The Economics Section - Page A4
December 14, 1996 1996 Web Business:
by Thomas Hobbs M.S., Staff Writer
Present & Future Perfect IntentPALO ALTO DESK - During 1996 business people and investors have built out the Internet Web with the help of browser maker Cisco Systems Inc. and its router switching equipment. Router switches make the World Wide Web an exceptional experience. Router speed is really the secret to making money the new-fashioned way: by selling goods and services through the virtual storefront metaphor.
For the most part, operating profits are meager, so far. Cost of a Web startup are steep. In a current survey by International Data Corp. of Framingham, Mass., big companies were described as paying an average of $1 million to build World Wide Web sites.
Time Warner Inc. executives have been grumbling that the money the company is spending on its Pathfinder Web site is like a bottomless 'money pit'. Other big companies on the Web are looking closely at MCI Communications Corp. who failed to attract enough web surfers and just closed its Internet shopping mall for lack of Web traffic.
Figuring out just how to attract Web surfers has been difficult. However, some ingenious entrepreneurs have discovered the magic of generating large amounts of revenue. In 1996, for example, a survey of 1,100 Web site businesses, revealed that 31% claimed to be profitable, according to ActivMedia research, of Peterborough, N.H.
One principle of making money on the Web is to reverse the expected buyer-seller relationship. One Web model which seems to be working is to, get qualified Web surfer prospects to become subscribers to the Web site. For example, the Auto-By-Tel Corp.,of Irvine, Calif., is using a strategy that gets the sellers to pay for a detailed list of buyers with specialized demands.
What's so good about that? Consumers go to Auto-By-Tel's Web page and fill out a form describing the car they want. The information is made available electronically to dealers in the customer's area who have paid a fee to Auto-By-Tel. The dealers then can check their lots and bid for the buyer's business through e-mail. The cost to dealers: about $250 to $1,500 a month, depending on the size of the dealership. At present, Auto-By-Tel has some 1,400 subscribers.
HappyPuppy a Seattle-based site for computer-game fans, effectively uses that principle. Their Web site, owned by Attitude Network Ltd. of Naples, Fla., offers free demonstrations and reviews of new computer games. Computer and game companies pay HappyPuppy $30 per thousand surfers who view their ads. As of November,the Web firm had 50 advertisers and 1.5 million visits a month.
The Internet Web has a strong tradition of providing free downloads od news and software. When entrepreneurs come on to the Internet Web most expect to be paid for their goods and services, right away. Web surfers, however, do not expect to pay retail prices for what they purchase on the Web. So there is a fairly stiff 'shake-out' period during which time the asking price of goods and services offered on the Web is adjusted to the free market price Web surfers are wiling to pay.
Web surfers are flooding the Web this Christmas, because the pricing of goods and services offered on the Web are finally getting right! For example, a host of electronic brokerage firms have discovered they can sell stock on the Web. San Francisco based stock trader, Larry Zartarian, says 'Buying stocks on-line costs as little as $12.95 a trade. That's well below the fees that full-service or even discount brokers charge for telephone transactions.'
The Washington D.C. based Economics Institute estimates there are now 1.5 million brokerage accounts on-line and projects that number will grow to 20 million accounts in 10 million households by 2001.
Those types of accounts will be held by high-net-worth frequent traders. These traders are basically 'chasing price'.
A number of companies have profited in 1996 through the Web by exploiting the Web's ability to store and retrieve information. Amazon.Com Inc. a Seattle-based on-line bookstore, is cited as a model by any consultants. The company's Web site lets buyers browse among a million titles - most of which are stored in distributors' warehouses, rather than its own. [Amazon.Com also offers a discount on any book purchased from a review story link published in the Daily Republican Newspaper.]
Some specialty retailers have found that Web sales can enhance an existing product line. The salsa vendor, Hot Hot Hot of Pasadena, Calif., says its Web site started in 1995 now accounts for 30% of the company's sales revenue.
Most traditional business always want more customers. A business Web site can give any business a much broader customer base, overnight. The vast communications power of computers linked to the Internet Web can also allow a business to offer new products and services much more competitively.
NetScan Technology Corp. of Fairfax, Va., opened its Web store on the Web this year just to sell subscriptions to its scans of regulatory publications. Companies, trade associations and lawyers pay $1,000 to $10,000 a year to subscribe to the Web service. NetScan says is already breaking even on the start-up costs. It decided to diversify.
So, now it has formed an advertiser-supported service partnering with an AM radio station to transmit broadcasts of University of North Carolina basketball games over the Web.
The advertiser-supported service has turned a profit, according to a press release by Harvey Golomb, president of NetScan.
Some enterprising Web designers have built Web businesses around making on-line purchases easier. Richard Rowe, a 63-year-old subscription-fulfillment executive, left his family firm in 1993 and created RoweCom of Cambridge, Mass., allows university and corporate librarians to order magazines and technical journals over the Internet without writing a check or giving out credit-card information each time.
Using RoweCom free software, librarians and publishers travel to Banc One Corp's Web server and establish an on-line credit account. Then, whenever a librarian orders a periodical from a publisher's Web site, the RoweCom software automatically deducts the cost from the librarian's account and deposits it into the publisher's account. And every time the system processes an order, $5 is automatically deposited in RoweCom's on-line account.
Rowe gets paid automatically every time there's a transaction. He never has to bill a customer. Currently, about 7,000 publishers use the RoweCom system.
One of the newest and cheapest ways to get a virtual storefront business on the Web is from the top Web design firm in the Nation, WebPortal.Com who is partnering with the PC Paramedics computer repair service firm PCParamedics who gives away interactive business Web pages worth $1,500. By visiting its Web site, Web surfers can register for a monthly drawing. Another way is to hire a Web site design firm to obtain and register a unique 'domain name' for the business and to create interactive Web pages. The next step is to obtain a 'hosted' web space on a server computer that other computers can access on the Internet Web. Often, the Web design firm hosting the new Web site will do all the programming and maintenance of the server Web site for the owner of the business Web site.
Some 'host' servers charge $100 to $300 a month to companies that want to pitch their goods on the Internet.
New York-based AdOne Classified Network Inc. offers small newspapers a chance to operate a Web site for free. The fees come from the newspapers'ads: The papers charge advertisers a premium to appear in their on-line editions, and the papers then split the premium with AdOne. The service has 90 clients, and AdOne says one client, a weekly newspaper in Princeton, N.J., is on track to generate $250,000 in revenue this year from the site.
The hosting principle also applies to buying Web ads. Often, a business may be better off just buying an ad on someone else's site than creating an entire site yourself.
To find the right location needs to look where its competitors advertise, and buy ads alongside theirs to pull Web surfers to them. When Web surfers searching the Web for a particular topic covered by the business ad they are likely to be pulled to that business ad when the search engine generates the business ad in a list of possible sites of interest.
As an example, Segrets Inc. which makes the Sigrid Olsen line of women's sportswear, recently bought space on Internet FashionMall a New York-based site that broadcasts fashion shows live and sells space to a variety of designers and fashion publications.
Someone using a search engine to find a site devoted to designers might enter the names of other designers featured in FashionMall, but not Segrets. Because Segrets has space in FashionMall alongside its competitors, though, casual surfers would find it nonetheless.
Segrets is receiving five to 10 times more visitors at its Internet FashionMall site than it does at its own year-old site.
Jupiter Communications a New York-based market-research firm, issued an estimate this week that Internet vendors will collect $120 million in subscription revenue this year, and projects nearly $1 billion in revenue in 2000.