Internet

Can people make money on the internet? Part 1

"Once a place for information exchange and personal expression, the Web is now driven by commercial endeavours."

—Molly E. Holzschlag (1)

"Successful Australian businesses in the 21st century will have three key characteristics: the best technology, transparency in the market and trust."

Australian Business Review Weekly, 10 March 2000, p.60.



It is now a certified fact: the aim of the Internet is to communicate. For businesses, communication means informing people about something and hopefully enticing them to buy in the easiest way possible. To other people, it simply means saying 'hello' via email or using a fancy web page on the World Wide Web.

However, if you want to go beyond the "vanity page" stage and start making some serious money on the Internet through your communications, bear in mind one thing. As a journalist in The Canberra Times once reported:

"The biggest money makers on the Internet are those who are able to provide easy to use search engine facilities online, assist people with research tasks [including finding specific, often unique products and services], and those that 'offer a range of entertainment, sports and news at one location." (2)

Source: Mason 2000, p.28.

In fact, according to The Guardian dated 31 August 1999:

"Spending on the Internet is forecast to reach £9.5 billion by the end of the next year [ie. December 2000]....The most popular products bought over the net continue to be books, CDs and software...'(3)

Are there businesses making money on the Internet?

In every developed nation in the world and in a growing number of underdeveloped nations, nearly all businesses have some kind of a presence online (4), whether it be an email address or a simple web page.

Despite this modest effort to get online, when it came to making money on the Internet prior to September 2001 not many companies were pursuing the e-commerce opportunities. This was especially true in Australia where according to an international survey conducted by Andersen Consulting, less than 20 per cent of Australian businesses have set up the mechanisms to allow customers to "shop" over the Internet. (5)

As the Australian Federal Minister for Communications and the Information Economy, Senator Richard Alston, has admitted: "Australian companies are way behind...they are taking a wait-and-see attitude." (6)

Could companies be realising how difficult and potentially expensive it is to properly set up and maintain a shopping web site with e-merchant facilities for customers? Or has it got to do with the concern that customers may not want to purchase products and services online (i.e. the trust factor and is their transaction secure)? Australian billionaire, Gerry Harvey, the founder of Harvey Norman Holdings, summed up the view like this:

Successful Australian entrepreneur, Gerry Harvey. Source: Doherty* 2001, p.29; Photo: Paul Jones.

"We haven't got out of it [Internet retailing] because, in the long-term, it well may be we have to have an Internet presence, but I'm not sure how you can ever make any money out of it.

They're saying, "Well, at least you should have it as an information site and people who want to buy off it can," but then you have the expense of keeping it updated, making sure all the graphics and prices are right all the time. I'm very tempted to burn it." (7)

While many Australian companies lag behind, those companies that do take the opportunity to apply the new technology can and often do make money online, and sometimes quite spectacular amounts such as the highly successful http://www.amazon.com/, but only if they meet certain important criterias as we shall discuss below.

UPDATE
January 2003

Shopping on the Internet has changed significantly since September 2001. With more people worried about terrorist activities worldwide, many are turning to the Internet as the way to do their shopping from the comfort and safety of the home or business.

Now such changes has seen the estimates for the amount of money expected to be spent on the Internet by the year 2004 being revamped to exceed US$7 trillion according to Forrester Research.

Another factor making the Internet experience a whole lot easier for everyone is the increased availability of cheap, very secure and ready-to-go credit card processing software tools. There are even companies today dedicated to handling the transaction processing side of an online business while making it easy and safe for customers to do their shopping online.

So don't be surprised if you find a company in the 21st century willing to do away with monthly fees, setup costs and other charges in favour of the simpler and easier-to-implement per transaction fee system just to attract merchants to the Internet scene and at the same time help customers achieve their goals online in a safe and secure manner.

Need to know who are some of these companies? We will discuss a few later in this section.

UPDATE
April 2005

Australian consumers have reached a level of confidence in online shopping never seen before until now. Almost A$617 million was spent on online shopping by Australians in March 2005 alone.

According to Nielsen//Net Ratings, Australia has recorded a 21 per cent increase in the number of Australians visiting online e-commerce web sites in 2004. Following this trend was a 53 per cent increase in Australian internet users aged 16 years and over purchasing products online. For online businesses noticing this trend, managers have increased spending on online advertising by 20 per cent for the period.

