Five different approaches to doing business on the Internet are examined.
There's more than one way to boost the bottom line on-line
Don't worry if your company hasn't gone on-line yet; you're not being left behind by the crowds. A recent study showed that only about 41% of small businesses even own a modem.
Still, it may be hard to miss the fact that something important is happening on the Internet these days, particularly on the World Wide Web. Though virtually unknown to the business community a year ago, the Web is welcoming hundreds of new businesses every week and creating most of the buzz in the on-line world.
Yet for many growing businesses, throwing up a Web site in the middle of cyberspace may not be the right choice. Establishing a Web site is like setting up shop downtown, on a crowded city street. It's certainly a valid way of doing business. But some businesses prefer to locate in malls. Others eschew storefronts in favor of selling through mass-market advertising. Still others use direct marketing. And many wholesale out of warehouses. Every one of those approaches has a direct analog on the Internet. Instead of leaping onto the Web, a company should consider all the options and pick the one or the combination that's right for it.
Here's a quick look at the different models for doing business on the Internet and at some of the companies that are trying them out.
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Downtown Storefront
Consider the advantages of opening up a storefront downtown: you're accessible to perhaps millions of people, and you've got complete control over what your store looks like.
That's why companies set up shop on the World Wide Web. Any Internet user with Web browser software and your Web address can zip straight to your "store" and check out your offerings. Mail-order company Hello Direct Inc. is testing this model. The seven-year-old San Jose, Calif., telecommunications-products company has put much of its catalog on the Web and uses a toll-free phone number to take orders. Executives at the company say that their grand experiment seems to be working.
Every month since November, Internet shoppers have looked at an average of 4,500 screens of information about the telecommunications products Hello Direct sells. That browsing has resulted in a growing number of E-mail inquiries, up from 290 in February to more than 400 since May. "Normally, it would take 5,000 catalog mailings to get 300 inquiries," says Paul Robinson, director of finance.
Over the past year and a half, Hello Direct has pumped $50,000 into developing and maintaining its on-line catalog. That figure includes a $1,000 monthly fee to a company that provides server space, develops monthly user reports, and updates the catalog.
On-line orders currently total just .25% of the company's overall sales, which topped $26 million in 1994. But each on-line order is about 10% higher than the average print-catalog order of $200.
"As the cost of postage and paper goes up, there must be a way to reach the customer that's more cost-effective," says Norm Bunas, Hello Direct's chief financial officer and vice-president of operations. "If we find that the Internet is an effective alternative, we'll divert a significant amount of money to the effort."
You can visit Hello Direct Inc. at http://www.hello-direct.com.
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Mall
A company that locates itself in a mall gives up a certain amount of independence: its success depends as much on the popularity of the entire package of stores as it does on its own efforts. On the other hand, malls generate streams of prospective customers who otherwise might never have stopped by the store.
So it is with the "cybermall," a group of businesses that can be reached at a single World Wide Web address. Like their real-world counterparts, cybermalls can be developed around a high-drawing "anchor" store, or they can simply be the home of many smaller businesses.
Bob and Arminda Alexander put a virtual version of their Hawaiian coffee-bean store up on a cybermall earlier this year, when rent and other overhead sent expenses for their actual store, located on the island of Maui, skyrocketing to $12,000. (Before they closed the store this past spring, it was grossing $30,000 a month.)
For $1,000, a local Internet provider helped the Alexanders create a home page filled with color photographs and descriptions of their gourmet Kona beans. The home page could also process credit-card orders. But a big question remained: How would coffee shoppers know where to find Hawaii's Best Espresso Co.? Answer: Link the home page to a cybermall.
The Alexanders quickly realized that for just a few hundred dollars each month, they could link their home page to six cybermalls, including Downtown Anywhere and Planet-Hawaii. The company gets more than 1,000 visits by Web shoppers each day, producing $15,000 a month in orders. Business is so good that the couple recently closed the Maui shop.
"It's a gas to turn on a computer in the morning and have a couple hundred dollars of business be there waiting," crows Bob Alexander. "All we're doing on the Internet is the same as we did with the shop, except we're open 24 hours a day, and we don't have to be there."
You can find Hawaii's Best Espresso Co. at http://planet-hawaii.com/bec.
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Mass Marketing
If advertising is part of your marketing mix, consider that the Internet is home to thousands of public electronic bulletin boards -- known as "newsgroups" -- that cover areas of commercial, academic, and recreational interest, ranging from the conventional to the outrageously eccentric. In some cases, posting notes about your business to a newsgroup can be a valuable addition to your advertising plan. For one thing, it's free (except for on-line time, typically about $2 an hour). For another, newsgroup postings can get out a detailed message to larger numbers of exactly the right prospects than other types of advertising can.
Soliciting customers through newsgroups can be tricky, however: the vast majority ban commercial activity. Some groups allow notices like "If you need a lawyer, call or E-mail me." Others treat solicitation with disdain and "flame" offenders with hostile E-mail. (See "E-mail With . . .," Inc. Technology, 1995, No. 2, [Article link].) To avoid problems, check the newsgroup's rules, which are posted in files called FAQs (frequently asked questions).
