E-Commerce Companies Strike Gold Behind the Scenes

By selling their site-building expertise and customer-relations savvy to other online firms, these companies have managed to boost their bottom lines and avoid the fate of pure-plays that relied only on product sales to survive.

The most high-profile example of making money behind the scenes is Amazon (Nasdaq: AMZN) . Experts note that the company made a big move toward its recent profitability when it chose to go beyond selling books and electronics to rent out its site-building services to other companies.

Amazon Approach

"Amazon has become the poster child for this now," Forrester director Kate Delhagen told the E-Commerce Times.

Delhagen said that much of Amazon's relative financial well-being, compared with other pure-play retailers, can be attributed to the site-building and hosting services it has sold to clients such as Borders and Toys-R-Us.

Delhagen said that eBay (Nasdaq: EBAY) also has taken this route to some extent, selling auction-related services to other firms. But other companies that have done this successfully have a much lower profile.

Sporting Improvements

Among the successful behind-the-scenes players is GSI Commerce, which started out as an online sporting goods retailer called Global Sports.

Delhagen said the company gradually moved toward advising other retailers and has become a successful outsourcer of site development, direct-response marketing and other services.

"They have gone beyond sporting goods to where they are serving companies across several markets," Delhagen added.

The new formula has apparently worked financial wonders. Morningstar e-commerce analyst David Kathman recently told the E-Commerce Times that GSI is "on the cusp of profitability" and has seen a significant rise in its stock price over the past year.

Bagging Returns

Forrester's Delhagen also pointed to the work done by eBags, a Denver, Colorado-based online retailer of items like luggage, backpacks and handbags.

The company ranks among the most visited sites in its category and has successfully made the transition from a sales-only business model to one in which significant revenues come from services to other firms.

Ebags has been tweaking and honing its marketing campaigns since its founding in 1999 and has been consistently profitable in recent months. It is now leveraging the knowledge it has gained by helping other firms develop their customer databases and marketing campaigns.

Target the Market

According to Peter Cobb, the company's cofounder and vice president of marketing, the company's outsourcing is aimed at helping clients and partners better target their campaigns and build customer loyalty over time.

Cobb said the company has learned from its own experience what kinds of offerings are appreciated by Web visitors and what types of pitches turn customers off. Other companies want to gain the same insights without going through a potentially costly trial-and-error process.

"Companies were telling us they wanted to have large-scale e-mail campaigns, but they didn't want it to come across as spam and get ignored," Cobb told the E-Commerce Times. "We've learned how to do that over time."

More to Come

These companies might be just the first wave of pure-plays looking to go beyond selling physical goods. As firms without online track records look to boost their Web presence, experts say that sellers with experience in that medium could prove to be an affordable and effective source of help.

According to Giga Information Group analyst Andrew Bartels, outsourcing has become attractive to some companies that have physical stores but that might not have expertise in linking online customers with their offline operations. Amazon has led the charge of online players moving to fill that void.

"They've taken on functions like order-taking and fulfillment for a lot of different companies," Bartels told the E-Commerce Times.