As Simon Smith, eBay Australia-New Zealand's managing director, said:

"Australians were late in catching on to e-commerce but we have certainly seen that turn around in the last 16 months." (Binning, David. A matter of clicking your fingers: The Sydney Morning Herald. 30 April-1 May 2005, p.35)

In the US, Goldman Sachs, Harris Interactive and Nielsen//Net Ratings reported American internet users paid US$1.5 billion on clothing, US$1 billion on toys and games, and US$1.1 billion on books and music.

Spurring the online shopping phenomenon has been the latest 3G (Third Generation) mobile phones allowing consumers to browse online and pay for products from any location.

The big traditional "bricks and mortar" businesses are still being cautious. Understandable considering the highly volatile nature of the Internet (well, if people invest too much money in online businesses with no real products or services to show then it can be volatile. However things are different today where consumers are able to spend small amounts of money to get products they want from e-businesses). Furthermore, the Internet requires a certain level of trust with e-commerce businesses to ensure consumers get what they see online. Whereas traditional businesses allow consumers to get acquainted in real-life with the actual products before making the purchase.

Why do businesses go online?

It is mainly because the businesses can reach hundreds of thousands of target customers at little or no cost to the businesses. It is also a means for some businesses to experiment with this new medium or to make themselves look like they are keeping up with change and their competitors.

Or it may be a way for people to give the impression their business is a big business by being online.

Do I have to set up a business on the Internet just to be successful?

There is a feeling among many business professionals today that in order to look professional in the 21st century or to make a serious profit, your business has to be online. We see this all the time with the amount of advertisements in newspapers and magazines promoting the importance of getting online.

Do you have to be on the Internet just to be successful? The answer is, "No, you don't have to!". There is absolutely no reason why you must be on the Internet to create a successful business.

As we speak, a number of well-established multi-million dollar businesses and some long-term "thinking" new small businesses are doing just fine without all the fancy whizz-bang technologies of the Internet. Why? The reason is simple. These businesses already know they have a good product or service and they understand the importance of the personal touch or face-to-face approach to what they are doing so they can sell to customers.

You see, all these successful businesses have to do is set up a physical shop in a centralised location and advertise their quality products or services on television, newspaper or radio. This may be expensive, but the results do speak for themselves. If the businesses have done their marketing right, the production costs are low, and the products will be in demand by enough people in the area at a good price, the rest will take care of the businesses without the need to have an Internet presence.

People need face-to-face contact in the business world

The problem with getting online is how businesses have to learn to sacrifice personal contact between the customer and a sales representative because this is the way the technology works.

However, good market research has always shown the importance of good face-to-face contact between the customer and the sales representative. Customers still prefer the traditional face-to-face approach when dealing with a business, and often this helps to make a sale. Perhaps it is a question of developing trust in the customer by letting them see the business and the people in real life, know how serious it is in what it does, is stable and reliable, and will not appear to run away from its responsibilities when selling products? Or maybe it is just a "We are use to seeing a normal shop instead of an Internet shop"?

Who knows? However, one fact is unmistakable. You will always find businesses that will support the traditional personal service approach to making a sale, and these are the ones who remain successful even without the use of the Internet.

People are also happy to have no face-to-face contact in the business world

On the other hand, there are a growing band of people who are happy to purchase products without face-to-face contact with a sales representative. As Internet.au reported:

"While we may mourn the loss of face-to-face customer service, online consumers can't deny the benefits of convenience and customisation that have resulted from the ebusiness environment." (8)

These people tend to be younger and more accepting of the Internet. The ones who want face-to-face contact are usually the older types.

People prefer to see the bricks and mortar of web companies and their products at the moment

Whether people want or don't want contact with other people when purchasing something, there is one thing in common between both groups of people.

We live in a world where people prefer to see things with their own eyes when it comes to buying a product. It is a kind of security blanket for these people knowing that what they've got is real and tangible.

This is the fundamental barrier business professionals have to overcome when selling services and products on the Internet. In fact, those businesses involved in the selling of information and nothing else are the ones who need to consider this problem carefully before taking on the online approach and trying to make money from it.

