Computers Today, October 2001; Master File: Dotcom Survival Guide (pg 2)

What you need to know: Revenue is through commission on transactions and listing fees. Some market exchanges lack revenue models. One problem is that competition and the Web's disintermediatory nature keep driving commissions lower, while the costs of setting up a reliable and secure transacting infrastructure aren't falling as much. Only for early entrants who've created brands and those with deep enough pockets to achieve global-scale volumes. Listing sites have lower entry barriers and aren't as demanding. And they can cater to specialised markets.

Advertising model: The Web advertising model is an extension of the media-broadcasting model:

What you need to know: Web advertising isn't the disaster it's made out to be. But online advertising growth is too low to sustain millions of sites. Rates aren't high, either. And if your site doesn't attract huge traffic or traffic that is highly specialised (and hence fits into a media plan focused on a market segment), perish the thought.

Free model: Gives users something for free, like Internet access or greeting cards. Such sites also offer considerable advertising potential. Examples include Caltiger.com and bluemountain.com.

What you need to know: Revenues come from advertising and from partnerships. You will need to be sure that your infrastructure and your creative abilities provide service and value-addition that will act as entry barriers for rivals.

Infomediary model: An infomediary collects and sells information about customers to other firms. Some also work the other way; providing consumers with useful information about products.

What you need to know: The Web allows such information aggregation at a lower cost than any other means. Most infomediaries have foundered on finding a sustainable market for information, which as a rule becomes commodified unless there is a value-added service riding on top of it.

Registration model: Content-based sites that are free to view but require users to register, furnishing personal details, for instance nytimes.com.

What you need to know: Few sites have been able to generate commercial value out of the information provided that covered the expense of creating the site and its content.

Recommended system: Another variation on the infomediary theme; sites like planetcustomer.com and customerpowernyou.com let users exchange information with each other about the quality of products and services.

What you need to know: A sustainable revenue model may be hard to achieve. Partnerships offer a way out, but often at the cost of objectivity.

Merchant model: Classic wholesalers of goods and services, increasingly referred to as e-tailers. They may operate solely over the Web, like amazon.com or fabmart.com. Others are traditional establishments with Web storefronts that are integral to the overall business model, for instance barnesandnoble.com.

What you need to know: It's a competitive market, with long time-to-break-even, but there is the possibility of creating very strong brand value. Concentrate on selling goods that are either repeat purchases or require relatively little "touch-and-feel" before purchase. Provide a bigger choice than your physical shop, along with competitive special deals. It's critical to be well-funded, and to have strong skills in managing partnerships, logistics and outsourcing. The power of the Net creates new opportunities; Fabmart.com has found that young NRIs like to order groceries for their parents in India over the Net, for instance. "Only firms with strong infrastructure and a clear understanding of the nuances of Indian retailing would survive," reckons EasyBuyMusic CEO Chris George.

Manufacturer model: This model is predicated on the Web's power to allow manufacturers to reach customers directly, for instance Dell Computers.

What you need to know: The direct approach helps prevent cost-build-up along the sales and distribution chain, and allows the firm to offer customers competitive prices. It also allows cost-effective mass customisation. But it doesn't work equally well for all product categories-while it works well with PCs, it has yet to take off with cars.

Subscription model: Users have to pay for access to site information, such as with Kotak Mahindra's indiainformer.com.

What you need to know: Customers have to be willing to pay for the information or services offered. This is a sustainable model only if no one else is offering comparable information for less elsewhere on the Net. That's usually the case, and although there can be considerable value-addition in collation and data aggregation, customers are unwilling to recognise this. But the model does work for areas where information is hard to get, or free access to it is legally restricted, such as real time financial or commodities trading data.

Getting enough customers to spend enough money to achieve break-even and eventually make profits has proved the hardest part of getting a dotcom to click commercially. Still it helps for every entrepreneur to keep these in mind:

There's still no guarantee of success. But the industry's veterans have seen enough to draw up rules like this that you cannot afford to ignore. And the outlook is good for those who get it right. Yahoo! India's Chandnani is confident: "Businesses with a robust and sustainable revenue model are in a position to sustain their offerings to users through challenging economic conditions. They will not just survive, but prosper."

10 tips for dotcom survival--learned the hard way

Hmm... so old-fashioned business rules do apply to dotcoms and e-commerce after all. No great surprise in that, except for the number of hype victims who continue to plug away pointlessly at an assortment of losing causes. Rules of engagement on the e-battlefield:

1 The sheer number of dotcoms that lacked a long-term strategy continues to boggle the mind. If you don't have two- three- and five-year strategic plans with flexible and attainable goals, forget it.
2 Your strategy should permit tactics to adjust to changing market conditions. Don't we know it; economic downturns, increased competition and rising costs from vendors are facts of life and you need to be able to refine (not throw out completely-that would mean your strategy was junk in the first place) your business plan to accommodate uncomfortable contingencies.
3 A dotcom is not a learning ground for novices. A strong management team with relevant (this word is really important) skills is a must to keep a step ahead in Net time.
4 Build partnerships with large companies if you can. It bolsters your finances and gives you instant credibility in the market.
5 If your strategy looks fundamentally flawed, swallow your pride and find one that works. Immediately. Likewise, if there's no hope of recovery, cut your losses and bail out fast.
6 You can't sell just anything through your e-commerce site-products where buyers have a low need to "touch and feel" do best at online sales.
7 You need to offer products or services for which a demand exists over a site that has the capability and support for transactions. Information alone costs a lot to acquire and won't earn you any money.
8 Be realistic about what the Net can do for your business. It isn't necessarily a socio-economic revolution, it may just be an efficient market feedback mechanism, or a useful extension of existing sales processes. So have no qualms about extending your reach through offline processes. The combination works.
9 You must strive to offer something unique that your competition cannot match. "Me-too" is a very bad idea. If you can copy another firm, chances are that the entry barrier to the application is low and other players with deeper pockets will price you out of business.
10 Evaluate your performance. You will need the right metrics and tools to evaluate success. The ratio of buyers to visitors is more useful than the total number of visitors to your site, for example.