eBusinesses Must Make Money, Too:

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eBusinesses Must Make Money, Too

• Searching for a winning business model in eSpace

Michael Atwood Amie Fernandez Madiha Tariq
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Introduction
Digital Bridges 2001 had a very different feel
than last years conference. The new kids in
e-Business could not afford to exhibit the
confidence that paced the panelists one year ago.
A striking difference from last year is that now
Venture Capitalists are, in fact, looking at more
than just the first page of a start-ups business
model. In essence, companies need to be
profitable or least have a viable path to
profitability in order to receive venture
financing, and be able to stay afloat in the
public markets through investor confidence. The
lesson of 2000 profits do matter.
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Introduction
For the purposes of this presentation, we are
seeking to discern exactly what happened to the
New Economy? In examining what successful
business models have in common, the underlying
theme at this years conference was that the
Click and Mortar businesses would be the ones
to succeed. By this, those companies that are
able to successfully leverage their existing
offline business via the tool of the Internet
will be able to sustain profitability in the
long-term. According to this years panelists,
pure online plays dont seem to have much of a
chance.
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Introduction
It is anyones guess as to where the technology
market is heading over the next few years. What
has become clear however, is that the dot coms
are not invincible entities redefining the way a
business is run. Technology has altered many
things in the marketplace. However, for now at
least, the business model and profit potential
remain integral components of a successful
business.
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Panelists

• John Molinari 84, CEO and Director,
• Media 100 Inc.

• Rory Riggs 75, President/Director,
• Biomatrix, Inc.

• Charles Kroll, President, Andera Inc.

• Todd D. Mayo, former General Counsel and Chief
  Privacy
• Officer, Power Two, Inc.

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Where did the New Economy Go? Nasdaq vs. Dow
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The Past Year
Emperors Without Clothes

• Wall Street rewarded growth at any cost
• Expectations have not materialized
• Destination sites have no plans to profit
• Dubious intellectual property
• Weak product offerings low differentiation
• Low barriers to entry
• Competition is one click away
• Billions on branding is not sustainable
• No real equity in brands

-John Molinari, Media 100
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Where did the New Economy Go? Timeline
VCs and financiers want to see profit
88 higher than Oct of 1999
It is not just the B2C industry in trouble
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The Market Now
Consolidations
Major Layoffs
Business Failures
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Why did this happen?

• Competition

Unique Selling Proposition

• Unnecessary problem solving

Business Model

• Speculation regarding the need

• Profitability

• Brand name focus

Ability to Fund Growth

• Stock prices and valuations

• VCs standards

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The Internet Business Landscape
Amazon Marshall Ariba Yahoo!
Southwest Airlines IBM Boeing NBC
Priceline Cisco Ford Dell Wells
Fargo Chevron UPS ETrade Garden.com
Virtual Bank Vertical Net iVillage
Gateway Schwab Sony
Office.Click Webvan Wal-Mart
CFN Wingspan GE TPN Image X
e-Sky eBay eCollegebid
AOL Intel Office Depot
IZ AutoByTel WebX Exodus eGrain
Metal Auction Ventro
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The Business Model Value Imperatives
Amazon Marshall Ariba Yahoo!
Southwest Airlines IBM Boeing NBC
Priceline Cisco Ford Dell Wells
Fargo Chevron UPS ETrade Garden.com
Virtual Bank Vertical Net iVillage
Gateway Schwab Sony
Office.Click Webvan Wal-Mart
CFN Wingspan GE TPN Image
X e-Sky eBay eCollegebid
AOL Intel Office Depot
IZ AutoByTel WebX Exodus
eGrain Metal Auction
Ventro
RELATIONSHIPS
LOGISTICS
CHANNELS
BRANDING
INTERMEDIARIES
FINANCIAL DYNAMICS
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.Profit rests on the business model. .Com rests
on the website. -Earle and Keen, From
.Com to .Profit
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Successful Business ModelsWhat They Have in
Common
Delivers
Adaptable
Knows the Barriers
Aggressive Growth Strategy
Has Hope of Cash Flow
Knows the Customer
Acts- Does Not React
Business Model
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Importance of Cash Flows
Market Share
Repurchase Shares
Reinvestment
Keep as an Asset
Pay off Debt
Make/Partner/Buy
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Internet End All Be All?
Utilize all Mediums
Form a Relationship
Be Everywhere
Customer Satisfaction
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Applying the Internet - B2C
Sales and Marketing
E-commerce (direct) sales to end users
100 knowledge of e-commerce end users

