A tumultuous 2001 economy delivered a strong dose of reality to the dot-com market. Last year, at least 537 dot-coms shut down or declared bankruptcy, more than twice as many as the 225 Internet companies that failed in 2000, according to a recent Webmergers.com report. To avoid capsizing in today’s stormy environment, many dot-coms are returning to the basics for survival.
“It’s all about the basic business principles. In e-commerce, they are no different,” says Hal Sirkin, senior vice-president and worldwide practice leader of e-commerce at Boston Consulting Group in Chicago. “The physics haven’t changed, but people got delirious and thought they had.”
Three dot-coms – AutoTrader.com, 401kExchange.com, and eAutoclaims.com – managed to keep cool heads during the hype and stay rooted in reality. By sticking to business basics, such as focusing on revenue-generating activities, keeping costs in control, and building critical partnerships, customer bases, and competitive advantage, these companies remained standing as the market and competitors toppled.
The Power of Partnerships
Created in 1997, AutoTrader.com is the largest online classifieds marketplace for automobiles. The site helps consumers conduct extensive automobile research while allowing dealers and manufacturers to advertise new and used automobiles to a large number of potential buyers.
Key to AutoTrader.com’s success has been powerful partnerships that allow the company to deliver the largest inventory of vehicles to U.S. consumers, with its more than 1.5 million listings representing more than 50 per cent of all used cars and trucks for sale in the United States. Its strategic alliances include being a majority-owned subsidiary of Manheim Auctions, the world’s largest wholesale auto auctions company, and being the exclusive online distributor of the automotive listings found in the Auto Trader and AutoMart print magazines of Trader Publishing. AutoTrader.com has also teamed with eBay and America Online to expand its market presence.
“Inventory is always one of the largest things that drives our success and keeps competitors at bay. Others are hard-pressed to ever catch up,” explains Brad Mohs, senior vice president and CTO of Atlanta-based AutoTrader.com. “We continue to strive to put in place the technology solutions that are necessary to keep that number growing.”
For example, AutoTrader.com implemented XML-based collaboration services to streamline handling of inventory data. Dealers also benefit from an online administration area that allows them to independently manage their inventory content and dynamic display ads that change featured vehicle specials based on the type of car being searched for on the site. Valuable consumer services include side-by-side vehicle comparisons and advanced searches that allow visitors to quickly find the exact model desired.
“We started off with an absolutely solid business plan to begin with,” Mohs adds. “This place knew where revenue would come from and has adhered to it.”
In fact, even in the face of dot-com and advertising recessions, AutoTrader.com has seen steady growth since May 1998, says President and CEO Chip Perry. It was this upward movement and solid fundamentals that persuaded CTO Mohs to eschew a consultancy partnership position to join the company in March 2000 amidst the impending dot-com doom. The company uses a tiered service structure for listings, allowing users to list basic descriptions of cars at no charge or pay a fee to increase a listing’s prominence through added features. The site also sells other ad services.
“Our model makes it realistic for us to upsell dealers from free to paid. The traditional classifieds model costs a dealer between US$300 and US$400 per car. AutoTrader.com is generally less than US$100 per unit and often less than US$50,” Perry notes. “We’ve been able to create a product that is dramatically better than the old way of automobile buying and selling.”
The Realities of Revenue
Another dot-com that believes it has improved a traditional offline process is 401kExchange.com, a B2B exchange and due-diligence research resource for the 401(k) plan market. Started as a market research company in 1996, the company later expanded its horizons to help employer-plan sponsors, retirement advisors, and plan service providers conduct business more efficiently.
Over the last two years, to support online service delivery, it raised about US$7 million, according to Fred Barstein, founder and CEO of 401kExchange.com. As with many other dot-coms, this influx of cash distracted the company from building revenue.
“When VCs are throwing money at you and telling you that you’re going to be a billion-dollar company, I was seduced for a time. We didn’t abandon our revenue-generating activity, but it was not our priority,” Barstein says. “In December , I took a hard look and saw that revenues were not coming and that raising money was not going to be easy, if at all possible. I knew we had to reduce expenses. We did by 65 per cent to 75 per cent and focused on revenue, which increased by 50 per cent in 2001.”
401kExchange.com was also willing to change its business model to better fit the market. Having first targeted 401(k) service providers as its primary clients, the company later realized that its true customer was the broker and tailored both its offline and online services accordingly. Continued success is also due in part to innovative technology management, says Subi Katragadda, CTO and vice-president of business process, who joined the company in January 2000.
“We’ve taken a very disciplined approach to investing in technology,” Katragadda explains. “We try to stay three [months] to six months behind the bleeding edge. We always look at financial payback on any investment we make, and typically we do not try to push technology platforms on our clients.”
“In today’s environment, it’s easier to scale up,” Katragadda adds. “And when you do need to scale, you can probably get something better at less cost six months down the road.”
A Fixed Focus
For another dot-com, eAutoclaims.com, staying focused on its core competency and living within its means led to success, according to President and CEO Eric Seidel. Providing auto claims management services through its online network, eAutoclaims.com connects car owners, insurance providers, and service providers, such as auto repair and glass shops.
“At the height of the craze, everyone was chasing every deal out there,” Seidel notes. Instead, eAutoclaims.com stayed focused on its core competency of providing cradle-to-grave services for managing claims, he explains, with the added goal of providing exceptional customer service.
eAutoclaims.com helps reduce operation costs for its network members. Instead of developing their own online services, network members can use a standard Internet browser to simply access the applications and services already created by eAutoclaims.com. As a result, processes that historically have taken two weeks can be completed in five days, according to the company.
“In our effort to provide top-quality service and products to our clients, we tend to listen to them very carefully when they make suggestions for improvements,” adds Gaver Powers, CIO of eAutoclaims.com. “Because we store all of the source code on our servers, we make a minor change, and it’s distributed to all of our clients. They realize the benefits almost overnight.”
Technology also allows eAutoclaims.com to improve its own business processes. For example, it recently implemented the CIECA X12 transaction standard to boost auditing productivity by eliminating the need to rekey administrative data.
Back to the Basics
Business 101 teaches that corporate success depends on sound business models that generate profits, create competitive advantage, and build loyal customer bases by providing value. By returning to these basics, surviving dot-coms may find smoother sailing ahead. “The key [to success],” 401kExchange.com’s Barstein concludes, “is staying alive long enough to get smart.”
Debbie DeVoe is a writer in Bozeman, Mont. Contact her at[email protected].