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Adding Profit Centers to the Corporate Web Site - Examples
By Peter Shikli
EE Times
(12/08/98, 11:06 a.m. EDT)
Having covered concepts and guidelines in my previous column, I'll now jump right into specific examples and suggestions for Web-site profit centers. Although there are an infinite number of value propositions and revenue formulas available to a business as new as the Internet, here are a few specific examples to jump-start your creativity and plan your own migration from cost center to profit center.
1.) Independence - The first recommendation borders along the lines of having a Boston Tea Party. Declare your Web site an independent service center responsible for generating a profit (at least on paper), much as many MIS departments have done. Management is surprisingly likely to embrace the concept since they are always looking for ways to match expenses to revenue.
But independence cuts both ways, and you will have to be willing to compete and win at least a large portion of your tasks from other in-house efforts and even subcontractors. Anything less and your upcoming ideas to develop Web-site profit centers may ring hollow.
Before signing up for your ideas, investors and supporters prefer that you have some experience in generating a profit, or at least show an infrastructure that can measure it. Just as important, such independence better positions you to recognize the value propositions and online communities possible from your company's various departments if they deal with you as a profit-oriented partner.
1b.) Order Status Reporting - For example, you may begin with a low-risk, low-cost order-status reporting system for manufacturing that simply posts Web pages from the existing process-control software in a nightly batch mode. This could expand to providing EDI-compliant data for your customers' inventory forecasting and reporting systems. Such a solid value proposition could yield revenue models whereby your customers pay for system-integration services and/or for packaged software, perhaps a specialized, value-added component to existing e-commerce software.
If you also conclude that your customers may wish to outsource such inventory forecasting and reporting across the Internet, perhaps because a browser could become a simpler interface than the proprietary ones they have, the formation of an online community and its associated profit center are well under way.
1c.) Investor Relations - If we change from manufacturing to investor relations, the value proposition may involve specialized financial performance metrics applicable to companies like yours, and the online community may be a subset of the brokerage houses or institutional investors following your type of company. Such examples involve delivering some aspect of an extranet, but because you are no longer just a cost center tasked with a departmental problem, you can package the solution into a profit center.
2.) Better Filing - Since the business of the Internet often involves information delivery, your search for a profit center should include a company-wide search for large amounts of stored information, typically in legacy databases but occasionally just as documents or images. This could be test results, CAD drawings, tech-support incidence reports, field sales forecasts, etc., and the value proposition may be as simple as an online filing system that is more effective than the current way of doing things. Factors favoring a Web-based opportunity include:
- Obsolete desktop systems where change is imminent anyway;
- High per-user charges and many occasional users (common to mainframe databases) that become much cheaper with Internet delivery, where costs can only be tied to the number of concurrent users;
- Significant remote activities, such as where field sales offices could do their filing or retrieval using a ubiquitous Internet connection;
- Collaboration, such as project-management documents or ISO 9000 certifications, where the information to be filed is produced by different companies, test labs, agencies and so on, which can all be presumed to share a browser interface.
Your profit center begins life providing filing, retrieval and reporting services with features added to meet the needs of the target online community.
3.) Newsletters - Another worthwhile fishing hole for profit-center ideas is the corporate online newsletter. If your existing Web site has no way visitors can sign up for "electronic bulletins," fix that right away. A couple of newsworthy paragraphs every few weeks in a mail-merged e-mail message maintains professional visibility more cheaply than any other medium. The outright sales leads from subscribers pressing their return buttons should generate enough marketing-department support to cover expenses.
Since your newsletter will have to be highly focused (to keep from competing with the more general trade journals), you will have established a two-way communication link to a specialized online community. The attention span of such tightly defined demographics is likely to yield a revenue formula you can't predict until your online community forms and points it out to you.
4.) Commodities - Most companies are involved with commodity products or services. They may purchase them, provide some value-added product or service to them, manufacture them, or at least be associated with them closely enough to understand them well. Next consider how commodity exchanges or arbitrages work. From the stock market to currency traders, the objective is to provide a centralized trading organization that supplies more value to its participants than its cost of operations.
