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Illustration by Hank Osuna
Posted: 11/18/98

Adding Profit Centers to the Corporate Web-Site Guidelines

Tired of fighting for a budget for the corporate Web site? Perhaps it's time to discuss it as a profit center.

Since customers don't pay for company brochures, they are considered overhead cost centers. And since most Web sites started life as brochureware, they fell into the same accounting bucket. Worse, Web-site managers saw themselves as depending on the kindness of others, typically the marketing department, and developed business formulas to match. But Web sites can be much more than brochureware; perhaps it's time for some of the out-of-the-box thinking that is so chic in technical circles.

The key is to shift from just serving the interests of the owners of the overhead account, to serving the interests of the Web-site visitors, presenting them with such a solid value proposition that they will form a substantial online community. Given the attention span of a large or select group of people, the Internet can leverage its abilities to deliver information or to automate communication in ways that become revenue formulas. The revenue source may be the visitor, the company, or a synergistic third party, and the revenue formula is often a surprise to the Web-site developer until after they have fielded the value proposition and have built the online community. Such is the newness of the Internet and the ingenuity required to win on its playing field.

Rather than wax philosophical, let's examine how Sapient Health Network (SHN) came to these conclusions in real life. SHN started life as a $5 million venture to provide specialized information to people with serious illnesses such as AIDS, diabetes and many other lesser known conditions. SHN combed the Internet and other sources for news related to the diseases they covered, distilled the information with human oversight, and delivered the results to their over 10,000 subscribers matched to their diseases and in a way that protected the subscribers' identity.

When it came time to switch from a free subscription to one costing $20 a month, SHN found a huge attrition rate. Since they had proven the value of their service, they were dumbfounded that people would not pay $20/month for information that might save their lives. Like most companies with a product rejected by the market, they were ready to fold.

But the Internet is different. They kept the value proposition they were providing but redirected themselves to a different revenue model. Pharmaceutical companies and biotech companies in general spend hundreds of millions of dollars every year on market research. Because of privacy restrictions, it's difficult to find 100 people with AIDS, for example, and ask them a question about their preferences. Likewise, they couldn't ask mall shoppers, "If you have AIDS, would you fill out our questionnaire?"

Adjust your sails
SHN not only had the market-research populations ready to go, but also a communication system in place to ask the questions — and with privacy built in. The beauty of the Internet was that SHN had no capital equipment to scrap and no employees to retrain when they discovered their true revenue model — they literally switched directions in an afternoon. So doing, they proved the value of the adage, "If you can't change the wind, adjust your sails."

What the SHN managers realized was that their business was built on having delivered a solid value proposition that produced a substantial online community, and not on any one revenue formula derived from that. This may not appeal to investors who prefer a clean, watertight business plan that calculates a return-on-investment to two decimal places, but the plan to produce Web-site visitor value first and foremost does have its foundation in time-tested business principles. From Dale Carnegie to Andrew Carnegie, the companies that made the customer first, somehow always made more money than those that considered profits first. Perhaps we can replace the now-discredited Web-master mantra, "Build it and they will come" with "If they come, you can make money."

Not to say you can't make a complete plan that includes revenue formulas, because in fact you should be able to guess that right most of the time, but you must have a clear vision of the value proposition and you can't compromise its delivery to force-fit a revenue formula. The best plan is to have one value proposition and several revenue formulas associated with it, analogous to having one product you plan to sell to several markets.

We'll cover a list of specific profit-center candidates in my next column, but first let's view the above guidelines from the perspective of Web sites that may violate them.

Entertainment sites. Whereas an entertaining Web site may serve the interests of a marketing department by funneling visitors to your marketing messages, the visitors themselves may not be that interested in being entertained. Except for consumer-oriented Web sites, presenting a solid value proposition in the area of entertainment may be difficult at best, particularly for a company better versed in engineering and manufacturing. No matter what you do, your Web site visitors may always prefer their VCR.

Advertising. Web-site advertising, particularly banner ads, have not been living up to most early projections. Some say the novelty has worn off and an engineer looking for design information is no longer interested in a side trip to see a Toyota ad. Moreover, staying focused on the interests of visitors is hard enough with potentially competing interest from your own company. Juggling a third set of interests from your advertisers may be more trouble than it's worth. If you devise formulas to select potential advertisers to match the interests of your visitors, which the Web is uniquely qualified to do, you drift towards providing visitors what they want. Keep going in that direction and it stops being advertising — soon you are back to delivering a solid value proposition.

Visitor fees. Subscription-based Web sites have rarely succeeded. With the exception of the well-known Wall Street Journal Web site and such lesser-knowns as Art Today dispensing clip art, they have been unable to break an Internet perception: "With so many free Web sites, why should I pay to get into one?" Moreover, any merchant will tell you it's harder to make a living charging an entrance fee than by providing something valuable to customers already inside.

Grandeur. Most of the many post-mortems on Nets Inc., which went bankrupt trying to sell industrial goods over the Internet, agree the company was simply taking on too much. Conquering the entire online business-to-business market with one grand effort may have been beyond mortals. With so much of the Internet still unclaimed, it may be difficult to resist dreams of grandeur, and the risk is not just to your limited resources. Providing a solid value proposition to an online community grows harder as the definition of the community grows larger and more varied. If you are intimately familiar with memory chips, for example, your odds of developing a solid value proposition for the memory-chip community is fairly good, for the semiconductor community fairly risky, for the electronics community fairly unlikely, and for the technical community fairly imaginary. Besides, having demonstrated success and profits fielding a memory-chip community, you would be much better positioned with your investors and supporters to develop an expanded value proposition and online community.

Corporate culture. An opportunity often found masquerading as a roadblock is a corporate culture against converting cost centers to profit centers. This may seem like defective management, but there are cases where an Internet-based profit center is more of a threat than an opportunity. Perhaps it involves commercializing a useful extranet function that may thus find its way into the hands of competitors. Perhaps marketing wants to give it away to help sales. Either way, you may wish to pitch the sale of the data right to the department that wants to block your profit center. Once you project the cost of the opportunity lost, a roadblock based on mindless risk aversion no longer looks like quite the safe bet. If a department does pay for the data rights, you can include that in your revenue picture. Accountants often get behind this concept because it assigns to proprietary in-house data rights a more tangible value, thus improving the overall company asset valuation.

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