Overstock.Com OSTK

Some excerpts from a paper on Overstock.com written in 2007.

Executive Summary

Business Description

Overstock.com is an on-line retailer that sells merchandise that is either produced for Overstock.com or bought by them or merchandise sold for other parties (wholesalers, manufacturers and retailers) with Overstock.com being the intermediary. The company thus acts as an on-line retailer making goods available to customer at wholesale or below wholesale prices. The merchandise offered include bed-and-bath goods, home décor, kitchenware, watches, jewelry, electronics and computers, sporting goods, apparel and designer accessories.

Value Proposition

Overstock.com partners with leading brand-name companies that enable them to buy products at discounted prices. These savings are passed on to the consumer via its on-line marketplace.

Market Opportunity

Overstock.com has identified a segment of customers that would like to purchase leading brands at below retail prices. They would like to wear leading brands , even though a bit out of date and at the same time retain a bit of exclusivity. These customers are discerning bargain hunters and have high disposable income. They also prefer the convenience of shopping on-line rather than traveling to outlet malls or to sales.

Business Overview


The merchandise made available to on-line buyers is sourced in 3 different ways:

  • Surplus: The surplus left over for each season’s or year’s expected target sales is usually disposed off by the manufacturer. This surplus is purchased by Overstock.com at below whole-sale costs and sold to its customers.

  • Canceled Orders: Retailers may cancel orders with wholesalers or manufacturers when they discover that sales have tapered. This is another source of surplus stock with manufacturers.

  • Downsizing: A company may wish to downsize, or move facilities or reduce its inventory for various reasons. This is another source of goods available at highly discounted rates.


Purchased goods are delivered to customers via mail carriers such as UPS, FedEx and USPS. The modes of shipping are Standard Shipping (ground shipping), Expedited Shipping such as Next Day , Two Day and Three Day Shipping. Most orders are shipped within 1 – 4 business days. Since Overstock.com only sells what it has available in its inventory , it does not have any back orders to handle.


Business Strategy

Overstock.com’s initial strategy was to buy excess & closing down inventory from retailers, e-tailers and defunct companies. The merchandise was purchased at below whole-sale prices and sold to its online customers below the original retailer’s cost price. This allows it to preempt any cost cutting by other retailers for simliar or same items. This is still the heartbeat of its business strategy. It has also carved out alliances with other e-tailers, retailers and handles the online marketing and selling of their goods. Orders are generated from its web-site and forwarded to the partner retailers. It also hosts online auctions where users can bid for goods. Besides these , it has also partnered with AutoNation to allow its users to locate dealers for new and used cars online. It has recently partnered with Enterprise Rent-a-Car to make their inventory of cars available to its users. Another diversification is its travel web-site that allows users to book flights, hotels, cars, lodging, cruises and vacations at lower than usual prices.


Overstock.com also has Worldstock, a store within Overstock devoted solely to carrying the works of artisans, especially disadvantaged artisans, and selling them as inexpensively as possible so as to maximize the amount of return for them. The company asserts that it follows ethical guidelines, is sustainable and is socially responsible while reselling goods sourced from these artisans in South-East Asia. Worldstock emphasizes sustainabliity, fairness and transparency.

IT Strategy

The IT strategy includes a CRM, Data Warehousing and Data Analytics that are sourced from existing customer data, current and past transactions and click stream data. Data analysis is real-time and does not rely on batch processing. The data flow into this back-end processing IT infrastructure is via the on-line store and customer interaction with the Overstock.com and affiliated partner web-sites. This allows the various departments to query for up-to-date information across different dimensions and different departmental views.

Logistics & Distribution Strategy

Overstock.com works very closely with UPS during peak season , when most of their orders are received. Overstock.com leverages UPS’ capacity and technology to have quick and correct order fulfilment during this Peak period between Thanksgiving & Christmas. The UPS services used by Overstock.com include Forecasting, UPS Ready, Dockside Visibility, Tracking, Exchanges & Returns and Billing & Analysis. Overstock.com also works with a reverse logistics company called Newgistics that handles all its returns starting from its SmartLabel printed labels for returning customers to print-out.

Besides UPS, Overstock.com also dispatches packages via FedEx and USPS.

Fund-raising History & Investors

Overstock.com was founded as D2–Discounts Direct in 1997 and changed its name to Overstock.com, Inc. in 1999. Overstock.com Inc. was incorporated in Delaware on February 27, 2002. Overstock.com went public May 30, 2002 at an offering price of $13 per share. The IPO format used by Overstock.com was the Open IPO. This raises capital via a public auction, thus theoretically allowing the public to determine the fair market value of the company stock.

