Triangle Business Journal

David Chapman

Integrate Online, Off-line Marketing

Today’s reality – all that remains of the digital gold rush is the wistful gypsy love song now playing on Wall Street and at venture capital firms across the country. And my shrinking 401(k) plan.

We all got swept up in the sweet seduction of easy money. We were all too willing to ignore the common denominator of business; the value proposition must be compelling enough for the user to pay for the experience. Brings back memories of Wimpy’s famous line of “I’ll gladly pay you Tuesday for a hamburger today” doesn’t it?

So where do we go from here?

To survive long term, e-commerce sites must generate positive operating cash flow, which requires a business model with scalable, sustainable revenue sources.

Companies must audit the site experience and the value offering from the user perspective in order to effectively identify, market and price the appropriate mix of products and services. The value proposition is a Rubik’s cube combination of quality, price, convenience, brand experience and quickest satisfaction.

With that in mind, online and off-line efforts must be seamlessly integrated into overall sales, marketing and customer service programs. The customer will judge the best buying experience wherever they can find it, from bricks to clicks to telephone.

Here are several e-commerce revenue sources and a few examples of how to make them work for you.

TRANSACTION FEES

This is a flat fee, discount or a percentage of the value of sales transactions that flow through the Web site. The fees can be charged to buyers, sellers or to both. As the segment matures, transaction fees will undergo intense competitive pressure and buyer/seller pushback when marketplace commerce becomes more ubiquitous. Examples of transaction fee based portals include Industrial America or Commerce One’s Global Trading Web.

REFERRAL FEES

These fees are paid to a referral site by a selling site when the sale results from a buyer “clicking through” a link on the referral site to reach the selling site. The fee is usually a low percentage of the sales revenue. Sites create affiliate programs that simplify implementation to attract referral sites.

Amazon’s Associates program is one of the best-known examples of referral fees.

DIRECT SALES

This revenue is generated by selling products (e.g., software or research reports) or by taking possession of goods and profiting from a mark-up instead of (or in addition to) transaction fees. This model will also face downward pressures as the market they serve matures, driving the e-business to develop new categories or distribution services.

Mercata and PrintNation.com have sites that take title to many goods they sell and capture the margin.

SUBSCRIPTIONS

Subscription fees provide an attractive annuity revenue stream, and can even be structured to scale up as buyers and sellers increase participation.

This model includes fees for specific services or for general access to proprietary, high-value content and per-seat subscriptions for software applications. Subscription fees are often waived in the early phases to clear the hurdle of getting buyer/seller participation.

The online Wall Street Journal charges an annual subscription for access to its proprietary content.

LEAD GENERATION SERVICES

These are fees typically paid by sellers to a Web site for providing qualified of successful leads. Typically these fees (usually less than 5 percent) are associated with off-line deals.

The project posting areas on Onvia and freeagent.com are examples of this service; sellers pay a fee to get access to posted projects.

TENANCY RENTAL

This involves renting “showrooms” to complementary tenants that also enrich the user experience. An example of this would be a small business service provider creating an online business mall offering a full range of potential small business services.

The site must provide a selling infrastructure for storefronts (e.g., a shopping basket and payment mechanism). Showrooms often have fixed rents; storefront rents can include additional sales-based charges.

Unlike affiliate programs, these partners are tightly integrated into the site for ease of use and increased customer value. Revenue results from referral fees and revenue-sharing agreements.

VerticalNet, Yahoo and Amazon rent storefronts.

DATA MINING

Established sites can capture and repackage transactional data as syndicated research or stand alone reports to offer buyers, sellers or third parties. The information can be used to develop greater insight into market trends, compare competitive transactions in order to examine buying and selling strategies vs. competitors, etc. In addition to generating attractive incremental revenue, this effectively locks in successful business partners.

Instill sells food manufacturers market share data derived from its transactions.

ADVERTISING

Advertising is not a major revenue stream, and will account for a small percentage of incremental revenues in the future. Examples include banner ads sold at a fixed rate per thousand impressions or based on “click through,” and sponsorships (this page brought to you by …). Consumer-based portals such as Yahoo and AOL are well-known examples.

Bottom line: Too many companies jumped into e-business without a cogent business strategy to maximize online revenue programs that also dovetail off-line business efforts and address potential channel conflicts.

Companies are advised to use quick but comprehensive analysis to determine strategies for generating sustainable revenue models that focus on subscriptions, data mining and other higher margin revenue sources.

Chapman is president of 919 Marketing, a Triangle- based marketing and public relations consulting firm. He can be reached at (919) 557-7890.