Fallen on hard times, many e-commerce companies have turned to business-to-business sales as a last-ditch effort to stay alive. But will this tactic be able to salvage them?A flood of companies tore into consumer retail at a time when investors were salivating for any company with a dotcom in the title. But an overabundance of competitors and a suddenly priggish market for retail concerns in April left many dotcoms rudderless this year.
Exploring alternatives, many beleaguered companies, including Beyond.com, Food.com, MotherNature.com and GreatEntertaining.com, have anchored themselves to a business-to-business strategy to help rescue the business. The idea is this: Cut costs and tap into a market where there is still investor interest.
Thursday, online convenience store Urbanfetch.com said it would abandon consumer sales and chang its focus to delivering goods for other companies. But sceptics say launching a business-to-business strategy may only be a quick fix to a terminal problem.
In many cases "this is the last-gasp effort to maintain their fiscal sanctity, to raise more funds, to maintain their public image," said Matt Stamski, retail analyst at Gomez. "But it's typically a cosmetic exercise."Because most online stores have lost money hand over fist in recent years-a peccadillo no longer acceptable to investors - the big push is for profits. Launching a business-to-business strategy can be a way to slash the costs associated with huge consumer marketing campaigns and to add a competitive edge in the marketplace.
"They're all looking for ways to make enough money to establish a path to profitability - the Holy Grail for dotcoms now," said Mr Michael Drapkin, principal of Drapkin Technology and chair of Columbia University's e-commerce program.
After seeing its stock price plummet, Beyond.com decided in January to move away from low-margin consumer software sales and focus on software sales to governments. The Santa Clara, California-based company also moved into building and maintaining Web stores for other companies.
Many dotcoms are attracted to business-to-business sales because it means selling in larger volumes with less cost. Selling to a business often requires a traditional sales call, among other things. But selling to a consumer typically requires a massive marketing campaign, including costly advertising.
When Value America filed for bankruptcy in August, the former high-flying e-tailer said it planned to reorganize its business to sell e-commerce services to other companies, allowing them to take and deliver online orders."There's a feeling that all the low-hanging fruit for consumer e-commerce has been picked. There's no room to be an Amazon or an eBay. If you're trying to get into those markets, you're facing an uphill battle," said Doug Boeschen, principal at strategic-marketing firm The McKenna Group. Dotcom burnout After whittling its staff from 60 to 20 last week, party-planning site GreatEntertaining.com said it would change its focus from consumer sales to business services. Christy Ross, the company's chief executive, said stiff competition in the market an pressure for profits led to the decision.
"It's much more cost effective to acquire a corporate customer than an individual," Mr Ross said. "Companies can spend anywhere between $1 million to $30 million for the holiday season. Now costs will be substantially lower because it's a sales effort at trade shows, for example."
But there can be many hidden costs to developing a business-to-business strategy, depending on the business.
"Building a business-to-business company can be just as expensive in other ways," said Boeschen, factoring in lengthy sales cycles and heavy competition to bring in the big corporate clients. "Many times these are multimillion-dollar contracts, and it takes a long time to complete that sale."
And after switching strategies, there is a chance that clients may see the company as flighty.
"A lot of their clients have a tough time with what they are pitching, because they think of them as a consumer retail business and don't think they can hold up in the business-to-business market," Boeschen said. Sweetening the pot Several healthier and more established e-commerce companies have launched business-to-business efforts to boost revenues and expand their brand names.
India.CNET.com
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