In a study of online businesses conducted by McKinsey consulting firm, the results gathered to June 2000 was interesting to say the least. The firm found that 86 per cent of the best performing e-businesses selling real and solid products were offshoots of large 'bricks and mortar' stores (9).

Although it is not impossible for a pure "online-only" business selling solely information as a product or service (e.g. software) to make potentially spectacular profits, it is only that most people would prefer to trust the more established 'bricks and mortar' businesses and, where possible, to see the actual products as bona fide, solid in the hand items (e.g. in boxes and CDs) ready to take away like some of the big supermarket chains having an online presence rather than the newer variety of "online-only" businesses.

Should I be on the Internet?

To determine whether your business needs to be on the Internet, ask yourself: Do you have the products (or services) best suited for the Internet (i.e. can it be delivered easily and quickly online to the customers)? Do you have the numbers online to support your business? Do you have to keep up with the pace of change by getting on the Internet just to be successful in business? Do you need to use the Internet to achieve a self-sustainable, moderately-profitable, and socially-responsible business activity? What's wrong with using another medium like the newspaper and mailing leaflets instead of the Internet as a way of setting up and advertising your business, at least in the early stages?

Are people buying over the Internet?

Yes. The Australian Bureau of Statistics (ABS) claimed to have measured a doubling in orders received by Australian businesses over the Internet to June 2003 compared to the preceding year. In total, orders received were worth A$13 billion. In terms of total business over the Internet in Australia with both received and placed orders, it was worth more than A$24 billion.

When it came to businesses placing orders over the Internet, the most important reason for doing so was because it saved them time. According to the ABS, this represented about 86 per cent of businesses placing orders online.

It seems as people have less and less time (and perhaps greater concern for security), people are choosing to make orders over the Internet from the comfort of their own home or business and letting someone else provide them with what they want.

Don't think the numbers game will help you succeed in making money online

One should take great care with using Internet statistics to justify the need to set up an online business and then think you will make money because of how many people are online.

So much of the bulk of Internet research have made an unmistakable point of how 50 per cent of Australians have Internet access and only 5 to 10 per cent of these people have ever bought anything online.

When we realise there is now more than a million Australians on the Internet, 10 per cent of one million would seem like a lot. Unfortunately this is dangerous thinking. Because this is the kind of thinking that has been described by some experts as one of the major causes for the downfall of Internet companies in the great tech-wreck of 2000.

You have to look very carefully at this elite 10 per cent of Internet users who do decide to shop with an online business first. You have to ask yourself, "What is it that these users are looking for?", "Will they be interested in what I have to offer?" and "Am I in the right area to sell my products?"

Because at the end of the day, you want to see that your products or services will in fact sell.

And if you are relying on statistics to support a business activity, make sure the methodology used by the statistical researchers are clearly explained. And the questions asked of users by the researchers should not abandon fundamental survey techniques. For example, the survey questions should not be asking users about their intentions or the researchers will produce insubstantial data. The questions should be more directed to past events of what the users did.

This "looking at past actions" and measuring them properly is the sign of a quality statistical result and will be far more useful to business.

What are the main purposes of establishing an e-commerce business?

The main purposes of setting up an e-business should be:

  1. To help customers who cannot, for whatever reason, physically reach the business premises and speak with a sales representative in person when purchasing a product or service (e.g. live in another country, restricted by physical mobility for whatever reason etc.).
  2. To help small businesses compete on an equal footing with big businesses by giving these small business operators an opportunity to handle large numbers of customer orders electronically (i.e. software-assisted supply-chains), instead of paying the potentially high costs of hiring sales representatives.
  3. To help avoid the high purchasing and maintenance costs of setting up a physical business premises in every major capital city in the world.
  4. To make it easier for people to buy products or use services online rather than in the traditional "high street" approach.

With these pointers in mind, you can quickly see how not every business in the world will need to be online. If you have an excellent personal customer service approach, your business will probably do very well without the use of the Internet. But if your business does require an online presence, then try to take a balance between good face-to-face customer service and online delivery for maximum "long-term" effectiveness.

NOTE: To get that balance in face-to-face customer service in an e-business, it is not unusual to find e-businesses joining forces with traditional "over-the-counter" businesses.

