Things lately.

GSI does have a challenge to compete with Amazon but I do think it’s possible. They do have a competitive advantage of allowing businesses to still display their brand name. I think this will allow them to establish strong relationships with other businesses and hopefully they can then gain more business from new companies because of this advantage they have.

As for as Amazon’s customer loyalty, I’m not really sure about it. All I can say is, I’m going to purchase where the prices are lower. And I think most customers would feel the same as I do.

2. Janine - February 14, 2007

Question: How does this company, GSI, relay the information from the e-commerce websites to the companies that employ them? In other words, what rules and guidelines are set up between GSI and the retailers such as ‘Linen-n-things’ and ‘Sports Authority?’ I am curious about how they split the profits and how GSI does make its money. I mean, if they are covering most of the costs, no wonder much money is not being made. I dont know if I exaclty buy into GSi’s mission yet. It makes sense, yes, but then the question on control comes into my head. Does this add another level in the heirarchy for the company that uses GSI? It can make things simpler, yet can also make things more complex as the company grows. What if one day GSI becomes frustrated with always being ‘behind the scenes?’

As for Amazon, I think they are fortunate to have a credible name to back them up. People respect Amazon; they have had good expereinces with the customers, and will continue to do so, if they continue to play their cards right. I am interested to know what “problems” exist with Amazon’s consumer business and that of their client’s.

3. Jerry Storch - February 14, 2007

Toys R Us hasn’t been involved with Amazon for a long time.


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