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.* * *
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.* * *
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.* * *
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).
For the 12-employee Harvard Business Service Inc. (HBS), Internet newsgroups have become an invaluable marketing tool. HBS, a $2-million registered agent in Delaware that provides companies with incorporation services and helps them find venture capital, promotes itself by posting catchy one-page advertisements all over the mazelike Internet. But the company isn't random about where it puts its pitches. HBS selects business and entrepreneurial newsgroups, which are accessible to entrepreneurs worldwide. Newsgroups that accept ads include alt.business.misc and biz.misc. HBS also puts notices in forums hosted by Prodigy and other on-line service providers.
Vice-president of marketing Rick Fletcher and his systems-operations manager also look for prospects by trolling around newsgroups reading posted inquiries. They seek opportunities to "educate" people who could use their services in the future. Fletcher may find and personally answer a question about whether it's better to incorporate a business in Delaware or Nevada. For HBS, finding the right newsgroups in which to post messages has been a matter of trial and error.
HBS's set-up costs for labor, phone lines, new modems, and Pentium-driven Windows systems came to about $60,000, says Fletcher. Fees to Prodigy, CompuServe, America Online, and NetCom run about $300 a month.
Is it worth it? "Yes," says Fletcher. "Our volume has doubled in a year. The Internet is a way to reach millions of people, and it's very cost-effective. I don't know how we ever did things before."
Information about HBS is available by E-mail at firstname.lastname@example.org.* * *
For many companies, mailing out marketing literature to customers and prospects is the most effective way to increase sales. But the high cost of printing and postage often limits the appeal of the direct-marketing approach.
Electronic marketing literature offers the same opportunities, but on-line charges are minuscule compared with printing and postal fees. And the information can be delivered instantaneously around the world, which greatly appeals to Mountain Travel-Sobek (MTS), an adventure-travel company with 40 employees. Its "Hot News," a weekly on-line publication, reports on, say, the latest Ebola conditions in Zaire or describes how the political climate in Katmandu may affect travel itineraries.
"We have offices and guides all over the world. They send us information, and we put it in 'Hot News' along with descriptions of trips that are going out and available discounts," explains Richard Bangs, founding partner of the $15-million El Cerrito, Calif., company. "Can you imagine if we tried to mail these every week? I just push one button, and 'Hot News' goes to everybody."
"Hot News" is seen by about 77,000 people every month, though only 1,500 people subscribe. Subscribers get the free three- to four-page publication in their E-mail boxes each week. Everyone else reads it on MTS's Web home page. According to Bangs, "Hot News" is an effective advertising tool. "Our business is up 37% this year. We think a significant portion of that has to do with our media experiments."
MTS will not disclose the cost of building its on-line presence, but that cost probably was more than $10,000, perhaps as much as $100,000. With Internet access in place, the cost of putting together "Hot News" came to a mere $200. If MTS had put out just the newsletter, its only costs would have been for a computer, a modem, and Internet software, which retail for less than $2,000.
MTS's home page and newsletter are available at http://www.mtsobek.com.* * *
Just as conventional wholesalers or brokers provide a link between end customers and manufacturers, there's a growing opportunity on the Internet for companies to serve as intermediaries between on-line consumers and various electronic services. In effect, those companies act as electronic warehouses or gatekeepers.
Alain Pinel Realtors, in Saratoga, Calif., took that tack, recognizing that real estate agencies are essentially links among home buyers, home sellers, and banks. The company decided it could make the process of buying and financing property all the more efficient by providing the same links on-line.
Pinel uses a combination of the Internet and a wide area network to connect agents, lenders, title companies, and clients. For example, Pinel agents can electronically find out the status of escrows or update loan proceedings. They can then E-mail the information to their clients.
Even though Pinel's several offices are located in California's high-tech Silicon Valley, its executives realize they can't go entirely digital. Agents can exchange E-mail with only the 20% of their clients who want to do business that way. The majority still prefer face-to-face consultations, and in-person meetings are still required for signatures. In addition, not all lenders and title companies have E-mail capability. Neither do most smaller real estate service agencies, such as termite inspectors, photographers, and publishers. "We're definitely in a transition period," concedes Kevin Vance, Pinel's executive director. "The learning curve of the general populace needs to catch up."
Still, the gatekeeper concept has been a success, despite a sluggish local economy. Pinel ended 1992 with $259 million in gross sales, 1993 with $451 million, and 1994 with $690 million.
"The Internet has allowed our company to be more productive and therefore more profitable overall," Vance says. The $2 million that Pinel has sunk into computers and its Internet presence is recouped by a streamlined sales process, increased productivity, and better customer service, he explains.
Alain Pinel Realtors is located at http: //www.apr .com.* * *
Rusty Weston (email@example.com) is the managing editor of Open Computing magazine.