November 23, 2005Volume 4 Number 47 Issue 82
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What businesses are succeeding on the Net

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What businesses are succeeding on the Net

This week we will address the most basic question any Internet business owner will have to answer at one point or another…”what should I sell?”.

After the settling down of the dot-com bubble, sanity checks have brought realistic expectations to the fore. Initially, a backlash was seen, forecasting the doom of the Internet. Finally, merits have made the Internet gain its rightful place.  In breakthroughs that show the promise of e-commerce wasn't all smoke and mirrors, four dot-coms recently reported their first quarterly profits. The list of the Internet’s publicly held moneymakers includes eBay Inc., Amazon.com Inc., Yahoo! Inc., Overture Services Inc., Expedia Inc., FindWhat.com Inc. and E-Trade Group Inc.  Several privately owned dot-coms, including search engines Google and DealTime, say they have been making money, too.

In 2003, the last full year where I could find numbers available, the Department of Commerce broke out e-commerce sales versus total U.S retail sales which revealed the $3.4 trillion retail industry saw a total of $54.9 billion in sales take place online -- comprising 1.6 percent of the total.  The projections suggest that online sales will  triple over the next five years.

There were big gains made in Home and Garden, a 78 percent increase; Furniture and Appliances, a 75 percent increase; and Toy shopping online with a 61 percent increase in the year 2002. There is no doubt that online shopping is growing.

Nielsen//NetRatings found that more than 35.5 million U.S. Internet users made shopping trips to virtual department store sites during the week ending November 3, 2002 - that's a 20 percent increase from the week ending October 20 and roughly 14 million more than almost the same time period in 2001.

There is a growing tendency amongst Internet users to pay for valuable content online. There are many reasons for this. First, only a few websites operated by big companies can afford to provide valuable content without being compensated. The rest of us can't be so generous. And trying to recapture our expenses by selling advertising on our websites has failed to pay the bills. Online advertising and click-through rates are on the decline.

Second, many people are now more than willing to pay to receive quality services and products even if they were offered for free earlier. The plethora of paid content websites has already proven this unmistakable trend. The discerning buyer values his/her time as also the quality of information or service and is willing to pay for it.

However, probably not all products can be sold on the Internet. Some products may be better suited for online sales than others; others simply will not work on this new commercial medium. According to an Ernst and Young study, the most popular online purchases are computer related products (40%), books (20%), travel (16%), clothing (10%), recorded music (6%), subscriptions (6%), gifts (5%) and investments (4%).

Businesses offering paid services have also prospered enormously. The top three categories (Business Content/Investment, Entertainment/Lifestyles and Personals/Dating) accounted for 62% of all paid content revenues in the first three quarters of 2002. The total market for paid online content in the U.S. grew to $361.4 million for the quarter, a 14 percent gain over the previous quarter and a 105.3 percent gain over Q3 2001. An interesting statistic put forward by this report is that 85% of money spent by U.S. Consumers for online content goes to the top 50 sites in most of the categories.

The graph below (Top 3 Content Categories) is indicative of this change.

In terms of “stickiness” of different categories, Business sites - especially finance and investment rank the highest. In other words, users are more likely to spend longer time surfing through a business website compared to other categories. This study was conducted by Nielsen//NetRatings. The table below shows the most addictive web categories for 2002. 0:14:32
CategoryTime per person
> (hr:min:sec)
Audience
Business – Finance and Investment0:21:3351,586
General News0:15:4764,822
Entertainment45,922

Source: Nielsen//NetRatings

According to the above figures a person spends about 22 minutes on a finance website on an average.

Should you be selling a product or a service?

The Internet is primarily used to communicate, entertain, educate and research. It is thus no wonder that nonperishable, information-intensive products - including computers and software, books, travel, consumer electronics, magazine subscriptions - are the most popular online products at present. Content-rich sites, subscription-based sites to advertiser-supported sites focusing on a wide range of topics, have been sprouting all over the Internet.

Services such as hotel reservation, air travel and investments have successfully translated themselves to the Internet. Unique services such as Online driving schools have been prospering. Some states in the US have set up online payment sites for Government services. Residents of a state can log on to a common site to pay all bills and other expenses, such as parking tickets to the local/County courts.

However, all kinds of services cannot be run entirely on the Internet. The Internet is less effective when face-to-face selling is needed to close a deal. The Internet can give lots of preliminary information that's useful in setting the scene for the closing. But the actual closing takes place offline - i.e., not on the Internet.

Products can also be marketed and sold successfully on the Internet. The kinds of products and services that sell best on the Internet are those that take advantage of the convenience of the Net. Remember that convenience is the primary reason why consumers flock to the Internet in the first place. People can shop any hour of the day at any site. They can avoid crowded stores, irritating sales clerks, and even avoid pickpockets.

Offbeat or unusual products and services often attract online attention and sell strongly. You would generally not try to sell items people can get at the corner store. Thus, few toothbrushes are sold on the Net; the same thing with daily food and beverage purchases. But special cheeses, rare cigars, Turkish plates, long-aged wines, even diamonds, can and do sell on the Net.

Most products sold by catalog and mail order also sell well on the Net. However, people tend to buy only those products that could be shipped at a reasonable price. Higher shipping costs diminish the price competitiveness of online products and turns-off a lot of potential buyers. In fact, high shipping costs is the primary factor that discourages people from buying online more than any other single reason. An Ernst and Young report shows that 53 percent of online shoppers are concerned with shipping costs that are too high, compared to only 19 percent who are concerned with credit cards being stolen.

As an online merchant, you have to work out the advantages as well as disadvantages of selling either products or services. However, in the recent past, online services have known to flourish. Nevertheless, if you chose to sell products you need to rethink your product offering if the total costs of the product and the shipping are higher than what is offered elsewhere.

Take some time to evaluate your products or services. There is a growing market of potential customers on the Internet, you just need to offer the products and services they are looking for.

warmly,

MrIdea
Jim Green

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