The history of dropshipping teaches us a lot and it gives us some very important lessons that are still relevant today, when it comes to starting an online business
How it all begun
Most people think that dropshipping is something that you do on the internet, but what they don’t realize is that it’s actually been around way longer than that. One of the reasons why I find it so strange that people think of dropshipping is some get-rich-quick scheme is because it’s been around many years.
It is not some “new secret money hack” and in fact, probably the first companies to take advantage of dropshipping on a major scale where mail order companies.
Back in the day before the internet and mainstream online shopping you used to get booklets sent to you in the mail and you could order items directly from them. Something that a lot of people don’t know is that these mail order companies were engaging in dropshipping.
You see there are big companies like JC Penney and Sears had gotten into the mail order business as well and what they realized was that they needed to have an efficient way to ship out individual items to customers.
So in the 60s and the 70s these companies started to create these revolutionary fulfillment centers to do exactly that. These fulfillment centers or storage warehouses were designed so that you could store lots of items in bulk, yet very quickly find an individual item that a customer had ordered.
And the ability to do this has a term in eCommerce world and that is to pick. You pick pack and ship an item out to your customer and these fulfillment centers made this a game changer. A lot of people think that Amazon invented these Pick and Pack warehouses,
but the didn’t. Of course, they are now the best in the world at it. What happened was that there were mail order companies at the time, like Compucard that looked at these fulfillment centers and they thought
“Hey, what if we worked with them as well, they could list your items for sale in the mail order catalogs for a mark up price and when a customer ordered an item, they would purchase it from the Fulfillment centers and have it shipped directly to the customer.
And it worked and that was where mass scale dropshipping was born.
The 90s and the birth of the mainstream internet
Next big step for dropshipping was the 90s and the birth of the mainstream internet. It certainly took quite a long time for e-commerce to become commonplace. Back then it was considered kind of shady to give your credit card details out online, even if it was for a big store and a big brand.
“What if my credit card details get stolen”, “how can I trust it with this person that I can’t see”. There were a lot of fears about buying things on the internet, but obviously over time attitudes changed and it became more and more acceptable to purchase things online and as more and more people did this the dropshipping dotcom boom began to explode and the bubble began to grow.
The dotcom bubble was a period of a few years where some online stores with fancy names popped up out of nowhere and made huge promises to investors, riding on the hype of this new thing called e-commerce.
Basically these stores came to investors and they said to them: “Hey, we’re going to become super successful and really profitable off of this new thing called e-commerce, as long as you give us some money right now so that we can grow”. And investors did give them money, they gave them a lot of money.
Probably the most notorious player in the dotcom bubble was pets.com.
It was an online store dedicated to selling pet supplies. Pets.com were very clever. They were able to raise millions of dollars over their short two year lifespan by creating a huge marketing hype campaign.
They even spent millions of dollars to run ads for the 1999 and 2000 Super Bowl games, which made their little sock puppet mascot famous across the US.
But here was the problem with Pets.com and other dotcom bubble casualties: They had a great domain name, they had a website and they had a fantastic marketing team, but they didn’t have a warehouse and they didn’t have inventory.
So what did they do? Well, just like the mail order companies, they turned to dropshipping. Unfortunately, unlike for the mail order companies, dropshipping did not work out this time. Why? Because it had become very expensive.
Up until the age of the internet customers didn’t really mind if it took four to six weeks for the items to arrive. Simply having items shipped to the door was a huge novelty. But by the 90s things had changed and big companies and brands wanted to make the shipping times faster.
So USA fulfilment centres stepped up their game, so that they could match these expectations. The result was that the cost for dropshipping also went way up and for Pets.com it was a huge disaster. They were selling items for a third of what it cost them to buy it and ship it to the customer.
By the end of 2001 it wasn’t just the Spice Girls who had disappeared. These e-commerce companies that had been relying on these expensive dropshippers had disappeared as well along with the trillions of dollars invested in them.
Despite the dropshipping landscape looking rather bleak it paved the way for innovation – great things are born out of disasters and eventually dropshipping managed to bounce back.
