Aardvark Daily

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Shop till you drop(-ship)

5 December 2008

According to stories on the overseas tech-news wires this morning, Microsoft is going after software pirates operating out of New Zealand.

It seems that some "enterprising" individuals have been selling counterfeit copies of Windows XP to customers in the USA.

I've seen no mention of this "hot pursuit" from local news sources but I suspect that may be because nobody wants to tip-off the offenders -- oops, too late now.

What is interesting however, is not that we have people engaged in piracy here in GodZone but they way the piracy is being organised.

These guys aren't sitting in a room somewhere shuffling DVDs in and out of PCs and then popping illegal copies in the mail. No, they're simply collecting the money and passing some of it on to another group in China who've got a far more sophisticated operation and ship directly to the USA.

This is a concept known as drop-shipping and it's changing the face of retail marketing online.

Although in this case it's illegal wares that are being drop-shipped, the concept of traders in various countries never actually seeing the products they sell is also being applied to legitimate products.

Instead of physically purchasing and importing items for resale to customers, an operation that is expensive and ties up valuable capital, drop-shippers are able to run on a shoestring and offer very good value to customers.

Drop-shipping isn't really that new however. Even before the arrival of the internet there were a few businesses that operated a nothing more than commissioned sales agents for a product. They sold the product, collected the money and passed both (less their commission) on to the manufacturer who shipped directly to the customer.

What the internet has done is make it much easier for drop-shippers to set up their business and even keep the fact that they drop-ship a secret.

A good example of an online drop-shipping operator based in New Zealand is peakmodel.com.

The Contact Us page lists an address in Glenfield Auckland and an NZ phone number -- but none of the products listed on the website are stocked here. When you place an order with Peak Model it'll come direct from China.

If it weren't for phrases such as "All the aircrafts and gas engines are free shipping" on the front-page it would be easy to think that this was a Kiwi business that held this stuff in stock here, ready for dispatch.

I've bought stuff from this crowd and they provide an excellent service at a great price so drop-shipping can be the backbone of a good, honest, ethical business -- it's not just for software pirates.

This business model has another very big advantage over the more traditional way of setting up a retail operation...

If you're like most Kiwis, you've already trotted down to the local PostShop to send off gifts to friends and family overseas. Did they have to resuscitate you after you saw the cost of postage these days?

Yes, sending stuff from New Zealand to any other part of the world is painfully expensive and that can kill many traders trying to operate an online retail operation that ships product outside the country's borders.

Now I think the Chinese must be heavily subsidising their own freight and postal systems in order to help their manufacturers and distributors. It seems that the cost of sending stuff *from* China to anywhere is far less than the cost of sending stuff *to* China.

Then there's places like DealExtreme.com that I've mentioned in this column before. How can they sell stuff like a Touch-screen TV/VCD remote control watch with Stainless Steel strap *and* ship it to you by airmail all the way from China for a little over NZ$12?

I notice that DealExtreme now also offer a drop-ship facility that allows you to sell their products through your own store and have them ship directly to your customers without their own labels.

So what's not to like about drop-shipping?

It keeps prices low, it gives customers a good deal and it allows almost anyone with an entrepreneurial bent to set up their own online retail operation without the expense and complications of actually carrying stock.

Such is the power of the internet.

If you know of any great drop-shipping sites that offer killer deals at give-away prices then please feel free to share them.

And, perhaps even more importantly, if you've been burned by a drop-shipper, please share that information too.

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