1996 was the year we wondered whether we could make money on the Web. In 1997, its time for online businesses to stopwondering and instead become profitable. What a perfect New Year's resolution!
NetGuide Magazine went out on the Web, looking for interesting business opportunities. Some of the ones we profile here are clearly profitable; some are not. But all are meeting their business plans. As a group, they share significant similarities. First, most have spun off from successful businesses in the "real world." And instead of aiming to be all things to all netizens, they also tend to use special knowledge or geographic location as an edge. In almost all cases, Web costs have been kept low, often low enough to be cheaper than other marketing channels. And these sites tend to use net technology effectively, increasing the user's convenience and entertainment. Here, then, are 10 sites to emulate.
How do you build a successful boutique online? The sameway you do in the real world. A good boutique offers an attitude, which customers can enjoy for free but which gets them in a spending mood.
With two colleagues, (Charlotte Buchanan runs GlamOrama,a Seattle-based apparel store. "We have a six-foot upside-down weddingcake on the ceiling, and we're also a wedding chapel," she says. Laura Lampe wholesales attitude in the form of phony votive candles under the name Three Tacky Texans, playing an old Hispanic tradition for laughs with prayers for filings like "Protection from a Dysfunctional Family Christinas." Greg Clapp is a graphic artist-turned-Web designer doing business as Ragged Edge.
Their company is Watch Your Wallet Inc., creator of the"Glam-Orama Shopper's Paradise" (www .glamorama. com), where you can give friends or politicians a virtual "poke in the eye," pray to the interactive shrine of "Our Lady of WWW," or get tested for "subliminalalien influence." You also can buy some of the "kewlest toys and giftsaround" from a catalog of more than 1 50 items.
The whole idea is to offer fun. And as with any well-run boutique, "We'll be generating new ideas and products which change daily,"Buchanan promises.
Although www.glamorama.com has been open for only sixmonths, the site reached the break-even point in October. "We've paid the rent," Clapp says. "None of the partners have gotten any direct profit,but the site is meeting the goals of its business plan. We're definitely on track. We started with $300 and a lot of good ideas. It's taken off more than we could imagine."
This year the first local news war in generations willo pen on the Web. As directories like CitySearch, Yahoo!, America Online'sDigital City. and Microsoft's CityScape spread into local markets, local newspapers are gearing up to defend their turfs, and new opportunities are opening.
In this fight, journalists may have no better advocatethan Chris Jen-newein. Mercury Center (www .sjmercury.com), whichhe helped start, has been profitable for a year now, he says, and as director of the knight-Ridder New Media Center, he's been taking the chain's 29other papers to the Web. One of these other Web sites, from a paper in Lexington, Ky., joined San Jose in the black last fall. "We have a detailed (profit and loss analysis) for the group," he says. "We're not making money at every newspaper. We are at some of them."
The key to making money, he says, is to make it any way you can. "You're more likely to make a profit if you charge for content, offer premium services, offer useful advertising, and offer Internet access,"Jennewein says. " A little here, a little there, and pretty soon it adds up." Depending solely on banner advertising is a mistake, too. "In advertising you need multiple revenue streams," he adds.
In San Jose, Jennewein charges users for access, something that was at first controversial and cut the number of users substantially. But it eventually paid off, he says, by offering $l-per-month rates for subscribers and $4.95-per-month rates for non-subscribers.
After putting its classifieds online, the paper also was able to push through a general rate increase that the market accepted. "Advertisers see themselves getting onto the Internet as a real value-add." The paper also has succeeded in selling Internet access, Jennewein says. Mercury resells Internet access through InfiNet, of which Knight-Ridder owns one third.
Jennewein says newspapers have assets competitors can't match. "We're small in technological name recognition, but the 800-pound gorilla in terms of content. It's hard, if you're not in the business, to appreciate the size and depth of local news staffs. ... Even in a 500,000-personmarket, the staff may be 25 to 50. You're not going to see that duplicated by new entrants."
If you have a viable consulting practice in the real world, now may be the time to take it worldwide on the Web. Bob Nelson, of Phoenix,helps small retailers survive chain-store competition with a system he calls "Power Retailing" (www.retailing .com), which he sells based on the return clients get using it. He developed his strategies as a jobber, a clothes wholesaler working a territory throughout the Southwest over 17 years, and 15 years running his own store in the Los Angeles area.
"Retailers aren't on the Internet now," he says, "but they will be. And when they find there's someone who can help them, they'll come running."
Nelson began building his 15-page site last year, coding it himself. "It's been a major investment in time, a small investment inmoney," he says. So far, it's working as intended, bringing a few new clients,a solid return on the investment.
