DOT-COMS

Dot-com is a shorthand term for an Internet retail business. The term comes from the ".com" extension on most business Web sites, which stands for "commerce." Perhaps no other sector in the business world has experienced as much drama, excitement, triumph, and tragedy in such a short amount of time as the dot-com businesses. In the late 1990s, thousands of established brick-and-mortar businesses were taking the plunge into the world of online retail in hopes of cashing in on the Internet craze. New sites were popping daily in such market segments as music, apparel, electronics, toys, hardware, pet supplies, furniture, and books. These companies were raising millions of dollars in venture capital by promising investors big profits in this exciting marketplace. It seemed that ecommerce was on the verge of revolutionizing the retail world in dramatic fashion.

This seemed to be the case during the Christmas season of 1999. Consumers tripled their online purchases from the previous year, spending more than $10 billion in the process. The craze reached its zenith with an advertising blitz during the Super Bowl in January 2000. Approximately twenty different dot-com companies paid $2.2 million for thirty seconds of ad time during this popular sporting event. Many of the ads were praised for their creativity and won numerous advertising awards. The retailers in turn expected the profits to start rolling in.

WHAT WENT WRONG

Unfortunately, times quickly changed as many of the startup dot-com businesses stumbled. Pets.com, which made a huge splash during the Super Bowl, had closed their doors by the following November. Many other companies followed suit. In all, over 200 dot-coms folded in 2000. There were many reasons for this reverse-phenomenon, including a changing economy, poor business strategies, frivolous spending on flashy advertising campaigns, and an overcrowded marketplace. By comparison, 2001's Super Bowl only attracted three returning dot-com advertisers.

In the obsessive race to cash in on the dot-com craze, many of the companies left their business strategies and marketing plans at home. With the onslaught of dot-coms, many failed to differentiate themselves from their competitors and define their markets, leading to consumer confusion. Many of the values that the businesses were offering were lost amidst the flash and excitement of the Web sites that contained them.

Customer service also became an issue. One of the most highly publicized cases involved ToysRUs.com, which promised Christmas delivery for orders placed before December 11, 1999, and then failed to follow through on the promise. This debacle angered customers and broke the hearts of children everywhere, causing consumers to wonder how a small dot-com company can succeed when a proven name like Toys 'R' Us faltered. ToysRUs.com blamed the problems on heavy Web-site traffic and the company's own inability to estimate how many orders would be placed through the site. To make amends, they offered $100 gift certificates to disgruntled consumers as compensation, but for many it was a case of too little too late. The damage had been done and many angry shoppers swore off online purchasing and retreated back to the safe confines of the brick-and-mortar stores.

Many other established names struggled as well. One advantage for a bigger company that expanded onto the Internet and then met with some degree of adversity was the ability to fold back into the parent company and merge the online business with the brick-and-mortar one. Still, other companies like WalMart.com and Wal-Mart Stores, Inc. have chosen to remain separate while making certain adjustments, including layoffs and a reworked business plan. Reasons for the desire to remain separate can range from stock options to incremental market valuation.

SECRETS TO SUCCESS

The sure-fire way to succeed in the dot-com marketplace, as well in every other segment of the business world, is to develop a strong marketing plan. Many e-tailers failed to do this as they got caught up in the hype and excitement that the Internet offers. Too many of them were busy designing sites that offered more style than substance, or racing against their competitors to be the first of their particular niche in the marketplace, before they even knew what that marketplace was. Others try simply to get their message to as many consumers as possible in the shortest amount of time, before they even understand what that message is. A successful business plan is one that demonstrates an understanding of consumers and how to gain their loyalty, while at the same time controlling costs.

