Forum Moderators: buckworks
The thing that is bugging me is "is there any point in small guys trying ecommerce in 2006"?
I mean, there are a zillion sites out there - getting hits from Google is bloody hard.
You are driven therefore to PPC - which can cost you most of your profits.
Idiots in Nigeria trying to constantly steal from you.
The big boys really own the market nowadays, they have good fraud measures in place - better thwn ours, they have exclusive deals with google to pay less on their PPC than the small guy.
I mean most of the stuff I may want to buy is on amazon anyway - their prices are LOW, there isn't much point even shopping around IMO, you order from Amazon and it arrives, free shipping ect. And if you want a cheap item try Ebay.....
The google sandbox really kills most new stores for a year anyway.
I an thinking of seeing my wife again, sitting infront of the telly and getting a life - no more money to adwords, ect, ect.
</rant>
Perhaps testing a program from 12 years ago, and basing all of your comments on FP from that one experience for the rest of your life should be rethought.
Thanks, you have persuaded me, really.
Even if I won't consider useing FP,
I will think of it a bit warmer :)
notepad is for those that know what they are doing.
Serious webmasters only use C:\>edlin
PPC is a big waste of time with the margins you're dealing with today. All you have to do is the math to figure out if the end profit is worth all of the BS!
>>The big boys really own the market nowadays, they have good fraud measures in place - better thwn ours, they have exclusive deals with google to pay less on their PPC than the small guy.
You are absolutlely correct sir! Once all the Titanics got their rudders focussed on the net it was all over for the little guys. Between the sweetheart price deals for product and the low-cost shipping rates - the little guy was doomed. I wasn't even aware that they have sweetheart deals with the PPC portals now - what a load of crap! It just goes to show you that the ones with all the gold make ALL the rules.
>>I mean most of the stuff I may want to buy is on amazon anyway - their prices are LOW, there isn't much point even shopping around IMO, you order from Amazon and it arrives, free shipping ect. And if you want a cheap item try Ebay.....
See my statement above. If I sound a tad bitter its because I am. I ran a very successful consumer electronics ecommerce site called Cyberteria.com for 4 glorious years starting in 98. Sales were through the roof!. However the bottom fell out due to the following issues:
1. Copyright infringement - lots of cease and desist letters from manufacturer's attorneys for using logos, names etc.... I've got a stack of them.
2. LOSS of vital product lines with my distributors due to manufacturer's bullying tactics(If you sell to Cyberteria we're taking the line away mantra). Ask me about the $80k in sales returns to customer's due to Klipsch finding out that their backlog in subwoofers at '02 Xmas time was thanks to yours truly. Or the $120k in returned long weekend sales to Mitsubishi because of one moronic customer from hell.
3. Getting jerked around by the manufacturer's evolving internet policies. One minute they want ' Call for Price' on the cart button. Then they don't want you to maintain the price in the code, then its okay. Then they don't want you to include their logos. However SKU's are okay. Just imagine how much re-coding I had to do at the whim of some jerk-off product manager looking to put feathers in their hat?
4. SEO algorithm schizophrenia by ALL search engines and PPC portal GREED. Getting ripped off daily by the likes of Overture, Dealtime, CNET, BizRate et al...Try getting detailed reports identifying all the visitor IP addresses and they laughed at you if they responded at all. The arrogance continues today with all of them E-Bay/PayPal et al..
5. Then throw in site migration from HTML to Lotus Notes, Constant site development/improvement issues, Fraud, Fighting Chargebacks (a 99% win rate which I'm proud of), Return Product Facilitation, Lost/Damaged Freight issues, Nigerian Scams, Cart Issues(It was fun being on their development server),Filling out credit app. after credit app., Hosting and other technical issues, customers from hell et al..
Needless to say, I still have over 20 some odd Net 30 term accounts with my distributors and really don't use them much. I have been relegated to a local custom install business which does very little at all. This was largely in part, due to my becomming a 'legit' business in the eyes of my distributors. See, there is this love-hate relationship that goes on with your distributor - you may already know this. They love you for all the hordes of past sales. And they love you for all of the current sales they can get away with without the manufacturer finding out. And then, when the manufacturer finds out they've been supplying you after being told to stop, the hate comes through the conclusion of the line.
Sure I can sell all of the accessoriees and crap that nobody wants making $1.00-$10.00 sale. But you're NOT going to have access to the products that really sell. In other words, the consumer electronics biz is all but dead to the independent etailer.
I guess my message is that today you definately NEED a niche in order to sell online. You need that holy grail of product line that maybe only you and another entity have access to. Otherwise, its going to be just one big swap meet.
