On the day I write this column, Spaceworks, another promising Internet company has closed its doors. The fever that once encouraged business writers to claim dot coms would quickly overcome and obliterate traditional businesses, is now burning against Net companies. Now it's fashionable for journalists to scoff at Internet enterprises, ridiculing excesses such as the goofy 2000 Super Bowl ads.
Ok, we've all had fun with the media backlash, now let's regain our bearings. Amid the stories of the dot com demise, there is a hidden stream of positive reports showing a growing base of Internet consumers willing to spend ever greater amounts online. Is anyone covering this story?
Report after report shows a growing population of Internet shoppers. High-speed connections are finally catching fire. Cable modems are booming and telecom companies are struggling to keep up with the demand for DSL installations. Analysts are saying nice things about Amazon.com's chances of hitting profitability later in 2001. Some bad news.
One recent piece of good cheer arrived in the form of "The State of Online Retailing 4.0," a new Shop.org study conducted by The Boston Consulting Group. The quiet-but-powerful headline of the report reads, "The North American online retail market is expected to grow 45 percent in 2001, reaching $65 billion." Not bad growth statistics, especially since we're supposedly in the throws of a complete collapse of the Internet economy.
Apparently, online retailers continue to improve their functionality while journalists report that Rome.com is burning. "While consumer demand continues to propel growth, online retailers have wrestled with operational issues. They're improving their performance in key areas such as customer acquisition and buyer conversion, " said Elaine Rubin, chairman (sic) of Shop.org.
She goes on to point out the weakness of some Net companies that contributed to the very real crash among some of the ill-prepared dot coms. "There is a steep learning curve in becoming an online retailer - those players that were unable to excel in all facets of this complex business just didn't make it to the end of 2000."
Among those retailers who did survive, the news continues to improve. The report finds that online retailers have been able to reduce their losses as a percentage of revenues. Operating losses decreased as a percentage of revenue from 19 percent in 1999 to 13 percent in 2000. As for the elusive profitability, even more happy tidings. By Internet retail type, 72 percent of catalogers (sites owned by offline catalogs), 43 percent of store-based retailers (sites owned by brick stores) and 27 percent of Web-based retailers (Net-only retailers) are profitable at an operating level.
The report finds that the movement toward profitability is due, in large part, to online retailers placing tighter controls on their marketing budgets. You think?. As a result, customer acquisition costs for all online retailers fell from an average of $38 in 1999 to $29 in 2000. Web-based retailers (the stickiest of the wickets), in particular, were able to bring them down from a high of $82 (ouch) to $55 (still not great) over the same period. The best-performing Web-based retailers (the top 50 percent) reduced acquisition costs to an average of $14 (yea!) per customer rivaling the performance of catalog-based retailers.
The report concludes that Internet retailing is alive and very much healthy. Yet it also warns that each category of Internet retailer still has plenty to learn about running online stores. "Web-based retailers need to learn the basics of retailing," said Peter Stanger, vice president and leader of Boston Consulting Group's business-to-consumer topic area. "Store-based players are new to home delivery and selling to consumers one-on-one from a distance. Catalogers have a leg up in many dimensions, but they need to perfect ways to exploit the relationship-marketing opportunities. The winners will be those companies that can most effectively acquire or develop the capabilities they lack and integrate them with their existing strengths." Amen.
Hats off to the Net boom. They say the king is dead. We say, long live the king.
Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring Entrepreneur's Guide to the Best Home-Based Businesses (St. Martin's Press). You can reach Rob at spiegelrob@aol.com.