Business

Bill Virgin: Sustainability of some tech business models still in question

As with many business-jargon terms that morph quickly from hot buzzword to tired cliche, “sustainable” is rapidly approaching its expiration date for usefulness.

But before we retire it, to join “transparency” and “holistic” and “green,” we can still get a little useful work out of “sustainable.”

The specific application we have in mind has to do with business models, as illustrated by two recent news stories about local businesses that highlight the question, “Is this sustainable?”

For example: Suppose you had a retailer that offered a constantly changing array of merchandise, so that you could never count on an item being available when you wanted it. Much of the merchandise that was offered appeared to be items that suppliers were trying to unload, either as slow-moving excess inventory or items being closed out to make way for new models. The prices might be screaming deals or not much better than what you’d pay at other retail outlets, depending on whether you really wanted the item and how much research you’ve done.

It might take weeks to get delivery of the item. And oh yeah, the return policy is somewhere between extremely limited and “you’re stuck with it.”

That sounds like a retailing recipe that combines the least attractive elements of online and bricks-and-mortar shopping. But it was enough for Seattle-based Zulily Inc. to go public in November 2013 at $22 a share.

Enough people thought that Zulily had a terrific business model that they not only snapped shares up at that price but bid the stock up within a few months to nearly $73 a share. The company reported full-year profits for 2013 and 2014.

Ah, but was that sustainable? Apparently not, because the stock retreated — and there’s an understatement — to less than $13 a share. That’s where it sat until Liberty Interactive Corp., parent of home-shopping channel FTD and holder of investments in a grab-bag of companies such as Expedia, FTD and Time Warner Cable, made a cash-and-stock offer priced at roughly $18.75 a share.

Even in the hyperspeed world of tech — although it’s open to debate whether Zulily really qualifies as a tech company — that’s an amazing short lifespan as an independent publicly traded company. Far from being “the next Amazon” — a hope pinned on every online retail venture the way every software startup used to be projected as “the next Microsoft” — Zulily will become one more component of Liberty Interactive’s portfolio of companies competing with Amazon for consumers’ attention and dollars.

And speaking of Amazon, it’s run into a bit of bother itself just being the current Amazon, never mind who aspires to be the next one. The New York Times’ lengthy account of what an unpleasant place it is to work came to the surprise of precisely no one locally, but it generated sufficient debate nationally that the company, which normally doesn’t even bother to publicly shrug about criticisms, felt compelled to respond.

That response came from founder and CEO Jeff Bezos, who said the profile didn’t represent the company he knew, and he wouldn’t work for a company like that, but if anyone had complaints to take them up with the human resources department.

This triggered no small amount of eye-rolling and snickering from the public, but it also prompted some rumination on the question of whether Amazon’s business model — be it treatment of employees or aggressive spending on growth — is sustainable.

(Potential conflict of interest disclosure: Columnist and wife own a retail business that operates in one corner of Amazon’s universe. Saying we’re in competition, though, might be like saying a parking-lot speed bump compares to Mount Rainier. Our annual take probably doesn’t amount to the rounding error on one hour of Amazon’s revenue.)

Bezos did address part of that question. “I don’t think any company adopting the approach portrayed could survive, much less thrive, in today’s highly competitive tech hiring market,” he wrote. “The people we hire here are the best of the best. You are recruited every day by other world-class companies, and you can work anywhere you want.”

Amazon wouldn’t be the first company in its industry to churn through workers at a ferocious rate. Nor would it be the first company in any industry to sacrifice profits for growth (as it has done in building its web-services business). Whether it can continue to do the first depends on a continuing supply of young, eager and energetic job applicants who figure they’ll endure a few years earning and learning all they can at Amazon, then bail, with just enough staying to provide some continuity. The second depends on shareholder patience.

Sustainability has been typically used to describe practices that conserve scare resources. As long as those applicants and that patience remain abundant, Amazon will likely be fine. And when they prove to be exhaustible, then it’s time to change, or else see if Liberty Interactive has any idle cash at hand.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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