Is it time then to trash your e-commerce plans? Not necessarily. While Pets.com’s pooch has been relegated to the back of the sock drawer, consumers are still looking to the Web to spend their money. In fact, consumer e-commerce revenues hit $44.5 billion in 2000?a 66 percent increase over 1999 levels?and represent 1.7 percent of all U.S. retail revenue, according to a May study, "The State of Online Retailing 4.0," conducted by the industry group Shop.org and The Boston Consulting Group. The survey also showed that e-commerce revenue now accounts for more than 10 percent of total retail revenue in the computer product, book and travel sectors. (See "A Growing Slice of the Retail Pie," above.) And this year, the survey predicts, online shopping will rise an additional 46 percent to $65.1 billion.

At the beginning of 2000, many companies embarking on e-commerce initiatives were obsessed with building market share, figuring that profits would follow sooner or later. Large corporations trembled as dotcom insurgents such as eToys and Amazon.com threatened to topple the Fortune 500, while business consultants and gurus lined up to sing the virtues of the Web. The Internet would drive down operating costs, wipe out all middlemen and disrupt the corporate hierarchy. It was...a paradigm shift! All that really mattered, the wise men said, was getting there first and getting big fast. And by the way, advertising would take care of the moneymaking side of things. But those retailers and service providers who focused on profits from the get-go have demonstrated that e-tailing has more to do with old-fashioned business sense?and the ability to ship boxes around the country?than with which outfit has the snazziest website or most innovative business model.

By looking at those few hearty sites that are actually making money, we’ve extracted four rules that can lead to profits on the Net: Be diverse, exploit your channels, be frugal and above all, keep your wits about you.

Profit Is a Many-Splendored Thing

When Fort Worth, Texas-based Travelocity.com got off the ground five years ago, its business model was simple: Sell airline tickets online and make money from advertising. That simple notion?profits will come from one primary source?has now proven fatal for scores of Internet businesses, including Disney’s portal Go.com and other content sites that put too much faith in online advertising. (Even Yahoo, which has shown a profit, has faced recent trouble because it relied too heavily on advertising as its primary source of revenue.) And yet, this spring Travelocity posted its first operating profit while its registered users rose to 27 million.