The ranks of profitable e-commerce firms are growing, with the end of this year circled on the calendar by many high-profile e-tailers, including Amazon.com, as the time to move into the black.
However, other e-tailers are already profitable and many have been for some time. These companies are still a little off the beaten path, with their own careful niches and no immediate goals to dominate the retail world.
Many of the profitable firms have something else in common. As one analyst put it, many are borrowing a page from the eBay playbook because they do not stock or ship merchandise.
“The profitable companies are the ones with a well-defined niche that didn’t have to go out and spend millions to get customers to come to them,” ActivMedia director of research Harry Wolhandler told the E-Commerce Times.
Here are a few success stories.
A combination of strict cost controls and a business model that keeps it from handling the orders it fills has added up to three straight profitable quarters for online florist FTD.com (Nasdaq: EFTD).
FTD.com posted about US$2.4 million in net income in its fiscal third quarter, which ended in March, on sales of $36.1 million.
FTD.com president and chief executive officer Michael Soenen pointed out that the fourth quarter ended June 30th — traditionally the firm’s busiest because it includes Mother’s Day and the peak wedding season — is the last step before it closes out a full year of profitability.
Morningstar.com analyst David Kathman credits Soenen with righting the FTD.com ship, in part by reducing customer acquisition costs dramatically. However, what the virtual florist has going for it most is a “little bit of eBay,” Kathman said.
“The great bulk of its revenue comes from independent flower shops to which FTD.com sends business,” Kathman told the E-Commerce Times. “The shops keep the flowers and take careof delivery, so FTD.com doesn’t have to worry about any of that.”
Overstock.com got some very good news a month or so ago when Amazon.com said it would use the e-tailer to supply some products for Amazon’s electronics department. Overstock is no stranger to good news, having recorded its first profits a month before the 2000 holiday season.
At the time, Salt Lake City, Utah-based Overstock boldly proclaimed itself the first pure-play e-tailer to turn a profit. Whether or not that is true, Overstock had reason to brag: While dot-com failures such as Kozmo and Boo.com were collapsing after spending millions of dollars each in venture capital, the privately held Overstock had raised and spent $27 million before starting to make money.
The trick, said chief executive officer Patrick Byrne, is that the e-tailer’s business plan always focused on profits. He said Overstock figured it needed to sell $6 million worth of goods monthly to be profitable, a level it surpassed halfway through 2000.
Overstock knows first-hand what can happen when money is spent unwisely. It has helped sell merchandise left on the shelf after ToyTime.com and Miadora.com folded up their tents.
“Smart e-tailers learn from their own mistakes, but really good ones have learned from what others have done wrong and right,” Wolhandler said.
AllergyBuyersClub.com does everything the other moneymakers do. In the process, the site borrows another hallmark of success from eBay: It’s all about community.
Founded in September 1999 by Mercia Tapping, AllergyBuyersClub started generating revenue in January 2000, went into the black in October and is in a position to say there because it has a loyal following, according to Wolhandler.
While e-tail of allergy treatments and related products is the AllergyBuyersClub’s purpose, the site is fortified with syndicated health-news content, ask the doctor-style features and product reviews.
Wohlhandler said ActivMedia turned up several similar firms, all with the same qualities: a tight marketing focus and a loyal following.
“They use all their marketing tentacles to draw people back to the site,” he added.
AllergyBuyersClub, for instance, uses e-mail newsletters to keep in touch with customers, an approach that works best for sites with special interests.
A Little Is Enough
Most of the firms that succeed with that formula do so on a relatively small scale: AllergyBuyersClub sells about $100,000 worth of goods each month, with order fulfillment handled by suppliers.
It may be, said Wohlhandler, that making money online is easier if you’re not trying so hard.
“Those sites that succeed in that area usually have a singular passion, a reason that goes beyond generating sales,” he said. “People want to build a site and it grows into a business. I think people are attracted to those sites and they learn to trust them over time.”