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do make money
Study: Over half of online businesses claim profits
By Marty Beard
In the aftermath of the great dot.com letdown conventional wisdom says that web business models are somehow innately unprofitable.
Not so. From e-commerce to content, most profit-minded web sites are making money already, according to a survey by ActivMedia Research.
The average profit-oriented web site turns a profit after two years in business, according to the report. Fifty-four percent of online businesses say that they are already profitable, and another 28 percent predict that they will be in the black by the end of this year.
Yet the report notes that the goal of one out of three web sites actually isn’t to make a profit. Of such sites, 23 percent are publicity vehicles, and 11 percent are dedicated to improving a business’s efficiency.
Sixty-six percent of e-commerce outfits do aim to turn a profit. Specifically, the raison d’être for 46 percent of e-commerce sites is to turn a profit, and 22 percent are intended at least in part to be profit centers.
In order to make money, according to Harry Wolhandler, ActivMedia Research’s vice president of market research, web sites must have an actual business plan beyond blowing their funding on promotions.
Which leads to the question: What exactly is a good business plan for a dot.com?
Wolhandler says it’s fairly simple: Deliver a useful product to the consumer and treat your customers well.
"The essence of it is to be true to your own nature, the nature of the business you are in, the niche that you are and the customers that you are seeking," Wolhandler says.
"If you look at the top sites, they are rarely bottom-dollar sites," he adds. "Consumers don’t actually seek the lowest price, they seek satisfaction. Sites that say they have the lowest prices are just training their customers to look for the lowest prices," rather than to be loyal customers.
According to the study, a web site’s likelihood of profitability is related to how it allocates its cash: self-promotion versus steady growth, with a focus on the bottom line.
For example, the sites that adopt a strategy called "Growth Through Positive Cash Flow" are the most likely to turn a profit relatively quickly. These are the online businesses that maintain their margins and keep their growth under control.
The least successful dot.coms tend to be the most visible ones, the ones that adopt a strategy the study terms "Aggressive Promotion." Think of all the internet companies that advertised during Super Bowl 2000 that are now defunct, such as Pets.com.
"If you think about it, it should have been logical. The ones that make the most noise aren’t the ones doing the most solid business," Wolhandler says.
The aggressive promoters out there, according to Wolhandler, are trying to grab market share, slash prices, advertise widely and improve services, all at the same time. That strategy won’t work in the long run.
"Of the profitable sites online, more and more of these are older sites that have sound business experience," says Wolhandler.
"The news media often overlook the number of sites that belong to relatively established companies, not to dot.com startups trying to take over the world. The internet is in the midst of a weeding-out process, and the web sites left standing are not the ones started with the intent to get rich quick.
"What we’re seeing now that easy venture financing has been removed is that the web is migrating toward a much more solid business environment," says Wolhandler.
The study made little distinction between e-commerce sites and ad-supported content sites, because the latter category is rather wide-ranging.
"The online content segment is broader than just those who are engaging in ad-supported sales. It includes everybody dedicated to content, such as databasers, porn sites," Wolhandler says.
Also, it’s hard to know if a content site is purely ad-supported, according to Wolhandler, who notes that many also offer e-commerce or charge a subscription fee of some sort.
"The average among media sites came to one and three-quarter years for profitability, and then a little longer to return on initial investment," he says. "Also, it depends on the scale of your operation."
"NBC and MSNBC, for example, are going to take a lot longer. Look at the size of the operation they have now versus somebody who runs a media newsletter or an online thing that bootstraps itself up."
To compile the study, ActivMedia Research earlier this year surveyed executives at 500 English-language web sites from all over the globe. The sites that were chosen are a representative sample of internet businesses.
June 8, 2001 © 2001 Media Life
-Marty Beard is a staff writer for Media Life.
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