BUSINESS MODELS
One of the ironies of ecommerce is that once etailers succeed, they often embrace the very predigital practices they rejected in the first place - witness Amazon.com leasing thousands of square feet of warehouse space.
Chumbo.com, a Minneapolis-based online software retailer, says it has a better plan. Chumbo has partnered with major PC makers to allow users to request software as they order their new computer systems. When the computer arrives, it comes with the programs users want, not with a pile of CDs that end up in the trash. According to Chumbo .com founder David Prais, his PC partners give his startup "the lowest cost of customer acquisition in the business."
But what makes Chumbo.com really stand out is its seamless vertical integration. When an order comes in, the company either plucks a ready-made CD off the shelf or takes a blank disc, which costs less than 50 cents (Zomax, a large CD maker, owns one-third of Chumbo .com), burns it with the requested program, and drop-ships it. Compare that to the $43 it costs the average steel-and-concrete retailer to carry the same program on its shelf.
"Chumbo has a great model that isn't dependent on advertising, like many Web merchants," says Gateway founder Ted Waitt. "Rather than selling products at cost, they actually make money, which is novel in the Internet world."
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