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MAKING MONEY IN VIRTUAL LAND
(FORBES)
By O.P. MALIK
Forget all the hype surrounding the Internet! Focus on the bottom line!
Ask the hyped-up neophyte companies that are getting over-the-top
valuations to answer these simple questions: Do you have any money? Can
you make any money? How soon can you turn a profit?
It's tough. Trying to find ten profitable web sites is like searching
for a needle in the proverbial haystack. The truth only comes out when a
site files for an IPO and the red herring is published.
Companies which will make profits from the web can be roughly divided
into three categories <direct sales, like Dell Computer; commodity
product resellers, like CDNow, which sells music online; and others like
airlines and travel services. And of course porn sites.
The obvious winners are technology companies like Netscape, which
recorded profits of $8 million on $120 million sales in the first
quarter of 1997. But Netscape's sales pale beside some of the other tech
sites.
Dell Computer, for one, is using the web to sell computers. At the web
site, customers can electronically design, price and purchase computers.
They can even track the status of their orders and get service support.
At present Dell is selling about $1 million a day worth of computers
through its web site. "The Internet sales make our overall sales
operation more efficient," says Bill Robbins, a spokesman for the
computer maker. For example, Dell saves nearly $3 on every person who
checks the status of his or her order online instead of picking up a
phone.
One of the most profitable web sites belongs to Cisco Systems, which
generates $5 million a day in sales and services through its web site.
By the end of 1998 nearly one-third of Cisco sales will be through the
web site.
"Internet is nothing but a new sales tool," says Russ Manney, analyst at
Forrester Research, a Cambridge, Massachusetts-based technology research
firm. Just like mail order catalogs and 1-800-numbers. But for those
outside of technology companies, the going can get to be very tough,
unless the focus is on a small, niche product.
...from
Making real money in virtual land
Like condoms. Specialty store Condomania's online site, which debuted on
January 1996, sells $1,000 worth of condoms every day through the web
site alone. Founder Adam Glickman, who opened the condom store chain in
June 1991 in New York City, says 25% of his total company revenues now
come from the web site, which has a "pretty comfortable profit margin."
That's understandable with some of the orders coming from places as far
off as Brazil, Poland and Thailand.
Think niche marketing, says Andrew Turnauer, an author and mortgage
expert. Offering mortgage and credit reports on his site, Maze.Com,
Turnauer is turning a modest profit of $5,000 a month.
Ever since Turnauer published his mortgage handbook, Navigating the
Mortgage Maze, the number of hits on his web site Maze.Com has tripled.
Operated by Turnauer and his wife, Brenda Cantu, the site went live in
June of 1996, offering credit service reports for as little as $9.95.
With loan officers working on commission, the site turned profitable at
the end of last year."We have very low overheads, since we have only one
full-time web master," says Turnauer.
Look at PhotoDisc, a Seattle-based company publishing high-quality
photographs and images online and on CD-ROM for use by graphic designers
and advertising agencies. Online sales add up to about $500,000 every
month, and by the year 2000 online sales will be half of the operation's
total revenue.
For someone like Ted Church, owner of Aquatic Connection, turning to the
Internet has been the smartest thing he has done in a long long time.
The Florida-based company has been in business for 12 years, and the
post-web site business has outpaced all previous efforts, Church says.
At his web site, Aquacon, you can view and purchase tropical fish from
all over the world. This highly interactive and informative site
provides information on fish, including care, feeding and background
information. After "stocking" your virtual aquarium, you can purchase
the fish with a simple click of a mouse.
Soon after Aquatic Connection opened its virtual store, the sales jumped
300%, to $600,000 in 1996 from $200,000 in 1995. This year Church is
hoping that the revenues will hit the million-dollar mark. Not bad
considering margins on web sales are in excess of 40%. Plus, overseas
markets now contribute 7% to 9% of his total sales. "I had no
international business before I opened the web site," Church says. His
overseas clients include the Moscow Zoo and pet shops in Portugal, Great
Britain, and Brazil.
The growing popularity of online trading has boosted the fortunes of
E*TRADE, one of the pioneers of the online financial services industry.
Second-quarter revenues rose 208%, to $32.2 million, as profits jumped
to $3 million from $185,000 a year earlier.
"The Internet has become the most vigorous of E*TRADE's online channels
and gateways. From the launch of the E*TRADE web site in February 1996,
our web site business has grown from a daily average in March 1996 of
600 transactions a day to an average last quarter of more than 7,000
transactions a day, roughly half our total volume," says Christos M.
Cotsakos, president and chief executive officer of E*TRADE.
Not every business has been successful. Many companies are reporting
revenues, but few are profitable because they have to keep plowing cash
back into technology and marketing. In 1996 Amazon.com lost $6 million
on revenues of $15 million, according to the initial public offering
documents filed with the Securities and Exchange Commission. Even the
acclaimed SportsLine with more than 31,000 subscribers who cough up $5
per month for specialized content is losing money. According to
documents filed with the SEC, SportsLine reported $2.4 million in 1996
revenues and lost $12.9 million. During the first quarter of 1997,
revenues were $1.25 million, but the losses remained high at $4.6
million.
"These companies are building for success down the road, say two to
three years," says Scott Smith, an analyst at New York-based technology
research firm, Jupiter Communications.
No such problems for porn sites, many of which have been able to turn a
profit sooner than later. Former stripper Danni Ashe is now a successful
web businesswoman in charge of Danni's Hard-Drive. The site went live on
July 4, 1995, and since then has built up a clientele of 17,000 paying
members who shell out $9.95 a month for access to, well, porn. That
translates into about $170,000 a month, or around $2 million a year. In
addition, the site generates about 150,000 page views every day, a
booster for advertising revenues from banner sales. Ashe claims her
venture will gross somewhere between $2 and $2.5 million in 1997, "with
pretty nifty margins." Leveraging her expertise, Ashe has set up some
adult product merchandising deals, which earn her a nice piece of
change.
But knowing Internet's propensity for creating instant heroes, some
unknown startup might yet become the new Microsoft.
This is a list of profitable websites:
Danni
Photodisc
Aquacon
Glamorama
Condomania
Dell
Etrade
Maze
Cisco
USA Today
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