This piece looks at some of the most common assumptions that are wrong about doing business online. These are for those who are planning to do business – as in sell or buy goods or services, including advertising -and not for those who just want a presence online

We are in what is probably the third wave of Internet businesses. The first wave that had eyeballs and sticky eyeballs as measures of valuation ended in the dot com bust of the end nineties. The second wave came after that and was more muted with e-commerce and online transactions being the focus. The third wave and current wave is focused around social networking and other “web 2.0” technologies.

One of the perks of my job is that I get to see quite a lot of business plans in all their detail. And these days I am getting to see quite a lot of them that focus on doing business via the net. Unfortunately, not many it seems understand the medium that is the Internet. Many of the mistakes that were made in the very first wave are still being repeated. Many of the assumptions that were proved to be wrong then are still forming the basis of one too many business plans.

This piece looks at some of the most common assumptions that are wrong about doing business online. These are for those who are planning to do business – as in sell or buy goods or services, including advertising -and not for those who just want a presence online. By design, I have jumbled up the items in no particular order, so that you read all of them and do not ignore some saying that they are not relevant to you, because they are.

1. Online will reduce costs
This is the number one reason running businesses give for taking up an aggressive online strategy. I have heard it from retailers, I have heard it from consultants, I have heard it from publishing houses. And this is the big mistake that will upset their otherwise well laid business plans right from day one.

What actually happens is like this. Moving online will reduce your future costs in your current way of reaching your audience. But it will not cost any less on the new medium to reach newer audiences. For example, it will reduce your costs in new retail stores or in new field data collection staff or in paper for new copies. But, mark my words, you will end up spending equal if not more on the new media – the Internet.

If you are converting existing customers from say your retail shop or your print pages to the net, even then, the cost of setting up and running a similar or better experience for your customers will turn out to be similar if not more. If you don’t believe me, read on.

2. Setting up a website is cheap
This one flows from the online is cheap syndrome. I have seen business plans that talk of multi-crore revenues that allocate all of five thousand rupees a month for a web server!

Stop for a minute to do the calculations.

How many customers does that multi-crore income convert to? Can the $9.50 shared hosting from bluehost take that load? Would you want such a shared server to hold your sensitive business and customer information?

Let us look at some real data. As of early last year, Facebook photo, one of the applications in Facebook (and not the main Facebook, mind you) had 160 terabytes of storage with 5 terabytes of photos being added each week. At about Rs. 3000 for a half terabyte hard disk, that is 30k to 50 k in just new hard disks every week depending on the level of RAID you have deployed!

At the same time, Facebook was hosted on 10,000 web servers, 1,800 database servers and 105 memcached servers. Any guess what their monthly datacentre bills are like? Any guesses on what the salary bill for the administrators for the system would be? Or how many software developers are required to create and maintain the entire application? What about the security experts required to keep your applications hacker proof?

Then there are those who state that using opensource software makes it cost next to nothing. Now, I have to be careful, given that dare.co.in runs on opensource software and has been comparatively cheap to build. Opensource can be cheap if you know what you are getting into. It can be cheap in the license part, but not in the customization part. I have sat through evaluations where software houses have quoted (and got) in the crores to build websites based on Opensource software.

Tech and web savvy startups are equally bad when budgeting for Internet resources. Most of them assume that the founders will do all the coding and server administration required, for ever after, and do not or at best under budget for these items. As the business grows, you will need to put more developers on the job and the founders will have to move on to more strategic things than the coding of a sub menu.

3. It will run for ever without further investments
A website is not like a house that requires only an infrequent paint job. It is more like a star hotel that requires regular and significant maintenance and makeovers. A website is in constant evolution. As technology and surfer tastes evolve, web properties have to evolve to keep pace. And that takes time, money and effort, all of which are often not budgeted for.

Why has it to evolve? Consider social networking. Out of nowhere, social networking has become the central hub of most web activity. Almost all web sites have had to adapt to this and build social networking features. Operating systems evolve over time. New patches come out and after applying a patch, you will find that some features of your web site are not working and you need to rejig them. New security threats are discovered almost every day and your web applications have to be patched or perhaps re-architected to overcome them. Services you use may change. For example, your payment gateways may change their security requirements. Business dynamics change. Business processes change. Your website needs to be changed to accommodate all these. And finally, in about 3 years, your hardware will need replacement and upgrading.

A quick rule of thumb would be that you would spend as much in maintenance and changes on your website in 3 years as you would spend initially in setting it up. Milage of course varies with makeup. If you have done your initial architecture, scoping and setup well, then this will be on the lower side. If you went conservative in the beginning, then be prepared to spend on the higher side as you go along.

4. Technology is everything
Then there are those who believe that all that you need to succeed is the latest technology. This is much like having fabulous packaging and an expensive ad campaign even when your product is, to put it mildly, terrible.

There was lot of talk (and scrambling) about the need to make web sites web 2.0 enabled, or social networking enabled. Great. You do all these, but what use has the user got with all these if they are not relevant to their experience and use of your site? One of the best examples of e-commerce in India, irctc.co.in, does not need social networking to get about 200 thousand unique visitors every day. Your bank would have to do some real hard soul searching before having forums as part of their on line transaction portal.

