Beyond the E-Commerce Shakeout

Despite a well-publicized tripling of e-commerce spending last year, many e-tailers found themselves falling far short of the shopping season revenues needed to keep their virtual storefronts open.

In January, software e-tailer Beyond.com accelerated the so-called shakeout by announcing a corporate restructuring by focusing its marketing efforts on businesses, rather than consumers. The company also announced a reduction of its work force by 20 percent and began searching for a new CEO.

Another e-tailer that crashed last month was online superstore Value America, Inc., which announced a major reorganization as its stock sunk to $5.75 (US$) per share from a high of $74.25 in April.

Stockholders Take Second Look

Some industry observers contend that the recent lack of enthusiasm for such high-profile cyber stars as eToys, Theglobe.com and iVillage represents yet more evidence that the shakeout has really begun in earnest.

So what does it take to survive?

A new report by Forrester Research, Inc. indicates that there are three benchmarks that — if reached — can help an e-tailer make it through the ongoing shakeout and beyond.

Keeping Pace With Shopper Growth

According to Forrester, since online shoppers will increase by 63 percent this year, sites that fall below 50 percent growth in registered users are not keeping up and should shift to a niche market — or hope to be snatched up by a big player.

“In contrast, sites that grow their user base this year by at least 75 percent are growing ahead of the market and can justify postponing profitability at least another year,” the report contends.

Formula for Survival

Moreover, since Forrester predicts that the average Web-shopping household will spend 17 percent more in 2000 than in 1999, the report says that a site must also increase the number of purchases per customer and the amount each customer spends.

Forrester warns that if the growth of both numbers stays below five percent, the site is in serious trouble.

“To keep ahead of the market and justify continued development spending, both indicators should grow at least 10 percent, producing a 21 percent customer revenue increase,” the report adds.

Profit Still a Dirty Word?

While it is certainly hard to disagree with Forrester’s analysis, there is one benchmark that it avoids talking about in depth: Profitability.

It is almost as if Forrester has adopted the mindset of such giants as Amazon.com, which justifies buckets of red ink by pointing to continuing customer and revenue growth.

My advice to e-tailers that want to become winners instead of a shakeout statistic is to focus on making a profit. Only then will all the other benchmarks really carry much weight.