Website business models: E-commerce site

Most high profile sites are based on sales. Could you make this work?

The more high profile dot coms, such as the most famous online brand Amazon.com, use a business model based on sales. To make money they must encourage surfers to stop browsing and start shopping. However, during the internet’s relatively short lifetime, e-commerce driven dot coms haven’t had it eajsy and many businesses have fallen by the wayside.

Famous examples include Boo, eToys, Urbanfetch and Buy to name a few. These early adopters are synonymous with big advertising and marketing budgets that burned up their cash.

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Jennifer Mowat, UK country manager at Ebay says the e-commerce model is the toughest to crack due to the lack of profit achieved by the majority of transaction based dot coms. “Many have used ideas and sold products that are simply not suited to the internet. The models that have worked are offline businesses who have a proven brand and who have moved some of their operations online.”

Although the internet is a good shop window, e-commerce models are also limited due to what they can sell and how cheaply they can sell it. Books, CD’s, gifts, flowers all tend to sell well. But larger, more expensive items, some of which people like to try and view in person before purchasing such as clothes and toys, for example, appear to have suffered.

Patrik Oqvist, marketing manager of yourautochoice.com, believes that if the customer doesn’t get the service and price they want at the first attempt, then they will go elsewhere. “If it isn’t convenient, fast and efficient, then people won’t buy it or come back the next time. But even though there has been some fallout these are early days and those commodities such as CD’s and books keep on growing. But there is a lot more competition in this area than there used to be, so there is also bound to be more consolidation.”

Investors are also more wary of e-commerce based business models. Simon Murdoch, co-founder of venture capitalists Episode1 and also the man who helped launch Amazon.co.uk in the UK, believes e-commerce is set for an uncertain future.

“The next few years could be bleak for pure e-commerce businesses. The cost of acquiring and keeping a customer is very high and it is hard to get that money back. Investors are also more cautious now than they were and prefer dot coms who have proved themselves and who are in the later stages of development. They are looking for safety not risk.”

Hybrid

If risk is no longer an option, dot coms will have to be cautious with what model or models they use to gain customers and cash, the key to any business success.

Murdoch believes that a hybrid business model can lead to a more profitable dot com business. “If you already have the infrastructure such as a mail order company and bring it online or if your site sells software or back end internet solutions, you could be very successful. However, you can’t be categorical about your business model and must look at more than one model to survive.”

Whatever model or models you use there are basic online principles that dot coms should be following and that many are now adopting and turning into profitable areas of business. Sonia Lo, co-founder of Ezoka.com, gives her expert advice:

“You have to work out your model on several levels. Find something truly innovative to place online, make sure that the marketplace is big enough to slot your company in and sustain three or four companies of the same type. Then, make sure you have a solid and fully qualified and experienced management team, as their expertise will be crucial in the long run and finally, time your entrance to the market.”

 

Investors are more wary of e-commerce based business models.

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