• No resellers, no two-tier distribution

• High volume lead generation through
• sites

• No human intervention

• Extensive end user tracking

• Permits end user tracking

• Targeted email blasts replace direct
• mail

• Speeds installed-base sales of future
• products, upgraders

-John Molinari, Media 100
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Applying the Internet
Operations and Finance

• Decentralization order entry via browser
  interface and Intranet
• High-volume physical shipping outsourced via
  Internet IT interfaces (e.g. your Oracle to their
  Oracle back to your Oracle)
• Intranet for Company info, policies/procedures,
  benefits, job postings, and IT help desk -John
  Molinari, Media 100

-John Molinari, Media 100
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Customer Retention
15 of customers at an Internet site consider
themselves loyal to it
It takes a business a year to cover the 250 it
takes to attract a customer
Brand Name
Make the Visit an Experience
Customer Service
Customize the Experience
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Pure Online Players

• Have first mover advantage

• Have the revenue model

• Have funding

• Are profitable

• Have the brand name

Brick and Click
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Web Revenue vs. Total Revenue
-Charles Kroll, Andera Inc.
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Comparing Y2ks dot-com losses with the big
winners
-Charles Kroll, Andera Inc.
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Dot-com Losses

• In theory, dot-com losses are investments
• The model is sound
• The problem was the business model
• The prospect was the unknown potential
• 210 VC/public funded online startups failed

-Charles Kroll, Andera Inc.
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Liquidity and profits in .Coms- a possibility?
Cash flow issues
Investor satisfaction crisis
Amateur starters
Cyber Smear
Anonymous Badmouthing
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Is Cash Needed?
Not Necessarily
An unprofitable company at this point, but still
a leader in the industry and relatively popular
with investors
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AMAZON
I own 100 shares of Amazon.com and I wonder if
you can tell me what it is exactly that I
own. -Question to Jeff Bezos
-Charles Kroll, Andera Inc.
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Is Cash Needed?
Possible Solutions

• Cash flow management

• Be Patient

• Right balance between profit and Cash flow

• Prepare the start-ups

• Make anonymity illegal (debatable)

• Dont trust anonymous messages

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Profitable and Consumer Oriented?
Are firms too busy satisfying the
customer- what about profits?
Cisco helps firms serve customers better
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How important are consumers?
Resellers
Manufacturers
Distributors
Customers
Retailers
Suppliers
Company
Partners
Customers are at the heart of any successful
business
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Where is the New Economy Moving?
Perfect Competition
VS.
Monopoly

• Consumer Sovereignty
• Perfect Knowledge
• Small Businesses Emerging
• Everyday

• Companies focus on growth
• Survival of the Fattest
• Survivors are a chosen few

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New Face vs. Old Face
Where do emerging firms focus?
Have economies always been oriented this way?
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Does dynamic pricing help or hinder?

• Pricing directly affects corporate profitability

Traditional pricing
Dynamic pricing
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New Economy Not Dead, just Different

• Its about streamlining existing revenue sources

A transaction costs banks 1.08 in an office,
compared with 0.13 to do it on the web.
-Charles Kroll, Andera Inc.
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Fixed pricing - RIP?
Is the day when etailers change their prices
based on how much you want something just around
the corner?
Internet retailers have the power to make dynamic
pricing the norm
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Streamlining Procurement the B2B Exchange

• Startup model
• Strong representation by outside investors
• Outside CEO, autonomous board
• Revenue maximization for itself

• Service co. model, shared infrastructure
• Costs savings
• Procurement/Supply Chain Management

The Newco
The Co-op
VS.
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Revenge of the BricksSome of the worlds
largest corporations are creating the worlds
newest ones. Are online exchanges the answer?

• The plan looks simple
• The potential rewards are huge

B2B 1.3 trillion 2003

• Analysts remain skeptical

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Essentials Going Forward
Customers are people who pay you cash for solving
a growing problem
Differentiated products and/or services
demand real value
Have a clear path to profitability
Distribution is a means to transfer products and
services to customers
Management the people who can sustain the
business over many years
Sustained liquidity and sources of funding are
essential
-John Molinari, Media 100
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Conclusion
Going public is NOT a business model or proof of
one
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Conclusion
B2B and B2C meld with brick and mortar
Going public is NOT a business model or proof of
one
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Conclusion

• Few independent
• destination sites survive

B2B and B2C meld with brick and mortar
Going public is NOT a business model or proof of
one
-John Molinari, Media 100