IPO Information
Date Went Public:   May 30, 2002
Filing Date:   Mar 5, 2002
Proposed Offer Price:   $12.00 to $16.00
Actual Offer Price:   $13.00
First Day Open:   $13.50
First Day Close:   $13.03
Shares Offered (mil.):   3.00
Offering Amount (mil.):   $39.00
Post-Offering Shares (mil.):   14.30
W.R. Hambrecht & Company, LLC

Early Growth

Overstock.com’s strategy was to work with traditional, powerful retailers by giving them an efficient way to liquidate excess inventory and leveraging that to offer consumers low prices consistently, visit after visit, on brand-name merchandise. Launched only in the second half of 1999, Overstock.com
that year realized gross bookings of $1.8 million; by 2004, that figure had soared to $541
million. In its first six years,
Overstock.com has witnessed approximately 100 percent
growth, year after year.

Market Position

SWOT Analysis


The experienced executive team and the large war-chest raised by Overstock.com are the source of it powering ahead with its expansion plans. Also, the B2B online store where small retailers can sign up and purchase merchandise to be sold at their premises is an innovation that has been copied by other online retailers.


Overstock.com has not yet broken even and its marketing costs per customer have risen in the past year. Unless one of its diversifications start returning more than industry average profits, further diversification is going to be harder because of increasing costs.


Overstock.com has a great business model. Taking it overseas, perhaps, into Europe and perhaps Japan either by brand franchising or entry into those markets would be a great opportunity.


Amazon.com. Ebay.com and other online retailers are the biggest threats faced by Overstock.com. This coupled with the fact that relentless expansion could cause an implosion especially if the numbers don’t add up to a break-even in the near future is a strong possibility.

Overstock.com Perceptual Mapping

Overstock.com Perceptual Mapping2

Future Challenges

Logistics & SCM Challenges

One of the many challenges facing Overstock.com (and other retailers) is the fact that items arrive at the warehouse without any bar-codes. Customer orders for distinct items make locating the different items an onerous task. Also partner manufacturers or retailers do not have an easy way of tracking source of orders whether from Overstock.com or other e-tailers. A solution to this would be the tagging of items at the item level which would allow the needed information to be embedded in the RFID identification codes. This would reduce order lead time and deliver to customers much quicker. An early implementation of this can be a source of competitive advantage. A complete integration into the existing information systems can make information transfer across the organization and to suppliers much more seamless and automated.

Growth Challenges

The challenge Overstock.com faces is how to continue its phenomenal growth and be profitable in the face of stiff competition from other e-tailers and e-auctioneers notably Amazon.com, eBay and Yahoo! Auctions. Overstock.com’s core business model of selling excess inventory is unassailable and it is the category leader in that segmentation. However, it’s diversification such as partnering with other retailers, selling cars and travel are an indication that it recognizes the growth limitations. WorldStock is a good idea but the Overstock.com web-site does not hype it suggesting that there is a limited market for such items. The strategy of selling stock to small-scale retailers at below wholesale prices is however worth pursuing especially with an aim of turning around inventory quickly.


Sales revenues have declined over the past year, and overall net income is still -ve , since a major chunk of spending is on IT infrastructure and upgrades to handle their growth. Gross bookings are sought to explain away the declining income. Internet traffic to Overstock.com might have increased but these are not translating into equivalent sales and their marketing costs have increased in the past year per customer. This indicates a plateau being reached. Will the core model now face stagnation?

On the bright side, the expenditure on IT infrastructure and close partnerships, have poised them for partnerships , acquisitions that can be handled and have given them a cost advantage with among the lowest shipping costs coupled with quick delivery. Amazon.com does provide free shipping but order fulfillment takes much longer.


OpenIPO : WR Hambrecht + Co’s OpenIPO® auction is a new way to take companies public that increases access to IPOs. Based on an auction system designed by Nobel Prize-winning economist William Vickrey, the OpenIPO auction uses a mathematical model to treat all qualifying bids in an even-handed and impartial way. It is similar to the model used to auction U.S. Treasury bills, notes and bonds.( a dutch auction). Just like a typical auction, the highest bidders win in an OpenIPO auction. But there are important differences. In the OpenIPO auction, the entire auction is private, and winning bidders all pay the same price per share – the public offering price.


