Lost amidst billions of dollars in squandered venture capital funding and endless reports from network anchors about the macabre state of e-commerce lies a seemingly overlooked fact: Not all of today’s dot-coms use red ink in the accounting ledger.
As the e-commerce tree hourly shakes off companies with poorly laid business plans, and the Sept. 11 terrorist attacks continue to disrupt the national economy, the viable dot-coms remaining possess sound strategies for continued positive growth.
Despite continued poor economic forecasts, Elaine Rubin, executive director of Shop.org, predicts that online retail sales for this year will still top $65 billion, an increase from 1.7 percent to 2.5 percent of all retail sales. As the quantity of online sales grows, a handful of companies are defining the tenets of successful e-commerce business models.
One company, Vancouver, Wash.-based GiftTree.com could write a successful case study for Harvard Business School on how to flourish in the New Economy. Started in 1996, the company experiences more than 200 percent annual growth and expects record returns this holiday season.
Founder and CEO Craig Bowen offers four successful strategies for aspiring dot-coms. He points to the failures of high-profile companies such as Pets.com and Furniture.com to illustrate the first cornerstone of e-commerce success: a sound business concept. While Pets.com and Furniture.com both raised significant venture capital and experienced spectacular short-term success, neither rested on a sound business concept. Why buy pet food on the Internet when it’s just as easy to purchase it at the grocery store? Who’s going to buy a couch or recliner online without sitting in it first?
Online gift giving, on the other hand, makes perfect sense.
“Gifts need to be purchased,” says Bowen, “then taken home, wrapped and mailed. That takes a lot of time.” In a time-starved society, clicking a mouse to send an elegant birthday or graduation gift is appealing when the alternative is skipping dinner to fight crowds at the mall and waiting in line at the post office.
After a sound business concept, a well-conceived economic policy is essential.
“We’ve been very frugal,” says Bowen. “We didn’t get caught up in the venture capital insanity. We’ve always applied traditional business thinking to our corporate strategies.”
Bowen points to Etoys.com as an example of a company with a poor economic strategy. Etoys spent $25 million in television advertising last holiday season. Shortly thereafter, its shares plummeted from $61.50 a share to $1.44.
Now that e-commerce companies no longer enjoy a tidal wave of venture capital, the new paradigm is thrift and scrappiness. Bowen believes in letting GiftTree grow at a natural rate, and not overextending his company’s advertising or development budgets.
The third key to success according to Bowen is customer service. When the competitor’s store is literally a click away, customer satisfaction must be the highest priority. In Bowen’s model, profits do not supercede customer satisfaction, but follow it.
“Our commitment to quality and service mean that we focus on customer service, not profits,” says Bowen. “Other companies do risk management and accept a minimal level of customer service dissatisfaction. We feel that satisfied customers shouldn’t be quantified in risk management terms — especially in the gift industry.”
To that end, GiftTree developed proprietary in-house software that increases the usefulness of its site. Features such as an online address book allow users to save time by storing important dates and addresses. A live chat feature allows visitors to chat online with a gift specialist. The company’s computer system also alerts operators when a customer inserts a potentially erroneous zip code. Perhaps most importantly, GiftTree personally confirms the delivery of each order.
“The costs and complexities of delivery notification are enormous,” says Bowen. “But steps like that are what allow us to excel in this industry. We always try to increase value. That’s how any company makes it.”
Lastly, successful e-tailers must continue to assuage user concerns about online security. A recent ABCNEWS.com poll found that 45 percent of Americans felt the Internet threatens their personal privacy. GiftTree offers an entire page on its Web site outlining its security and privacy policies, and Bowen says that GiftTree uses a firewall that provides hacker-proof protection for all consumer information.
Forrester Research estimates that world e-commerce will increase from $657 billion this year to more than $6.8 trillion by 2005. As those figures continue climbing, companies that employ the successful strategies of GiftTree will continue recording profits using black ink in the corporate ledger.