Your points are intersting and insightful.
Alot of earlier replies to my question seemed to imply that because they had some measure of success 4 years ago then that sucess could be reapplied in 2006.
I just cannot see that happening, Google is a closed club for 8-12 months for a new business - that is a fact that no one can argue with. PPC prices are seriously high, how can a new business survive for those first 12months without going under - off the net alone without either a bricks/mortar store to carry you or a day job I think most new starers would fail - after giving thousands to Awdords of course.
A friend of mine has started an online store full of hope - thought they were going to sell hundreds of items per month ect, I think they now realize that getting those hits is the biggest problem, the traffic is already going elsewhere and it takes 2-3 years to build it, he thinks now he could do far better selling the product via normal old fashioned chanels for example.
I am trying not to be too negative here and will continue with my own projects but I guess I started the thread as a way of reassessing my lifes priorities ie spend more time with wifey.
Many thanks to all posters.
cheers
- it might take enormous amount of time to set up
- even if it is not going to turn into 6-digits profit, the possibility that you'll get some extra cash, then living and decent living, is pretty high.
- do not do it, if you do not enjoy it
Besides, there are two things I especially like about e-biz:
- you can start it actually having less than $100 on your hands
- you can start it and keep your job till you are ready
So, I'd say it is definitely worth trying, but only if you really like it.
Spiralling profit margins...
You have no control over whether your competitor is in it for 'part-time' cash or 'full-time' cash. The problem occurs when these two clash because the part-timer will usually settle for lower margins thus leaving you the choice of matching or beating his price.
When I started in 98, I was one of a handful of sites selling plasma TVs at below MAP(minimum advertised pricing). We had to sell below MAP because it had to be desirable enough to the consumer with the shipping thrown in. And still be considerably lower than their local brick and mortar store. There was enough marketshare for everyone without having to constantly beat each other out on price. So we were making healthy margins at approx 15-20% for a year or two until some morons from NY came on board. I won't name names. However, these idiots start throwing up the plasmas at 7-10% margins immediately thus cutting everyone's profits in half. There was no need to do this but I guess they thought they would get 'control' of the marketplace and then gradually raise the prices back up again - what a pipe dream!
I know for a fact that there are stores out there right now on E-Bay using the same plasma distributor I still have that are selling the units at COST. Their profit is the manufacturer's palsey rebate ($100.00-$200.00) that they have to wait approx. 6 weeks to receive. I personally don't know how they stay in business unless they have a lot of floating capital in the bank.
Been doing some thinking about it...
The basic principles of both traditional and ecommerce apply equally. Virtually every market niche by now was substantial competion. If the product is a physical item...the rule of low cost producer prevails. With ecommerce, verticle intergration is a must. Either you must be able to manufacture the product yourself, or outsource production to a low cost manufacturer in a third world country.
PPC is a must...to get traffic you have to be at the top of the heap. Even if you eventually achieve a decent ranking in the organic serps, you have to continue PPC.
You must strive for a profit to cost margin of at least 25% and selling items where you only make a couple of bucks per sale just ain't going to cut it.
Customer service, super fast delivery and 100% accuracy of fulfilling orders is paramount. You may achieve all other aspect of building a profitable business, but should you fail to take care of the customer above and beyond their expectations...you can lose market share within a blink of the eye.
Getting back to the original question...if your ecommerce strategy involves selling and distributing an actual physical product or service, it will take substantial financial resources to get started and don't expect to reach an acceptable level of profitablity until a couple of years. So...in this sector, the little guy just getting started has to either have the financial resources already available or a partner with the means to support the business. Venture capital firms are a possiblilty, but they have become vary wary of ecommerce of late. They put ecommerce in the same risk catagory of say a restaurant.
Contextual advertising (ie; adsense) is where the little guy has opportunities. However, we adwords advertisers are shying away from the content option because of click fraud. So...I have little faith in the long term prospects for contextual advertising.
The exception being...
Unless you can develop a site that attracts targeted contextual advertising that the "big players" will be attracted to...then this is area I would pursue if I were entering the online business market today.
I am not sure how far Adwords will take the small guy in 2006 - remember Google is constantly increasing the PPC of the adds to the point where they eat into your margins - they're becoming a leech in this respect IMO.
Don't forget to look at this from the complete newbies point of view and not apply 4 years worth of experience, the newbies are trying to compete with the older crowd - google favours established sites so they will struggle in SERPS and find PPC expensive - that is my point "How would a 2006 newstarter ever survive"
cheers.
But I think most of them are wrong.
The same arguments were put forth 100 years ago by buggy whip manufacturers. It's Darwin - adapt or get out.
