E-Commerce: The Bottom of the Pyramid Approach
For centuries and most decades of the 20th century (that is, when the computer was invented), access and communication were tools of rich and ultra-rich people, prohibitively expansive for ‘not-so-rich’ and ‘not-so-rich’ people. . All marketing research and development was focused on the top 20% of the market according to the 80:20 management principle, ignoring the 4 billion people at the bottom of the pyramid (read Fortune at the Bottom of Pyramid by CK Prahalad, Wharton Publication).
In the 1990s, the Internet appeared and changed the paradigm of the entire global market. Because here we have a great tool “Internet” a very efficient, very powerful one to penetrate the impregnable market previously thought according to. For the majority, time is exposure to the outside world and the information is necessary to make any decision and the growth of any sector of society or part of the world. The Internet is playing that role very efficiently.
The Internet is a mass product. Here the power is in the hands of individuals, rich or not so rich (This terminology is taken from Fortune at the Bottom of Pyramid by CK Prahalad, Wharton Publishing).
General theory of market states
(i) The high-end market is value driven.
(ii) The low-end market is driven by volume.
Through these two anomalies, we can clearly recognize that Internet companies are focusing on the second approach and that is what CK Prahalad calls the Bottom of the Pyramid (BOP) approach in his groundbreaking book Fortune at the Bottom of Pyramid. .
I can give a long list of such companies, but for example take some shining stars of today’s Internet economy.
(i) ebay.com
(ii) aol.com
(iii) clickbank.com
(iv) Google.com
We will study the Mother of all Google search engines and their BOP approach.
Let’s compare the strategy of Google and its giant competitors (well, not today, but in Google’s formative days when it mattered most). Google is a search engine based on the pay-per-click (PPC) approach to the Internet economy. In the formative days, Google did exactly what others thought and the gurus recognized that the model is not viable and that Google will be doomed to the graveyard.
Most dot-com or brick-and-mortar Internet companies made money from advertising. They charge for the advertising spaces that they provide to the advertiser and they charge them for a fixed duration and also all these prepaid only. This approach was already imminently followed in television advertising and to some extent very successful. Advertisers had no choice. For them it was a dark space to jump into. They had no control even after paying a handsome sum for space on the network.
See the other side of the coin. The consumer (technically visitor) was not part of the revolution. Even if they were, they used to be exploited only to generate huge profits for the companies that operate on the network.
Google came in with a refreshing style and a very unusual approach to the market.
1. There are no images on your home page. (there is an option available on other pages but not very popular).
2. Tool and services for common people.
3. Free for everyone (even sometime for advertisers too)
Do you see where the money is? I guess 90% would see none or many.
Google spread its wings online through word-of-mouth marketing and maintaining an intense focus on everyday people who use the Internet. In the process, Google developed its own marketing and revenue generation model by empowering ordinary people, who love Google (I may be one of them).
(i) Google AdSense
(ii) Google AdWords
(iii) Froogle (similar to ebay.com but free for everyone).
(iv) Google Search
Digging deeper into Google’s strategy and net economy approach, we can define two things.
(1) Focus on ordinary people in high volume in terms of purchasing power
(2) In the process, put more control in your hands, empower them to generate more buying power and habits to help yourself and the industry.
See two very lower level examples.
(1) Jon Gales, the owner of http://www.mobiletracker.net makes about $5000 per month just using Google AdSense. Take note, he is just a happy go lucky 19 year old.
(2) For small time people who want to drive more sales for their small business, use Google AdWords and Froogle. Even if they don’t have any commercial products, they can sell someone else’s product and have good money in exchange for working for someone else in their own home.
Does it make a company commercially viable? Do not ask me. Look.
Seth Gobin, a well-known online advertising consultant and former Yahoo employee, used to have doubts about Google’s prospects. Not Anymore “ They have created the first new and effective advertising medium in the last 50 years. It’s brilliant,” he says.
Napoleon Hill, author of The Law of Success states in his book: “No man can achieve fame and fortune without taking others with him. It just can’t be done.”
It takes continuous hard work with a large series of innovations in product design, process innovation and marketing and a long period of time to get (in a mature economy or market) to where Google is today.
Google 6 years $321mn
eBay 9 years $322 million
Yahoo 10 years $260mn
Amazon 9 years $114mn
In his book “The Fortune at the Bottom of the Pyramid”, CK Prahalad states: “…..what is needed is a better approach to helping the poor, an approach that involves partnering with them to innovate and achieve sustainable scenarios in win-win where the poor participate actively and, at the same time, the companies that provide them with products and services are profitable”.
I accept that ordinary people on the net are not poor. But see the deeper meaning of CK Prahalad’s statement, “- ……where the poor are actively engaged and at the same time…………..”. That’s the e-commerce model I’m talking about. They are not poor, but they are active and ready to change their buying behavior. The change in purchasing behavior is the most impressive milestone yet to be reached in e-commerce to really take off the internet economy. According to Napoleon Hill, it should help ordinary people on the Internet to see what the Internet can do for them.
Gil Penchina, Vice President, State of eBay International, “It’s about getting more people into the (eBay) system. People on the net follow a very simple system. They go online almost always because they want to email, then they start reading the news, and then they buy. Once they value purchases, they buy repeatedly. That’s when they realize they can sell too.”
By actively involving ordinary people, they will gain more confidence in e-commerce. To achieve this staggering growth rate, the e-commerce community has to embrace the “inclusive capitalism” approach. The common people of the Internet must have a great opportunity to take advantage of the incredible great opportunity on the Internet. According to CK Prahalad, to take advantage of the BOP segment “trust is a prerequisite.” Businesses large or small need to build this bridge of trust to access this high-volume market segment.
In Google’s case, it’s famous for its unconventional approach and infamously trusted by the unorthodox management approach of its founders Lary Page and Sergey Brin. Google just doesn’t understand integrity for profit in its search results. Your user can always trust Google for its integrity to receive full support from Google for their small or large business.
Am I too madly in love with Google? Trust me, I’m not alone.
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You can access the same article on the Nuttymarketer.com website at:
[http://www.nuttymarketer.com/green/gorilla_marketing_ecommerce1.htm]
This research work for this report was conducted by Mr. Arvind Kumar, Founder, www.Nuttymarketer.com. You can reach him at [email protected].