With the cost of operations of the Internet lower than conventional exchanges, the concept can be applied to smaller, more specialized exchanges involving the commodity products or services you know best. This can involve specialty metals and plastics forming the raw materials for an electronic-component manufacturer, but many less obvious examples may be more promising, particularly in the commodity services sector.
4b.) Trucking, Telecom, etc. - For creative examples, National Transportation Exchange (www.nti.net) arbitrates partial load freight among partly empty truckers, and RateXchange (www.ratexchange.com) allows member telecom carriers to buy and sell unused bandwidth. VerticalNet (www.verticalnet.com) convinced investors to bet $16 million on the profitability of fielding specialized online communities that become one-stop watering holes for all aspects of such vertical niches as photonics (www.photonicsonline.com) and water treatment (www.wateronline.com), the latter allegedly grossing $1.5 million a month in advertising and related services.
Odds are you know more about your specialized niche than any VerticalNet, and odds are that market is in need of an online community.
5.) Distribution - Having experimented with online storefronts and having found the high-tech mail-order business unimpressive, some companies are retreating to their tried-and-tested distribution network. Besides reducing cross-channel conflicts, this presents an opportunity to form an online community of your distributors and retailers. This can begin with Web-site enhancements funded by marketing that refer end users to nearby resellers. You can add online reseller training programs funded by Customer Support, and order status reporting funded by Manufacturing.
You can expand your referral program to offer Web-site development services for those retailers without an Internet presence. Professional membership organizations have had success with affinity programs whereby they develop Web-site templates applicable to their members, and to pass on the economies of replication to members in need of a Web site. The savings compared to custom development is significant enough to also yield a revenue source for the membership organization-or for your company.
The concept can expand to amortizing the production costs of a cybermall of your retailers where you can deliver turnkey, template-based online storefronts for much less than a retailer obtaining secure servers, shopping carts, hosting, etc. on their own. Such a value proposition can include a fee above your costs as long as Marketing doesn't feel you're penalizing distribution.
6.) CDs - Although those visiting Web sites have a predisposition against buying online information, given its apparently unlimited supply, they have no such predisposition against buying information on CDs and on paper. If your company commands huge volumes of information that you wish to make available to the outside-i.e., test results, compliance documents, drawings, user manuals, etc.-you may wish to consider a CD-Web delivery. For a fee the CD justifies, you provide the bulk of your information on a quarterly or annual CD, but with a browser interface.
Through fairly simple Javascript, a user's click to the next page first checks if an online version exists. If so, a page is displayed from your Web site to replace the outdated CD-based page (perhaps even transferring that page to local hard-drive storage). The net result is the CD quickly loads most of your information from local storage but your Web site keeps everything current in a way that makes the complete information delivery seamless to end users.
6b.) Paper - As much as we may think paper is passé, many people still find it convenient and are willing to pay for it. As the volume of information on your Web site grows, you may find the just-in-time printing contractors can deliver booklets and manuals cost-effectively if you designed your Web site with exportable navigation such as a paper page-numbering system and integrated table of contents and index.
7.) Government Data - Do not forget the empires built by Dialog, Lexis/Nexis, Silver Platter and many others sourcing government information, adding value to it and republishing it under their copyrights. If you find such information applicable to your online community, you can usually obtain it under the federal Freedom of Information Act or state acts that can be even more favorable to you.
You may even find the federal Government Performance and Results Act and the Freedom from Government Competition Act promoting a partnership with the government to deliver the information through your Web site. By checking the relevant government agency's Small Business Innovative Research (SBIR) grant openings, you may even get funded to make some of the enhancements needed to deliver the information effectively. And the beauty of the SBIR program is you get to keep the resulting data rights.
8.) Teaming - Lastly, look to teaming arrangements with local government agencies, non-profits and membership organizations tied to your online community. They are often impeded from adding a profit center to their Web site by law, by a lack of business experience or by a lack of seed money. Most national parks, for example, have a private support association and concessionaires selling guide books, videos and other information items for a profit and a cut to the park. Package the value proposition to the constituents or members, and offer to build it on your dime for a share of the profits. They will understand their constituents or members well enough to help you tune the value proposition correctly, and they can deliver large numbers of visitors the day you roll it out.
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