Dot-Com Business Models

By Danielle Deely

Everyone wants to make a quick profit. What better way to make money than to jump on the market bandwagon? When word spread that dot-com businesses were the economic miracle of the mid-1990s, the term "e-commerce" became an everyday term. The last five years have seen the rise and fall of some small and some not-so-small online businesses, many yet another carbon-company of the latest business model. When it comes to the internet, however, the only constant of success is being prepared for anything.

A business model is the method of doing business by which a company can generate revenue, or sustain itself. The business model spells out how a company makes money by specifying where it is positioned in the value chain. All online companies fall within three general categories: business to business, business to consumer, and consumer to consumer. Internet businesses can invent new ways to earn a profit or choose to use an older business model. For example, the auction model used by E-bay incorporates all three categories and was successful long before the internet, and continues to be used in varied ways on the web.

Businesses that use the web are able to eliminate the old obstacles of time and distance- there is no waiting in line. They are also able to offer venues that are not available through traditional markets. The term "business model" has taken on new meaning and greater importance related to intellectual property protection in the last few years . Business models are defined within the context of patent law, and a number of patents have been granted for these business models.

Why, then, have three out of every four dot-coms failed when there are so many advantages to being online? A key reason is no one is sure how many people are actually using the Internet. As of August 2001, more than 513 million people were reportedly online, an increase of about 150 million from the year before. Where user numbers do exist, demographic data, the keys to unlocking success in marketing and advertising, do not. Successful market niches which are profitable are usually those that appeal to "early adopters" of new technologies , and there are many more consumers who have yet to even hear about them.

The current recession certainly hasn’t helped matters. Many dot-coms took success for granted and never formulated a true business plan, assuming any online enterprise would produce gold.

Companies like pets.com collapsed when poor planning meant a lack of profits and failing stock. Now many would-be investors will not invest in a dot-com because of the implied risk.

Not every internet business has been labeled a "dot-con". This January, to the surprise of many economists, amazon.com finally announced its first profit since its public debut in 1997. As we enter 2002, look for the Internet to continue to grow, especially overseas, and for prominent online companies to continue to start making money, including Priceline and the New York Times' digital operation.

Industry analysts say it may take awhile for dot-coms to recover from the current recession. There are no guarantees for success, but profitable companies usually follow some of these guidelines: developing a unique website, introducing new products on a regular basis, ensuring easy and reliable credit-card payment methods, on-time deliveries, and most importantly, developing a clever marketing strategy. In the end, the name of the game is to build the best reputation and earn the most profits in the shortest amount of time possible. Obviously, dot-com business models aren’t so different from other businesses after all.