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Finding the Right Recipe Isn't Easy
Michael Tutton, July 1999
Perhaps you're in the business of selling home appliance parts wholesale in Moncton; perhaps you think you're in a pretty traditional business where repair people call you up and you deliver the part. If so, you're in for a rude awakening.
An online competitor is coming, and he just might knock you off the map. you would have found this out from John Peters, the president of a Halifax-based developer of electronic commerce applications, if you had attended a conference at which he spoke in mid-May.
There, he revealed the arrival of www.partselect.com (not its real name), an operation based in Truro that in June was set to launch an Internet-based business selling wholesale appliance parts online throughout Atlantic Canada. If the project succeeds, the site, loaded to its electronic gills with lower-priced items, could move in on suppliers of wholesale appliance parts with a combination of Internet-based ordering, discount prices and courier delivery.
Goodbye status quo, goodbye middle man and hello electronic commerce, with somebody else taking advantage of it. It can happen. Just ask your local independently owned book store whether it's feeling the impact of online booksellers like Amazon.com.
Mr. Peters, speaking to a crowd of Microsoft users that overflows a Sheraton hotel conference room, puts it like this: "We're in the midst of a revolution." Subtext: In a revolution, there are casualties and you don't want to be one.
At this point though, don't expect too read a list of New Brunswick companies with Internet sites making bags of money. This is a defensive battle. The great dilemma for online business is that it's an expensive, uphill battle that almost all entrepreneurs must consider before someone else emerges like digital lightening and wipes you out.
Locally, we're only just getting going. According to NBTel, about 1,000 New Brunswick businesses now have a presence on the Internet. The majority of them are simply marketing their business over the Net with a Web site. Fewer than one in 10 is starting to tentatively offer to sell something over the Net, most by offering a toll-free number to call for an order. If they make it over the hump into profitability, they'll be rewarded. Roughly 300 million people are now shopping online, worldwide, and the number is growing by million each month. A critical mass of 30 per cent of American households, our greatest potential export market, now use the Internet on a regular basis.
Susan Sweeney, author of 101 Ways to Promote Your Web Site, gives seminars across the Maritimes on how businesses can improve Internet sales. She's worried that businesses in the region are moving too slowly into electronic commerce.
"We're not keeping up," she says. "Just the number of people setting up online throughout the Maritimes isn't on a par with other provinces...We deal with a number of companies in Ontario who are implementing e-commerce. At this point, we deal with more in Ontario than in Atlantic Canada even though we're based here."
"Most of our clients are waiting to see what happens," she laments.
Most, but not all. There are some companies engaged in the struggles of e-commerce as this is being written.
Consider the case of Wayne Jagoe, 36, the owner of a two-year old, online business that lists New Brunswick restaurants at its site, titled www.dineaid.com. It's hard to imagine a person with a more positive outlook than Jagoe. He gave up a steadier income in the restaurant and hospitality industry to risk it all on his Internet dream. In an interview he bubbles over with enthusiasm about his site's great potential. "Great," his favorite adjective, peppers his speech.
To date, after working 20 months of 10 to 14 hour days, he's attracted 70 businesses to locate on his listing site, charging each one $50 a month.
That's still not enough to exceed the costs of having a full-time site developer on staff, along with an office and other expenses. Jagoe has to make even more restaurant-seeking eyeballs move to www.dineaid.com. "We're almost breaking even," he says. "Soon we'll turn the corner."
Making the site work is a matter of myriad small and major decision. "the site itself is a work in progress," he explains. For example, he is currently making use of Susan Sweeney's expertise. She has prepared a site analysis of Jagoe's efforts and her report offers him a number of key pointers. "He can make money on this," she says, "but his challenge is marketing."
To improve his site he has to do more to help people who use the world famous online search engines, such as Lycos, MetaCrawler, Yahoo! and Excite, to find his site.
That means when he creates his opening pages he must choose the right "metas," hidden words the search engines key on as they hunt through the massive digital world for Web sites. Choosing the right metas requires thinking about how you and I might think. For example, if we want to use the Internet to find a dining establishment in Fredericton, we'd likely type in the words "Fredericton" and "restaurant." When Sweeney examined Jagoe's metas, she found a number of crucial words were missing, such as the names of the larger New Brunswick cities.
For Jagoe, this is relatively easy problem to fix. He faces some much bigger decisions in the near term. First, he has to decide who he will have design a new "dynamic" version of his site, a project that will cost $60,000.
A dynamic system is a considerable improvement because it essentially customizes the information to each visitor's requests. It's also very expensive and technology challenging. Jagoe is finding himself submerged in choices that he doesn't fully understand.
