ChApter 3 | CHOOSING THE RIGHT BUSINESS | 33E-Business Basics
From the initial dot-com boom in the late
1990s through the subsequent “dot bomb”
in 2001, through the post 2001 rebound and
2008 mortgage meltdown, the only “constant”
in the in online business world is “constant
change.”
One thing is certain: the pre-2001 approach
of just exploiting a hot domain name and
buying up cyber “real estate” no longer
guarantees success. Today, successful online
companies track the same metrics as their
offline counterparts—that is, they carefully
watch revenues, costs, and profit and loss
analysis. For example, one savvy Internet
entrepreneur eventually closed his retail
sporting goods store because employees—too
busy shipping orders to Internet customers—
were neglecting brick-and-mortar customers.
Some trends for success have emerged: a
successful online retailer commonly carries a
wider assortment of goods than a traditional
brick-and-mortar store. Online retailers cater
to an international market that operates
around the clock. Many online retailers try to
keep inventory investment as low as possible
by having some of their suppliers ship orders
directly from the manufacturer’s location to
the retail customer (known as “drop shipping”).
In this model, the online retailer pays the
manufacturer’s invoice at a wholesale cost and
collects cash via the customer’s credit card
before an electronic purchase order is issued
to the manufacturer.
And online retail business also requires
intensive management and sometimes
requires a bit more vigilance than a typical
retail store. These businesses often work
on lower than average gross profit margins.
Since many online shoppers use the shopping
bots mentioned earlier, savvy retailers make
sure their products are found by the search
engines. Finally, online retailers must either
know, or must hire others who know, website
programming as well as online banking and
fulfillment operations—all of which are
necessary to generate profits.
Online retail sales have been growing
steadily and are forecast to continue growing.
The same is true for online companies that
provide services. Google, for example, earns
steady profits from its online advertising pro-
gram where a business pays a fee for each click
through to the sponsored link. One advantage
of this program is that a merchant can track
the cost effectiveness of the program on a
daily basis (and stop or start it at any time).