1> OpenIPO : http://www.wrhambrecht.com/inst/openipo/index.html

2> Overstock.com web-site: http://www.overstock.com

3> Yahoo! Finance Web-site: http://finance.yahoo.com

4> Wasserman, Elizabeth. "Making RFID click on line: technology offers challenges, but also potential for e-retailers.(RETAIL TECHNOLOGY: RFID)." Chain Store Age 82.3 (March 2006): 66(2). InfoTrac OneFile. Thomson Gale. Cyprus International Inst of Management. 4 Apr. 2007 <http://find.galegroup.com/itx/infomark.do?&contentSet=IAC-Documents&type=retrieve&tabID=T003&prodId=ITOF&docId=A143240447&source=gale&srcprod=ITOF&userGroupName=cypiim&version=1.0>.

5> http://www.pressroom.ups.com/staticfiles/case_studies/113.pdf

6> Overstock.com Success Story: http://www.newgistics.com/assets/docs/Overstock_Case_Study.pdf

7> http://moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=105874

8> Wikipedia http://www.wikipedia.org

9> Shopping Online with eBay Express, Amazon, Overstock and Google Checkout By David Steiner AuctionBytes.com September 21, 2006 http://www.auctionbytes.com/cab/abn/y06/m09/i21/s01

10> Case Study: http://www.foundrynet.com/pdf/cs-overstock.pdf

11> Viveiros, Beth Negus. "Take That, Goliath.(Overstock.com gives small businesses lower wholesale prices)(Brief Article)." Direct 13.9 (July 2001): 5. InfoTrac OneFile. Thomson Gale. Cyprus International Inst of Management. 4 Apr. 2007 

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Innovation & IBM

Innovation occurs at the intersection of invention and insight. It’s about the application of invention –the fusion of new developments and new approaches to solve problems.

–Sam Palmisano, Council on Competitiveness, October 2003

Executive summary

Innovation in IBM and its impact on its business practices is the subject matter of this case study. It attempts to explain why innovation is now an integral part of most firms with an emphasis on the innovation practices now in place in IBM and the trend towards open source development and how it’s changing the face of the software industry. IBM’s attempt to bring researchers in touch with client needs via their On Demand Innovation Services (ODIS) division is also explored.

Profile of firm (s) in terms product/markets, structures, growth drivers


IBM is a information technology company that focuses on four broad market segments technology, software, services and hardware. It is among the Fortune 100 companies and its dominance in the IT industry is rivaled perhaps only by Microsoft. Unlike Microsoft, IBM has a rich tradition and attracts the best talent in the industry without parallel. IBM over the past 2 decades has evolved from being mostly a mainframe and mini-frame based company and has moved towards providing services to their clients. Mainframe and minis still form a core part of their business but the services sector has grown exponentially. Lou Gerstner. Jr. is credited with this dramatic turnaround of a slothful giant that is now nimble enough to prance with the hares. The elephant now roller-blades!

A more recent phenomenon in the IT industry is the trend towards use of open source software for commercial applications. The use of open source has driven down costs, led to much quicker implementations and improved productivity. IBM has been at the forefront of this revolution by providing maintenance and support to LINUX deployments and its adaptation of the Eclipse platform as the de facto base for its Integrated Development Environments especially its core server side development product WebSphere Studio Application Developer (WSAD).

IBM Research has always been at the forefront of inventive technologies and has the most no. of patents credited to any company in the US. This is also a major revenue earner for IBM by the licensing of these patents to other firms.

IBM also works closely with its partners and clients to drive innovation. GILFAM (French government) [automated land transaction process] and Boston Coach [Fleet Optimization System] are 2 prime examples of innovation at work with partner interaction. IBM’s On Demand Innovation Services (ODIS) , a collaboration between IBM Research and Business Consulting Services (BCS) helps IBM clients innovate faster, thus providing innovation for money.

Use of innovation models, metrics within IBM divisions

ODIS Innovation Model

ODIS Researchers first study a client’s problem and then work with BCS consultants to devise a tailored solution. First, existing research skills , assets and patents are examined to see whether those can be retrofitted to the client problem, rather than reinvent the wheel. If an answer is found, then the existing process, technology is applied to the client problem and licensed to them. If not, then resources are allocated to develop a new technology/solution and the solution is built from scratch. ODIS thus transforms IBM into an Innovation Network Service Provider. ODIS gets scientists out of the labs to help IBM’s clients solve their toughest problems.

