Just when the telecom end-of-world experience seems to be ratcheting up to yet another level of pain comes word that the Internet is not the guaranteed way to lose money that most people thought. It is actually possible for something other than eBay Inc. and pornography to make money on the Net.
A common request in business classes over the past few years has been “show me the business case where someone makes a profit with an Internet-based service.” After pornography and eBay, people quickly ran out of examples.
A lot of companies have saved gobs of money by using the Internet for customer interaction. Cisco Systems Inc. saved billions of dollars by moving to Web-based sales and support. Another example is the U.S. government – it costs fractions of a cent to deliver a tax form via the Net versus multiple dollars to deliver the same form via postal mail.
But the examples of businesses actually selling something over the Net and making money have been few indeed. The images of the Pets.com sock puppet and many other ex-Super Bowl advertisers (and existing companies) predominate.
But now comes news that profits are becoming more common. Business Week reports that 52 of the roughly 200 public Internet companies that made it through the industry bust are currently profitable and 15 to 20 more may become so next year. ( Business Week carefully says these companies are profitable “under standard accounting rules,” whatever that means.)
Even Yahoo Inc. just reported that it made US$21 million on revenue of US$226 million in the last quarter. The four profitable companies that made Business Week‘s InfoTech 100 list in June made a total of almost US$100 million in the first quarter. The companies on the list were pure service companies – eBay, two travel sites and a search engine.
In the grand scheme of things, that may not be that much money compared with the US$6 billion Microsoft Corp. made last year, but it’s also a far cry from the billions of dollars lost during the past few years. And the trend is in the right direction. As Business Week points out, these types of service companies can support a significant increase in sales without a big increase in costs because their infrastructures are already in place.
Maybe it was always the case that even in the Internet well-executed good ideas would succeed and that fact was just hidden in the burst of high-profile boutique concepts such as Pets.com. But it is ironic that logic should wait until the free fall in the stock market to win out.
Bradner is a consultant with Harvard University’s University Information Systems. He can be reached sob@sobco.com.