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Is E-Commerce Profitable Commerce?

There probably isn't a businessperson alive that doesn't envy something about Amazon.com. The site has been able to maintain its pioneer status in the electronic medium, where an idea one-day is often a product offering the next. After just a few short years, it is one of the world's most recognized brand names, rivaling mainstream mainstays Coke, Ford and Bell. And its revenues have been growing exponentially since the first day it was launched. But, despite these desirable traits, Amazon.com remains unprofitable.

As an owner or manager of a small-to-medium-sized business, you could be thinking, "If Amazon, with all of its growth and hype can't make money on the Internet, how can I?" This week we explore e-commerce profitability and suggest ways that businesses can use the Internet to be profitable.

The Balance for Achieving Profitability

Achieving profitability means finding a positive balance between revenues and costs during a particular period of time. Every business journal will likely devote some space to the vast potential for e-commerce revenues. The argument for revenues is certainly not unfamiliar to "bricks and mortar" businesses: take a market segment, add a product offering, provide access and methods for payment, and the result is revenue. In the world of the Internet, the argument goes something like this: more people are jumping on the Internet everyday. The medium's speed and flash intoxicate these Web-sophisticates. They have access to an assortment of payment methods with which they do what consumers do best -- consume!

Profitable Internet Businesses - Don't Be Discouraged!

Generating revenues alone does not guarantee profitability. If it did, businesses like Amazon.com would be enormously profitable. Still, there are a few types of e-businesses that generate enough revenue to be profitable:

Pornography

Pornography continues to be the leader in e-commerce. This sector's success stems from consistently combining titillating product with the Internet's latest multimedia and marketing technologies.

Financial Services

Financial services have achieved profitability because the Internet offers rapid and immediate access to information that can instantly shape investment decisions. Further, service fees are often discounted for online transactions.

Gambling

The gambling sector has remained successful because no government has been able to resolve the complexity involved in the design, monitoring and enforcement of taxation and other laws related to Internet gambling.

So, does all this mean that if you're not running these types of businesses, your forays into e-commerce will be unprofitable? No! It just means that you need to re-examine your business to address the remaining two components of profitability: cost and time.

How the Internet Can Help Your Business be Profitable

Below we examine some of the major areas of all businesses and review some of the ways the Internet can contribute to profitability without focusing on building revenues.

Each business' potential for using the Internet effectively will depend on a number of factors. One core issue is the thought and planning behind using the Internet.

The basis for transactions is "Internet time" -- that is, the time it takes to initiate or complete a business transaction. However, most businesses still operate on "bricks and mortar time" -- that is, businesses still think in terms of traditional business cycles. However, because of the immediacy of Internet transactions, businesses either come to expect immediate profitability or, ironically, lose track of the linkage between research and development and the final sale. In either case, the risk is setting profitability targets for a time period that is inappropriate.

Administration

Payment and billing methods abound. The varying options allow consumers, vendors, banks and intermediaries to facilitate secure and immediate business-to-consumer and business-to-business transactions. Also, shortened order and delivery cycles can be achieved through order management, fulfillment and procurement software that allow businesses to considerably reduce the amount of paper, fax and data-entry transactions.

Customer Service

The Internet can be a cost-effective method for tracking customer service. Easy monitoring allows business to solicit and collect a multitude of customer comments and concerns. In turn, customers can be contacted before systemic problems worsen. If tied into product development and marketing, rapid customer service through the Internet can be a powerful tool for lead generation.

Marketing

The Internet is a thoughtful marketer's dream. It can be used to gather profile information on industries, as well as on potential and existing clients. And, communications offered through Web sites can reduce, or if appropriate replace, hardcopy materials traditionally distributed through trade shows or direct mail campaigns.

Core Operations

Some businesses have core processes that can take greater advantage of the Internet. Nonetheless, it is likely that most businesses can use the Internet to build stronger linkages with certain suppliers and key clients that would result in process efficiencies and cost reductions.

Financing

The Internet provides a variety of "robots" or "crawlers" that can effectively scan investments according to pre-set criteria. The breadth of the markets and businesses in which to invest has never been so vast. At the same time, considered investment advice ranges from choosing stocks and mutual funds to identifying ripe investors.

Human Resources

In today's fast-paced business world, the human resources professional is constantly pressed to effectively recruit the most skilled staff. The Internet provides thousands of sites that allow the discreet selection of candidates that may or may not be within a very limited geographical area. Other human resources functions such as benefits administration have become more efficient through software applications that use the Internet as a cost-effective method to share information with suppliers (i.e. insurance carriers).

If you are not employing any of these tools, you are probably focusing your firm's resources on building revenues alone, instead of balancing revenues, costs and time. Internet technologies provide an opportunity for you to consider what makes your business profitable. Use the technology wisely, and you and your bottom line will profit.

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