The Dotcom Dinosaurs Are Becoming Extinct

By Terry Dean

The playing field is quickly being equalized for the small low budget Internet web sites.

The past several months have been host to one large over funded company after another having to shut their doors online.

Petstore.com & Reel.com are the two most recent sites which have fallen by the wayside...with many more sites still to come.

You can keep an eye on the recently departed Internet through the Dotcom Graveyard set up by Upside Magazine:

http://www.upside.com/texis/mvm/story?id=392ec4c10

One company has even set up an entire domain dedicated to keeping you up to date on the most recent web sites which are failing online:

http://www.dotcomfailures.com/

If you pay any attention to the stock market, then you can also note that the past several months have been extremely hard on companies with big dreams and no profits. Stocks with high flying prices but no real profits quickly dropped in April by up to 60% or more.

In other words, the investment community is waking up to the fact that the Internet needs to be treated just like any other business. Large ad budgets and millions of visitors do not equal a successful web business.

Profits equal a successful web business...

I am pretty sure that your own web site does better than most of the major companies on the web. You aren't losing 100 million dollars a year, are you? Well, if you aren't losing millions, you are more profitable than 95% of the major dotcoms currently out there.

As a matter of fact, in the above articles, one of the top CEOs was quoted as saying, "Profit? Are you kidding?"

I have had to earn a profit from day one in my own little web business. My web sites have become successful without financial backing, a large advertising budget, or dozens of staff members.

You can build a successful and profitable web business in just a few months if you follow the successful business models.

Here are a few of the lessons that we as small businesses can learn from the recent collapse of these web sites.

1. Don't Compete With Wal-Mart.

One of the biggest mistakes many of these companies are making is that they are trying to have the lowest price on low margin items.

They are not leaving themselves any money for profit. They are trying to run their sites, pay their staff, ship products, and grow a business while earning only 5% on the products they sale.

Several companies are now even trying to sell at their cost so they can have the lowest prices. It doesn't do you any good to sell to millions of customers if you lose money on every single one of them (especially if you don't have a plan to earn profits on the backend either).

These unsuccessful sites are selling products such as pet supplies, toys, consumer electronics, and the like. There is a store on every block and thousands of them on the web selling these exact same products. So, they are trying to sell one price without having enough profits built in to pay the bottom line.

Look at sites which have become profitable...both large and small. Large companies such as Yahoo and Ebay invented new business models and do not compete on price.

For example, Ebay doesn't make any claim or effort to have the lowest listing fees for your auction. What they have done is create the largest auction house in the world and have become a household word. Plus, they have received much more word-of-mouth advertising than they could have ever purchased on overpriced advertising.

Many of the most successful home based entrepreneurs have succeeded through creating their own information products such as books, ebooks, audios, videos, etc. These have large mark-ups since people are paying for information and not the packaging it comes in.

No matter whether you are selling information or a hard product, you need to make sure that you have the necessary profit margins built into your web site selling system. Don't just try to compete on price. Develop a Unique Selling Position of having the best tech support, highest quality products, or most up-to-date information.

2. Don't Waste Money on Ineffective Advertising.

The second mistake that these companies are making is that they are wasting millions of dollars on advertising with no way of testing or tracking the results.

The going rate for a commercial during the Superbowl this year was $2 million per 30-second spot. If you watched it, I am sure that you noticed that most of the airtime was being taken up by Internet newcomers...A few of which we are now watching quickly run out of money.

They never tested their ads before they ran them on the most expensive TV ad time available. They had no idea whether the ads would work or not. It is simply a gamble, which many of them lost.

You should be testing the results of every ad even if you only spent $10. As a small business, you can't afford to spend one penny on ineffective advertising.

Test two different ads in a newsletter. Test different newsletters. Test banners. Test places you can use to advertise your banner.

The key to spending money on advertising is to test many different avenues as cheaply as possible. Then, roll out your campaign when you find something that is successful. If a banner ad produces $200 in profit for every $100 spent, then it will often produce $2,000 for $1,000 and $20,000 for $10,000 spent.

The expense in advertising is testing the different processes until you find the working solution. Once you find advertising that works, run with it!

Many of these large companies don't do any testing of their advertising. They can't tell you where their sales are coming from or even if their $1 million a day in advertising is even producing any of the results (or if they are getting all of their sales by word-of-mouth).

Even if you spend several hours a week marketing your site and don't spend a single penny on advertising, you should still be testing your response. You need to know how you can spend your time most appropriately.

Do the search engines produce traffic for you? How about submitting articles to ezines and web sites? Maybe press releases are bringing in your traffic. If you are testing your methods, you will know which portions of your time are most effective.

3. You Must Plan and Adapt.

Some of the CEOs of these major corporations have publicly announced that they have no idea when or if their sites will become profitable.

You can't afford to make this mistake. You should have a written business plan for your business including sales, advertising, expenditures, and profits.

Do you know what your competition is doing? Have they come out with better prices or a more unique position for their business than you? If so, then you need to study them and adapt. Find ways that you can show your uniqueness in the marketplace again and exert dominance over the competition.

In my own business, we are just been reviewing the past two years and have noticed that the best use of my time (in profits) is in creating new information products. Whenever I dropped my attention and starting working on other types of projects, our income would suffer. So, by keeping track of my time and income, I am going to be able to focus more time into the most profitable area of my business.

If you don't keep track of what is going on and be willing to adapt, you are going to find that the future online will become increasingly hard. There are two sides to having a worldwide marketplace. The good side is that you have worldwide customer base. The bad side is that you have worldwide competition.

How do you plan to profit and adapt in this new world economy?