Jeremy Liew writes:
The margin structure in most (physical) ecommerce businesses is dramatically different from that of online media businesses. Whereas online media businesses can enjoy gross margins of upwards of 90%, and net margins (at scale) of 50% or higher, many ecommerce businesses have gross margins in the 20-40% range and net margins (at scale) in the 5-10% range. As a result, ecommerce companies have to grow to a much bigger top line to achieve the same value. Well target $500m in revenue to get to net income in the same range as a $50m revenue online media business.
There are three ways that an ecommerce company can get to this scale:
1. Build up $500m in sales in a single vertical.
2. Build up $50-100m in sales across each of 10-5 verticals
3. Build up less than $5m in sales in each of 100+ categories.