“The winners in e-commerce make full use of the Internet and create added value”

Sönke Albers
Sönke Albers

Would you give us a short summary of the objectives of the “e-commerce winners” research project?

Albers: Scarcely any other branch of industry is currently so shaken up as the e-commerce segment. The previously boundless euphoria for e-commerce activities of all kinds has since given way to an unrelenting disillusionment. According to current reports, it looks as though nothing is going to change here in the near future: we are experiencing the worst financial situation since the war, triggered not least by the many bankruptcies of e-commerce companies. And with Bertelsmann, for example, one of the largest media companies in the world is largely backing out of electronic retailing, at least across Europe.

On the other hand, despite all the doubts, the Internet economy is continuing to grow. It is not only the number of users that continues to increase. Online retail sales are also rising; in 2002, figures grew by 60 percent in Germany, for example. The question is therefore whether it is possible, despite the bleak overall impression, to make a profit on the Internet. We have made it our objective to ascertain and analyze the current situation in German-speaking companies in e-commerce with regard to their profitability.
In our research, we found first that there are large number of profitable business models for the Internet. In a second step, we then found out from executive boards and directors of profitable and growing dot com companies how their businesses became profitable, so that we could determine which factors played a decisive role in breaking even. We want to help the market regain its confidence.

What are the “recipes for success” or “survival strategies” that you determined – or do these not exist at all?

Albers: There are no quick fixes that can be applied across the board by every company. Rather, our analysis confirmed what is also true outside the virtual world: for a company to grow and profit, a whole series of building blocks must be matched to each other. I would like to mention briefly two of the key factors here.

First, a company must use the opportunities offered by the Internet to create business effectiveness and therefore be more profitable than its competitors wherever possible. An example: the winners in e-commerce do not have any physical contact to their products. They do not just use digital processes, but also products that are digital, or those that can be digitalized. If a product cannot be digitalized, these companies restrict themselves to a “middleman” role – eBay has been showing how this is done for years.
Second, what typifies the companies we identified is that their services create an added value for the customer – in the case of eBay, for example, the size of the network – which the customers are prepared to pay for. These two factors, in particular, separate the successful from the unsuccessful companies.

Have the results of your research encouraged young entrepreneurs to set up new businesses? Do you even want to trigger a new “dot com” boom?

Albers: We have indeed been approached by several teams who have developed new business ideas inspired by the reports about e-commerce winners. However, the results of the research are still comparatively young, and it is therefore difficult to say whether further businesses have been set up as a result. However, we will certainly not be seeing another dot com boom in the near future. A single study would probably not be enough to trigger one anyway. But the business sector will benefit just through successful examples “doing the rounds” over the long term.

In addition to the success stories, have there been any examples that act as a warning – such as those to be found, for example, on the US website “Dotcom Graveyard”(at upside.com)?

Albers: Our focus is clearly on the successful examples, which are generally still far too unknown. This became clear to us over and over again during our search for profitable companies. When we asked those involved in the e-commerce scene answered as to whether their company was already making a profit, many – taken aback – answered with a question of their own: “Do such companies actually exist already?” In contrast, there are many, many negative examples on “dot com graveyards” or paybacks from one-time employees on “hate sites.” We consciously wanted to show the other side.

What industries are the German e-commerce winners particularly active in?

Albers: There is no single industry heading the field. It is not therefore not just the sex sites that are lucrative – always the first area to be mentioned when talking about making money on the Internet. Interestingly – and practically unnoticed by the general public – we have discovered the first companies making a profit in practically all the online market segments that enjoy high sales. This applies not just to the leading segments of electronic business: books, travel/tourism, finance and sex. “Late developers” and in some cases, industries that have been regarded critically such as the car trade, information services – thematic offers and research services – entertainment – here above all online gaming – and last but not, least mobile applications have been successful. In the online second-hand car sector, two of the large players, Mobile.de and Autoscout24, are profitable. The exceptions, on the other hand, are sectors such as online food sales or sport information sites, in which not even the market leader has reached break-even point, and in which the majority of providers have been forced to give up.

Some of the German companies, such as Justbooks or eBay.de, previously known as alando, are subsidiaries of US companies. Is it easier for global companies to be among the winners?

Albers: Companies that have a broader range and operate internationally undoubtedly reap the benefits, because they can often make use of their size to achieve cost savings. For example, eBay can bundle its capacities by controlling all country-specific platforms via servers in the US. However, our research found that the degree of internationalization or the starting time on the market were less of a determining factor for success – that is, profitability – or failure.

In addition to the many small building blocks mentioned above, a far more important factor for success is that a company has a clearly focused business model. Most of the profitable vendors are specialists, and have a focused business concept that covers just one section of the private mass market. For example, Mobile.de concentrates on used vehicles, and – unlike car4you – does not offer new cars. Similarly, abebooks is a specialist in second-hand and out-of-print books, and consciously avoids competing with Amazon or book.de in the new book sector. Even though these companies only have a niche position, their market environment has enabled them to grow well. Practically all these companies are enjoying two-figure growth rates and belong to the market leaders in their particular segments. The number of competitors is generally manageable, and has dwindled considerably, not least as a result of the consolidation of the market.

Are there similar research projects outside of Europe – and do your results match up?

Albers: We are not aware of any research projects of this kind – at least not any that explicitly look to practical experience to identify the factors for success that are relevant for profit-making in e-commerce. This is true not only for Europe but also for the US, which has a few more years’ experience in e-commerce than we do.

Are there different rules internationally for success in the new economy?

Albers: Even though we did not explicitly investigate this in our research, the factors should be generally applicable to all countries. The business models adopted by internationally active companies differ only very slightly, if at all, from those used in the individual, national markets. This is revealed not least by the fact that the companies with the same sources of revenue and a similar cost structure have been able to make a profit in several countries directly. In general, of course, country-specific factors must always be taken into consideration, a fact that, in turn, requires both Management and Sales to have many years’ experience in the country in question. As a footnote: The companies we identified as e-commerce winners did not venture on to the international stage until their business model had proven profitable in their home country.

What is your personal motto?

Albers: Where there’s a will there’s a way.