At Toolots, we are building the world’s first scalable vertical platform for global merchandising.
What’s so unique about it?
First off, there has not been a scalable vertical platform for global merchandising in the world so far.
When people talk about platforms today, they usually refer to horizontal platforms which are wide and shallow without depth of expertise and integration. Scalable horizontal platforms are common, including well-known companies such as Amazon and Alibaba.
One essential difference between the horizontal platforms and Toolots’ vertical platform is:
A horizontal platform is a platform of products while the Toolots vertical platform is a platform of companies.
But there’s much more to this, because Toolots vertical platform is not a simple marketplace which is a collection of companies (sellers), but rather a platform of virtual companies which are products of the platform expertise each created with respect to one or a group of companies selling a type of products (see more detail below in this article).
The world very much needs a scalable vertical platform for global merchandising. This is because more and more products and services such as industrial equipment need deep vertical knowledge, tools and skills that horizontal platforms simply do not possess.
But on the other hand, the solution is not found in the traditional vertical integration because the latter is not a scalable business model and cannot become a ‘platform’ in its real sense.
This is not a trivial problem to even describe, let alone to solve. Yet it is a problem that is both real and enormous, a solution to which can become a foundation of a new paradigm of the future global businesses.
This is because the entire global economy is facing some fundamental problems:
• Traditional business models create boundary conflicts, and these boundary conflicts in turn cause severe conflicts of interests among the parties that need to collaborate, especially in the cross-border commerce.
• The boundary conflicts also cause severe Imbalances among business resources, and these imbalances in turn cause inefficiencies and inabilities.
• At the same time, the global business requires more and more vertical depth, but vertical businesses cannot scale on their own.
Altogether, these problems cause disincentives, fundamentally reduce productivity, and limit the potentials of technology.
What is the Solution Toolots provides?
We build a global “Enterprise Operating System” (EOS).
The foundation of EOS is Virtual Firm (VF) Technology.
Using virtual firm technology, our Enterprise Operating System has a three-step cycle:
- centralized creation
- computerized virtualization
- decentralized sharing.
Specifically, we create necessary business capabilities and solutions through a collective and centralized platform. We then transform the created capabilities and solutions through a highly sophisticated process called virtualization. Finally, we scale them on a decentralized platform through sharing with merchants on the platform.
You might ask, why virtualization and decentralization?
The answer: Decentralization is the only effective solution to the “Boundary Conflicts”, but virtualization is necessary to realize decentralization.
Boundary conflict is one of the most fundamental problems in human society. The “Boundary Conflicts” in the economic system are the biggest natural enemies of productivity and creativity.
“Boundary Conflicts” may sound like an unfamiliar academic concept to many, but it is something that permeates every part of the business world.
For example, suppose you are a manufacturer and want to sell your products in a foreign country. Unless you build everything in the entire chain of merchandising, from end-to-end, without collaborating with any other company, the biggest obstacle you would face is the boundary conflicts. But even if you build everything in the entire chain of merchandising, you still face serious internal boundary conflicts due to cross-border branch operations.
We are not talking about country-to-country physical territory boundaries here. We talk about internal business boundaries. These boundaries exist not only among the collaborating businesses but also within each business itself. These include allocation of resources, allocation of expenses and profits, exchange of economic interests, organizational sovereignty, access channels, information communications, etc.
Everyone likes to strike a good bargain when doing business, but an experienced businessperson understands this: a good bargain needs a commensurate business reality to support. Unless the collaboration improves the efficiency and creates new value, and makes it possible to productively and fairly allocate costs and benefits among the participating parties, one party’s gain always comes at the cost of another.
Everyone likes the concept of win-win, but win-win is much more than an attitude and sincerity. It requires a business model that creates actual room for everyone to win. The problem is that the traditional business structures and models create such boundary conflicts that leave no room for everyone to win. As a result, win-win becomes just a slogan, and even a scam in a worse case.
How does Toolots do it?
Toolots creates a global merchandising platform.
To understand what Toolots does, let me first explain the concept of “merchandising”.
From manufacturer to the end-user, other than the manufacturing itself, there’s a whole section of business that can be categorized as “merchandising”, which may include at least all of the following:
• Research;
• Matching, sourcing, curating;
• Marketing;
• Importing and Exporting;
• Shipping and Warehousing;
• Transactions (such as payments, communications, etc.);
• Branding, intellectual property;
• Corporate services (such as legal, accounting, human resources, IT, insurance, warranties etc.);
• After-sales services;
• And more.
Toolots takes the entire section of merchandising, creates comprehensive capabilities and solutions, virtualize them and share them among the merchants such as manufacturers.
Toolots solves the traditional boundary conflict problem by virtual of the collective creation, virtualization and sharing of the complex merchandising capabilities. This is what creates new values, including lower costs, higher efficiency, more productivity, better return for capital investments, better information feedback, etc. All these factors together create a true win-win business model.