E-commerce, like any commerce for the past 4000 years or so, is driven by supply and demand (mostly at least). And if there are 85,000 online stores selling consumer electronics, making it 85,001 is not going to make much impact. The difference now is that both supply and demand are on a nationwide or even worldwide scale. 20 years ago you competed with the new Walmart down the street - now you compete with Amazon or Dell or Electronic Botique. Same thing, different stage.
But despite all that, there have been thousands of success stories. Maybe they are doing something that you did not.
Right now, the most successful new startups seem to be specialty and niche stores. And that does not mean organic vitamin store #233,345.
remember Google is constantly increasing the PPC of the adds
No, Google is not. Google does not set the prices.
>>I see a lot of reasons posted for NOT starting a business online.
>>But I think most of them are wrong.
You must not have READ my posting regarding pitfalls I ran into. Your products are basically 'niche' products and you've maintained a 'brick and mortar' store for several years. Let me ask you some questions.
1. As an 'authorized' reseller for your products, do you have official authorization to sell them on the internet?
2. Are you contractually permitted by your manufacturers to trans-ship them into another reseller's territory?
3. Have you had any successful product lines immediately pulled for selling on the internet?
4. Have you had any orders you couldn't fill because the manufacturer has determined that they do not want internet sales of your product?
5. Have you received any 'cease and desist' letters citing copyright issues from any of your manufacturers?
6. Will the manufacturer support all warranty issues for your customer if they purchase from you over the net?
7. Are you permitted to use ALL logos and trademarks of your manufacturers?
8. Do you stock your products or drop-ship?
9. If you drop-ship, are they always in stock or are there lead times for fabrication/delivery?
10. Have you been had any product lines pulled because a potential customer quoted your price to an in-store sales person who then alerted the manufacturer?
11. Do you sell at MAP pricing? You probably do because of the type of niche products you sell there isn't as much competition.
I'll bet you don't spend much at all on PPC because of your product line(s). I spent >$30k in PPC advertising alone in my 3rd year online.
All these questions I've posed above adversely affect most independent consumer electronics etailers. These rules were also designed to eliminate independent etailers. Now that alot of us are gone, they have relaxed the rules with the likes of Walmart, Amazon and BestBuy. And most were alluded to in my previous postings. You may be immune to these issues. However simple explanations of 'supply and demand' do not apply to all situations.
My personal little formula for success is to cut out the b.s., and level with my customers. I import directly, then wholesale my high-quality but generic (ie: non-branded) products to them so they can go out and startup their own retail businesses, and expand my market like breeding rabbits. This is the kind of democratic entrepreneurial activity which breaks monopoly capital's grip on markeplaces.
These corporations are not running on tight margins at all. I just saw a documentary called "The Corporation" (highly recommended). In it they show detail how, quite literally, US$3.50 is spent to produce items which retail at $85.00. The markups are obscene. The way to run circles around the big boys is to sell their goods without the brand and without the hype. Always arrange it so you're always the one able to call your own shots. Otherwise you're just a slave to your product provider. That's how David slays Goliath, with only his wee slingshot.
Unfortunately this is an example of big guy clout - you had to toe the line, the Walmarts just say "go to hell or we drop our orders" - who wins/loses?
*Nope. The one company that tried to stop us selling on the internet, we dropped and picked up their competing brand. Two years later the local reseller that complained in the first place went bankrupt. Aside from that it has never been an issue.
2. Are you contractually permitted by your manufacturers to trans-ship them into another reseller's territory?
*In our business there really are no territories so that is not an issue. The only issue is that some things we cannot ship to Europe because of warranty issues.
3. Have you had any successful product lines immediately pulled for selling on the internet?
*Never. But we don't sell much electronics, and electronics has a super high churn factor.
4. Have you had any orders you couldn't fill because the manufacturer has determined that they do not want internet sales of your product?
*No, but it helps being in the top 2 or 3 retailers of that type product in the US.
5. Have you received any 'cease and desist' letters citing copyright issues from any of your manufacturers?
*Yes, so we did. Six months later they sent a rep out from Canada to find out why our purchases had dropped over 95% and we were the #2 seller of their competitors product in the world.
6. Will the manufacturer support all warranty issues for your customer if they purchase from you over the net?
*Yes. Done so for years.
7. Are you permitted to use ALL logos and trademarks of your manufacturers?
*Yes, in fact most companies supply a range of logo colors and sizes for various uses.
8. Do you stock your products or drop-ship?
*We stock most, some things we drop ship, some might be a mix for large quantity.
