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Dot Com Losers: Is Anyone Really Turning a Profit on the Web?
By admin | July 18, 2008
Until recently, I fantasized about hitting it big with my own start up dot com. Just give me a sock puppet and a room full of anxious investors-”Wouldn’t you just love to invest big bucks in our latest venture, InTheREDforYearsToCome.com? Or how about ReallyAbsurdBizModel.com? Er, maybe IwannaBeABillionaireIn6Weeks.com?”
Alas, the days of feeding fat from the troughs of easy venture capital are gone. But this may be a good thing. Sure, if you’ve already invested in dot com stocks, the recent stock market reality check may be a painful thing, but I think the future of the dot com is actually strengthened. Resources will ultimately go to more deserving companies-those that have a plan that involves being profitable. In an industry where the business life cycle can be measured in dog years times two, a realistic goal of profits within the first few years ought to be a necessity.
Most of the losers seem to be failing in two important areas. First, a plan for revenue should be in place. Amazingly, many of the failing dot coms have no realistic model for generating income. Some clever strategies have yielded tremendous market penetration without generating any real income. Second, the cost of attracting and sustaining each customer must be less than the net revenue generated per customer. Sounds obvious but many of the floundering dot coms are consistently paying more attracting each customer than they can realistically hope to get in total sales.
Who’s Winning?
In general, business-to-business companies that are already succeeding off-line are able to expand their reach when they apply intelligent marketing strategies to the Internet.
Established off-line catalog companies are succeeding if they manage to deliver online catalogs effectively and efficiently. Companies such as Lands End and DELL have been able to expand their base by delivering strong Web-based catalogs.
Startup online catalog companies that satisfy a narrow niche are succeeding when they deliver in a focused way. Babygiftidea.com has increased sales tenfold in the past year with only modest increases in overhead. Success, according to owner Natalie Taylor, comes because “We provide good products that focus on a narrow need. We improved sales with better action-oriented selling strategies on our pages, strong search engine placement, affiliate programs, and of course, word of mouth from satisfied customers.”
Having a great product that can be delivered cheaply in real-time is a good start. One beautiful example of the Web delivering on its promise of sharing resources is ExpertCity.com. It provides real-time computer expertise via chat room and a shared access to the customer’s computer. ExpertCity facilitates and delivers good service without employing anyone. All support comes from affiliate members. ExpertCity simply takes 15% of all billables. This “just-in-time style of employee” makes the company highly scalable and provides a consistent profit margin. Company spokesperson Shannon Kelly says, “We’re successful because we’re able to get difficult-to-find talent connected with people within two minutes.”
It’s important to emphasize that the dot com failures have little relevance to traditional businesses who are using the Web to extend a marketing channel or expand services. So don’t give up on the potential of the Web. Business is still going strong.
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