Secrets to Succeeding Online

If the dotcom bust has taught us anything, it’s that some vertical industries are better suited to the Internet than others. Travel, B2B exchanges, career services and personal finance are notable for staking out a healthy if not profitable slice of the online pie. This trend is certainly reflected by this year’s Web Business 50 winners: Eight of them fall into one of those categories. Yet what do AIRS (Advanced Internet Recruitment Strategies), Eastman Chemical, eLance, Foliofn, Global Recycle, Salary.com, Sidestep and Southwest Airlines have in common besides residing in industries prone to Internet success? What lessons, if any, can they offer companies in other industries about doing business online? It turns out that those companies are pursuing similar strategies and following fundamental business practices that enable them to survive and thrive on today’s Internet.

A MILE IN YOUR CUSTOMERS’ SHOES

Putting customers front and center sounds obvious, yet more than a few online businesses never considered how or why an actual human would use their site. In industries like travel and career services, where data begs for consolidation via the Internet, hundreds of companies vie to provide customers with access to the same information. So how the data is presented?the convenience with which customers can access it and the reliability of search results?may be all that separates one successful company from the pack, says Sandeep Varma, vice president of new strategic initiatives for New York City-based consultancy Stern Stewart & Co. This is a philosophy that Southwest.com credits in achieving its status as the most visited airline website (with 4.4 million monthly users), according to Jupiter Media Metrix.

“We made sure [our site] is in English, not ’Airline-ese,’ and we organized it around the way a traveler thinks, not the way our business is set up,” says Kevin Krone, vice president of interactive marketing for Dallas-based Southwest Airlines. One nice touch: Southwest.com engineered its ticket search so that travelers can see both schedule and fare information. Site users can choose flights based on what’s most important for them; a businesswoman looking for an 8 a.m. flight might opt for an 8:30 a.m. trip instead because she’ll save $30. “Showing them all that information gives customers a lot of comfort,” Krone says.

It also cultivates trust, an invaluable commodity on the Internet. “Trust has always been a big issue for businesses outside of the Web, and it is especially important on the Web,” says Patricia Wallace, author of The Psychology of the Internet (Cambridge University Press, 1999). “The companies that maintain their integrity will survive.”

Customer confidence has been a key to the online expansion of 81-year-old Eastman Chemical, a Kingsport, Tenn.-based provider of 400 chemicals, fibers and plastics that are used to make everything from Pepsi bottles to nail polish remover. One of the top 10 global chemical suppliers with $5.3 billion in revenue, Eastman was among the first of such companies to do business online in 1999. Currently Eastman.com has 34,000 users a month. “There are so many things you have to do to sell chemicals in terms of compliance, testing and regulations that people just feel more comfortable coming to us online than they do some new online company or exchange,” says Jenny Quillen, content manager of Eastman.com. “Trust is a big thing, and you build that by being reliable online and off.”

For AIRS, tuning in to customers led to an entirely new stream of revenue. Born as a training provider in 1997, the Hanover, N.H.-based company taught recruiters how to locate passive job seekers on the Internet. After conducting thousands of its $2,000 Search Lab classes, AIRS executives noticed they were getting the same comments from clients: They loved what they learned but couldn’t remember everything on their own. So in 1999, AIRS introduced Search Station, an online tool automating the search techniques taught in its seminars (such as zeroing in on employee contact information on company websites or finding candidates in chat rooms). “We pride ourselves on really taking our customers seriously,” says Director of Internet Operations Matt Swett. More than 2,000 companies, including Microsoft, Motorola and Oracle, pay $3,000 per year for a Search Station subscription.

“Constantly asking customers what kind of information they want is vital to success on the Internet,” says Wallace.

