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November 1st: Torsten Jacobi, CEO of Creative Weblogging, joins host Anita Campbell. Sponsored by Six Disciplines. Show details.
Tuesday, April 27, 2004
Internet Increases Demand for Niche Stuff
Virginia Postrel takes a look at how the Internet increases the sales of niche products in her latest article in the New York Times:

' "When I first started doing work on how the Internet is affecting commerce, like a lot of people, I was really excited by this nearly perfect market," said Erik Brynjolfsson of the Sloan School of Management at Massachusetts Institute of Technology.

His early research found that prices on the Internet were 6 percent to 16 percent lower than prices off-line.

But when he thought about how people actually shop online, and what they find valuable, he realized that low prices are not the big story. Selection is. The Internet offers variety that is simply impossible in traditional stores.

When I wanted a contemporary light fixture in copper, I used Google to find a specialty retailer that had one I liked. I recently did the same thing to find a particular brand of Velcro-sealed envelope that I use for receipts when I travel. I regularly turn to Amazon.com and Alibris for books I cannot find in local bookstores or even libraries.

Online shoppers are not just buying the same stuff for less money. They are buying different stuff. And they are much more likely to be getting exactly what they want than are off-line shoppers. Wal-Mart has low prices, but Walmart.com carries six times as many items as the largest Wal-Mart store, the article says. "Amazon's slogan is world's biggest selection, not world's cheapest prices," said Professor Brynjolfsson, who has done pioneering research on information technology and productivity.

All this variety could be overwhelming. But consumers do not have to sort through item by item. Online shopping includes tools like search engines and customer review sites, or Amazon's many referral services.

You are not only more likely to find what you are looking for online. You are more likely to discover something you like that you did not already know about, Professor Brynjolfsson said. Partly through links and referrals, the Internet increases sales of obscure products. In 1997 and 1998, in the early days of Internet commerce, The MIT Press reported 12 percent annual increases in sales of backlist books, thanks to Internet retailers.

"In effect, the emergence of online retailers places a specialty store and a personalized shopping assistant at every shopper's desk," write Professor Brynjolfsson, Yu Hu, and Michael D. Smith in a November 2003 article in Management Science. "This improves the welfare of these consumers by allowing them to locate and buy specialty products they otherwise would not have purchased due to high transaction costs or low product awareness." '

And it's not just the behemoths like Wal-Mart and Amazon that are profiting. Just think about how many small businesses are thriving by selling niche products and services through the Internet. Without the Internet as a marketing and distribution channel, many of those same small businesses would not even be in business. They wouldn't make sufficient sales of unusual or niche products in their local markets through traditional retail.
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