The headlines would make you think that e-commerce is a battle of giants. Amazon, the dominant U.S. player with $78 billion in revenue, has put a choke hold on book publisher Hachette in a dispute over e-book pricing. Chinese giant Alibaba, with sales of $250 billion in China, has just planted a foot in the American market with 11Main and is preparing an IPO that could net $15 billion. And don't forget eBay, the pioneer online auction site, which rang up sales of $17 billion last year.
With such power concentrated in a trio of Goliaths, you'd be crazy to move into e-commerce, right? Not true. In fact, e-commerce start-ups like Birchbox, Etsy, Rent the Runway and Warby Parker are innovating and thriving where Amazon and eBay never dreamed of playing. By distributing beauty supplies, providing a virtual mall for high-quality crafts, renting out designer evening gowns or selling fashionable eyewear cheap, e-commerce entrepreneurs are thriving, building audiences—and raising plenty of venture capital to expand their dreams. According to the National Venture Capital Association, its members poured $236.6 million into retail and distribution start-ups in 2013; they've already spent $256 million in the first quarter of this year.
Investors are not afraid of the giant shadow cast by Amazon, eBay or by Alibaba, which plans a stock offering later this year that could raise $15 billion, the most since Facebook went public. "An Amazon works for commodity products," said Stephanie Palmieri, a principal at SoftTech Venture Capital in Palo Alto, California. "But there are giant niches out there." The niches are big because the Internet is increasingly where America shops. The U.S. Census Bureau reported last month that e-commerce sales in the first quarter of this year totaled $71.2 billion, up 15 percent from the same period in 2013.
Palmeri, whose firm has put money into such start-ups as True&Co (data-driven lingerie design) and Poshmark (used clothing sales), views targeted e-commerce sites as the digital equivalent of specialty retail shops. But unlike their brick-and-mortar counterparts, they can grow really fast and reach a global audience.
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