BE DIFFERENT

In 1998, former Securities and Exchange Commissioner Steven Wallman hit upon a novel idea. Using the Internet as a self-service platform, he founded Foliofn, which is based in Vienna, Va., to let individual investors play professional portfolio managers by buying and trading customized baskets of up to 50 stocks. When Wallman devised the business plan, the stock market was flying high and online brokers were a dime a dozen. In addition to a new investment approach, Wallman decided to further differentiate his company by offering individual investors the service for a flat fee of $29.95 a month, an alternative to the pay-per-trade strategy of the competition. The decision has since proved fateful. As the stock market has softened, Foliofn’s subscription model has resulted in a steady revenue stream, according to CTO Jerrold Grochow. And the company’s do-it-yourself focus resonates with investors who seek diversity and control in tough times. Revenue has remained strong, and assets under management have grown despite tough times, according to Grochow. (The company declined to release figures.) Foliofn attributes its success to its sole focus of creating and enabling an innovative investing approach. “If you look at the hundreds of thousands of businesses on the Internet, the ones that are of interest are the ones that provide something that is above and beyond what you could get before or provide something in a way that you could not get before,” says Grochow.

The $15.4 billion online travel industry is crowded with well-known brands. To carve out a niche, Sidestep acts as an intermediary between consumers and travel-industry suppliers such as airlines, hotels and rental car companies. As a self-described purchase facilitator, the Santa Clara, Calif.-based company searches the websites of its suppliers, presents the options it finds in their entirety and takes the customer to the suppliers’ websites for the purchase. That approach allows Sidestep to offer consumers a variety of travel options including specials that appear only on supplier websites and not on those of competitors such as Travelocity and Orbitz. It also relieves Sidestep of any fulfillment and customer service responsibilities.

Suppliers prefer Sidestep because fees are as much as 50 percent less than those charged by travel agents or other sites, according to Jung Shin, vice president of engineering and operations. And consumers like Sidestep because they know they won’t get a cheaper quote at a supplier website. That combination has garnered the company more than 1 million users in the year it’s been operating.

MONEY MATTERS

Great ideas and customer focus are important, but the bottom line for any online business venture is…the bottom line. As Stern Stewart’s Varma says, “Red is dead.” Successful websites must eventually either make money or reduce costs, so figuring out a viable business model is critical.

Like many companies, eLance has had to resort to layoffs in order to contain costs; it trimmed its staff from 135 to 90 in January 2001. The Sunnyvale, Calif.-based company provides a marketplace that connects companies seeking help on projects, which range from administrative support services to flash animation to tax preparation, with a pool of professional talent. The company not only provides a professional matchmaking service, it also offers a billing and payment system, online file sharing and quality assurance programs. While not yet profitable, eLance has overhauled its revenue model, switching from transaction fees to subscriptions, and it is on track to break even early next year. It now offers its services for a range of subscription fees beginning with $25 per month for projects under $500, to $7,000 per month for projects up to $250,000. The tiered strategy has not only evened out the company’s revenue, it has weeded out many “hobbyists,” so the site offers an even stronger pool of professional help.

Making money is only one part of the equation; spending money judiciously is an equally important success factor. Whether profitable or not, these eight winners maintain the same tightfisted control over their funds. There are no multimillion-dollar advertising campaigns or swanky urban office suites among them.

For lessons in frugality, Glasgow, Scotland-based Global Recycle found that com petition is the best teacher. “We watched as other [executives at] commission-based trading platforms flew first-class,” says Pat Daly, managing director of Global Recycle, a trading platform for the recycling industry. Many of the companies burned millions of dollars and quickly disappeared. “They had dramatically overspent on technology and man power,” Daly adds. “Controlling costs is what we do best.”

Salary.com, a provider of Web-based career compensation information and recruiting services, decided to build its product through syndication. The strategy is both a low-cost alternative to buying up half-time spots at the Super Bowl and a source of revenue. The Wellesley, Mass.-based company’s Salary Wizard is now on 300 sites as well as its own. Typically, Salary.com receives a syndication fee from partners for use of the Salary Wizard; the partners in turn get a slice of advertising revenues. As a result of syndication, Salary.com was the eighth most visited career site in July 2001, with 768,000 visitors that month, according to Jupiter Media Metrix. All that attention despite little spent on advertising. “Our marketing budget is very, very, very, very low,” says Tim Driver, senior vice president and general manager of consumer products.

