Sunday, June 24, 2001

Profitable Websites Invest in Infrastructure and Promotion

After seven years of tracking online success, ActivMedia’s research shows that companies online for three or more years are far more likely to have become profitable than companies in the early stages of website development, which do not expect to see a profit for several years. These sites in the early stages are spending the most on their sites (average of $107,000). Less than half that amount is being spent by firms that are already profitable ($40,000) or intend to be so within a few months ($43,000), since they are well past the heavy startup costs (initial launch and subsequent website-tuning phase) and now emphasize site maintenance and upgrade.

Interestingly, sites that may never be profitable, or are not intended to be profitable, are also spending about the same per year on average as the profitable sites. While not making a profit for their companies, these websites are nonetheless very important in terms of establishing an image and developing relationships. Therefore, companies are willing to spend money on these sites to ensure that the sites achieve their alternative objectives.

Profitable firms spend only a slightly smaller proportion of their overall website budget on site development than other firms do. The external portion is also only slightly smaller than other firms. Their allocation for operating and maintenance costs, therefore, is slightly higher. This is most likely because the more profitable firms are older and their sites are more developed. These firms are now in a position to maintain their sites rather than spend large amounts of money or effort on development.

Only about one-third of profitable sites engage in paid promotional activities, although this incidence is higher than that of those firms that are not profitable (22%).

Among profitable sites that engage in promotional strategies, the average 2000 promotional budget is $52,000. Firms with sites that are not yet making a profit are spending three times as much on promotion. This is likely to increase awareness of their sites and attract more new customers. Firms that are already profitable may cut back on promotional spending and invest in other types of marketing.

One key difference between profitable online businesses and those that are not concerns their use of online promotional activities. Not only are they more likely to have tried online promotions in general, but profitable firms are much more likely to have tried a variety of different methods. In particular, profitable firms are more likely to have tried buttons and links, reciprocal advertising, and search engine/directory positioning.

Profitable e-businesses that have tried online promotions have found that search engine and directory positionings are the most effective promotions. Although not rated as high as search engines, reciprocal advertisements and links also work better for profitable firms than those that are not profitable.

Profitable e-businesses tend to spend a little more of their total promotional budget for online promotions than non-profitable firms. On average, profitable firms allocate 46% of their promotional budget for online activities. (Presumably the other 54% is spent on offline promotional activities.) By promoting their online business through online media and methods, these businesses may create more effective advertising, ultimately leading to a higher likelihood of attaining profitability.