The Bottom Line on E-Commerce
Do e-commerce profits really matter?
I-managers are being asked that central question once again. We now know that the early e-business gospel that market share mattered more than profits damned many e-commerce companies to oblivion. But the new mantra is that the overall return on a Web investment is more important than whether a company makes any money from its site.
Two new reports on Web return on investment (ROI) — from Jupiter Media Metrix and Forrester Research — question strategies pinned solely on online profit production. Its funny that these reports come just as we report that e-commerce companies seem to be operating profitably.
Last week, office supplier Staples said its Internet unit earned $5 million on quarterly revenue of $243 million. Granted, a lot of e-commerce companies continue to rack up losses. But the list of online companies reportedly in the black is growing: 1-800-Flowers.com, Ameritrade, eBay, Expedia, Homestore.com, Monster.com, Northwest Airlines, Office Depot, Priceline.com, Register.com, Travelocity.com and United Parcel Service.
While dot-coms, of course, need to achieve profitability, "do brick-and-mortar companies?" asks Jupiter analyst Ken Cassar.
His answer is "No." Many companies, including some major retailers, may never report an online profit, he says, and they may never care — as long as their Net efforts produce a corporate net gain. Increased store traffic and reduced sales costs are two easily quantifiable ROI benefits.
A personal reference: My dryer broke last week. My first act was to see if I could fix it; the second was to listen to my wife make false accusations about my mechanical inclinations; and the third was to search the Web for a new dryer. I did a little online comparison shopping, printed out some specs and headed to the appliance store. I walked in, found a sales rep, negotiated a great price and was out of the store in 15 minutes.
Right now, almost 10 percent of the average brick-and-mortar sale goes to store payroll. Yet, when consumers enter a store armed with spec sheets downloaded from the Web, the sale takes a fraction of the time it would otherwise. Reps can handle more customers; staffing costs plummet.
Other Web site returns include better inventory control, improved customer retention and data capture, and better ways to cross-sell and test market goods. Jupiter estimates a brick-and-mortar can "extract two-thirds of its total Web benefit from the nontransactional capabilities of its site."
This is not to say sales and profits dont matter. They do. But successful companies know that earnings are only one measure.
Staples clearly understands this. Christine Komola, chief financial officer of Staples.com, told me that online profitability is part of the companys long-term plan. But its looking to leverage its entire internet outlay.
"Multichannel retailers like J.C. Penney, REI, The Sharper Image and Staples have cracked the basic code," wrote Kate Delhagen in a release accompanying Forresters report.
Profits, it turns out, are just a portion of the Webs bottom line.