As VCs zip up their wallets and investors lose faith in fledgling investments, dot-coms struggle to stay afloat
A team of top managers gather around the conference table for an emergency meeting. The one-point agenda: How to save their company from collapsing. A number of solutions are offered—change in business strategy, alternate revenue options or worse, huge salary-cuts and layoffs.
Desperation is clearly written all over their faces. Sounds familiar? Of course. It’s the way most dot-com dreams have ended up. Though it is difficult to put an exact number to the dot-coms that crashed, worldwide estimates indicate that dot-com layoffs in the second half of 2000 increased by 600% in comparison to the first half.
“I quit my job in that ‘stinking’ conventional industry to do ‘something on my own’. And the Net seemed tailor-made for my fantasies. The next Sabeer Bhatia in the making… with stakes worth millions of dollars,” remembers Pankaj Aggarwal, a young B-school graduate, who like most others had also wanted to explore his entrepreneurial capabilities.
Alas, that wasn’t meant to be. As dreams got shattered and reality set in, the euphoria was taken over by a struggle to survive. Dot-com, aka ‘the shortest route to success’, was replaced by ‘urgency to sustain’. It was time to go back to business basics. No room for short-cuts, please.
Back to business basics
Plush hi-tech offices, slick managers paid astronomical salaries, not to mention ESOPs, the popular choice amongst employees who didn’t even understand the term. Everything seemed in place. But there was a problem: No one was quite sure from where the revenues would flow in. So, the inadvertent had to happen. After all, how long could you endlessly spend investors’ funds over extravagant ad campaigns and those so-called creative pursuits? Money that was spent less on value creation and more on keeping pace with the hype had to run out some day.
Says Dinesh Agarwal, CEO of Indiamart.com: “They overlooked the ground rules of business and marketing. Building brands rather than valuable products or services; Getting into valuation games rather than keeping an eye on costs.” Most companies did not realize that a dot-com is also like any another business and needs to demonstrate profits or at least the path to it. “Dot- coms lived out of capital and expected that profits would automatically follow, which unfortunately never happened,” adds Kasi Viswanath, COO of financial e-marketplace, Apnaloan.com.
Profitability is the key to sustain any business, and a dot-com is no exception. As most dot-coms today realize this fact, their focus is shifting. A ‘strong revenue model’ is considered the most important ingredient for any successful dot-com. This is clearly reflected in the fact that it emerged the No 1 success factor in a random dot-com poll conducted by Dataquest.
Top Ten Success Factors
A quick survey reveals some of the key ingredients of a good dot-com, in the order of importance:
1. A Strong Revenue Model
Back to basics. Ensuring profitability should be the prime objective of any business. If your revenues don’t sustain your business, you are only running it for charity.
2. Quality of Content and Delivery
Another key factor is content, whether it is in the form of useful information, entertainment or utility services. Unless it fulfils the customer’s need, he will never come again.
3. Innovative Concept or Idea
Very important to start with, but equally important is the effective implementation of that concept.
4. First-mover Advantage
Although it may not automatically ensure success, but it could be a big help in establishing your name.
5. Reach Out to Your Target Audience
Works well if you have defined a specific target audience or are catering to a particular segment like the steel or chemical industry, for instance.
6. Branding and Advertising
You could catch them online or create an impact through offline promotions or ads, but brand building forms an important part of the business.
7. Promoters or Management Team
They are the people who will ensure effective implementation of any plan. So, it helps if you have some experienced and prominent people on your team. They would certainly add more credibility to the organization.
8. Look and Feel of the Site
This may not be on the top of your agenda, but a well-designed Site with quick downloads definitely helps attract and retain your customers.
9. Value-added Services
Add-ons and freebies are always welcome. Being used effectively by many dot-coms to differentiate themselves and pull more people.
10. An Offline Presence
This would depend on the product or service offered. It may not be applicable to all dot-coms, but it has been observed that a strong offline presence usually ensures steady business
“Do(n)t-com”, cry investors
There was a time when VCs and angel funding entities were gung-ho about ‘big-ideas’, big brands investing heavily to ‘get there’ (most still don’t know where). Stock markets for dot-com surged to an all time high, ad-budgets of ‘mom & pop’ dotcoms soared and then it all faded out… All this only left the investors and customers with a notion of disbelief regarding dot-com name-games and virtual brands.