Another obvious but often ignored strategy for dot-com success is to utilize data. As Kevin J. Clancy stated in Advertising Age, "Data must be captured and leveraged to continuously improve the core business offering and marketing strategy. The most successful Internet businesses are those that capture meaningful data—from their customers, prospects and marketing program results—and use them to enhance their business, build customer relationships and make smarter decisions. Many dot-coms talk the one-to-one marketing talk; the only way to back it up is to invest in datamining technology and strategy. Intelligent use of gathered data is simply the most important competitive differentiator for Internet concerns. The dot-com world is rich in innovation, yet feeble in marketing smarts. The next time you hear about a hip new dot-com business, ask the tough marketing questions to determine the business's real viability."

Another way for a dot-com business to succeed is through advertising. Obviously, smaller businesses cannot afford to run a thirty-second television commercial during the Super Bowl (or any regular show). Print advertising, especially in a major publication, can also be pricey. Still, there other alternatives for the savvy business. E-mail is one option for distributing a message quickly and cheaply and entire lists of prospective target consumers are available to businesses. There is the chance that recipients may perceive these e-mailings as unwanted materials (spam) and react in a negative fashion, so extreme caution should be practiced here. Banner ads with links can be purchased on larger sites to drive users to another particular site. In all instances, a business should be careful to examine the basic rules of "netiquette" and not post their ads on discussion groups, online forums, and electronic bulletin boards where this kind of practice is forbidden.

If a dot-com company decides to hire an advertising agency to handle their marketing, they should do so with extreme caution. Many agencies jumped at the chance to handle creative and marketing strategies for upstart companies, but the relationships grew sour as the online marketplace faltered. Again, a long-term commitment is essential here, instead of a quick fix that both the dot-com and the ad shop may be seeking. Both parties should be consistent and clear about what their plans are and take the time to make sure that the partnership works on all levels. When this is ultimately decided, careful planning must be done to create a solid advertising campaign that stands out from the competition.

Another way to succeed in the competitive dot-com marketplace is for two companies to join forces with each other. As John Zamoiski wrote in Brand-week: "In the new Internet economy, strategic alliances between online companies—and more importantly those forged between online and offline companies-will become a budget line item that will deliver high return on investment. Joint use of distribution channels will afford both access to target audiences with increased efficiency. These alliances will come in the form both of short-term promotions and long-term business relationships where brand equity will be traded and significant reach and frequency will be achieved. Ranging from complementary offer delivery to sweepstakes prize supply, joint delivery of loyalty programs, and referrals, the possibilities are unlimited."

SMALL BUSINESSES IN THE DOT-COM WORLD

The future of the dot-com marketplace still appears clouded at best. The popular e Toys.com closed its doors in early 2001 after failing to gain a solid customer base. Bookseller Amazon.com still is experiencing difficulties in the profit department and could be in for rough roads ahead. Even the online auction site eBay has its share of problems.

All of this does not bode well for the small business owner interested in the online marketplace. With all the economic turmoil surrounding it, upstart dot-coms will have a difficult time convincing investors to part with their precious venture capital. The days of instant wealth on the Internet appear to be over, at least for the time being. Only companies willing to make the sacrifices necessary to develop original sites offering value and commitment to their consumer base will succeed, and the process almost certainly promises to be a longer one than before.

Still, there are several appealing options for small businesses interested in expanding out into the dot-com marketplace. One such option would be to join forces with a bigger name to help sell one's goods. For example, Amazon.com offers smaller retailers the chance to hawk their wares on their site for a small fee. Other megasites are following suit with mixed results. Another scenario would be to set up a company that essentially profits from the failures of others. This would be a site specializing in moving liquidated merchandise that was originally intended to be sold online. These liquidators give failed dot-coms the chance to unload their goods, which they then sell to consumers at a bargain price that still nets them a profit.

Perhaps the best approach for a small business is to sit back and wait for the dot-com market to settle at this stage in the game. In the meantime, a small company can continue to use the Internet as a powerful business tool instead of relying on it as a separate business sector. As technology continues to advance, a new wave of dot-com businesses could emerge that has the benefit of the knowledge gained from the mistakes of their predecessors.

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