E-comm's biggest mistakes

The honeymoon is over for the dot-coms. But that doesn't mean your project is doomed - unless, of course, you commit these offenses.

By Ann Sullivan
Network World, 02/26/01

Urbanfetch.com isn't fetching for consumers anymore. Boo.com is a ghost of its former self. And Pop.com? Burst.

These are just a few of the dozens of Web commerce, content and services companies that shut down, reorganized or sold out last year. An estimated 210 dot-coms failed in 2000, according to Webmergers.com.

Failure hasn't been limited to the consumer market, either. Business-to-business companies such as B2bstores.com and EC Cubed have also washed away. Consolidation among business-to-business exchanges is anticipated, and reorganization is a popular escape. Ventro, which manages six e-marketplaces catering to the chemical and medical industries, is getting out of the e-marketplace-hosting business and refashioning itself as a software provider.

Many of the e-commerce companies that remain are holding down marketing budgets and shoring up business plans like homeowners preparing for a hurricane. At the close of 2000, evidence of inclement weather was all around:

• Venture capital investment in e-commerce companies fell 19.3% to $378.5 million in the third quarter of 2000 from $469.1 million in the second quarter, according to research firm VentureOne.
• Advertising spending by online companies dropped by about one-quarter, to $536 million in the first half of 2000 from $718 million during the first half of 1999, according to Competitive Media Reporting.
• The tech-heavy NASDAQ stock exchange fell from a high of 5132 in March to a low of 2523 in December.

In times like these, what can you do to protect your company's online endeavors? To start, the experts suggest avoiding these most dangerous pitfalls:

Inadequate attention to customer service, whether by telephone or e-mail, is a surefire way to lose customers. When Gomez, an Internet benchmarking firm in Waltham, Mass., measured customer service at 79 online sites in its annual holiday season audit, the firm found 30% of customer service e-mails went unanswered and only 40% of questions were answered accurately. For phone inquiries, 63% of questions were answered accurately.

Stocking physical stores by the palette-load is one thing. Supporting single-unit online sales is entirely different. A company with a well-tuned inventory-management system for physical stores can't expect that same system to hold up for e-commerce sales, says Andrew Bartels, senior research analyst for e-commerce at Giga Information Group. And the law doesn't leave much room for error. Last July, the Federal Trade Commission doled out fines totaling $1.5 million to seven companies - including Toysrus.com, CDNow.com and Macys.com - that missed shipment dates and failed to notify customers of shipping problems.

Seconds count in online shopping satisfaction. In November 2000, Internet performance monitor Keynote Systems measured the time to conduct a multistep Web transaction in several vertical markets. The fastest of the 12 apparel sites it benchmarked let visitors find an item in less than 10 seconds via cable modem/DSL speeds. The slowest sites took roughly 25 seconds.

This will be the year that international surfers outspend U.S. surfers, at $277 billion vs. $248 billion, finds market research firm IDC. To compete, companies need to address a global audience, says IDC research analyst Rob Rosenthal. A start-up rushing to get online may postpone international plans, intending to work the kinks out of the business before expanding overseas. But that could give local competitors the edge.

Placing too much emphasis on building a community instead of clientele is a short path to insolvency. One example is a health-related site where visitors may exchange information about a particular disease. "That's interesting, and it has value, but it doesn't always lead to cash flow," IDC's Rosenthal says.

Deploying the Web site is just the beginning of a company's e-commerce expenditures. In a survey of 561 executives conducted by IDC, 54% said the initial cost to develop an e-commerce site is less than $100,000; with 14.3% putting the figure at $100,000 to $499,000; 5.7% at $500,000 to $999,000; 8.4% at $1 million to $5 million; and 4.3% at more than $5 million. The remainder didn't know.

But the site will continue to cost, with more than half of 565 respondents budgeting less than $100,000 for maintenance; 13% budgeting $100,000 to $499,000; 7.2%, $500,000 to $999,000; 7.4% $1 million to $5 million; and 5.1% more than $5 million.

Don't bite the hand that feeds you. Existing companies often leap into Internet sales without considering their channel partners, says Giga's Bartels. Levi Strauss is an infamous example. It launched a site in November 1998 that sold jeans to consumers, and angered its authorized retailers. One year later, Levi Strauss retooled the site and now refers consumers to its retailers.

Toy distributor Hasbro avoided such conflict with the launch of its direct sales site. It chose to market items that its retailers weren't interested in, or couldn't effectively resell: collectibles and online interactive games. Likewise, it directs visitors to its retailers' sites for the toys the retailers carry.

Contact Associate Online News Editor Ann Sullivan at asullivan@nww.com.