While the big guns bolster their storefront services to win over more small retailers, a group of smaller operators is trying to keep from being steamrolled.
The list of startups that have abandoned the free storefront model, or have gone out of business altogether, is lengthy, including such names as Affinia, FreeMerchant, iCat and SmartAge.com. Others are trying to quickly revamp their business models to stop the bleeding.
Bigstep, perhaps the highest-profile member of the group of startups that burst onto the scene two years ago, switched over to a paid subscription model in June. Previously, the San Francisco company offered free storefronts to businesses and collected revenue through advertising and value-added services.
Andrew Beebe, Bigsteps co-founder and chairman, says the company was very successful in its efforts to grow its customer base, and now boasts about 380,000 members. However, only about one-third of those are active, and not enough are paying for additional services.
"At some point, you have to reach a balance between your desire to grow your customer base and the quest for profitability," Beebe says.
The company started warning its customer base in January that it would be switching to paid subscriptions and started making the conversion in May. Businesses are given a choice among three business models, ranging in price from $9.95 to $34.95 per month.
The companys not profitable yet, but is aiming for it, says CEO Lucy Reid. Reid was brought in last September from Wells Fargo, where she served as executive vice president of the business banking group. The companys goal is to convert 12 percent of the active member base over to paid subscriptions, with an average subscription revenue of $25 per business.
"Were on track to get what we said wed get," Reid says.