In November 2008, Gerry Harvey issued SmartCompany with a challenge - find 10 Australian online retailers who are making "real money". Harvey was convinced the world has been conned by online retailing, claiming the concept is "a complete waste of time".
Sorry Gerry, you're wrong.
While Australia's online retailing scene remains dominated by big foreign-owned players such as Amazon.com, eBay and Apple's iTunes, thousands of smaller Australian companies have built strong brands and solid sales by catering to niches of the retail sector.
And Australian shoppers are increasingly voting with their mouses. Recent figures from business research firm IBISWorld show Australian online spending will grow by about 5.5% annually for the next five years, from $15.1 billion in 2007-08 to $21.2 billion during 2013-14.
Australia's biggest online retailers say if businesses are looking to survive - especially through the downturn - they need to meet customers on the web.
Fred Milgrom, who founded and operates Zazz.com.au (which has based its business model around offering one heavily-discounted product for sale each day) says all retailers need to be online.
"If you want to survive in retailing, you need a strategy to cope with online sales. You have to think about it and not ignore it," he says. "More and more people will move online, because it's fast, convenient and you get better value for money."
Craig Reardon, director of online solutions group The E Team, agrees and says Australian business leaders - like Gerry Harvey - have been too slow to grasp the online selling trend.
"Australian retail as a whole just really doesn't get the online thing. They don't understand there are people behind computers, the value of whom is just the same as someone who walks into the shop."
Veteran online retailers such as Paul Greenberg, who operates Australia's largest online department store Deals Direct, and Naomi Simson, SmartCompany blogger and founder of online gift retailer RedBalloon, says many Australian retailers have misconceptions about how online retailing actually works.
"It's hard work. If anyone thinks this is just two guys sitting in a small house, like the two guys who started Google, they're wrong," she says. "We have a massive warehouse and employ plenty of staff; this is a full-size operation."
While the convenience and flexibility offered by the internet offers many advantages over traditional bricks-and-mortar, the age-old rules of retail - such as the importance of brand, customer service and supply chain management - still apply.
"The fundamentals of marketing remain the same," Simson says. "Do I trust that brand? Can I rely on them to deliver what they've promised? None of that is negated because it's online.
"But one of the great things about online is that it's quite egalitarian. I could be a small business, but if the customer was having a better online experience at RedBalloon than at David Jones, they're going to buy from me. It's not about the size of the organisation, it's about the experience," she says.
"But at the same time, online shopping requires a lot of trust. When you try and sell something unknown you've got to really trust the description and images."
Another advantage of online retailing is being able to receive customer feedback almost immediately through surveys and polls. Milgrom says this forces retailers to be quick on their feet.
"People don't want to wait for a response online when they could go down the street. You have to be responsive and very fast at replying to queries and so on," Milgrom says.
Simson agrees, but says not being able to "eyeball" a customer can be a disadvantage. "They don't get to touch and feel us, so traditional stores should have an advantage."
Reardon argues that traditional retailers who are yet to embrace online could even find themselves with some big advantages over pure online shops.
"The thing that never ceases to amaze me is that traditional retailers have the infrastructure to do this. They have the stock and financial systems, they have means of fulfillment, so they have a massive head start," he says.
"It's quite a bizarre scenario where those who are most equipped are the least embracing. For under $5000 they can get established and get marketing done. I'm not saying it's simple, but it's now affordable enough to trial and error very effectively."
In answer to Gerry Harvey, here are 10 of Australia's top online retailers, and they are all making "real money". To be eligible, companies had to be Australian owned and sell actual product or services via their website. Aggregators and auctions were excluded.
Deals Direct
This online department store is Australia's largest, selling everything from office chairs to blenders.
Founded by Paul Greenberg and Michael Rosenbaum, the store has surged in popularity and, according to online monitoring firm Hitwise, is now the fifth most popular shopping website in Australia. According to Greenberg, the site records over two million visitors a month and ships between 15,000 and 20,000 parcels a day.
Greenberg would not reveal revenue figures, but it is believed revenue in 2007-08 was around $80 million.
Kogan Technologies
This online retailer, started by entrepreneur Ruslan Kogan in 2006, produces its own products by building televisions, DVD players and other electronics with parts from different manufacturers. This allows Kogan to sell the devices at a cheaper price, but with the same parts from larger brand names, such as Samsung or Sony.
While the retailer has had its setbacks - it delayed and ultimately cancelled the release of a mobile phone based on Google's Android operating system - Kogan projects a revenue level of between $15 million and $20 million for 2008-09.
Zazz
Zazz is built upon a concept used in sites such as US-based Woot.com - sell one product a day, all day, until it sells out, then do it again with another product. The products range from gadgets such as magnetic wrist bracelets to kitchen wares.
The site incorporates forums and a blog to enhance a sense of community, and it seems to be working. Revenue is around $4 million.
RedBalloon
Rather than sell a specific type of product, Naomi Simson's RedBalloon focuses on selling an experience. The site offers packages for interstate trips, massage services and even cooking classes in the form of vouchers.
The site also puts an emphasis on customer feedback, which Simson says is a vital part of surviving online.
Simson claims the site receives about 15,000 customers a month, and recorded revenue of $18 million for the 2007-08 year. She projects revenue of $23 million for 2008-09.
Catch of the Day
Similar to Zazz and Woot, this site sells one product a day until it sells out, but customers can also buy different products from other sections of the site.
Founded and operated by Gabby Leibovich, Catch of the Day is the 19th most popular shopping and classifieds website in the country, according to Hitwise. It also made the BRW Fast 100 revenue growth list, and claimed a revenue level of $40 million in the 2007-08 financial year.
Officeworks
The online version of the office supply superstore has helped transform its reputation from purely an office supplier to a more general department store. The site sells everything that's available in the bricks-and-mortar stores, but often sells computers and software at discount prices online.
The site has beat Kmart and even electronics giant JB Hi-Fi to be the 33rd most popular shopping site in Australia.
Dick Smith
The online branch of this electronics giant has gone through a rebranding exercise over the past year, helping to make it the 18th most popular Australian shopping website position on Hitwise lists.
Similar to Officeworks, the site focuses solely on electronics, but offers exclusive online prices and sales.
Peter's of Kensington
This homewares company, which is a Sydney institution thanks to its retail store in the Sydney suburb of Kensington, made the jump online in 2000 and found a ready market for its discounted brand-name kitchen products.
While it mostly offers kitchen products such as glass ware, dinner ware, cook ware and collectables, it has recently started to offer beauty and travel products. The site is the 55th most popular online shopping destination, and expects to grow by venturing into luggage and stationary products.
Oo.com.au
Oo.com.au was launched in September 2005 and offers a range of products in 35 different categories. General manager Gavin Basserabie describes the operation as a "bargain mega-store," and focuses on providing products at the cheapest possible price.
The site recorded 70% growth during the 2007-08 year. Basserabie says revenue was over $30 million.
Shopping Square
Similar to Deals Direct and Oo.com.au, this department store boasts over 20 different categories for products ranging from DVDs, gadgets, homewares and even mobile phones. The site also offers a reward points program, as well as constantly updating discounted products.
The store also updates itself with news regarding product deliveries to keep customers up-to-date, and has surged in popularity to be the 28th most popular shopping and classifieds site in Australia.
See also: Gerry Harvey says greatest boom in history is just a year away
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