Working the Web

Too many companies still don't know how to make money on the internet. Rhymer Rigby points out the ways of the winners.

by
Last Updated: 09 Oct 2013

For we Brits, the high noon of the dot.com boom was probably Friday, 14 March 2000, just over six years ago. This was the day when, amid much champagne-popping and canape-munching and general PR overspend, lastminute.com floated, the Nasdaq index having peaked four days earlier. A month later, Wall Street experienced its biggest single-day drop in history, ending a week during which the US markets lost $2 trillion, or roughly the value of the German economy.

What was interesting and unusual about this bust is that it wasn't a meltdown in the style of the 1929 Wall Street crash, or even the harbinger of a real recession. Rather, it was a 'necessary correction', the comedown after technology stocks had been partying too hard for too long, trading at huge earnings multiples on the promise of profits that would never come.

The months after the crash largely separated the wheat from the chaff, with many of those that were hype-rich but devoid of any real value (Boo.com, Kozmo.com, Pets.com) going to the wall; others (jungle.com) were bought out at a fraction of their one-time value; while still others (QXL.com, bol.com) limp on, having been long eclipsed by successful contemporaries.

And then there are those rare few that weathered the crash and are now prospering, having figured out by a combination of good fortune, business sense and old-fashioned trial-and-error what really works on the internet.

The most obvious of these are the globe-bestriding colossi such as Amazon, eBay and Google. But plenty of smaller and less well known businesses have done very nicely, thank you, out of a winning online formula - companies like WGSN (a fashion database), Screwfix (a hardware supplier) and rightmove (property sales).

All these successful survivors, large or small, have a few strategic points in common. They either used the web to do something better than it could be done elsewhere, used it to revolutionise an existing sector, or took a successful existing business and made it work on the web. They also offer some valuable lessons to any firm seeking to make doing business online more profitable. For although the post-crash hangover has worn off and there are now many good role models out there, the fact is that too many companies still don't know how to make real money on the web.

If you are going to do business online, you have to get your site right.

At the very least, you need to make sure that it all works. This may sound obvious, but most of the UK's biggest companies fall at this first hurdle.

A recent survey by website testing outfit SiteMorse found that no fewer than 94 of the FTSE-100's corporate sites failed basic functionality tests, with broken links, non-existent e-mail addresses and 'page not found' error messages.

What you need, according to usability guru Jakob Nielsen, are 'the three Fs': the site has to be functional, fast and familiar. 'User experience is critical for success on the web, since that's all there is,' he says.

Most people go onto a site with a specific goal in mind, so you have to help them accomplish that. People don't want to wait forever for pages to download; tasks should be made as quick and easy as possible. So if you still have one of those gratuitously arty Flash movie intros on your site, think very hard about ditching it, now.

Finally, the site should function like other major sites. This is to say, if you invent a tricksy new interface, users won't bother to learn how to use it. 'A user,' says Nielsen, 'might admire a pretty site once, but won't return there. In contrast, people tend to return to a 3F site.'

Half a decade after famously profligate and sales-free fashion retailer boo.com went down the pan, many still haven't taken that lesson to heart.

If you don't believe this, check out Gillette's US website for its new razor (the Fusion). In the time it takes the site to load over broadband your reporter could have shaved, showered and moisturised. Now compare this to the classified ads site, craigslist.org. Craigs-list is not as pretty as the Gillette site. Indeed, it is almost ascetically utilitarian. But it's not as irritating either, and it has tons of quick-to-access content. Which is why, with only a dozen or so employees, craigslist is one of the world's most visited sites and has been credited with sucking hundreds of millions of ad revenue dollars out of the US newspaper industry.

But, sadly, putting a decent site together does not guarantee web success.

Some business models simply don't stack up online. Furniture.com famously spent $2.5 million on its domain name only to discover that UPS wouldn't ship items like sofas and tables. At the other end of the spectrum, US online grocery webvan.com discovered that $1 billion doesn't go far when you are prepared to deliver cans of Coke one at a time. But there's a sweet spot between deliverability and profitability. Take screwfix.com (see p65). You pay for packing and handling below a certain amount and for faster shipping; above it, you don't. It's not a difficult model to understand.

A huge number of page views does not necessarily equal a huge amount of revenue. In the retrospectively risible jargon of yesteryear, you need to 'monetarise those eyeballs'. That is, if you're a retail site, you need to sell stuff, and if you're an information/community site, you'd better have an awful lot of advertising or be charging for something.

This is why sites like WGSN (see p67) work. WGSN is subscriber-only, but crucially - unlike many news sites - it provides information that cannot be had anywhere else, so people will pay for it. The subscription model can work, but only if your content really is compelling. If 10 minutes' Google time will turn up the same information for free, forget it.

