Thursday, June 14, 2001

3 of 4 Most Used E-commerce Strategies Successful

While there are hundreds of thousands of online businesses, the reality is that there are only a handful of business strategies that lead to success.

ActivMedia Research's just-completed study of e-commerce and profitability identifies four basic online strategies. There are commonalities between the business styles, and differences. Three of the styles are generally ``success" styles, although there are varying degrees of success within them that suggests ways to maximize online success overall. The fourth, followed by some of the most publicly visible, over-hyped sites, is a clear loser.

The difference between winners and losers within each strategy comes down to execution, executive choices and priorities. E-commerce firms can adjust tactics and increase likelihood of success by adopting the most successful strategies for a given style, detailed in ActivMedia's newly released research, ``E-Survivors! Winning E-Commerce Strategies for 2001", (June 2001, $1,895). The four categories are described by their strategic focus:

#1 - Niche Defense by Customer Satisfaction
"Niche defense" as a strategy is a solid, long-term survival strategy. It is generally adopted by older offline companies that have a well-developed, successful offline presence. These offline firms turn to the Internet not as a major revenue or profit source, but as an additional sales channel. They regard their Web businesses as part of the whole, rather than as a separate entity outside current offline operations. Their strategies online are very traditional ones and are the same customer-focused strategies that have worked well for them offline. As such, they take a long-term, deliberate and steady pace approach in developing their websites.

#2 - Growth Through Positive Cash Flow
"Growth Through Positive Cash Flow" is a strategy undertaken by generally larger-sized companies for whom the Internet portion of their business is fairly small. They sell online but are also fairly extensively involved in online partnerships with other firms that offer some level of funding. This group has benefited extensively from the Internet. They have been able to switch more expensive sales and distribution channels to the Internet, thereby improving profitability and cash flow. They have been very successful in the beginning with fast growth rates and profitability, however they are burdened with high levels of expense to develop highly technical sites. Supporting these technical sites and keeping up a high level of marketing to continue their meteoric growth has been a problem, but a manageable one.

#3 - Investment in Online Growth
Typically these firms are young and financially very healthy, but competition in this space is fierce. These websites are active with many transactions selling many products and receive many visitors who oftentimes make many purchases per year. In order to keep attracting visitors and past customers to their sites, these businesses invest heavily in their online Web technology. The challenge for these firms has been to maintain a high level of Web investment in site design and maintenance. The outlook for revenue growth is good, and with their financial stability and lower levels of competition, these firms can be expected to be successful in their quest for profitability.

#4 - Aggressive Site Promotion
Of the four Internet strategies identified by ActivMedia, this is the one that is not a successful strategy. Firms that adopt an ``aggressive site promotion" strategy lose sight of the more important pathways to success. In particular, this group does not focus on developing a unique market position, and is therefore vulnerable to other competitors entering the market with superior and more differentiable products. The firms in this group lose track of the bottom line. They do not focus on cutting operational costs or increasing operational efficiencies. Instead, they pour money into their Web business primarily as advertising and marketing expenditures. As a result, most of the companies currently using this strategy are not profitable. And many do not expect to be profitable for a long time.