Buy.com still trying to compete with Amazon.com

Amazon.com (NYSE:AMZN)still gets all the headlines for being the Internet's leading online-only retailer, but there are plenty of other games in town. How well are they doing, though? Buy.com has been around since early 1998 and sells over two million products to an established base of 10 million regular customers. Is that enough for the company? Founded by an former Ingram Micro executive (Scott Blum), Buy.com apparently is still going strong, although I doubt it will ever match Amazon.com from just about every angle.

Buy.com's gross profit of $60 million in 2006 seems like a pittance compared to other internet companies, but for a retailer that sits in the shadow of Amazon.com every day and generally seems content on being a market follower instead of leader, 2006's profit number seems pretty decent.

Buy.com's President and CEO, Neel Grover, continues to say that Buy.com's focus in the past and now has not changed: it wants to sell brand names at commodity prices. Interestingly, that service is not mentioned in that statement. But here is the twist: Buy.com uses a virtual model -- it has no real inventory.

Fleshed out during Blum's Ingram days, Buy.com has connections to a few dozen distributors who store and ship orders for Buy.com customers. In contrast, Amazon.com does have physical locations and inventory and handles its own inventory. Is that how it provides superior customer service, or is that a weakness of online retailing? Buy.com would say the latter, most likely. Maybe, just maybe, Buy.com's "no inventory" model will soon become a competitive advantage.