The Open Source Business Model

IBM’s move towards to the Open Source Business Model was a natural culmination of their enterprise move towards Open Innovation. Besides their LINUX service support offered, it also threw open their Eclipse project in November 2001. Eclipse is now a phenomenon, with over 800 tools built on this Integrated Development Environment (IDE) framework. Other open source initiatives include the Apache HTTP Server as an integral part of its Web Application Server (WAS) product line. The Open Source process allows IBM to work with a dedicated community of developers across the word, allow them to concentrate on adding value and providing integration services to firms that intend to incorporate open source products in their IT processes. This has also aided them to lower costs and allow their R&D divisions to concentrate their funds and resources more efficiently in a few concentrated areas. This mirrors the model followed by the ODIS division, an essential part of the Open Innovation process at work.

Of the 4 business models available to firms using Open Source, IBM has used a mix of loss leader initiative (the Eclipse project), cannibalization of an existing product by selling maintenance and support (LINUX initiative) and adding value to the open source products (products like WSAD).

Evaluation of LINUX Support and Maintenance as a Service provided by IBM

The provision of LINUX support and maintenance as a service provided by IBM professionals, was a major breakthrough for the proponents of LINUX as the operating system of choice for server side deployment over the other UNIX variants and Windows NT and Windows Server 2000. Though this would eat into IBM’s own Unix variant AIX’s market share, it made profound commercial sense for IBM to go down this route as server side deployment on LINUX had started acquiring critical mass. This also fit into IBM’s move towards services as a way of adding value to their product offerings and an increasing demand from customers for this service, in addition to the support services provided for their products.

The diagram listed below describes the process that would be followed as part of an idea screening before the decision to provide LINUX support & maintenance as a service offering was launched.

Does it fit the organization?

Yes, IBM is an IT services provider. This is an extension to current service offerings

Does it provide strategic advantage?

Yes, our server side products have LINUX code-bases. Providing LINUX support allows us to capture a major market, with no real competition except from pure LINUX packagers such as RedHat and Mandrake.

Is there a demand for it?

Yes, our current and prospective customers have expressed a desire for this offering.

How might we pursue it?

Build LINUX competence internally and by recruiting LINUX professionals.

Is there a clear definition of success?

Increased sales on the LINUX platform for our software products.

Will management support it?

Yes, since this fits into the move towards services as a major revenue earner.

LINUX Support at IBM


Does it fit
the organization?




Does it provide
strategic advantage?




Is there a
demand for it?




How might
we pursue it?




Is there a clear
definition of success




Will management
support it?





Evaluation of LINUX Service Offering

Evaluation of Eclipse




Leadership Support


Support from leadership to move towards standards and open source

Strategic Organizational Fit


Fits with IBM’s move towards more service orientation and Open Innovation.

Strategic Edge


IBM can position itself as an Eclipse expert and provide customers with Eclipse expertise. IDE products built within IBM would use the same source code base also increasing productivity. Products contributed to the Eclipse Foundation can be accessed thus allowing access to industry R & D.



Demand for this did not exist. But demand was created. More of an instance of push rather than pull.

Switch Adoption


IBM had a very good IDE product series, the Visual Age series, that had won industry awards.

Clear Success Defn ROI



Increased productivity,less time to add more value to products.



Taxonomy of innovation types

At the enterprise level, IBM describes 3 types of innovation:

Business Model



Products/Services/Markets are sources of revenue and thus a direct metric measurement is profit.

Operational innovation also can be measured by profit but this attacks the cost side of the profit equation. This allows the firm to capture market share via lower costs.

Business Model innovation changes the game by using creativity to lower costs, target new markets, lower prices or all of the above.

IBM has focused on business model innovation in the recent past by remixing their product portfolio. Movement to the high-value innovator spaces in technology and services has resulted in a more balanced profit sources, one third from services, another from software and the third from systems and technology. IBM’s next move is towards increasing globalization producing innovation collaboration across the globe by setting up research centers in different countries.

Audit of Innovation drivers, barriers


Innovation drivers can be classified as follows:

Financial pressures to decrease costs, increase efficiency, do more with less.

Increased competition

Shorter product life cycles

Value migration

Stricter regulations

Industry and community needs for sustainable development

Increased demand for accountability


Demographic, social and market changes

Rising customer expectations

New technology

Changing economy

IBM CEO Sam Palsimano believes that increasing competitiveness and the increasing commoditization of things, makes it a challenge for firms to retain their existing business models. The dynamic changes coupled with changing technology and the increasing globalization of competitors pose a threat to the existing market leaders. At the same time, these changes also throw up opportunities to be exploited.


Peter Andrews,Consulting Faculty Member at the IBM Executive Business Institute in Palisades,New York identifies the following five barriers to innovation:

Inadequate funding, risk avoidance, “siloing”, time commitments and incorrect measures.