Many burgeoning dotcoms with their sights set on becoming the next big IPO ramped up staff before they earned the revenues to justify it. But at Sidestep, managers didn’t hire extra employees to accommodate future growth. The company maintains a lean staff of 35, who each either maintain and improve the site or sign up new suppliers and expand existing partnerships. The company keeps things simple on the technical side as well. “If you buy the latest and greatest product solutions, it will hurt you especially if you have to keep paying for them year after year when you’re not getting the revenues you hoped for,” says Shin. Sidestep pays nothing to use Apache and Tomcat servers, both open-source products, and Shin runs his Java software on inexpensive Linux machines.

BE NIMBLE?UP TO A POINT

Initially the plan for Foliofn was to grow by building business partnerships among the online community. However, as the company was preparing to launch its site, it ran into the beginnings of the dotcom shakeout, according to CTO Grochow. Executives quickly realized they’d have to come up with a new plan and launched a Web consumer product instead. “Then we literally ran smack-dab into the Nasdaq crash,” Grochow recalls. “One might have to question our sense of timing.” Nonetheless Foliofn caught on. “Those potential partners that we had originally been thinking about began to see that we had done this successfully, and they started calling us,” Grochow says. “Because we changed our strategy, we’re moving ahead even more quickly than we had imagined.” Foliofn recently penned a pivotal partnership to offer Quick & Reilly customers its products.

Global Recycle readjusted its initial plans to be an Internet-only exchange for scrap dealers. “As a pure-play exchange, we would have crashed and burned by now,” says Daly. Global Recycle now offers customers a variety of channels to do business. “We realized quickly that by using a balance of phone, fax and Internet communications, we could satisfy all of our members,” adds Daly. “You can’t be afraid to change things at the drop of a hat even if it means going in the complete opposite direction of your business plan. Plans are rewritten monthly, sometimes weekly.”

At Eastman, its relatively smaller size in comparison to chemical giants keeps the company and its website on their toes. Having a dedicated e-business group that’s closely aligned with the company’s business teams also allows Eastman to make continual changes to its Web offerings. For example, Eastman knew that its customers wanted basic product information online, such as data sheets and specs. But when Quillen went to her business partners, she discovered Eastman.com could offer customers more. “We went to our technology community and found they were using all sorts of databases and special tricks to help customers,” Quillen says. Eastman.com then transferred such helpful tactics to the Web, according to Quillen.

Robin Minga, technical solutions program lead, and her staff created the site’s “wizards” including the Solvent Selector Guide, Flow Rate Calculator and Part Cost Estimator. Information that on paper once covered a very large desktop, according to Quillen, is now incorporated into simple tools. In the process of taking some business processes online, Eastman has strengthened customer relationships, reduced costs and driven revenue, says Quillen. The percentage of orders entered through Eastman.com from DuPont, one of its biggest customers, increased from zero in the first quarter of 2000 to 23 percent during the first quarter of 2001, freeing up Eastman’s customer service representatives to work on other initiatives. Eastman.com continues to respond quickly to customers and business partners, which has most recently led to efforts to integrate the site with Eastman’s customer ERP systems.

There’s a balance between staying nimble and stretching too far beyond your strong suits. A good example is eLance, an online business that’s ever expanding its offerings but only within its single area of expertise. The company began in 1998 as a marketplace connecting individual professionals, but eLance executives quickly found that buyers of services weren’t the only kind of group using its site. Seventy-five percent of its providers were companies as well?companies capable of handling much larger projects. Today, eLance is leveraging its existing technology and base of providers to create an enterprise product that will result in larger licensing fees. This winter, eLance plans to charge Fortune 1000 companies several hundred thousand dollars to use its enterprise software solution, eLance Enterprise Services Procurement and Management, which helps place professionals and vendors on projects.

Successful e-businesses have mastered one or two areas before entering new markets, according to Stern Stewart’s Varma. “If you expand into lots of new areas, you may increase market share, but profitability will continue to elude you,” he says.

While these eight Web Business 50 companies may have had an initial advantage in their Internet-inclined industries, they are not passively relying on happenstance in order to make it. Each company proactively seeks success either by honing in on customer needs, crafting and perfecting a niche, staying atune to the market or keeping costs in check. These are practices that other companies in other industries will do well to heed.