19 mistakes that online businesses make-part I

This piece looks at some of the most common assumptions that are wrong about doing business online. These are for those who are planning to do business – as in sell or buy goods or services, including advertising -and not for those who just want a presence online

We are in what is probably the third wave of Internet businesses. The first wave that had eyeballs and sticky eyeballs as measures of valuation ended in the dot com bust of the end nineties. The second wave came after that and was more muted with e-commerce and online transactions being the focus. The third wave and current wave is focused around social networking and other “web 2.0” technologies.

One of the perks of my job is that I get to see quite a lot of business plans in all their detail. And these days I am getting to see quite a lot of them that focus on doing business via the net. Unfortunately, not many it seems understand the medium that is the Internet. Many of the mistakes that were made in the very first wave are still being repeated. Many of the assumptions that were proved to be wrong then are still forming the basis of one too many business plans.

This piece looks at some of the most common assumptions that are wrong about doing business online. These are for those who are planning to do business – as in sell or buy goods or services, including advertising -and not for those who just want a presence online. By design, I have jumbled up the items in no particular order, so that you read all of them and do not ignore some saying that they are not relevant to you, because they are.

1. Online will reduce costs
This is the number one reason running businesses give for taking up an aggressive online strategy. I have heard it from retailers, I have heard it from consultants, I have heard it from publishing houses. And this is the big mistake that will upset their otherwise well laid business plans right from day one.

What actually happens is like this. Moving online will reduce your future costs in your current way of reaching your audience. But it will not cost any less on the new medium to reach newer audiences. For example, it will reduce your costs in new retail stores or in new field data collection staff or in paper for new copies. But, mark my words, you will end up spending equal if not more on the new media – the Internet.

If you are converting existing customers from say your retail shop or your print pages to the net, even then, the cost of setting up and running a similar or better experience for your customers will turn out to be similar if not more. If you don’t believe me, read on.

2. Setting up a website is cheap
This one flows from the online is cheap syndrome. I have seen business plans that talk of multi-crore revenues that allocate all of five thousand rupees a month for a web server!

Stop for a minute to do the calculations.

How many customers does that multi-crore income convert to? Can the $9.50 shared hosting from bluehost take that load? Would you want such a shared server to hold your sensitive business and customer information?

Let us look at some real data. As of early last year, Facebook photo, one of the applications in Facebook (and not the main Facebook, mind you) had 160 terabytes of storage with 5 terabytes of photos being added each week. At about Rs. 3000 for a half terabyte hard disk, that is 30k to 50 k in just new hard disks every week depending on the level of RAID you have deployed!

At the same time, Facebook was hosted on 10,000 web servers, 1,800 database servers and 105 memcached servers. Any guess what their monthly datacentre bills are like? Any guesses on what the salary bill for the administrators for the system would be? Or how many software developers are required to create and maintain the entire application? What about the security experts required to keep your applications hacker proof?

Then there are those who state that using opensource software makes it cost next to nothing. Now, I have to be careful, given that dare.co.in runs on opensource software and has been comparatively cheap to build. Opensource can be cheap if you know what you are getting into. It can be cheap in the license part, but not in the customization part. I have sat through evaluations where software houses have quoted (and got) in the crores to build websites based on Opensource software.

Tech and web savvy startups are equally bad when budgeting for Internet resources. Most of them assume that the founders will do all the coding and server administration required, for ever after, and do not or at best under budget for these items. As the business grows, you will need to put more developers on the job and the founders will have to move on to more strategic things than the coding of a sub menu.

3. It will run for ever without further investments
A website is not like a house that requires only an infrequent paint job. It is more like a star hotel that requires regular and significant maintenance and makeovers. A website is in constant evolution. As technology and surfer tastes evolve, web properties have to evolve to keep pace. And that takes time, money and effort, all of which are often not budgeted for.

Why has it to evolve? Consider social networking. Out of nowhere, social networking has become the central hub of most web activity. Almost all web sites have had to adapt to this and build social networking features. Operating systems evolve over time. New patches come out and after applying a patch, you will find that some features of your web site are not working and you need to rejig them. New security threats are discovered almost every day and your web applications have to be patched or perhaps re-architected to overcome them. Services you use may change. For example, your payment gateways may change their security requirements. Business dynamics change. Business processes change. Your website needs to be changed to accommodate all these. And finally, in about 3 years, your hardware will need replacement and upgrading.

A quick rule of thumb would be that you would spend as much in maintenance and changes on your website in 3 years as you would spend initially in setting it up. Milage of course varies with makeup. If you have done your initial architecture, scoping and setup well, then this will be on the lower side. If you went conservative in the beginning, then be prepared to spend on the higher side as you go along.

4. Technology is everything
Then there are those who believe that all that you need to succeed is the latest technology. This is much like having fabulous packaging and an expensive ad campaign even when your product is, to put it mildly, terrible.

There was lot of talk (and scrambling) about the need to make web sites web 2.0 enabled, or social networking enabled. Great. You do all these, but what use has the user got with all these if they are not relevant to their experience and use of your site? One of the best examples of e-commerce in India, irctc.co.in, does not need social networking to get about 200 thousand unique visitors every day. Your bank would have to do some real hard soul searching before having forums as part of their on line transaction portal.