9. If you drop-ship, are they always in stock or are there lead times for fabrication/delivery?
*Nope - in fact some items have anywhere from 2 week to 8 month backlogs. But if over a couple of weeks we almost always move the customer to a similar product.
10. Have you been had any product lines pulled because a potential customer quoted your price to an in-store sales person who then alerted the manufacturer?
*Nope.
11. Do you sell at MAP pricing? You probably do because of the type of niche products you sell there isn't as much competition.
*Not even close. For the one time that a manufacturer tried to do that, see #5 above. And with niche markets, you not only have a relatively small pool of sellers, you also have a relatively small pool of buyers. Right now competition is based more on who has what available than on price due to shortages, but that won't last forever. We have survived 4 previous supply/demand bubbles.
I'll bet you don't spend much at all on PPC because of your product line(s). I spent >$30k in PPC advertising alone in my 3rd year online.
*We spend around $15k a year.
Unfortunately this is an example of big guy clout - you had to toe the line, the Walmarts just say "go to hell or we drop our orders" - who wins/loses?
I am not so sure. Maybe it has as much to do with outmoded distribution models that had been carried over from the 50's that finally got changed - no doubt with encouragement from the giants, though.
Thanks for your honest answers. You are somewhat immune to the elecronic's distribution ills which is great for your company. Unfortunately for me, and several others, these forms of harrassment has gone on for a long time. Its tough when the manufacturers are able to jerk the distributors around and negatively impact businesses.
I started in this business in 98-99 with an online bookstore, stocking books in my basement. And I was 'competing' against amazon, b&n and indigo/chapters. In reality, none of the customers in my niche would have considered buying the books I sold from one of the big online retailers. Price was a bit of an issue, so I was always a buck cheaper. Time to delivery was a huge issue (I knew this because I knew my niche) so I moved heaven and earth to make sure I always had stock - and then shipped same day by courier. I became an expert on finding books in the US that weren't in stock in Canada and getting them across the border fast. My customers knew if they ordered they would likely get the books next day. No way Amazon touched that, nor would they even know in that niche that level of service was needed.
And there's a million more niches waiting to be filled. Badminton and racquetball eyewear and rackets. Custom order books by indie publishers. An online bookstore for graphic artists or macintosh owners. A store that specializes just in server hard drives. On and on, there's a gazillion niches that people can make a comfortable living in. Available niches are like dead people, I see them everywhere :).
We started off with a baptism of fire. We got sued by a multinational in the US within one month of business. They alleged that a product we were carrying infringed their trade mark logo. Luckily, because we were not based in the US, there was really nothing much they could do and the matter fizzled out. But if we were in the US, we were have been very scared. We are having a similar problem right with a "patent squatter" but at least we know how to deal with it.
I think the best advice one can give to Newbie is to take in as little stock as possible. If possible use a just in time inventory system or use dropshipping initially. Be extremely careful with your advertising and track very carefully.
It's easier than ever to start an online shop.
Yeah.
Set up a shopping cart 6 years ago. It wasn't as easy, there were few options, and you needed to learn a ton of things to even set one up. Now, we're in the age of one click message boards, etc.
I see a lot of reasons posted for NOT starting a business online.
Yeah.
If something isn't working... then it must be something else. For the person out there that thought they could make it on the net, they were in for a lot of work. That hasn't changed. It's just changed in different ways.
Do people have a head start on you right now? Of course. That has never changed. That doesn't mean you can't make it up. I remember... "man, those moving gifs are cool!" (That was before they were annoying, eye catching, commercialized, and causing seizures...) In any case, it takes a lot of work to catch up. Not many people pop from elementary school to college.
The question you should ask yourself--and this may sound cheesy--is whether society is truly better off by having the information/service which you are offering? Am I really filling a need or service that will increase someone's utility.
Here's a point to think about...
What about the fella with the million dollar page, selling pixel advertising? One page...thats it and it is 99% sold out...a cool million.
Maybe the newbies should focus on thinking "out of the box"...us oldies are all in the box and it's jam pack full right now.
When I got into the particular niche that I'm in, I figured that I got in too late as well. A few years later and I'm considered one of the old timers.
Start a business online today and in 5 years (not a long time for a real business) you will be one of the old timers too. How many web businesses today were around 5 years ago?
I just had to make a comment about FrontPage :)
It has been my experience (even with the latest version), that it creates too much extraneous code, especially when you edit an existing file.
I personally use notepad to create all my layouts, but if someone is not familiar with hand-coding HTML, that shouldn't be a reason to not start a website.