Nelson says that while his overall business is profitable,the Web site isn't yet. "It's another stream of income," he says. "I have referrals. I have direct mail. I have word of mouth. This is just one more way to augment my marketing effort. I just spent $600 advertising in a trade magazine in Dallas. I do that four times a year. The Internet doesn'tcost me $600 in two years. My postage runs me more than my Web site, but the site gives me more prestige than anything. This put me on the map."
Just as every city has a newspaper, so every business and profession has a trade magazine. But not all trades or professions are on the Web.
Nordic Fitness, a Birmingham, Ala.-based distributor offitness machines to health clubs, put Fitness Zone online (www .fitnesszone.com)in October 1995 as part of a larger catalog called Hot New Products, says marketing director Bill Cooke. Now the already-profitable site is evolving into a central facility for the health club industry.
"We're up close to $100,000 a month in sales on the Internet," Cooke says. "Since we got on the Internet, we've gone from being a $2.5 million company to being a $4 million company."
Web site costs, meanwhile, have been low. "We've got several hundred dollars invested in it, total," Cooke says. "All our server management is done by BBN Planet, which also gives us a T3 connection with redundant lines."
The heart of the company is equipment like the LifeCycle, a $1,795 stationary bicycle, which previously sold only through local dealers. Fitness Zone now has customers for the equipment in Japan, South America, Canada, and England, and is building dealer relationships to service those accounts.
Fitness Zone also is creating an online magazine with 20 new articles each month, The site features a classified ad section, and Cooke has put together chat groups around specialized areas of fitness such as running and weight lifting.
Cooke sees databases as a key to success in 1997. He already has a searchable database of 13,000 gyms around the United States, and he's working to build a similar database of personal trainers.
InWorld VR Inc. (www.inworldvr.com) thinks it has a winner with Automatic-Audio, a set of Java applets it released in September. Automatic Audio lets webmasters enhance pages, buttons, and hotlinks withsound that plays on any browser.
Co-founder Stephen Hammer says the 4-year-old company had been doing Virtual Reality programming, hence its name. But the company also had been working on sound with Crystal River Engineering, and whenit learned at that time there were no audio applets yet, it moved quickly. "This represents an application of existing inWorld technology we found simple to adapt," he says.
To sell the applets, InWorld turned to the Web, working with a company that could process orders and add sound throughout its site. The software can be purchased and downloaded for $49, and sampled free. "You can't go to Egghead and buy a packet of applets, yet," Hammer says.
Hammer says InWorld is profitable, and he's happy with how sales from the Web site are contributing to InWorld's revenues. "We also get a great number of responses to our consulting services on the Web. It's there to communicate to our existing customer base, too. There are hidden pages for our consulting clients. It's a form of online support."
It also doesn't cost very much. "It doesn't cost us anythingother than the $20 to keep it up," Hammer says. "All the coding's already done."
Dan and Debra Wager are among those taking insurance agencies to the Web. QuickQuote (www.quickquote .com) went online in May 1995, but it didn't really take off until last July, when the couple installed a forms-based rating service. Input your age and basic data on your physical condition, and a database provides you the best prices from among the 30 carriers QuickQuote represents. If you buy, QuickQuote gets a commission. The site also sells annuities, give the system your age and how much income you want, and it'll respond with "best buys" for the cash needed.
The Wagers have made money from their Web site, but Debra says bigger profits have come from working as a "master agent," linking parts of their database to banks or other agents, which then can offer term insurance on their own sites. The banks and local agents then bear most of the advertising costs, Wager says.
The biggest hurdles to competitors aren't those of building a Web site or a database, but in getting licenses to do business there are still a half-dozen states QuickQuote can't sell in and in getting contracts to represent carriers. "The Wagers have a decade's worth of experience as retail agents in Nevada.
Still, there's plenty of competition. InsWeb offers abroad line of auto and liability coverage as well as life policies, although not all lines are available in all states. QuoteSmith is a direct competitor, focused on the retail market. And Intuit is expected to enter the market this year with its ln-sureMarket. The Wagers are betting their distribution strategy will keep them in a busy game.
American Consumer Services
Randall Schmitt represents buyers who are searching for the best deal on a car. American Consumer Services Inc. (www.ascorp.com),which opened for business as a Cincinnati BBS in 1989, is now growing onthe Web. Schmitt says his business was profitable as a bulletin board andis even more profitable on the Web. He says the company makes about 1,000 sales a month, of which about 30 percent originate on the Web.
