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Proven Methods Yield Online Profit

A study recently conducted by ActivMedia shows that 50% of business-to-consumer (B2C) companies are currently profitable. The study, “Online Success Strategies in B2C Markets,” is part of ActivMedia’s “Online Success Strategies” series.

Another study in the series, “Online Success Strategies in B2B Markets” found that 46% of business-to-business (B2B) companies that have been online for three or more years are currently profitable. The study found that this percentage compares to only 32% of all B2B Web sites, regardless of the number of years online.

B2C

Of all the B2C Web sites participating in the ActivMedia Research online success survey, just over one-third are currently profitable, but 60% expect to be profitable within twelve months. While 17% do not intend to make a profit, the rest do.

The study cites the relative newness of the Internet as a commercial medium as one reason why so few firms post a profit. Many have conducted business offline and know how to run a profitable business; however, few have equivalent experience selling online and are realizing that selling online is not quite the same, the study finds.

B2B

“Online Success Strategies in B2B Markets” predicts that many more B2B companies will start selling online over the next 24 months, simply as a matter of survival. “Half of all B2B firms that do business both online and offline indicate that their online order size is smaller than offline orders,” comments ActivMedia Research’s VP of market research, Harry Wolhandler. “Another third find that the order size is the same. This provides little incentive for some B2B firms to develop their online business.

Further, more than half also claim to be conducting purchasing functions online. Some B2B firms may be establishing a Web presence in order to do business with other firms that are also online rather than to increase revenue. Cutting costs by conducting business functions-such as purchasing-online is another way to affect profitability margins. Rather than increasing revenue, some firms may look to the ‘Net as a cost-cutting strategy. Either way, the Internet opens doors to increased profitability.”

Key Findings

Some key findings of the series of studies include:

- One in three B2B e-tailers are currently profitable, and another one in three expects to be profitable in the next few years. However, a substantial proportion of e-tailers don’t intend to be profitable since their Web sites are marketing communication vehicles.

- Half of today’s B2C e-tailers are profitable because they are the most active Web sites in terms of directly selling products and services to customers online.

- One in four Online Content firms are currently profitable, but, most expect to show profits within the next couple of years, as the market matures.

- Only one in four Internet Services & Support firms (ISPs and ASPs) are profitable, but they have hopes for the future. Burdened by heavy competition online, they are particularly affected by other media that offer Internet access along with other services.

Wolhandler rejects the claims of many analysts. “Many analysts report that the greatest e-commerce success is among the most known dot-coms. I disagree. Online successes are instead found most broadly in the mid-sized business arena where companies with in-place businesses increasingly capitalize on their extended communication capabilities.”

Wolhander continues, “High-flying dot-coms are forced to expend resources on building a business backstage to accommodate the high level of sales that they generate. As long as they are experiencing stratospheric growth it will strain their ability to grow. They will not begin to effectively accumulate cash until growth slows to more modest, steady levels. The challenge for them will be to remain standing when online markets mature five or ten years from now.”