As Frank DiGuilio, the projects manager who is charged with steamlining the supply-chain of the successful $A70 million Australian gourmet food maker and distributor King Island Co., said:

"The majority of our customers will probably still want to deal with our sales reps in person, but it's a [online] service we will have to offer, as so many others are heading in that direction." (10)

Careful planning is the key to successful e-businesses

In essence, the name of the game when establishing an e-business is to always be prepared and to plan out exactly what you want to do online and why, and then do it.

To begin the planning process, ask yourself a variety of important questions such as, "What is my single and most important goal in getting on the Internet?", "Is the Internet the best medium for my business?", "Will customers online be interested in my products?", "Are my products complete and ready to go?", "Can the products be delivered quickly?", "Are the products priced well enough to sell among my customers?", and "Will the Internet really help me to make money?"

For example, if you are an established business, ask your customers whether they want to use your business online and in what way? And if you want to set up a brand new online business, then you need to ask yourself who is already on the Internet and whether they would be interested in what you have to offer and to determine how much competition from other businesses there are for the kinds of products you want to sell. And how do you intend to make it easy for your customers to purchase what you have to offer.

Who knows? Perhaps your online business is too complicated and has too many unnecessary pages to meet the fundamental goal of your web site. Or is it merely trying to satisfy a very narrow and technologically enthusiastic group of people or the business-oriented corporate sector who may have nothing in common or have little interest in whatever you are offering or selling as a product or service?

You do have to think long and hard about setting up a business on the Internet before embarking on it. And don't be afraid to say no to e-commerce if you feel this approach is not suitable for you. As one vice-president said about e-commerce:

"At this time, e-commerce is not a business model we want to follow; we don't feel it's the right way to serve our customers." (11)

How do I make money on the Internet?

To make money on the Internet is actually quite simple in theory, but in practice can be a little difficult to implement, especially if you are new to the game. The main criterias for making profit on the Internet are as follows:

  • Develop a business plan of what you intend to sell and how you will achieve it and why you have chosen the Internet as your preferred avenue for earning a profit.
  • Ensure the product or service you will sell over the Internet is small, sufficiently unusual or unique (i.e. cannot be found in standard shops for people to just walk in and buy it) and easy to distribute.
  • Ensure the product or service you will sell over the Internet is something sufficiently desirable and of a high quality and there are enough people online who will consider purchasing it.
  • Set up a simple and effective web page that clearly explains and promotes your product(s) and/or service(s), the costs, and how easy your customers can make the transaction when purchasing the product or service.
  • Come up with a good name for your business and your web site address. It can make a whole lot of difference to your customers if they can remember your business name and web address without having to look through their diaries, shuffling pieces of paper, or going to an Internet search engine to find you.
  • Choose a web address name and business name that reflects the nature of your products. People will remember your business and web site better if the name relates to your products well.
  • Start advertising and promoting to your potential customers the presence of your online business and what you have to offer.
  • Deliver the product or service to your customers as quickly and as safely as possible.

In essence, if you want to make money on the Internet: (i) keep it simple; (ii) make it easy; (iii) advertise it well; (iv) keep it safe and secure; and (v) deliver it fast.

Effective Internet security (or safe transmission of electronic financial transactions and personal details) is important to the success of e-commerce as revealed in this statistical result obtained from ISACA Global Survey 2000. Source: Dolahenty 2000, p.22.

How do I really get something sold on the Internet?

Here are the specific and more practical steps to making money on the Internet:

  1. UNDERSTAND PEOPLE AND THEIR NEEDS
    Pick a target group and study its behaviour. Look at what problems they have to deal with. If you need to find a suitable group, join a variety of discussion groups. A list of discussion groups can be found at http://www.liszt.com/. You can also get some ideas by watching talk shows on television. Sometimes they have ideas of the people you could target.

  2. CREATE OR FIND THE PRODUCT
    Create or find a solution for the problem you have found in your chosen target market by preparing a suitable "instant access" product. By instant access, we mean something that can be instantly downloaded from a web site (or delivered very quickly by other means). People nowadays want something fast. A product which is different, interesting, solves the problem, and easily distributed on the Internet will do well.

