Will it become 'yourbiz.bomb'?

Publisher's Note

By Gerard Knapp

Will it become 'yourbiz.bomb'?

In a previous editorial, I listed some reasons why most e-commerce start-ups were struggling to be profitable, despite their valuations and huge increases in turnover.

At Image & Data Manager, for the past few issues we've pointed to the problems facing e-commerce operations, such as the lack of back-end integration which is preventing businesses from fully realising the potential benefits of doing business online.

In this issue, we have a commentary by Jon Pyke, the chief technical officer at Staffware, one of the pioneers of workflow, as well as a report from financial services guru Michael Bloomberg.

Pyke presents an approach that will help these e-commerce business 'glue' the front-end - the Web site - to the back-end, which is the vast repository of information which resides in most organisations on their mainframes or client-server networks.

Bloomberg, meanwhile, casts a critical eye over the plethora of floats by these cash-starved, unprofitable start-ups, and comes to the conclusion that businesses should stick to their knitting, so to speak, and let the technology take care of itself.


Still, more fundamental issues remain, particularly for consumer to business Web sites. If you look at the figures of these high profile Web sites, some worrying trends appear. Sure, the businesses may double or triple their revenues in one year, but their losses are even higher.

Take the online music retailer CDnow. Its turnover grew from US$3.9 million at the end of Q3 1997 to an impressive US$13.9 million at the end of the same period last year. The problem is, even with such a huge jump in turnover, it didn't become profitable. In fact, the company's net losses for the same period were even higher.

CDnow made a net loss of US$2.6 million at Q3 1997, and in 1998, the net losses blew out to US$12.8 million for the same period. And if you compare the performance over 1997 and then 1998, it get worse. Last year the total losses for this venture were US$30.8 million. It's no wonder that CDnow and its rival N2K were forced to merge late last year.

So what is happening here? We are told that for a Web-based operation, scaling up is no problem. Just run the same application on a bigger server, maybe order a slightly larger pipe to the Web and let the business roll in.

It's meant to be an automated money-making operation. With a Web-based business, you don't have to buy new machinery, move to a new factory, open new shops, hire hundreds of staff. Theoretically at least, an e-commerce operation should run the same whether it's taking one hundred or ten thousand orders per week.

Without being privy to the internal accounts, it's impossible to say what is going wrong. In last month's editorial, I presented the view that these consumer to business Web sites were selling their goods too cheaply. They have taken the wrong marketing approach. They have based their attraction to consumers on the basis that they're much cheaper than normal retail outlets. Yet it is far more convenient to purchase goods over the Web. You don't have to leave your house, consume resources getting to the store and spend valuable time looking around.

Yet with the Web, these products are delivered to your door - why should this be cheaper?

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