Remember that technology or features is not what you are selling. It is at best an enabler of the experience that the user gets at your site. If the user gets there and sees that all that you have are gimmicks, it is unlikely that she will come back again. Look for the value proposition for the user, not for enhancing the biodata of your tech team.

Comments (11)

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replica watches
written by watchse replicas, July 30, 2010

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Sharing Experience
written by Rajesh Nahar, April 16, 2010

Hi,

I have been in the online E-commerce business space from 1998 when we launched Chennaibazaar . I have seen the various movement of the internet based businesses from ups and downs. I would like to share few of my views and thoughts to people who want to know more about E-commerce.

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payment gateway expenses
written by Vimala, April 12, 2010

I came across a post in http://ecosystem.pluggd.in/ind...eed-inputs ( scroll down and look for analysis on each payment gateway such as Payseal ICICI, Eazy2Pay, etc.).

It is quite prohibitively expensive to use online payment gateway for small businesses in India. The worst is that the service providers do not really understand what we need. That goes the same for other services like SMS communications through internet.

Thank you Krishna Kumar for the wonderful post.

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Owner
written by Ashish Kolarkar, December 10, 2009

Thanks for an eye opening article. The myths regarding internet and e-commerce are there from time immorial and they have to be addressed with real facts. You have done the right thing.

Although, I'm in the Banking computerisation catering to Regional Rural Banks and co-operative Banks, I was still not aware of certain facts (I was assuming freewares reduces cost). I wish in future you focus on right strategies of doing internet business especially payment channel econonics for small businesses.

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...
written by Sumi, December 02, 2009

Very thought provoking article.

I run a leather store and am exploring to go online now. I want to know the complete process involved, and also an appx indication of the cost in setting up an online portal. Can you please help. Where can I get this information?

Regards
Sumi

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Different Views.
written by Vivek Satoskar, July 26, 2009

Sir,

I differ from most of the points given by you. Post working in Hotels and Offline Travel companies I started my first website (online initiative) http://www.BestGoaDeals.com about 4 years back. From first month we broke even and there has been almost 200 % jump in revenues every year on this one website. Besides these we did launch 1 website on Goa tourism aspect every 3 months and each of these sites besides recovering costs have given substantial profits.....guess Online field for Specialist Travel companies there is huge potential and have better chances of growth and survival over the Offline Travel Companies.

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...
written by Ankur, April 23, 2009

Hello,

I am a regular reader of DARE magazine and regularly I post my comments.
Thanks a lot for wnoderful article.

I have one query, when you said Adsense is not the only way to earn money then what are the other ways that are really helpful?
Please let us know

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Great Article - Some more thoughts!
written by Mohit, April 22, 2009

Awesome article! Gives a lot of insight to anybody (novice or experienced) planning to start an online business.
I would definitely agree that building an online presence and selling online are two different things and they follow each other. To buy-sell online you need to have an online presence and you need to be continuously evaluating it.
From the customers perspective, he needs to have an uninterrupted experience when he comes at your website. He should not feel out of place or out of sync. What I mean here is that there would be negligible number of people who would type in your websites address in their browsers and come to your site. Most of the customers would be coming through some advertising/promotional/social networking channel. Keeping up the content in sync with these channels and managing them adds up to the cost/time/resources that you need to invest. For sure, a good and workable website needs a lot of thought, planning and vision.

Keep up the good work!

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...
written by Debarshi Datta, April 08, 2009

Sir
I am presently working in a consumer electronics MNC in sales and marketing profile and I do have plan to set up a website about the usability rating of the various consumer electroncs goods its not also on the paper as of now because I am confused about approching the business plan I would be thankful if you kindly guide me over this
regards
debarshi

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Re: Pramod - "when fortune 5m is...."
written by Krishna Kumar, February 04, 2009

Pramod, The article says at the very beginning.."These are for those who are planning to do business – as in sell or buy goods or services, including advertising -and not for those who just want a presence online".

But you do make some interesting points...

How many are looking at being the next big e-commerce site? You will be surprised by the number who are :). I have a folder full of emails from people intend on setting up the next big e-commerce site asking for advice or coverage.

Those with a small product or service -- they probably need paypal. Not many Indian small businesses have paypal integration. Part of the reason is that if you want to use paypal to pay in Indian rupees, you can't. ( https://www.paypal.com/in/cgi-bin/webscr?cmd=p/sell/mc/mc_intro-outside ). So, the transaction will attract foreign currency surcharges on both ends - the buyer and the seller.

Infact payment gateway integration is one of the biggest problems faced by Indian small businesses in doing online commerce

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When fortune 5M is considered - it's best doing online business
written by pramod, February 03, 2009

Dear Sir,

I totally agree to all the points, however my argument is that your points are relevant if one is considering to open the next eBay or homeshop18. Yes we would end up committing all the 19 mistakes. On the other hand how many are actually looking at the next big site or a eCommerce site?

Consider the companies I call Fortune 5 million - they need basic visibility. They have a small product or service to offer. They need some basic stats. They need PayPal (probably) to manage the transactions. Once in a year basic (even a css change) face lift. It's OK to have the site hosted on shared servers. They yet would do more business by a click than by a brick.

While i agree to the 19 points, i feel it's not too practical when it comes to the "Bottom of the Pyramid".

regards,
Pramod

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