Ann Arbor Business to Business
Small Business and the Internet

Show Me the Money

June 1999

By Mike Gould

Letter bag time again; a thinly-disguised anonymous reader (and editor) wrote in:

Dear Mouse Wrangler,

It is my understanding that more than 80% of businesses with web sites are losing money. Even the shining star of web business, Amazon Books is losing money and is expected to be in the red for many years. With all the superhype about the Internet nowadays can you explain to me why a small businessperson who is driven by cashflow and net profit should spend the money for a web site.

signed, Bottom Line

Dear Bottom Line;

"...'Net' profit" - good one! Yup, fortunes are won and lost every day on the Internet, same as in the real world (or "meatspace", in geekspeak). Those spending thousands of dollars in hope of quick returns are probably going to be disappointed. Those spending thousands of dollars in hope of eventual returns are probably going to make money. Those spending hundreds of dollars in hopes of eventual returns are also probably going to be rewarded; it's a question of scale and realistic expectations.

Should I be .com? Here are some questions to think about when contemplating a run for the WWW dollar:

Do I have a clue? ("Am I clue-enabled?", in PC talk). Have I spent enough time online to understand what the benefits and limitations to online commerce are? Have I bought something online, so I see how this behavior is accomplished?

Are my customers online? Ask them! Think about your customer profile; if the average buyer of your products or services is college-educated, in the middle-to-above-average income bracket, and has a pulse, chances are he or she has a computer and knows how to use it. If you are selling hot dogs from a push cart, chances are that online marketing is not for you. (I'll probably get letters about this; somewhere, somehow, someone is selling hotdogs online...)

Does my product lend itself to mail-order marketing? If you are already set up for snailmail delivery, you are half the way there. Remember that the web interface is just a fancier way of ordering something over the phone; the bulk of the job is in your customer service department.

Is my competition online? Bingo; if they are, you better be. Think telephone book; if a potential customer goes looking for your product or service in the yellow pages and finds your competitor, and doesn't find you: boom boom, out go the lights.

Can I afford to be on the WWW? This gets us back to the question of scale; you don't have to spend thousands to start your online marketing effort. You may end up spending thousands in the long run, but this can wait until you start seeing returns on a more modest investment.

One of the local ISP's (Internet Service Providers; remember? We discussed this last year. You do save all your back issues of Business to Business, don't you?) that I work with charges less than $500 for one year's rent on the web; this includes initial setup, domain name registration (yourbiz.com), email, and 5 Megabytes of storage for web space. This doesn't include the design of the site; this is done by hiring someone like me (email address below, heh, heh) to put some pages together for $60 an hour. I have designed sites for less than $500. If you shop around, you can probably do it even cheaper; but I wouldn't stint here: you are putting your business in front of a potential audience of millions. 'Nuf said.

This is how you get your feet wet: you establish a presence, market it, and see what kind of response you get. Remember that your presence is in front of millions of potential customers world-wide, on a 24 hours/7 days a week/365 days a year basis. Not bad for less than a grand start-up, around $250 a year maintenance. This maintenance is for the ISP; you will also be spending money to update the content on your site.

About that amazon.com business As always, when confronted with E-Commerce questions, I turn to David Bloom of arborfood.com. He kindly directed me to the following:

From a May 3, 1999 New Yorker magazine article by John Cassidy:

"Mary Meeker [is] a thirty-nine year old investment banker ... for the investment firm Morgan Stanley Dean Whitter ... the top-ranked Internet analyst on Wall Street - the "queen of the 'Net" as Barron's has put it. Amazon.com ... still hasn't made a dime, but Meeker is relatively unconcerned."

Mary on Amazon: "My view of Amazon is that it's not just books, it's bits. If two years from now it has fifteen or twenty million customers, and it has their credit card numbers, and they are happy, then it can make money. Books will be seen as the Trojan horse that got them all the customers; just like all those disks given away by AOL."

David on Bottom Line:

"In my Interneconomics 101 talk entitled, 'It's the traffic, stupid,' I stress that success online is not measured in cashflow, it's measured in bandwidth. This means that the important measures of long-term viability (read: eventual profitability) for Internet business are the depth of your online offerings and the breadth of your online customer base. Any businessperson who is making strategic decisions based on cashflow should steer clear of the Internet, or any other business development or growth opportunities, for that matter. Keep your money in the bank earning 3%, or better yet, in your mattress."

Thank you, David. As always, the 'ol mouse wrangler welcomes questions of this sort sent to the email address below. You've got questions, we've got articles.

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