Taking the hassle out of doing something is another winning web ploy.

This is why online estate agency works well. As agents put more detailed information - floorplans, photos and PDFs - on sites, buyers can view dozens of properties online and eliminate most of them. The agencies themselves get access to a hugely expanded audience of buyers, and can be more confident that the ones who turn up for a viewing are serious prospects.

'It took something that was previously very time-consuming and made it simpler,' explains rightmove's commercial director Miles Shipside. 'Previously, you had to look in agents and rely on papers. Now it's all in one place - and it's easier for agents too.'

As an information aggregator, rightmove (which charges estate agents £3,000 per branch) offers another interesting lesson. It is by far the largest site in its sector, with some 60%-70% of UK property; the next-nearest has something like a third. This shows that the internet can be a winner-takes-all arena. After all, if you're selling something, you want to sell it where it will be most visible.

In such situations, there may be room for specialist operators. But the big lesson to be learned here is that of eBay: in some sectors there's room for only one player.

FIXING IT FOR CUSTOMERS

With their rather hairy-arsed public image, builders' merchants are not businesses you might expect to exemplify cutting-edge online practice.

But Screwfix does just that. When the company was bought by Kingfisher in 1999, it had a £30 million-£40 million turnover and a rudimentary web presence, with online sales a tiny fraction of its total. Now, direct sales are £250 million a year (it has eight outlets). The internet accounts for some 40% of this and is growing fast. Last year, it took a million orders online.

Jeremy Maxwell (above), Screwfix Direct's marketing manager, says that while the online success has not been rocket science, he can point to several factors that helped create it. For starters, the firm was a catalogue-based business with 20 years of mail order experience - and what is the web but an interactive online catalogue?

And, although most people's idea of a tradesman is someone who picks up everything in his white van, Maxwell points out that this isn't the case, and that doorstep delivery is a big draw. 'Many of the guys that maintain sites - like caretakers - don't necessarily have cars or vans.

So for them it's very convenient.' It's also open later than many traditional builders' merchants, and offers next-day delivery. So a tradesman can order supplies early in the week knowing that he can have them delivered and the job done before the weekend.

The site aims for ease-of-use and low prices rather than a bewildering variety of options, and has made its search function as responsive as possible, using slang words and variant spellings, for example. The firm also monitors chat forums for feedback. Moreover, says Maxwell, if any of its promises cannot be met, it aims for total transparency. 'Our customers just want honesty.

'If I had to characterise the trade,' he continues, 'it's that they're very down-to-earth and logical.' Customers buy online only because it makes good sense. That, says Maxwell, is what Screwfix is doing. It's an apt name: the firm is the UK's largest direct seller of screws, shifting 13 million a week.

FASHION AT THE SPEED OF LIGHT

There can be few better examples of how the internet can transform an industry than the Worth Global Style Network. WGSN is the world's leading online fashion information database and was recently bought by Emap for £140 million.

Launched in 1998 by brothers Marc and Julian Worth, WGSN has appeared in these pages before - MT identified it as one of the most likely of British dot.coms to succeed only a year or so later. It provides the worldwide fashion industry with pictures, news and data (anything from next season's style and colour information to 'coolhunter'-type trendspotting) in a convenient, high-speed format. A vast improvement on the old-fashioned hard-copy stylebooks it replaces - which could take six months or more to compile and produce. 'Fashion,' says MD Steve Newbold (above), 'is a great B2B example of how to use the web. Everyone deals across territories globally and needs information very fast.'

A number of external factors contributed to WGSN's success. First, the industry accelerated. 'With shops like Zara, in Europe you now have new collections on a monthly basis,' says Newbold. Those designing for next year need as much information as possible now. The other great boon for WGSN has been the proliferation of broadband: fashion information is always going to be image-rich, and slow connections are a bottleneck.

The company has also been smart. The Worth brothers came from the Midlands rag trade and knew the value of a quid, spending carefully only where returns could be expected. The information it provides is unique and regularly updated, allowing the firm to work on a paid subscription model from the start. By 2002 it was profitable: £14,000 now buys you a five-user licence for a year.

From an initial staff of 15, WGSN now employs 80 people on content alone, plus 130 freelancers. It has a database of 3 billion images and 500 million pages of content. Such resources protect it from competitors by creating high barriers to entry.

The database is doubly valuable, as the fashion industry is highly cyclical, and what was in fashion last year will be back again in a few years' time.

And there's plenty of untapped market. WGSN may have 2,000 subscribers in 60 countries, but, says Newbold, 'by our estimation, there's a lot more to be done with our core available market. There are a lot of people who have yet to discover WGSN.'

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