Innovation

The Future of E-Commerce is Physical

Companies that trade in information have dominated the first round of the digital economy. In the emerging second phase, businesses must combine digital disruption with real-world infrastructure.

Written by Roger Hardy

Today the question I am getting most frequently from CEOs and business leaders relates to whether or not their companies need to create or build out an online marketplace in their category to remain competitive. The question doesn’t come as a surprise. With the market success and soaring valuations of companies like Alibaba, Uber and Airbnb, it’s only rational as business leaders to ask ourselves if we need to quickly reorient our business to this new reality.

I’m reminded of the similar questions I used to get back in 2004 as the internet bubble started to re-inflate and many CEOs wondered if the web was going to replace their businesses. Internet-based companies were taking market share at alarming rates, stalling the growth of many mature businesses. In our case at Coastal Contacts we were able to quickly take market share from traditional eyewear sellers by using the web to reach customers cost effectively and introduce them to our “Better way to buy eyewear.”

The model resonated with consumers and we grew very quickly. Ultimately we built the leading seller of glasses and contact lenses online before selling the company for $450 million in cash to Essilor earlier this year. Along the way we learned many things. Many of these lessons in how best to serve customers in fast-growing marketplaces I have redirected and am in the process of implementing at my recent acquisitions Shoeme.ca and Onlineshoes.com.

READ: Roger Hardy’s Next Big Thing »

One of the principal lessons of the last decade, as it relates to e-commerce, is that it was not a singular business plan that was the best strategy. It turned out most companies didn’t need to throw out their bricks-and-mortar business and focus purely on the web. Instead, real value has been created by using the web along with physical stores in a way that served customers best and focused on their experience. That was the best use of company capital and produced the greatest return. Companies that were able to leverage existing infrastructure and complement it with a highly profitable web business were those that excelled over the last 10 years. Simply having the best website left you exposed to the convenience of competitors who had product available for consumers seeking instant gratification. There is a reason Amazon raced to build distribution centres in every corner of the country almost overnight once it realized the weakness of its plan.

As we enter the age of Big Data and zero inventory, where being asset-light and moving data and information are king, my instincts as well as my experience tell me that there is more to this story that will need to play out. My hunch is that the success of many of these early information-only business models is really just an early inning in the progression of the digital economy. These info-only business models and those with real assets are going to now race to a hybrid model that best serves customers by providing them with instant access to products and information that best serves customer needs while ensuring they have the backstop of asset-heavy balance sheet components that will provide their best customers with top-tier service.

READ: An Eyewear Entrepreneur’s Vision for Expansion »

The perfect model will be the one that incorporates some of the efficiency of disruptive data-moving components as well as the convenience achieved by providing physical assets correctly deployed and oriented around a company’s best customers. Over time these information-moving business models are going to need to have some physical assets to ensure they are the ultimate winners. And the same is true for those who today sit on massive inventories, whether that’s taxicabs, hotel rooms or shoes; they are going to race to use data much more effectively.

The race is going to be won by whomever can get to the exact balance between moving information and owning physical assets that best serves customers. In round one of this race, the information movers like Uber had a huge advantage. In round two, those with the assets have the ultimate advantage. They just tend not to know it.

Roger Hardy is the chairman of Hardy Capital and CEO of Shoeme, a web retailer of shoes under the SHOEme.ca brand in Canada and Shoes.com and OnlineShoes.com in the U.S. He also founded Coastal Contacts.

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Originally appeared on PROFITguide.com