These are the ingredients for a successful online venture:
1. Good Site
2. A narrow focus in what you are offering (at least in the beginning)
3. Offering something 'different' than your competition (it can be something as simple as better customer service)
4. Patience
5. Patience
6. Patience
7. Patience (noticing a patter? he he)
Good Luck!
Right after I served notice, I attended a seminar for e-commerce in the travel industry. They started the conference with a just released report from a major research company that predicted something like 80% of the current travel agencies would be out of business within 5 years. As the vast majority of the people at the conference were brick & mortar people, it had a chilling affect on them.
I could have asked myself the same question as the original poster, easily decided it was stupid to enter a field where the vast majority of the current businesses (let alone new ventures that have a high failure rate anyway) would be gone in a few years, then gone back and asked my boss for my job back. (Hmmm, maybe my wife would have appreciated if I had done just that, but that's another story!)
Instead, I thought to myself, "Cool! In less than 5 years, 80% of my competitors will be gone!" ;)
It's now almost 5 years later. I haven't been keeping tabs on the offline agencies, although I know a lot of them have shut down or merged since then. However, I did watch a number of companies similar to ours jump into the .COM frey, gather huge amounts of investment money with great fanfare, then quickly burn out. We've also seen a HUGE number of new online agencies and many new online travel revenue models. Oh, and the company that put on that original conference? Bankrupt! ;)
For us, I'm still chugging along, increasing revenue every year. Am I an Expedia or Travelocity? No. Could I, if I realy, REALLY wanted to? Perhaps. (Look at Orbitz and several other travel-related sites that have grown from nothing to stardom in the past 5 years). Did I ever plan to be? No. Would I have made more money had I stayed in the corporate world? Yes. Would I have been happier if I stayed in the corporate world? Who knows. Do I have regrets? NO!
As I plan to expand, I will be expanding into other areas that are already very crowded. But I will be going about it the same way as before- see what other people are already doing and figure out a way to do it differently.
Instead, I thought to myself, "Cool! In less than 5 years, 80% of my competitors will be gone!" ;)
That is similar to our first foray onto the internet, way back in 1997 - I think we were the very first company in our niche to have any kind of a real internet presence.
Our first website was on the free (1 MB space?) on AOL. We did not have our own real domain and website until 1998.
Of the companies that were our competitors then, very few are still around.
Now, of course, there are dozens of competitors out there, but so far we have managed to keep ahead of at least 95% of them. Our biggest problem now is just the time to keep up with it all - stuff like keeping the products and websites updated.
But we have one major advantage over most of our competitors - we take care of our own websites in house, so we stay much more up to date than most, who often have to farm things out.
Dont forget the original question was "can a green starter do it in 2006"?
That is my point, even you two guys say that your own areas are pretty full, a new starter would have to overtake you - I mean would you be worried if someone fresh came into your area as competition or would you know that they would last a year or two and fail?
cheers
I just had to make a comment about FrontPage :)It has been my experience (even with the latest version), that it creates too much extraneous code, especially when you edit an existing file.
I agree that it is an awful mess but I think people dismiss the product way to quickly since it does have a place. If you have not settled on a design it can be a real pain just using notepad or a text editor. Frontpage is a good wysiwyg product to help you figure out your design.
Once you have the design then you can start from scratch with a text editor using the FP code as a guide. (or you can just clean up the code)
Getting back to the topic it is funny this thread came when it did. I have been mulling over this question for quite some time lately and trying to figure out the niche the big boys do not own. I know several however just seems not enough money nor traffic there to make a good living off of.
That is my point, even you two guys say that your own areas are pretty full, a new starter would have to overtake you - I mean would you be worried if someone fresh came into your area as competition or would you know that they would last a year or two and fail?
The main difference between then and now is that back then people were still throwing wads of money at e-commerce ventures without any kind of business plan. People got burned (or got what they deserved- take your pick) and now they are (usually) only willing to put money into an idea that has potential to actually bring in revenue. If you're not looking for startup money, that issue is pretty moot.
The other big issue is saturation. Although many good ideas have been taken and are being done well, there are certainly loads of untried ideas out there- just as there are always new offline startups all the time.
Is it possible for a newcomer to come in and overtake the leaders? Yes, it's possible (maybe not in every area)- I already mentioned Orbitz, which from the begining took on Expedia and Travelocity. But there are plenty of other travel e-commerce players that don't directly compete with them. While their revenues are far less than the bigs guys, their expenses are far lower as well. You don't have to be #1 in your industry to be successful.
Remember: $1 million in profit looks pretty much the same whether you have $1.001 billion in revenue and $1 billion is expenses or if you have $5 million in revenue and $4 million in expenses.