"The challenge is to know you have to make a decision. That decision can't take two months, it can't take six months, because then somebody else may have a similar site up. You have to make decisions at amazing speed and that scares you because once you make them they're not necessarily easy to stop."
Jagoe also wants to being selling products from his site directly to consumers. He's thinking about such items as the popular tea biscuits available at Incredible Edibles restaurant in Saint John. Or lobster from the Bay of Fundy. That requires a method of payment and this also presents some big challenges.
Thanks to the fairly remote chance that some hacker might break four levels of complex computer security to reach the NBTel computer where his site is lodged, credit-card providers are charging prohibitively high rates for online merchant accounts. Several banks have told Jagoe they'll require a bond of three months of his gross revenue before they allow him to accept credit-card payments online through a merchant account. Another asked for a mere $10,000.
But Jagoe thinks he has the solution. He's gone to an American service that will handle the Visa and MasterCard payments online. The price is only $100 a month. "the banks are used to being in control. But the game is changing and soon they're going to have to keep up," he says.
Mike MacNeill, the manager of electronic commerce at NBTel (www.nbtel.nb.ca), is among the fans of Jagoe's site, believing it has the potential to eventually make money. In general, he says, New Brunswick business is going to have to get with the reality of e-commerce, "My first message is Go. If you're not thinking about this and how this applies to your business, you are now behind."
But in almost the same breath he emphasizes that selling directly to consumers isn't going to be the priority for all businesses. Rather, he suggests they undertake a wider analysis of what the Internet can do for them right now, including electronic business-to-business transactions and internal transactions.
Often, he says, the less sexy effort of using intranets (internal online networks) to wipe out paper within an organization can produce quick and important economic gains for a company. He says this, along with business-to-business transactions over the Net. "is the low-hanging fruit."
"The more mundane back-room stuff that is still paper being shuffled around may be where the big cash savings are," he says.
That doesn't mean you shouldn't plan for the future, he adds.
A prime example of a site that doesn't sell direct, but which is well positioned to defend its territory, can be found at the Kent Building Supplies home page (www.kentbuildingsupplies.com), which is described by Sweeney as the kind of site that could be a model for many retailers.
It doesn't sell you nails and lumber directly online, but rather takes the intermediate step of offering Web coupons, which you print off from their page. If you click on the site, you'll see a listing of savings on everything from mitre saws to wood stoves. This allows Kent to measure the number of people who really make use of their site, because Web coupons can be counted as they come in. Sweeney, who helped design the site, says, "What they're trying to do is get on the Internet and test out what's working and what's not working. They're taking the safest step."
The Kent page also provides other draws to their site, such as location maps for folks making their first trip to the hardware store. There prizes, home renovating tips and online specials.
"You have to have a great Web site," says Sweeney, "You have to have a great site in terms of it being found by search engines. And you've got to get people to use it when they get there."
Sometimes, the simple solutions work. "I had Web anxiety a couple of years ago," says David Forestell, owner of Slocum & Ferris, the 150-year-old company that operates a lunch counter in the Saint John City Market and is a wholesaler of dulse. "I figured all my competitors were going to on the Web and I wasn't."
So he moved quickly and set up a site for folks who love the seaweed that substitutes for salt. After a hew months, to surprise, it turned out there still wasn't a site with the name www.dulse.com, so he reserved that space on the Net for himself.
He also was fortunate to meet Terry Cormier, the technical support specialist at the University of New Brunswick in Saint John's new electronic commerce business program. Cormier set up the site for a small fee and maintains it for a single digit percentage of sales.
Forestell has set up a toll-free order line through NBTel and arranges payment by Vise or MasterCard over the telephone, avoiding the expensive online merchant fee. He says he now sells an average of about five or six pounds (about $50 to $60) a week of dulse online. His expenses are minimal, because his site developer is willing to take a royalty rather than a fee. The toll-free line is only costing him 15 cents a minute. The average order takes about three minutes.
So, he's making money. Not a lot of money, but there's a net profit already that is destined only to grow, provided Cormier stays on board.
Equally important, Slocum and Ferris is on the learning curve.
"At first I thought you just need a site and then watch orders come in. I didn't realize that it's an electronic yellow pages book that is 200 feet wide. It's important to find ways to get people to look at your site."
That means putting the dulse.com on business cards, considering buying some advertisements in health-food magazines and gradually moving toward making the Internet a core part of his business. He knows that it's up to him to do this part, rather than the person who develops the site.
"You can't expect your Web developer to look after the driving eyeballs," says Sweet. "It doesn't work that way. Nobody will beat a path to your door."
Nobody, that is, except your future electronic competitor. And if you're in business, you can't afford to wait until that day arrives.
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