The 2000s marked the rise of Amazon and Ebay and that’s where dropshipping began to make a comeback. Now if you asked me today, I would tell you that dropshipping on Amazon and eBay is a bad idea. But for a while there it was great.
So far on our journey into the past we’ve seen that multi-million dollar companies have taken advantage of dropshipping, but what about individuals like you and I?
At this point, working with Chinese dropshippers wasn’t easy and so us in the west were still shackled with working with expensive US-based dropshippers.
So the average Joe wasn’t able to afford to not only to create and build a store and then run it and aarket it, while paying the expensive prices that the drop shippers were charging. Dropshipping for average people was just not viable.
But Amazon and eBay – two companies that survived dotcom crash and then thrived in its wake changed everything. It was through them that dropshipping became viable for anyone.
If you sell on Amazon or Ebay you don’t need to set up a website, because they take care of that for you. Perhaps more importantly, if you sell on Amazon or Ebay you don’t need to worry about advertising, because they do that for you and they get customers to their site.
That was especially relevant back then, because Facebook advertising didn’t get released until the year of 2007 and it took several years for it to become the amazing advertising platform that it is today.
Back then your best bet was Google ads and while the traffic quality was and still is to this day very good. The problem is that it’s very expensive, a lot more expensive than Facebook ads.
And so even though it was still expensive to work with US-based dropshippers, because of the fact that you no no longer had to create your own site and you didn’t have to market it yourself – dropshipping became viable for everyone.
Working with US-based dropshippers on Amazon still remains a viable strategy to this day. However, there were some policy changes in late 2017 that have made that method list beginner-friendly.
On the surface it looked like dropshipping had reached its golden age. Anyone could build a profitable dropshipping business, but actually what we didn’t realize then was that it was only just beginning.
Dropshipping today – the real “golden era”
The 2010s have been huge for dropshipping. It all started in 2010 when AliBaba released AliExpress. Previously there had been no easy way to connect directly with Chinese manufacturers and drop ship from them.
But suddenly there was a website that made it super easy to purchase individual items directly from Chinese manufacturers super cheaply and have them shipped directly to your customers, and these items were cheap.
So cheap, in fact, that when combined with Facebook ads (that had already been out for several years), you could now create a website, advertise it and still make a profit, even after purchasing an item from a dropshipper.
That was huge. But while the business model was now financially viable, creating your website and running it still took quite a bit of work, especially if you weren’t very tech savvy. This was until the year of 2015, when Oberlo was released
That was when Shopify revenue skyrocketed to the moon. Most people reading this will know what Oberlo is. It’s a Shopify app that massively streamlines the process of adding AliExpress items to your store and then semi-automated the fulfilment process.
In 2017 Shopify acquired Oberlo for $15 million, cementing it further as the leading store platform for individual dropshippers.
Now not only do you have access to cheap items from dropshippers thanks to AliExpress, you also had access to cheap ads thanks to Facebook and you could create a semi-automated dropshipping store in less than an hour with Shopify, especially if you use AI-based market research tools, such as SaleSource.
Thus we now enter the current age of Drop Shipping today, where you no longer need to sell on Amazon or Ebay and give them your customers. Instead we get to build our own stores and build our own list of customers and we get to control our own destiny.
Instead we get to build our brands, we get to build our own stores and we get to keep the list of our customers for ourselves. We get to be in control of our dropshipping destiny and that brings us to modern-day dropshipping.
Different periods of dropshipping have taught us a lot of lessons. The seventies taught us to embrace new ideas and methods. The 90s taught us about the folly of overextending. The 2000s taught us that by leveraging the tools around us, we don’t need to be a big company to build a successful business.
But perhaps the best lesson that we can learn from our journey into the past is the knowledge that this journey is still continuing to this day. Anyone that tries to scaremonger you and tell you that dropshipping is some “scheme” that’s going to die out is wrong. It’s a real business model that has been around for many years and while it will continue to evolve and change, it is going to be around for many more.