For some time, investors may have been bewitched by the more than lucrative returns from the likes of Indiaworld.coms and Sabeer Bhatias of the game that were not justified by any ROIs or PE. But they have already burnt their hands so much so that they do not intend to even look at anything that is spells close to ‘dot-com’. No more crazy ideas in the name of innovation, they plead, as dot-coms turn into don’t coms. Unless the idea is backed by some real knowledge, it does not hold value for the funding agencies anymore. “Earlier dot-coms had a short-sighted vision. Even the teams was constituted of people from all walks of life, whether they had the domain knowledge or not,” says Mani Sam, Executive Vice-President, Auctionindia.com
“The market size and medium itself was over-valued. Therefore too much money was spent in creating excess capacity, which became financially impossible to maintain,” says Sunjeev Swaroop, Senior Manager, 123india.com. Now the focus is high on deliverables as ‘quality of content and delivery (No 2)’ comes before an ‘innovative idea or concept’ (No 3), according to the DQ dot-com poll. “In the long run it is your delivery which matters most. If you can clearly specify the deliverables and consistently provide them to your customer, your site has greater chances of success,” says Mani Sam.
Catch me if you can: Customer
For all practical (non-virtual) purposes, the customer is still loyal to his conventional buying habits. No matter how hard you try to delight him, he is tough to crack. And yet, in this entire game, he is still the most important entity. How much can you please him with virtual services, virtual brands or virtual security? The money he has to pay is real after all. As of now, he wants to have fun… surfing, gaming or even learning. But is he willing to pay for all this?
What Makes them Click?
While others vanished from the scene, some sites managed to pull through even under adverse market conditions. Here are some factors that helped
Note: Based on feedback from industry observers and experts, we have randomly selected names of some sites that are going strong. The list is not exhaustive and does not claim to cover all dot-coms
Pay the customer to see your sites, pamper him with freebies and attractive road shows and he would be happy for sometime. But dare you send any spam-mails, sales or promos, for his mailbox is far too precious to be filled with your junk. And when it comes to making a purchase… catch ’em if u can! ‘Brand loyalty’ did you say? Yes of course!…For all ‘virtual’ purposes customers are loyal to the dot-com brand that offers the most freebies and asks the least number of questions. (Dot-coms think they have created the largest customer database by making customers fill their registration forms. The fact is that they forget passwords to their registrations by dozen every week!).” That’s your customer and he’s much smarter than you think. And cautious, of course!
Reaching out to the target audience, thus, becomes extremely pertinent (No 5), and brand building (No 6) comes along with it. There are some sites that cater to specific sectors like Automart for automobiles, Clickforsteel for the steel industry. But by and large, most sites are not very clear about their focus and this would naturally come in the way of reaching out. Unless you clearly know where to make an impact, you are most likely to be lost in an attempt to please everyone. Value-added services also form also forms a crucial part of the whole exercise. “Customer service has not been given the importance it deserves. Internet is a tool, not an end in itself. It can be used effectively to communicate with your customer,” says Jai Raj Gupta, CEO, Shaadionline.com.
You’ve got your business model in place, the customers like your content and your brand building process is also going fine. But is that enough to ensure success. What will you do with the @#$*&# net connection? Poor ISP services, low bandwidth and other infrastructure issues are also real. You can’t ignore them. “Internet is just another medium for dissemination of information. One should understand the strengths and limitations of the medium and use it as effectively as possible within the given constraints,” says Sidharth Gupta, Chief Operating Officer, Asianvendors.com.
So, in the end what determines success? There is no single golden rule. “I strongly feel that it is a combination of factors which is responsible for the success of any venture. This would vary depending on the objective of the respective models. It is important to effectively integrate the model to complement your main line of business,” says Gupta.
Still, the hard fact is that no business can remain unaffected from this phenomenon. Whether it is in the form of a pure dot-com or the e-enabled enterprise, the Net is gradually creeping in everywhere. It will have to go through its ups and downs, until it finally takes shape. The question at this stage is not B2B or B2C, but how keep going through this phase of evolution.