"We're the trusted party, The dealer trusts us and the customer trusts us. We tell the customer what the deal is. They send acheck to the dealer, who holds it until the car is delivered. The buyerverifies the car is as described and notifies us to let the dealer cashthe check." Schmitt takes his fees up-front from buyers, usually under $100, and connects with more than 1,000 dealers.
Many dealers have their own sites, and Dealernet (www.dealernet.com)represents dozens of dealers, charging customers nothing for their services. Schmitt calls these competitors "referral services," paid for by dealers from customer dollars. '"The customer supposedly gets this spectacular deal, but they deal with the dealer by themselves. We work differently. The customer tells us what they're looking for. We find the car, negotiate a deal, and give them options."
There are two sides to every transaction, and plenty of margin in each side. While ACS represents buyers. Lou Ann Hammond saysshe can get better deals by representing lots of sellers.
Hammond has offered quotes on new and used cars for 11 years, using toll-free numbers and a phone bank, as well as a network kiosks in Bay Area credit union offices. She's found the Web (www.car-list.com)a less-expensive sales channel for her business.
Like GlamOrama, however, Hammond tries to offer more thanquotes. She has links to car clubs, a program for figuring loan payments, and lists of car dealers.
She says that before she went on the Web her business wasn't profitable, but now it is. "Our expenses were greater with a toll-free line," she says. "You pay tor every call that comes in, regardless of whether it's valid. You have to pay for ads. and you have to pay people to answerthe phone, whether or not calls come in."
Now, Hammond says, "the bills are 25 percent less." And the difference in costs has made them profitable. "We've always broken even, but in the last two years we've been profitable. That's how long we've been on the Web."
Andrew Turnauer and his wife, Brenda Cantu, opened Maze.Com(www .maze.com) in June, qualifying mortgage buyers. Part of theservice sells credit reports, including their scoring by firms which credit grantors trust, for as low as $9.95.
"Everything we're doing on our site is around originating mortgages, Our intent is to become a mortgage originator throughout the U.S.," he says. A mortgage originator is a mortgage sales agent that writes but does not hold mortgages.
In addition to links with credit agencies and those who score the reports, Maze.Com uses two programs, Prospector and Desktop Originator, which are used by mortgage bankers to make loan applications. By turning these into HTML forms, and by maintaining relationships with more than 100 mortgage companies, along with a staff of 14 manning their retail operationin Mill Valley, Calif., the couple seek to become a one-stop center formortgage buyers, Customers can learn what they can afford, and get the loan, without walking into an office until they close the mortgage.
"We have nationwide representation, and we post interest rates and economic news," Cantu says. "Users can fill an application with help in RealAudio. They can complete an application and shoot it to us, through a secure server. We can lock in the loan, even process and fundthe loan."
As traffic builds, Maze.Com plans to add other services,like title searches. "We're doing what Charles Schwab did tor the stockindustry," Turnauer says grandly. But the key to getting the mortgage businessstarts with building a trusted relationship, and for that, pay-per-view credit reports and applicationswill be a key.
At present, the site is breaking even. "We have a full-time webmaster, and the site is covering his costs," Turnauer says.
You can do well by doing good. A free 'zine with an altruistic message can bring paying customers to related offerings, say Jim and Audri Lanford, whose free Internet Scambusters newsletter (www.scambusters.com)has made their $197-per-year Internet business newsletter, NETrageous,a success.
"We look at our revenues and allocate the ongoing expenses. We do a total, and if it's positive, it's a profit," Jim says. "The businessis profitable." About 50 percent of that business comes from the Web.
Costs, conversely, are low. "We have our own servers, but it's still only a lew hundred dollars a month. It costs 10 times as much to get a subscriber via direct mail than via the Internet."
The Lanfords began NeTrageous in November 1993, and Scambusters two years later. The NETrageous newsletter offers three types of stories: interviews with successful internet entrepreneurs like the bookstore Amazon.com, stories on technologies of real value to Internet businesses, and "insider secrets" of proven business techniques. "That's our focus how do you do this and make it work," Audri says.
Scumbusters is a newsletter exposing scams online. Bulk e-mail is extensively covered by Scambusters. "We will not bulk e-mail... there's no way. We have very strong opinions on that," she says. Yete-mail is at the heart of her own company's success. The difference is approach, Jim says no one gets a message from the Lanfords until they ask for it, and they get only what they ask for.
Dana Blankenhorn is Senior editor/on-line atNetGuide Magazine.
netguide.com NETGUIDE JANUARY 1997
- Get the names of several agents from family, friends and colleagues if you decide to buy through an agent. Ask the agent which insurers he or she represents and the kinds of coverage sold.
- Make sure the agent is licensed to sell insurance, which is required in all 50 states, the District of Columbia and U.S. territories.