The devastation over the past 12 months in both commerce- and content-based Web sites has left many simply shaking their heads in disbelief, while others are simply saying “I told you so!” As the dust settles, some are searching for the proverbial needle in the haystack that burst the bubble while others search for the answer to the question “What does it take to be a success on the Internet?”
Looking for reasons the industry imploded, some point to the downturn in advertising revenue from banner ads, insufficient user bases, the skyrocketing costs of high-tech labour and hardware, the labour shortage and the ever-changing playing field of technology, to name just a few.
If you believe some of these forensic nay Sayers, then the basic premise of making money on the Internet was flawed from the very beginning and no one will ever generate profit from -based business. This is the point where I have to step in and take a stand.
For close to seven years I’ve worked in the Internet field and for most of that time a part of my time was devoted to reviewing and developing on-line presence strategies. During this time, I’ve always questioned the various dubious business models that were proposed, launched and initially appeared to be successful. Yet even today I’m a firm believer that the Internet is an integral part of business and yes, investing in the Internet from a business perspective can and should be profitable.
It is the word “profitable” that many forgot to put in their business plans in the rush to stake a claim in the Internet land rush. I’ve heard all the excuses and some of the best include, “Well, this is the new economy and we have to evaluate things differently” or “First we’ll capture the market and then we’ll figure out how to make money.” The reality is, old economy or new economy, the basic principal of business is that you have to make profit and not just generate revenue.
Imagine when mankind went from the old economy of a weekly/monthly gathering at a market to exchange goods to the new economy of a storefront. This new economy allowed people to get stuff just about any day of the week. So would someone opening a store in that period have said, “I’ll give all my merchandise away for free until I figure out how to charge for it.” This is exactly what transpired over the past five years.
In their hurry, to get on the bandwagon, to be the next Amazon, to get that IPO out there, these Internet pioneers forgot one thing. They need to make money at it.
Just think about some of the more famous bombs of the last 12 months or so. There was Boo.com (blew millions in developing an image and name, and almost nothing in developing their product) or Pets.com (did someone really believe that people would go on-line to order a 50lb bag of dog food and Fedex it overnight?). These are just a small sampling of thousands of businesses that drove stock markets to all time highs and in the blink of an eye brought them crashing down.
So what is the answer? Are all Internet projects doomed to be money-losing ventures? In my opinion, no. What is needed is for those who champion this technology to step forward with some sound business skills. We need to get back to the basics of forecasting the ROI of our projects and to make sure they have a positive cash flow in the near term and not the long term.
So before you go out there and rush another Internet project to market in under three months, make sure that someone and perhaps even yourself has done all the homework.
K’necht is president of K’nechtology Inc., a Toronto-based Internet strategy & consulting company. He can be reached at alan@knechtology.com.