Can Newegg survive the post-PC future?

With tablets and ultrathin laptops locked up tight and PC makers working their own halo effects, Newegg's best hope is its human touch

By  Hardware, DIY, newegg

But weep not for Newegg as you knew it. These days, it's the "basket" that often provides the profit margins so scarce in the PC market. Danielle Levitas, group vice president for consumer and PC research at IDC, notes that for every $1 spent on a PC purchase, an additional $0.85 is spent on accessories and related services, including broadband and support services. That figure holds fairly close for phones, which usually entail additional cases, batteries, headphones, and pre-packaged extended warranties. Tablets, Levitas wrote in an email, are still a young market, but keyboards, conversion dongles, and a small but lucrative service market provide substantial new streams of revenue.

They're important streams, too. Modern PCs are priced in such a way as to make them replaceable every few years for the most avid (and usually Newegg-aware) customers, and Apple successfully holds onto a great deal of its own "basket" dollars through its halo effect (which is very real). So although Newegg's sales rose from $982 million to $2.1 billion in 2008, more than doubling, their profit margins were at 1.4% in 2008. By comparison, Amazon's mean profit margins in 2008 were 3.3% on $19.7 billion in sales, and notched up to 3.4% in 2010.

But for its part, Newegg doesn't see itself as a "basket" seller, or even directly competing with Amazon in its core business. That business is "helping advanced PC builders and DIY IT professionals," according to Scott Meaney of DBA Public Relations, representing Newegg. "We still offer a wide variety of computer components for the DIY market," Meaney wrote in an email response to questions. "We bundle parts together into SuperCombos to make PC building easy. As the market has changed, we have definitely expanded our scope ... but this doesn't mean we're shifting our attention."

This year, that scope-expanding has included discount textbooks (through a partnership with Valore.com), an inaugural will-call pickup location in Los Angeles, and somewhat aggressive ads parodying a certain blue-and-gold competitor. Newegg even released a smartphone app, Newegg Mobile, that lets customers scan gadgets and accessories in brick-and-mortar stores and see what they go for, and how they're reviewed, on Newegg.

The golden age of case-modders, custom PC builds, and penny-pinching on (seemingly) humongous hard drives has passed. The competition for the impulsive gadget dollar is growing ever stronger. Where Newegg still holds an advantage is in its extensive, often obsessive reviews of everything you can buy on the site. The bass delivery on an $8 pair of headphones gets as much attention as the microsecond timings on a $320 solid-state hard drive. Newegg provides, in other words, a sort-by-relevance version of the knowing hand on the shoulder I was lucky enough to receive.

Which is a good position to be in. Web shopping, like Web searching on the whole, is incorporating and internalizing reviews and shared recommendations generated by actual people at a rapid pace. Aggregate reviews are summated at the top of some search results, and human-generated links, through just the bit.ly URL shortener alone, are causing at least 8 billion Web clicks each month. Having a huge trove of review data, buyer preferences, and a reputation as a kind of cantina for the hardware cognoscenti is nearly invaluable these days. Whether Newegg can further capitalize on that value, while it sells everything from video cards to VGA cables, remains to be seen.

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This article, "Can Newegg survive the post-PC future?," was originally published at ITworld. Read more by Kevin Purdy and follow ITworld on Twitter and Facebook for the latest IT news, analysis and how-tos.

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