At the end of the day, this is also what integrates many industry verticals and makes them scalable on a vertical merchandising platform.
Once successful with a sufficient number of merchants on the platform, Toolots will be able to expand its business model much further and broader, and such expansion would be natural and organic based on the global “Enterprise Operating System” or EOS that Toolots is building.
The foundation of the EOS is Virtual Firm Technology (VF).
Virtual firm technology is a patent-pending invention by Toolots. It is analogous to the virtual machine technology, but fundamentally different.
When virtual machine technology (VM) came about two decades ago, it transcended the traditional computer operating systems. We all know what it did to the world in the last 20 years. Cloud computing is a direct result of virtual machine technology. But Virtual Machine is purely “computational” in a conventional way. It virtualizes what is strictly computational components, such as CPU, memory and networking components.
Virtual Firm is something that is parallel to but well beyond virtual machines.
Already serving over 2000 manufacturers (the number is rapidly growing), Toolots is a great platform to experiment and eventually implement the Virtual Firm (VF) technology.
Virtual firm and Enterprise Operating System are expressions of a new infrastructure of how business collaboration is done that is drastically different from how manufacturers and distribution channels work together now.
Our vision arises from a basic yet profound concept: the global business ecosystem can be abstracted, layered, and reorganized into a far more efficient system without destroying the traditional business entity sovereignty and economic incentives.
Virtualization via Abstraction is the key. Only through abstraction and virtualization, things become a common base that can be shared, and such shareable common base is the secret of scalability.
The importance of this cannot be over emphasized.
We can use the current structure of the Internet to illustrate the importance of this point.
Everyone uses Internet, but few know that Internet has multiple layers, seven layers in one description, and even fewer understand why.
The secret of the Internet is the abstraction and virtualization of computational resources. At each layer, certain computational resources are abstracted and virtualized to become a common base that can be shared by a layer above it. And such shareable common base is the secret of scalability of the Internet.
Developing this new “Enterprise Operating System” is of course not easy. It is not simply software engineering. It starts with restructuring of many fundamental human organizational elements, which will necessarily touch upon multiple disciplines, including business, intellectual property, and law.
Along with the growth of the platform and the support of participating merchants, Toolots is developing a team that has such unique expertise.
More about Toolots business model
Warren Buffett once said: “The best business is a royalty on the growth of others, requiring little capital itself.”
Microsoft’s business of developing and operating system for PCs is very much such a business model. One of most fundamental reasons why Microsoft beat IBM was because of its business model. Under IBM model, IBM had to provide capital to generate any growth in its computer product business, while Microsoft essentially powered and benefited from the growth of others who provided capital to their own growth.
Just as Microsoft developed a PC operating system, Toolots develops an “Enterprise Operating System” (EOS). Just like Microsoft created value through productivity and royalty on its PC operating system. Toolots charges productivity and royalty on the enterprise operating system that is used by its platform merchants.
With EOS, Toolots transforms the conventional business consulting service model to a SaaS model through.
On the Toolots platform, each manufacturer coming to the platform is like a startup being incubated. The interests of platform and manufacturers are very healthily aligned up with minimal conflicts, but lots of synergy.
At the same time, the incubation on Toolots platform is more sophisticated, more effective, and more scalable than that of a conventional incubator. Toolots does it by building virtual product lines which are platform constructs without any actual awareness by the manufacturers.
The key is whether the Enterprise Operating System (EOS) is a viable concept with enabling technology, like the computer operating system has proven to be.
For an earlier stage startup like Toolots, how much investment (capital) is required to establish the business and on what assets the investment is spent to develop are even more critical than that for an established company.
In the case of Toolots, without its open shared platform model it would be a traditional reseller model which requires its own capital to support every aspect of its growth, especially the inventory. It would be a story of a traditional reseller, a business model that can be profitable but very difficult to scale.
How does Toolots compare with Alibaba?
Alibaba is a shallow flat platform, while Toolots is a deep vertical platform. The former is suited for consumer products, while the latter for business and industrial products.
The differences business model is also reflected in Revenue/GMV ratio: The Revenue/GMV ratio of Alibaba is about 1/17 or 6%. In comparison, Toolots is currently about 1/4 (25%) and could easily improve to 1/3 or even 1/2 in the future.
The comparison is fundamentally about the differences of the business models, not about stages of the companies. If the stage or size of the company is considered, it would argue in more favor of Toolots in this comparison, because with the platform business model, the Revenue/GMV ratio usually improves as the company matures.
For example, in the early years Alibaba’s Revenue/GMV ratio was only about 3%, and it has since improved to 6% now. Toolots at this stage is about 25% and will improve to about 40-50% in the future.
However, this is not about Toolots team doing a better job than Alibaba, but all about inherent characteristics of the two different business models. The Revenue/GMV ratio is really a reflection of the depth of feet platform. Neither model is wrong, but each is suited for a different business sector.