Specialization and Consolidation: The Ultimate Battle in the Modern Economy
Changes in the character of retail are consistently relevant, if cheap, sources of humor for the American consumer. Even amongst my (relatively young) friends, we jokingly reminisce about the times we spent at K-Mart or RadioShack, both formerly massive stores that have been reduced to punchlines. The accompanying commentary about Amazon, Walmart, and Target taking over the world is very pertinent, as the consolidation in influence is not without its victims. Companies with defined specializations, like GameStop and Barnes & Noble, have seen a considerable impact on their income statements from the growing influence of these and other massive retailers. This leads to the interesting question of how companies can and do continue to work around this overwhelming consolidation. Furthermore, what lessons the next generation of entrepreneurs and MBA’s can learn about navigating such a competitive landscape as a business leader.
First, let’s look at GameStop (specializing in video games) and Barnes & Noble (specializing in books). Though in different ways, these stores’ declines can mainly be attributed to their competition taking full advantage of the Internet. GameStop’s revenue decline (Annual Report) aligns with the changing consumption patterns of their core audience (Entertainment Software Association). If you have ever been to a GameStop, you will notice that the shelves and aisles are stuffed with used games, with some space allocated for new games, that sit comfortably and with more room to breathe. This creates problems on a couple of fronts. For one, the introduction of game streaming and at-home downloads onto one’s own console has made the trip to the store unnecessary. People are naturally gravitating towards purchasing games from their couches rather than their local shopping malls (Statista). Now, this also spells doom for their used games revenue. There will be much fewer physical copies to resell in the long run, as you cannot resell a download file encoded onto your Xbox One. Thus, not just the Internet, but the Internet’s influence on consumer tastes and the demand for time efficiency, has negated GameStop’s utility.
Another company, Barnes & Noble, foresaw the necessity of an Internet presence. Their CEO at the turn of the 2010s was William Lynch, a tech-focused leader who introduced the Nook e-reader and vamped up the store’s website (TechCrunch). Barnes & Noble only had one problem: their business was the exact same as Amazon’s original vision. The only difference is that Amazon has, quite literally, any other product that a consumer could want, from tools to sweatshirts to HBO shows. GameStop as a company and a brand had a lot of room to run with the inception of the Internet – for a company focused on video games, a digitally-based product, there was potential for creativity in getting customers through different streams to continue expanding, and take advantage of their brand recognition. For Barnes & Noble, though, even when they tried to adapt, their services were done better by other companies with a larger reach and consumer appeal, and it was only time before they had sought out this fate.
As an aspiring entrepreneur myself, these developments raise a couple of troubling questions. What do I have to do to have a product or service even remotely competitive in the marketplace? Do I have to be some sort of design mastermind to run a company that will not eventually be overwhelmed by Amazon and Walmart? Well, yes and no. There are a couple of companies that have specializations and niche corner markets that continue to thrive, but their success is hardly the common narrative.
Spotify is now one of the most recognizable names in music, despite having their product imitated by Apple and Amazon. How is this possible? There are a couple of things working in Spotify’s favor, some of which are a result of their technical, while others are more about timing. First, since its inception, Spotify has been focused on keeping users’ attention. The company’s founder, Daniel Ek, recognized the value of an outstanding algorithms early on, which has created a sticky customer base that continues coming back (MIDia Research, Spotify). Second, Spotify’s platform has a distinct “feel” to it. The creative and recognizable font, the piercing black background, and the visually appealing pictures for curated playlists absorb me whenever I open the app, an experience not only more appealing than with Apple Music homepage, but something that feels like “music”. In 2020, “music” does not feel like the iPod, iTunes, or even free services like YouTube – it feels like putting on one of my many Spotify playlists to pass the time. Now, this is not just because Spotify has done such a great job curating playlists. We can take this as a result of the first mover advantage. Spotify wrote the playbook on music streaming, and they are not beating Apple because their service is necessarily better, but because it is inherently what the user thinks about when they think about listening to music in any context.
For our second company, Wayfair, they worked to make themselves open to a younger audience. Aesthetically speaking, the Wayfair website is more inviting and lively than the experience of shopping with Bed Bath & Beyond, which is helped by the fact that Wayfair is working tirelessly to bring what you want to you as quickly as possible. Wayfair is known throughout the business world, not just in their niche market, for using data science and personalization to create valuable and sticky user engagement (O’Brien). This leads to one of my first positive thoughts in a while – “Using data science to make decisions? I can certainly do that!” Wayfair certainly seems like, on the surface, the perfect company to prop up onto a pedestal, but that ignores the fact that the company began in 2002, and prior to the explosion of data science, they had already consolidated heavy amounts of internet companies focused on home goods. When they made this turn towards data, they had the logistics network and market power already in place to make a profit (WBZ4). Wayfair was not “lucky”, by any stretch – their platform and brand have come from deliberate corporate strategy. However, it is hard to imagine a world where a brand-new, fresh-faced company could reach these heights on mere merit and product quality alone, as the entrenched market power that Wayfair had when turning over their new leaf was necessary in supporting their success.
The rise and fall of companies in the new economy truly emphasizes the importance of the brand and an ambition from founders and company heads. The fact is that a strong technical product is not enough in 2020 to get you and your company noticed. The modern economy is no place for average, and like Spotify, you need to spend countless hours not only crafting a superior algorithm, but an aesthetic that sucks users in, while also having the guts and confidence to build said user base early. Furthermore, like Wayfair, you need to be exceptionally hungry to outpace your competition – you cannot be satisfied with the current services that you are offering, but instead look for sound ways to change over time. GameStop and Barnes & Noble are two companies that did not bring this spirit of competition to the table, and we can see their suffering because of it.
Bibliography
“Back Bay Company Wayfair To Merge 200 Online Storefronts.” WBZ4 Boston, September 20, 2011. https://boston.cbslocal.com/2011/09/20/back-bay-company-wayfair-to-merge-200-online-storefronts/
“Barnes & Noble CEO Steps Down, BN.com President William Lynch Takes Over.” TechCrunch, March 18, 2010. https://techcrunch.com/2010/03/18/barnes-nobles-ceo-steps-down-bn-com-president-william-lynch-takes-over/
Entertainment Software Association. (April 28, 2016). Physical retail sales of computer and video games in the United States from 1996 to 2015 (in billion U.S. dollars) [Graph]. In Statista. Retrieved January 15, 2020, from https://www.statista.com/statistics/263257/physical-retail-sales-of-video-games-in-the-us/
GameStop Corporation. 10K Annual Report, April 2, 2019. Web.
MIDiA Research. "Cumulative Subscriber Churn Rate of Spotify Worldwide in 2017 and 2018 (in Millions)." Statista, Statista Inc., 14 Feb 2019, https://www.statista.com/statistics/241424/dau-and-mau-of-spotifys-facebook-app/
O’Brien, Jeffrey. “It’s All Clicking for Wayfair, a Fortune 500 Newcomer.” Fortune, May 16, 2019. https://fortune.com/longform/wayfair-founders-fortune-500/
Spotify. "Number of Spotify Monthly Active Users (Maus) Worldwide from 1st Quarter 2015 to 3rd Quarter 2019 (in Millions)." Statista, Statista Inc., 28 Oct 2019, https://www.statista.com/statistics/367739/spotify-global-mau/
Statista. (January 19, 2017). Leading sources used to purchase or download video games according to gamers in the United States as of December 2016 [Graph]. In Statista. Retrieved January 15, 2020, from https://www.statista.com/statistics/524239/source-video-game-pu