Remember that technology or features is not what you are selling. It is at best an enabler of the experience that the user gets at your site. If the user gets there and sees that all that you have are gimmicks, it is unlikely that she will come back again. Look for the value proposition for the user, not for enhancing the biodata of your tech team.

5. Traffic just happens
Sure. And the Sun rises in the west!

Consider some numbers.

There are a hundred million plus domains registered under just .com, .net, .org, .biz and .info. And you just added one more. Technorati has indexed some 133 million blog records since 2002. There are 900 thousand blog posts made every twenty four hours. And you set up yet another blog and expect people to just flood in!

Most business plans, particularly startups make no provision for traffic generation activities. Like you need to drive footfalls to your brick and mortar business, you need to drive traffic to your web properties. And the methods at your disposal are roughly the same, namely advertising and making your shop / site popular by various means.

And advertising is not the only thing you need to do. You need to do search engine optimization, and you need to ensure that dead URLs are removed and you need to cultivate links from other websites... the list goes on.

6. Search engines will find you easily
This derives from point 5. You set up a site and search engines are waiting to send the whole world to your door step. Unfortunately, reality is completely different.

Major search engines require you to authenticate your site by creating an account with them and putting up a code fragment that they provide at your site. Till that is done, most of them will not server your pages to searchers. You need to also regularly maintain one or more (more as your site gets bigger or more complex) site maps that they download (at their own frequencies) to update their index pool.

How to submit and authenticate your site to search engines

You need to create an account with the search engine and then submit your site and its sitemaps to them. For Google submit at Google webmaster tools at google.com/webmasters. For Yahoo, go to siteexplorer.search.yahoo.com and for live, proceed to webmaster.live.com. By the way, how many search engines are there that people use? Did you know there are literally hundreds of them? A list can be found at searchenginecolossus.com/.

After submission and verification, you need to constantly check back to see whether there are problems with your sites listing and indexing. You are also able to define some parameters that search engines use to index your content. As your site develops, you need to change some of them. It is quite possible that there will develop problems with your listing at the search engines that will seriously limit traffic to your site or even stop them completely. And once you get into trouble with a search engine, it is often a frustrating and time consuming experience getting it sorted out.

And I have not even touched upon search engine optimization.

7. You don’t need people to run an online business
During the dotcom boom of the nineties, I had come across those who believed that the icon of those days, ebay, operated from a basement with almost no employees and that all that ebay required was a few servers. And this was at a time when ebay actually had a few thousand employees and operated out of offices and warehouses across continents.

Things have not changed much since those days. Recently I came across another business plan that almost did away with people! It called for software to gather content from other websites and post it up. And then it expected visitors to add value to that content. Another software would deliver ads on those pages. If only business was as simple!

By the way, do you realize what is the biggest problem with this business model? It is not just the absence of people. The content that you scrape from other sites – search engines would mark the other site as source and you as a copy. So, not only they will not send any traffic your way, but also, if you are seen to be regularly doing this, they could black list your site! And of course, there are copyright issues to using content that others own.

Almost every online business plan I have seen seriously underestimates the number of people required!

8. Website visits can be measured exactly
One of the biggest advantages of the Internet is that everything is measurable – or atleast that is the theory. In practice, this too turns out to be different. The easiest way to check this out is to put two analytics solutions to work on your site. You will almost immediately see that the two do not agree on most things.

The difference could be anywhere from 10-20% on most matrices. For sites with large traffic volumes, that may be within manageable (or ignorable) limits. But for sites with smaller traffic levels, the variation could be significant, particularly if you are going to use the information for strategic decision making.

Let us say you are looking at the key words driving search traffic to your site. What if the top keywords currently driving traffic to your site are not the ones with the most relevance for you? You would then want to do some search engine optimization to increase the search traffic for the ‘relevant’ keywords. Now, if analytics tools cannot even agree on the relative strengths of keywords for your site, what are you supposed to do?

9. Alexa is right
This is worse. Let us say you want to find out how your competitor is doing. Obviously (keeping industrial espionage out) you do not have access to their analytics reports. So what do you do? You head over to a public website rating service like Alexa (or compete or quantcast with hundreds of such sites out there).

These sites have two big problems that skew all their data completely out of context. Number one, they are all heavily focused on a US based audience. Their sampling of non-US originating traffic is infinitesimal. So, unless you are competing for visits from the US audience, they would give you completely skewed reports. Second, some, like Alexa specifically depend on people who have downloaded and installed their tool bars or have created accounts with them. And there is no information on what demographics of people have done so. So, for all you know, the information and ranking of your site selling software as a service to large corporates in South Asia could well be based on the surfing habits of stay at home moms in the US!

I have come across instances where traffic ranks at such sites fluctuate wildly, in the thousands one day and down in the dumps of double digit lakhs the next. So, use such websites sparingly, knowing fully well that they could be completely, completely off track.

To be Continued....

Source:www.dare.co.in