Inadequate funding

Funding a new innovation could lead to reduced funding for an existing program or product.

The problems encountered include how much can be accomplished w/o money? Is money needed? What are the avenues? When and how much? Can we identify partners? What’s the ownership break-up?

Some solutions include calling in favors owed, use milestones, list out possible money sources, use good enough substitutes , assess the innovation for potential interested partners to be contacted.

Risk avoidance

A clear-eyed view of risks balanced against benefits can create an environment where innovation is nurtured rather than killed. How do we measure risks and benefits? What are the appropriate measures for innovations? What are the risks of not innovating? Can we measure the benefits?

Some solutions are to learn about and promote effective risk assessment methods, identify the right person/organization for risk assumption, find and develop supporters, anticipate objections and clarify, use prototypes, use a portfolio approach, reassure people with reasons, take the safety of sponsors, participants and other stakeholders seriously.


Innovations tend to cross boundaries and create new categories. Hence innovations might get killed by organizations if stakeholders feel threatened. Solutions include taking concerned stakeholders into confidence, emphasizing the benefits, and sometimes avoiding losing stakeholders until the innovation gains enough winning leverage within the company.

Time commitments

Time is scarce. If the value of an innovation can be increased, then time can be freed up to meet its demands. Questions to be asked are is the innovation worth our time? How much time? What time horizons do we have? Are our competitors ahead? Do we have flexibility? Some answers include delegating work or outsourcing, have small success milestones to encourage participants to invest more time.

Incorrect measures

Most innovations cannot be measured by the usual ROI measure. Some innovations can lead to increased sales in a hitherto untapped segment e.g. LINUX support has helped IBM to capture a major chunk of the UNIX server product market. Are there other measures of success? Is this innovation a long-term revenue earner?

The winning innovation formulae

What is IBM’s winning innovation formula?

IBM follows a mix of practices, using both Open Innovation as in the case of Eclipse and LINUX, as well as leveraging its existing patents which is a product of traditional R & D (ODIS). These may be based on standards and/or outside research.

IBM believes that it can achieve more productivity and growth and move up the value chain by collaborating with companies, governments and educational institutes. Diversity is an integral part of IBM culture and thus different views of opportunity and technology are constantly evaluated for value addition to existing businesses.

For example, the breakthrough that IBM got done in the Cell processor, which is based on their Power architecture, would not have happened if IBM hadn’t designed chips for Sony (SNE ), Toshiba (TOSBF ), Microsoft (MSFT ), and Nintendo (NTDOY ). Now Toshiba and Microsoft are competitors of IBM but this collaboration drove a great breakthrough. In the software segment, collaboration with the open source community such as Linux and Eclipse has driven software development to standardization , increasing ease of use.

Clear lessons – implications

IBM is one of the rarities in the business world, that has fallen from the pinnacle of the industry, hit near rock-bottom and then dramatically turned itself around to climb the summit again. The targeting of the internet as a new revenue model, the open source business model, licensing patents to smaller start-ups are some of the innovative business methods used by IBM to achieve this turnaround. Innovation was thus an integral part of the strategy employed by IBM to regain its pole position in the IT industry.

The IBM Research paper states the following about the lessons gleaned about how to retain innovation:

Hire smart people

Set milestones.

Ensure a variety of thinking within a critical mass.

Maintain flexibility.

Create a fluid community.

Embrace risk.


1> IBM Research : Innovation @ IBM : Our long-standing commitment. 2004 IBM Corporation.

2> Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround – Louis V. Gerstner, Jr.

Harper Collins Publishers

3> IBM Delivers Innovation – On Demand. ODIS Transforms IBM Inventions Into Client-Valued Innovation Network Services by Navi Radjou with Christine Ferrusi Ross and Ian Schuler published June 22, 2005. Forrester Research Inc.

4> Innovation: The View From The Top – IBM’s honcho on what CEOs can do to lay the groundwork for real breakthroughs – Business Week April 3, 2006

5> Past, Present and Future by Jim Utsler – Linux Executive Report (LER) – August 2006


6> Conquering Open-Source Fears by Shirley S. Savage – Linux Executive Report (LER) – August 2006


7> Five barriers to innovation: Key questions and answers – November 2006 Executive Technology Report (ETR)


8> Open Innovation – The New Imperative for Creating and Profiting from Technology by Henry Chesbrough

Harvard Business School Press

9> http://www.eclipse.org

10> http://www.opensource.org/advocacy/case_for_business.php

This is the text of an assignment on Entrepreneurship & Innovation for my MBA at CIIM.

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