E-Businesses Need To Know Their Limitations

If there is any one thing that many Internet businesses have not considered in their business plans, it could be described simply as “limitations.”

Thinking that the pool of Internet users is never-ending and the possibilities exist for sales volume without a cap, many businesses have been near-sighted in their approach to e-commerce.

For the first time, many e-businesses are taking stock of their positions in the marketplace and are already re-strategizing. According to Michael Parekh, Goldman Sachs’ top Internet analyst, their actions come not a moment too soon.

“Every industry has to rethink what its business is and how it is carried out,” Parekh told a gathering of St. Louis, Missouri business people earlier this week. “We think there’s a free-for-all coming that cuts across every industry.”

Parekh, however, is not suggesting that the Internet has peaked. In fact, while just 30 percent of U.S. households have Internet access now, Parekh expects that figure to double in three years and reach 80 percent by 2005. Still, once the mad rush to get online levels off, companies have to be ready to compete in new ways.

Companies Must Be Proactive

If 2005 seems a long way off when the century has not yet even turned, consider the speed at which e-commerce is growing and the great strides that can be made in a five-year-period.

For the sake of perspective, consider where e-commerce was in 1995 and where it is today. Time flies when you’re building a new world order.

To keep pace, major players in e-commerce are now following their commercial forefathers and exercising their most promising option — diversification.

For example, AOL is now the seventh largest long-distance carrier in the U.S., as well as being the leading ISP. Both Gateway and Dell have formed alliances with ISPs to market computers, sometimes at little or no cost to the consumer.

Those deals may be as much about increasing user numbers as about diversification, but the impetus is certainly to generate product interest and keep brand names alive and thriving.

Never Get Too Comfortable

Still, e-businesses keep a keen eye on the numbers. Because of the fact that Web usage, sales and growth patterns are so easy to monitor, e-commerce is perhaps the most scrutinized industry ever conceived. Smart businesses are paying special attention to the growth or lack of it in user numbers.

Despite Parekh’s forecast of tens of millions of new users by 2005, a new study by Cyber Dialogue paints a more dismal picture. Cyber Dialogue found that most affluent adults are already online and low-to-moderate income adults are not being lured into cyberspace in large numbers.

Cyber Dialogue’s most alarming finding: A third of those surveyed say they have “no need” for the Net. Further, 27 million adults this year stopped using the Web after trying it, up from 9.4 million in 1997.

Findings like these are likely to spark some e-businesses to follow Parekh’s directive and re-strategize now, before it is too late. It appears to be time to shift the focus from simply drawing new customers to making things more attractive to the existing consumer base, and significantly improving customer service levels.

Possibly the most important business shift will come in finding ways to make more money from each sale, by diversifying product offerings and offering higher-end items in the inventory.

“We think the story for the Internet is just beginning,” Parekh said. “Internet businesses are still being invented. We can’t tell you what they will be doing five years from now because they’re still trying to figure out what you will be doing and what you will want.”