  3. ACCEPT CREDIT CARD ORDERS
    Join a US company like http://www.clickbank.com/ to accept credit cards online on your behalf without the hassles and expense of owning a full online merchant account with a local bank (e.g. St George Bank Ltd). You can be anywhere in the world and still be able to accept credit card orders from anyone in the world. Now that is how it should be!

    Make sure you join a company having no monthly fees, no setup costs, and no minimum transaction amounts to reach for, especially for small merchants selling products under US$100 (12). Given the incredible ease and very low-cost in which such credit card processing services can be implemented electronically nowadays, any company asking for additional charges on top of the standard transaction fee is simply not in the game of keeping things simple for merchants like yourself and your customers. Companies who make life complicated in this way are either there to make a higher than considered reasonable profit on your business or they haven't obtained the latest e-commerce technology.

    Once you are approved by your preferred credit card processing company, you will receive a username and password to access your online transaction account where it is possible to view in real-time all the transactions made by customers for your product. All funds earned from the transactions made in your business from customers paying on their credit card online are eventually paid to you on a monthly or bi-monthly basis minus the usual transaction fees via a cheque or electronically sent to your preferred bank account.

    Transaction fees (including the service fee for companies processing the credit card order) vary between 0.5 per cent to 15 per cent of the total value of each product sold to your customers. Some companies may specify the amount should be between say US$3.75 to US$75 (e.g. http://www.verotel.com/), or others may choose an upfront flat rate of 10 per cent for each product you successfully sell to customers (e.g. http://www.instabill.com/). Then there are other companies that charge 10 per cent of your total sales made during a specified billing period (and then humorously say in the advertisement that they don't charge a transaction fee as well as no monthy or setup fees—instead they call it a service fee—such as http://www.instabill.com/. A very clever marketing concept we have to admit).

    NOTE: The actual transaction fee between financial institutions is quite cheap. About US$0.05 per transaction if sent in electronic form. So if you see an amount like US$3.75 per transaction or more being charged by companies, you will understand that most of it consists of the company's service fee for processing the credit card orders on your behalf.

    Additional services beyond the standard credit card processing facility are also available. Some companies, for instance, will accept customer orders by telephone on your behalf, place your web site near the top of search results in 125 popular search engines (roughly US$12.00 per month for this service if you are an international merchant outside the US), deliver by standard mail a hard-copy printout of your monthly statement (roughly US$10 to $15 for each statement) and much more. Talk to your preferred credit card processing company to see what they can offer for your online business.

  4. CREATE WEB PAGE FOR PRODUCT
    Build a "Direct Response" web page designed specifically to promote the product and nothing else in a simple and direct fashion. The aim is to create the general theme for the web page (i.e. the product) and a domain name well-suited to the product you are selling.

    NOTE: If your product is to be downloaded from this web page, you may need to have a cgi-bin folder (or directory) available at the root level of your web site directory so that credit card processing companies can control access to the product through cgi scripts.

  5. QUICK AND EASY PAYMENT
    Make a direct link to your online credit card processing facility such as http://www.clickbank.com/. Make sure people can see how easy it is to make a financial transaction.

  6. ADVERTISE THE PRODUCT
    Advertise the product through "viral" or "self-multiplying" advertisements. This involves putting a message in your business card, email messages you send to people and so on about your product. This only works if you have people in the target market likely to be interested in your product. Or check out eBay or join a popular web site where people are most likely to be interested in your product. They may allow you to advertise freely or at a low cost. Why not visit http://www.topezineads.com/ to place solo ads at low-cost. Or better still, join the many affiliate programs designed to allow others to sell your products on your behalf for a percentage of your sales such as http://www.clickbank.com/. If you do this, make sure you increase the price of the products to cover the cost of paying the affiliates to do the work of advertising for you.

  7. RECEIVE THE RECEIPT NUMBER FOR CUSTOMER ORDERS
    You will be notified of orders processed via a receipt given to you and the customer by the people whose job it is to process credit card orders on your behalf such as http://www.clickbank.com/. Customers will be sent automatically to the download page after their credit card details are verified and get their receipt.

