Eye on the Web: Show Me the Money
It’s a sunny, warm day in San Francisco. The kind of gorgeous, lush, blue-sky day that there are about three of a year in this micro-climate of a town. A sit-on-the-beach, walk-your-dog-in-the-park, sip-iced-coffee-in-an-outdoor-café sort of day. Unfortunately, I, like most single adults living in San Francisco in the Internet age, have to make money. So I’m inside. Interestingly, my plight today is not unlike the plight of many Internet companies (that’s dot-coms to you and me): They have to make money, and it’s just darned inconvenient for them.
Memories
Remember when the first online-only businesses starting popping up on the still-nascent Web? “How the heck are they going to make any money?” I thought. “Are there really so many people connected to the Internet now that an online-only company can be a viable business? Well, at least the overhead should be low.” I was wrong, of course. Because not only are there enough people connected to the Internet to make the number and size of e-commerce sites mushroom beyond my naïve expectations, but the overhead of many of these companies is not particularly low at all. The big question, however, remains: Can an online-only business be financially viable? The answer thus far appears to be, not yet.
One of the characteristics of online businesses that is working against them is the model’s newness. We know that retail stores work (particularly when they position themselves in malls or similarly well-planned fresh air promenades), and we know that catalog retailing works (prospective buyers, instead of looking at themselves in a new outfit, get to look at a model in a new outfit). But it still is not clear, despite an almost frightening push to have everything on the Web be commerce-related (most editorial jobs in the Internet industry these days involve supporting commerce in some way), if online retailing works.
Monster Dot-Coms
A look at Amazon.com, one of the most successful e-commerce sites out there (and one that has yet to turn an actual profit), can be sobering. Paper-thin profit margins (it has to deliver its products to consumers and still be able to price them competitively, after all), plus the high cost of maintaining a huge stock, have conspired to make the company one of the least profitable well-known businesses out there. In 1999, Amazon.com lost 719 million dollars, its biggest loss since its founding in 1996.
Then there are the grocery delivery services, such as Webvan (which seems to be popular in San Francisco), HomeGrocer.com, and the struggling Peapod.com. When WebVan’s distinctive refrigerated trucks started appearing on San Francisco streets, my first thought was that someone had finally found a visible use for venture capital. But thin margins for the speedy grocery delivery service (they promise to arrive within half an hour) may eventually spell its doom. There are only so many harried (or lazy) yuppies who can’t make it to the corner store, after all. I’m hoping those trucks have a high resale value, though the last thing this city needs is more large vehicles clogging its streets (or more of any vehicle for that matter).
Beauty-products sites such as Eve.com and Beauty.com may be facing similar problems. With the amount of product these sites seem willing to give away (Eve.com will trade free product samples for much-sought-after information about your buying habits) just to get you to try them out, it’s unclear how and when they expect to turn a profit. Indeed, shares for BeautyMerchant.com, the only publicly held beauty products dot-com I could locate, were trading today at an all-time low of twenty-two cents.
And then there are the quick delivery services, such as Kozmo.com and UrbanFetch.com. These sites, which in many cases have offered lower prices and free shipping to lure customers (since the draw of having your new stuff delivered that day didn’t seem to be doing it for them), are barely staying afloat. According to a recent New Yorker story, Kozmo.com spends close to $1.50 for every $1 it takes in, and in August the company announced that it was postponing its IPO. Keeping all those goodies on hand just in case someone wants to order them doesn’t seem like the best idea after all.
Moving Along
I’m not saying I think the Internet is doomed, or even that commerce on the Internet is on the express train to Nowhereville. Still, though I’m no business expert, it seems pretty clear that the existing Internet business models aren’t doing much for anyone these days, bar well-paid employees and the enterprising consumer (sites like GigaFree.com can show you where to find freebies on the Web).
As a citizen of ground zero for the Internet economy, I want to see online business be successful. And as a consumer, I want to see incentives to buy products on the Internet. Unfortunately, the two seem to be at odds. With people in San Francisco beginning to predict the death of the dot-com, I just hope we can figure out what to put in its place before there isn’t a place left to put it.
Read more by Andrea Dudrow.
This article was last modified on January 8, 2023
This article was first published on September 11, 2000
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