E Commerce Calls For Solid Planning

June 4, 2002
| By Katy Rent |
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GRAND RAPIDS — The best-laid plans are usually the ones that work best and reap the highest rewards. This holds true for any business and especially for Web businesses.

Business models — or as they are sometimes called, revenue models — are simply the cost and potential revenue. The bottom line is that nothing is free, and even sites that appear “free” actually have costs and revenues.

Each site is stored on a computer, uses Web software, accesses telecommunication resources, and must be maintained — all services which come at a price. Someone must pay for the computers, telecommunications charges, software and time.

Experts differ on whether there are five business models for the basic structure of Web sites or whether there are three.

One author lists five models: vanity sites, advertising sites, subscription sites, storefront sites and information sites. Another author says three — transaction-based, subscription-based and advertising-based —are what assist a company in putting together its business model.

Vanity sites are actually how many sites begin. They demonstrate a sense of self-expression, an outlet to share a hobby, promote a cause, or seek out others with similar interests. While vanity sites are usually created by individuals with no intention of deriving revenue and no delusions of grandeur, and while they range from being as simple as a one-page family site to as complex as a forum on public policy issues, costs are still involved.

The individual or organization, such as universities, libraries, communities, associations and businesses, often underwrites the costs. Even these sites that are free to surfers incur costs.

Advertising sites are often the model for network television, radio and many periodicals. Sites following this model fund programming and content through advertising revenue with consumer viewing being the measurement of value. Surveys are often conducted by agencies to measure the value and establish the pricing. For e-commerce, advertising can be in the form of banners, sponsorships, e-zine ads or other promotions. This model receives much attention but is still largely unproven.

While a few sites are entirely supported by advertising dollars, the lack of concrete viewing statistics (like television’s Neilsen Survey) hinder mass adoption by advertisers.

In the future, as consumer behavior is further understood, experts will be able to prepare purchase pattern analyses, providing advertisers with experiential data to support their promotion campaigns.

In other media, subscription models are well established, accepted by subscribers and nurtured by publishers. Subscription sites are careful because they are still not widely accepted by consumers. The key to survival as a subscription model is to target populations with easily understood needs. Such sites — ranging from Civil War enactors’ pages to medical practitioners’ sites — usually are highly specialized with expert content and timely information.

Revenues from subscriptions fund the development and maintenance of the site. Subscriptions are paid in many ways depending on the site: weekly, monthly or annually. Lately credit card payment has become the most popular and user-friendly source of payment.

The virtual storefront is what many consider to be the “true” Web site: an electronic version of a catalog offering products for sale.

Such sites are built to describe the product with words and pictures, offer promotions, provide a so-called shopping cart, complete purchase transactions, and set up delivery — all the amenities of a brick-and-mortar store but in the comfort of home.

The majority of these sites offer tangible products, but some now are beginning to venture into services. However, the key characteristic of storefront sites is the ability to make a one-time purchase without future obligation.

Information sites, also called brochure or billboard sites, are designed to derive revenue indirectly either through referred sales, reduced cost or both. The sites aim to get the product name into surfers’ view. Revenue comes from creating awareness of the product or services through the Web with the sale transaction occurring offline.

Success is measured on how many people visit the site and are influenced to purchase the product. Many corporate sites place electronic brochures on the site to advertise products, employment opportunities, investor relations or customer service. Revenues are created through the indirect purchase of the goods or services from actual rather than virtual stores.

The recent past makes one thing clear: in following e-commerce dreams, companies must forge and follow a sound business plan based on an accurate understanding of their industry and the customers who comprise its market.

The harsh reality is that the Internet is no longer a place for experimentation. Locally, the Small Business Development Center is available for help.

“We provide assistance with obtaining loans, starting a business plan, and any other questions a small business owner may have,” said Nancy Boese, Region 7 director of the Michigan Small Business Development Center at Grand Valley State University.

“Starting up any type of business, whether it be a Web-based business or a physical business, is difficult in the beginning and anyone is welcome to any of our programs, seminars and classes to learn where help is available and where to get answers to questions they may have.”

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