  8. MAINTAIN A CUSTOMER RELATIONSHIP
    Once the product has been downloaded by the customer after making a payment, that is usually it. However, you should provide a feedback page, FAQ, and other contact details so customers can notify you of anything. This is especially true of products where you require to send a registration number to the customer. Because once the product has been downloaded, the customer will need to supply their receipt number to you via email together with their name and email address. You then verify the receipt number and if everything is okay, you should be able to supply the registration number ASAP to your customers.

  9. AUTOMATE YOUR BUSINESS
    Another absolutely critical aspect of running an e-commerce business is the ability to do things like autorespond to customer questions. It is unlikely you can respond to every single email from customers. So setup an FAQ page on your web site. And also automatically deliver an email to customers who send questions to you. Just write an email with answers to six of the most common questions and use an application like Mailloop to create an email autoresponder on your web site.

How to make it easy for customers to buy online - the credit card facility

The easiest way for people to purchase whatever they want over the Internet is to set up a credit card facility. It is quick, convenient and there is little or no waiting time for the financial transaction to be completed.

As for the security issues behind sending sensitive personal and financial information online using a credit card, they have now become more safer to use than revealing your credit card details over the telephone or in person.

More about online transactions for merchants

The technical term for the technology to handle online transactions is called online merchant facility.

To get yourself set up and ready to accept credit cards through an online merchant facility, here is a list of web sites designed to do just that:

http://www.commerceconsulting.com/

http://www.cardservice.com/

http://www.totalmerchantservices.com/

You should remember these merchant services may be expensive to setup initially and you will have to deal with the headaches associated with chargebacks, gateways to process your cards and so on.

If you want less hassles and the advantage of no fees (i.e. pay only for the sales you make based on an agreed percentage), try ClickBank.com. The advantage of ClickBank.com is the ease and speed in which you can set up a facility to accept credit cards without fees and have affiliates sell your products on your behalf (13). ClickBank.com pays your affiliates without you having to worry about it. All you have to do is upload the products to a web site. As soon as ClickBank processes the credit card orders, the customers are given instant access to your products.

If you like the idea of someone else processing credit cards on your behalf while they take out a small percentage of your sales instead of paying monthly fees and a setup fee (14), here is some more for you to consider:

http://www.ibill.com

http://www.ccnow.com

http://www.online-billing.com

http://www.globill-systems.com

http://www.glocart.com

http://web-charge.com

The beauty about these credit card processing centres is that you don't have to commit yourself to an expensive or complicated merchant account if all you want to do is test your products in the marketplace. If your business doesn't work, you can easily and painlessly ask these centres to stop processing transactions and it won't cost you any more money.

Want another example? Try http://www.instabill.com. This company processes credit card orders and charges a flat 10 per cent fee per transaction.

Live overseas? No problem. These companies should be able to set up credit card processing facilities for anyone. They will send you the cheques by mail or electronically send the funds to your bank account after taking out their percentage of the fees per transaction.

The basic steps to a good online advertisement

Start with an interest-grabbing statement like, "Did you know you can..." or "Do you ever experience a moment when..." Then educate the people with how and why your product will solve the problem. Use graphics, graphs etc to prove your point. Testimonials are also a good source of information. But make sure they are genuine testimonials as people will find out.

Now create a desire in your potential customers to fix whatever the problem you have mentioned and likely to exist in your customers by re-emphasising the problem and and how the product will solve it. For example, throw in a few of the "Of course if you are happy with Microsoft Outlook in organising your address book, then you will miss out on the following great features of this new product..."

Finally, explain to people where they can get your product. A direct hyperlink to your product page and any rewards or free extras when buying the product may also work to increase the customer's desire to buy the product.

The importance of a quick and easy Internet experience for people using e-businesses

While good security is an important issue, just remember to keep it simple, easy, low-cost and quick to get useful products and services "out-the-door" via the Internet. As Nik Taylor of the UK Internet Made Easy - The Magazine for Internet Beginners said:

"There are two things we should be able to expect whenever we shop on the Internet. One is that the whole process should be as quick, easy and painless as possible. And the second is that it should be cheaper than the high street. Otherwise what's the point? After all, if you're offered the choice of either taking your stuff home with you straight away, or ordering an item and waiting at least a day for it to turn up, you will need some decent benefits to persuade you to take the latter. Unfortunately, this appears to be a lesson that online retailers are prone to forget." (15)