Buying Into E-Commerce
The conventional wisdom about electronic commerce is that location doesn’t matter. After all, a buyer in Boston can transact with a seller in Sacramento as long as the two can connect in cyberspace.
But for the entrepreneurs trying to put Southern California in the center of the growing movement toward buying and selling over the Internet, location is perhaps the region’s biggest advantage.
The Tech Coast is home to EToys, the online toy retailer that generates almost as much industry buzz as Seattle bookseller Amazon.com. Plenty of other Southland companies are emerging as early leaders, from such start-ups as Autobytel.com in Irvine to the e-commerce divisions of entertainment giants such as Disney’s Buena Vista Internet Group in North Hollywood.
That’s no accident. Southern California has an unusual combination of technological prowess and consumer marketing talent that many see as uniquely suited for the brave new world of e-commerce.
“Los Angeles is starting to be known as an e-commerce cluster,” said Jeff Green, co-founder and vice president of marketing for online postage retailer Stamps.com in Santa Monica, one of the region’s budding firms.
That could mean a big payoff for the Tech Coast--if it can grab a significant chunk of the market that the Commerce Department estimates will total $30 billion next year. The region can enhance its prospects if the e-commerce firms that are here today coalesce into a critical mass and draw even more companies to the region, according to executives and economic development officials.
“It’s one of the biggest moneymaking futures on the Internet, and it’s definitely something we should be caring about,” said Cliff Numark, program director for the Los Angeles Regional Technology Alliance. “The more e-commerce companies that are here, the more people are employed and the more Los Angeles technology advances.”
So far, California companies lead the nation in selling online. A recent survey by the Boston Consulting Group and Shop.org, a national association of online retailers, found that the Golden State is home to 25% of the country’s online merchants. In addition, 40% of Shop.org’s members hail from California.
Silicon Valley companies, which specialize in producing the behind-the-scenes hardware and software needed to make e-commerce possible, account for much, if not most, of those totals. But people who track the industry say Southern California is in the top tier of e-commerce regions, which include New York, Boston, Seattle and Austin.
Southland firms are not about to lose ground to their geographic rivals, at least not willingly. According to an informal survey conducted this month by the Software Council of Southern California, finding a way to get in the e-commerce game is one of the top five concerns of Los Angeles-area software companies.
Tech Coast firms will develop a specialty in retail-oriented e-commerce, which is expected to become the biggest part of the e-commerce boom, local tech leaders say. Numark estimates that roughly two-thirds of the Southland’s e-commerce firms now focus on consumers.
Indeed, the region’s most successful Internet IPOs last year were for two consumer businesses: GeoCities, which creates online communities by giving away home pages, and Ticketmaster Online-CitySearch, which combines listings of local events with ticketing services.
This doesn’t surprise EToys Chief Executive Toby Lenk, a former Disney executive, who points out that Southern California’s signature industry--Hollywood--is all about selling to consumers.
“The Hollywood-marketing-consumer influence here is very advantageous,” he said.
In fact, e-commerce companies are becoming as desirable to work for as entertainment companies among the Generation X crowd, said Dave Nash, chief executive of PeopleSupport, a Westwood firm that provides online customer service.
“It’s dynamic and it’s subject to tremendous change,” he said. “To say you’re working for an e-commerce or an Internet start-up is at least as cool as to say you’re working for Madonna’s record company.”
While traditional creative talent abounds, companies are finding that attracting technical talent in Southern California is more difficult. The aerospace industry’s implosion in the early 1990s created a base of employable programmers who are now in high demand.
Some of those former aerospace workers helped get Disney Online--now Buena Vista Internet Group--up and running, but the labor market now is “pretty tight,” said Chairman Jake Winebaum. “We, like every Internet company, have 30% open positions in engineering.”
Of course, the labor shortage is also acute in Sunnyvale and Seattle, where Infoseek--which is 43% owned by Disney--has technical operations. But neither of those cities has the ready pool of marketers that is available in Southern California, said Winebaum, who served on the California E-Commerce Advisory Panel last year.
Buena Vista Internet has adjusted by purchasing back-office technology from other companies and having its staff focus on systems integration. Many other companies, including San Diego-based IBaby.com, have coped the same way.
“Vendors, hardware, software, marketing partners--that’s pretty universal, and you can do that from anywhere,” said Shop.org co-chairwoman Elaine Rubin, who helped launch IBaby.com. The decision to locate in San Diego was based not on technology but on the fact that its retail partner, Kids Warehouse, was already located there, Rubin said.
In addition to engineers, the main commodity in short supply is money. But local entrepreneurs say the situation is starting to improve now that venture capitalists are casting their gazes beyond Silicon Valley.
“The more the venture capital people see this area breed successful start-ups, the more they’re going to think twice about passing on companies here,” Lenk said.
Southern California’s e-commerce industry could get a major boost from the entertainment industry--if the studios embrace the Internet. Their movies and albums are certainly in demand, as the popularity of MP3 music files demonstrates. But the big entertainment companies have been slow to embrace Web-based distribution, in large part due to fears about piracy.
Entertainment companies must get over their “paranoia” soon and find a way to sell their wares online this year, said George Geis, who teaches a course at UCLA’s Anderson School called “Strategy in the Digital Economy.” If the studios wait too long, they will have less control over the distribution technology and won’t be able to strike the most favorable deals, he said.
“The real question is influence,” Geis said. “Who’s driving the deals and the partnerships? Who’s in control of a massive wave of content that’s entertainment-based? Who is structuring the deals in such a way that Southern California benefits the most?”
The answer to that question could affect not only the entertainment companies but the Southland’s entire e-commerce industry, which will rise or fall together. Each successful e-commerce firm helps build the region’s talent base, attract investment and inspire budding entrepreneurs to start their own companies, said Massoud Entekhabi, a partner with PricewaterhouseCoopers’ global technology group in Woodland Hills.
“It’s a virtuous circle as more and more e-commerce companies emerge here,” agreed Jan Brzeski, president and chief executive of STV Communications, a Santa Monica firm that produces streaming Web-based video clips to help companies sell their products online. “We’re in the frenetic growth phase now, and we’ve reached the point where it can begin to feed on itself. It will spiral up even further.”
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Karen Kaplan can be reached at karen.kaplan@latimes.com.
