Friday, March 10, 2006

Solving the SMB Gordian Knot

Small business (SMB) is a hugely sought-after market, but also one of the hardest to market to (given its high fragmentation/ product differentiation). In my opinion, eBay has been able to harness a thriving SMB marketplace due to three factors - 1) massive consumer adoption 2) a common platform (buying/selling/APIs) and 3) a critical path service offering equally valuable regardless of SMBs' product/category.

The first piece, massive consumer adoption, is obviously the toughest. Once attained, it becomes a natural target for businesses to market to. As a clear example of this, Paypal now drives over a billion in revenue from merchant services. Merchants came aboard to serve Paypal's massive consumer base that was built via a free P2P payment service.

Building a common platform isn't easy (especially as it relates to web services)... but once individuals on eBay get used to buying and selling between themselves, having a common platform for buying/selling across product category made selling as a business a fairly easy transition from selling as an individual. A broad web service offering allowed developers to build applications and tools to facilitate that process, and integrate eBay into business practices and legacy processes/systems. Selling on eBay as a business became easier (if not yet easy) as a result.

Finally, eBay addresses a critical path requirement for SMBs - demand generation - by enabling an active user community through communication, shared interest and trust. Helping optimize natural search and paid search for products on behalf of sellers contributes significantly as well. eBay enables this regardless of a business' product offering, letting sellers essentially sell whatever they want (with few exceptions) on the eBay platform.

The combination of these three ultimately drives small businesses to use eBay as both a selling and purchasing platform, fostering B2C/B2B sales from what originally was a pure C2C play. In response, eBay has built a portfolio of products to serve this market, including eBay stores, Prostores, shopping.com and others to provide the maximum value to SMBs that both currently sell on eBay and to the numerous small businesses that have yet considered eBay, let alone eCommerce, as a channel for sales.

All this to explain why I think Skype's recent entry to the SMB market is the first step towards a much larger revenue stream. Much like Paypal and eBay, there's strong consumer adoption of the service. If some material % of an SMBs current and potential customers are using Skype, there's a strong likelihood that SMB will adopt the service over an alternative one (i.e. Yahoo Talk, etc). Skype works off a common platform which is already API enabled, evident in the myriad of hardware and software extensions of the service (enabling SMBs to more easily adopt Skype to their current business practices). Finally, in terms of category blind critical path service offering, free/cheap communication is an obvious need. Skype's extensibility as a P2P service has even greater potential for SMBs in the near future, beyond voice communications alone. Tie all three together and Skype (like eBay/Paypal before it) cuts through the SMB Gordian Knot.

2 Comments:

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Anonymous Anonymous said...

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