What businesses are succeeding on the Net?

This week we will address the most basic question anyInternet business owner will have to answer at one point oranother…”what should I sell?”.

After the settling down of the dot-com bubble, sanity checkshave brought realistic expectations to the fore. Initially,a backlash was seen, forecasting the doom of the Internet.Finally, merits have made the Internet gain its rightfulplace. In breakthroughs that show the promise of e-commercewasn't all smoke and mirrors, four dot-coms recentlyreported their first quarterly profits. The list of theInternet’s publicly held moneymakers includes eBay Inc.,Amazon.com Inc., Yahoo! Inc., Overture Services Inc.,Expedia Inc., FindWhat.com Inc. and E-Trade Group Inc. Several privately owned dot-coms, including search enginesGoogle and DealTime, say they have been making money, too.

In 2001, the last full year where numbers are available, theDepartment of Commerce broke out e-commerce sales versustotal U.S retail sales which revealed the $3.16 trillionretail industry saw a total of $37.7 billion in sales takeplace online -- comprising 1.2 percent of the total. Thisyear e-commerce is tracking about the same. Through thethird quarter, the last full quarter where numbers areavailable, total retail sales were $856 billion versus $11billion in e-commerce, about a 1.3 percent share.

There were big gains made in Home and Garden, a 78 percentincrease; Furniture and Appliances, a 75 percent increase;and Toy shopping online with a 61 percent increase in theyear 2002. There is no doubt that online shopping isgrowing.

Nielsen//NetRatings found that more than 35.5 million U.S.Internet users made shopping trips to virtual departmentstore sites during the week ending November 3, 2002 - that'sa 20 percent increase from the week ending October 20 androughly 14 million more than almost the same time period in 2001.

There is a growing tendency amongst Internet users to payfor valuable content online. There are many reasons forthis. First, only a few websites operated by big companiescan afford to provide valuable content without beingcompensated. The rest of us can't be so generous. And tryingto recapture our expenses by selling advertising on ourwebsites has failed to pay the bills. Online advertising andclick-through rates are on the decline.

Second, many people are now more than willing to pay toreceive quality services and products even if they wereoffered for free earlier. Several paid content websites havealready proven this unmistakable trend. The discerning buyervalues his/her time as also the quality of information orservice and is willing to pay for it.

However, not all products can be sold on the Internet. Someproducts may be better suited for online sales than others;others simply will not work on this new commercial medium.According to an Ernst and Young study, the most popularonline purchases are computer related products (40%), books(20%), travel (16%), clothing (10%), recorded music (6%),subscriptions (6%), gifts (5%) and investments (4%).

Businesses offering paid services have also prosperedenormously. The top three categories (BusinessContent/Investment, Entertainment/Lifestyles andPersonals/Dating) accounted for 62% of all paid contentrevenues in the first three quarters of 2002. The totalmarket for paid online content in the U.S. grew to $361.4million for the quarter, a 14 percent gain over the previousquarter and a 105.3 percent gain over Q3 2001. Aninteresting statistic put forward by this report is that 85%of money spent by U.S. Consumers for online content goes tothe top 50 sites in most of the categories.

The graph below (Top 3 Content Categories) is indicative ofthis change.
In terms of “stickiness” of different categories, Businesssites - especially finance and investment rank the highest.In other words, users are more likely to spend longer timesurfing through a business website compared to othercategories. This study was conducted by Nielsen//NetRatings.The table below shows the most addictive web categories for2002.
Category Time per person(hr:min:sec) AudienceBusiness – Finance and Investment 0:21:33 51,586General News 0:15:47 64,822Entertainment 0:14:32 45,922
Source: Nielsen//NetRatings

According to the above figures a person spends about 22minutes on a finance website on an average.

Should you be selling a product or a service?

The Internet is primarily used to communicate, entertain,educate and research. It is thus no wonder thatnonperishable, information-intensive products - includingcomputers and software, books, travel, consumer electronics,magazine subscriptions - are the most popular onlineproducts at present. Content-rich sites, subscription-basedsites to advertiser-supported sites focusing on a wide rangeof topics, have been sprouting all over the Internet.
Services such as hotel reservation, air travel andinvestments have successfully translated themselves to theInternet.

Unique services such as Online driving schools have beenprospering. Some states in the US have set up online paymentsites for Government services. Residents of a state can logon to a common site to pay all bills and other expenses,such as parking tickets to the local/County courts.
However, all kinds of services cannot be run entirely on theInternet. The Internet is less effective when face-to-faceselling is needed to close a deal. The Internet can givelots of preliminary information that's useful in setting thescene for the closing. But the actual closing takes placeoffline - i.e., not on the Internet.

Products can also be marketed and sold successfully on theInternet. The kinds of products and services that sell beston the Internet are those that take advantage of theconvenience of the Net. Remember that convenience is theprimary reason why consumers flock to the Internet in thefirst place. People can shop any hour of the day at anysite. They can avoid crowded stores, irritating salesclerks, and even avoid pickpockets.

Offbeat or unusual products and services often attractonline attention and sell strongly. You would generally nottry to sell items people can get at the corner store. Thus,few toothbrushes are sold on the Net; the same thing withdaily food and beverage purchases. But special cheeses, rarecigars, Turkish plates, long-aged wines, even diamonds, canand do sell on the Net.
Most products sold by catalog and mail order also sell wellon the Net. However, people tend to buy only those productsthat could be shipped at a reasonable price. Higher shippingcosts diminish the price competitiveness of online productsand turns-off a lot of potential buyers. In fact, highshipping costs is the primary factor that discourages peoplefrom buying online more than any other single reason. AnErnst and Young report shows that 53 percent of onlineshoppers are concerned with shipping costs that are toohigh, compared to only 19 percent who are concerned withcredit cards being stolen.

As an online merchant, you have to work out the advantagesas well as disadvantages of selling either products orservices. However, in the recent past, online services haveknown to flourish. Nevertheless, if you chose to sellproducts you need to rethink your product offering if thetotal costs of the product and the shipping are higher thanwhat is offered elsewhere.
Take some time to evaluate your products or services. Thereis a growing market of potential customers on the Internet,you just need to offer the products and services they arelooking for.

Best Regards