My first, no second, Dutch article since I started here. Shocking!

I’m fascinated by company structures, as you may well know, particularly those that promote a higher customer satisfaction (making a difference) and growth (on a higher scale). As I’m no internet-guy (I don’t program, I use), and I really am more focussed on “hard” and the front-end of businesses, “long tail” concepts are usually pretty far from my sight. Still an article in the Dutch Marketing Tribune on Cool Blue struck my eye, partly because it won the Dutch  entrepreneurship award for 2006, and also because that is where I bought my first (Creative) mp3-player. And like many online retailers, it benefits from long-tail principles.

Let me start with business structure and how this affects the end-result for customers. Cool Blue, similar to a publisher, is really just an umbrella-company, split up into a number of specialised mini-stores (see pic) . Instead of having a warehouse full of electronics shoved into the face of customers, they instead make it simple. Want a PDA? Go to PDAshop, want an MP3-player? MP3shop. Etc. By using simple relevant names, instead of a global brand-name, less effort needs to be done to educate the market. It also makes life easier for customers, who usually tend to shop with a single device in mind.

Cool Blue is from Rotterdam, founded by a group of fellow students from my university, Erasmus University of Rotterdam, aka. Rotterdam School of Management. The company was started in 1999, while “long tail” became hot in 2003. So it is definitely a forerunner there. Very quickly (we’ll probably review the book later), Long Tail theory comes from the field of statistics, and stipulates that when there is great variety and little in fixed and variable costs, equal or more revenue can come out of niche products than than top-sellers. More on the theory can be found on Chris Anderson’s blog.

Andersen based this theory on businesses like Rhapsody, an online music-retailer, yet this applies to a lot of other businesses also. How Cool Blue fits this theory is as follows. To start, the company likely has a shared logistical backbone, allowing for lower costs and higher diversity than a single specialised store would have. By offering separate store-fronts, it also appeals to the single-minded customer, who usually tends to look for that one device, but may also be needing a wide array of accessories. And, even though the front-end is split up, the management-strucure is very flat, allowing for quick changes to be made per store. Each store also employs its own personnel, translating into quick and superior customer-service, even for niche-products.

This model doesn’t seem quite as efficient as an Amazon + search engine combo, yet at the same time it seems more avant-garde. Why, if the internet is virtual, must we emulate the warehouses from the real world? Just like specialised sites, like Etsy, seem more comfortable and personal to shop in for art than big & busy eBay, can a business not recreate this feeling internally as well? I think Cool Blue is succeeding here, by leveraging synergies on the backbone and the cheap costs of setting up multiple internet-stores on the front-end.

What about international expansion? In a fairly logical fashion, the first country Cool Blue is expanding to is Belgium, most similar in culture and language to the Netherlands. If it can reap sufficient talent and experience there, I expect expansion into countries like Germany and France will be relatively seemless also. But it took a while, and I imagine that this move was not an easy step.

I mentioned before that I think expansion in Europe is a mini-nightmare. Sure, we have the European Union, still there are both administrative, cultural, and linguistical barriers to overcome. The traditional advantage of European businesses expanding, over the US-variant, is that they are confronted with these barriers sooner, making them more adept at overcoming them. The disadvantage is that, except  perhaps for Germany, France, and Spain, you don’t have a large home-market to offset any learning-costs that could arise. Another disadvantage is that globalisation is no longer new. Plenty of business is global now and much data is being shared among them, making the learning-curve a little less steep. There is also the internet, which makes some, though not the cultural and linguistically aspects, nor some of the legal ones, irrelevant.

How can European business compete then? The easy route would be to move to a large market quickly. The not so easy and more exciting route would be to leverage some of the advantages that globalisation brings, such as logistic and marketing synergies, with some of the advantages of localisation, such as understanding local culture better and offering a superior customer service. In the end, many global and internet businesses lack greatly in the latter department, offering what I think is a gap in the market.

Whichever path they chose, good luck to Cool Blue with their future ventures!

This article was inspired by a Dutch article in Marketing Tribune, the first Dutch magazine I enjoyed reading from start to finish.

Vincent is a co-author on Tech IT Easy, who’s resolution it is to spend more time discussing European (technology-)business-economics (We’ll see). You can find out more about him on this blog’s initial announcement or on his site.