We can distinguish between pure-click companies, those that launched a website without any previous existence as a firm, and brick-and-click companies, existing companies that added an online site for information and/or e-commerce.
There are several kinds of pure-click companies: Search engines, Internet Service Providers (ISPs), commerce sites, transaction sites, content sites, and enabler sites.
Search engines and portals such as Google and Yahoo! started as search engines and later added services such as news, weather, stock reports, and entertainment, and storefronts hoping to become the user’s point of entry on the Internet. Commerce sites sell books, music, toys, insurance, stocks, clothes, financial services, and so on. Among the most prominent ones are Amazon, and Buy.com. Transaction sites such as auctions and brokerages like eBay and ETrade take a commission for transactions conducted on their sites. Content sites such as The Street, New York Times, Encyclopaedia Britannica provide financial research and other information. Enabler sites provide the hardware and software that enable Internet communication and commerce.
These sites compete using various strategies: CarPoint, a leading metamediary of car buying and related services; Travelocity, the information leader in air travel; Buy.com, the low price leader; Mercata, the demand aggregator leader; Winespector, the single category specialist; and Reflect.com, the most personalized site for skin and hair care.
Pure-click Web businesses reached astronomical capitalization levels in the late 1990’s, in some cases far exceeding the capitalization of major companies such as Unites Airlines or Pepsi-Cola. They were considered a major threat to traditional businesses until the investing frenzy collapsed in 2000.
Dot-com failed for a variety of reasons: Many rushed into the market without proper research or planning. They had poorly designed Web sites with problems of complexity, poor navigation, and downtime. They lacked adequate infrastructures for shipping on time and for answering customer inquiries. They believe that the first company entering a category would win category leadership. These companies wanted to exploit network economies, namely the fact the value of a network to each of its members is proportional to the number of other users (Metcalfe’s Law). Some just rushed into the market in the hope of launching an initial public offering (IPO) while the market was hot.
To acquire customers, dot-coms spent large amounts on mass marketing and offline advertising as opposed to maximizing their online marketing efforts. They relied on spin and buzz instead of using target marketing and word-of-mouth marketing, and they devoted too much effort to acquiring customers instead of building loyal and more frequent users among their current customers. They did not understand customer behavior when it came to online surfing and purchasing.
Many dot-coms did not build a sound business model that would deliver eventual profits. The ease of entry of competitors and the ease of customers switching Web sites in search of better prices forced dot-coms to accept margin-killer low prices. Webvan, the online grocer, illustrates how dot-com failed to understand their marketplace.
Many incumbent companies moved quickly to open Web sites describing their business but resisted adding e-commerce to their sites. These companies are known as “Brick-and-Click” companies. They felt that selling their products or services online would produce channel conflict-they would be competing with their offline retailers and agents. For example, Compaq feared that its retailers would drop its line of computers if Compaq offered to sell the same computers directly online. Merill Lynch hesitated to introduce online stock trading to compete with ETrade, Schwab, and other online brokerages fearing that its own brokers would rebel. Even the store-based bookseller Barnes & Noble delayed opening an online site to challenge Amazon.These companies struggled with the question of how to conduct online sales without cannibalizing their own stores, resellers, or agents. Here are examples of how some companies resolved this conflict.
Gibson Guitars found that although its dealers were outraged when it tried to sell guitars directly to consumers, the dealers did not object to direct sales of accessories such as guitar strings and parts.
Liberty Mutual asks its online customers whether they prefer to buy directly or through a financial advisor. in the case of through an advisor, customers are told that information about their needs will be relayed to an advisor.
Avon did not want to cannibalize Avon ladies who had close relations with customers. Fortunately, Avon’s research showed little overlap between existing customers and potential Web customers, so Avon went ahead. Meanwhile, Avon also offered to help its reps set up their own Web sites.