On the day I write this column, Spaceworks, another promising Internet

company has closed its doors. The fever that once encouraged business writers

to claim dot coms would quickly overcome and obliterate traditional

businesses, is now burning against Net companies. Now it's fashionable for

journalists to scoff at Internet enterprises, ridiculing excesses such as the

goofy 2000 Super Bowl ads.

Ok, we've all had fun with the media backlash, now let's regain our bearings.

Amid the stories of the dot com demise, there is a hidden stream of positive

reports showing a growing base of Internet consumers willing to spend ever

greater amounts online. Is anyone covering this story?

Report after report shows a growing population of Internet shoppers.

High-speed connections are finally catching fire. Cable modems are booming

and telecom companies are struggling to keep up with the demand for DSL

installations. Analysts are saying nice things about Amazon.com's chances of

hitting profitability later in 2001. Some bad news.

One recent piece of good cheer arrived in the form of "The State of Online

Retailing 4.0," a new Shop.org study conducted by The Boston Consulting

Group. The quiet-but-powerful headline of the report reads, "The North

American online retail market is expected to grow 45 percent in 2001,

reaching $65 billion." Not bad growth statistics, especially since we're

supposedly in the throws of a complete collapse of the Internet economy.

Apparently, online retailers continue to improve their functionality while

journalists report that Rome.com is burning. "While consumer demand continues

to propel growth, online retailers have wrestled with operational issues.

They're improving their performance in key areas such as customer acquisition

and buyer conversion, " said Elaine Rubin, chairman (sic) of Shop.org.

She goes on to point out the weakness of some Net companies that contributed

to the very real crash among some of the ill-prepared dot coms. "There is a

steep learning curve in becoming an online retailer - those players that were

unable to excel in all facets of this complex business just didn't make it to

the end of 2000."

Among those retailers who did survive, the news continues to improve. The

report finds that online retailers have been able to reduce their losses as a

percentage of revenues. Operating losses decreased as a percentage of revenue

from 19 percent in 1999 to 13 percent in 2000. As for the elusive

profitability, even more happy tidings. By Internet retail type, 72 percent

of catalogers (sites owned by offline catalogs), 43 percent of store-based

retailers (sites owned by brick stores) and 27 percent of Web-based retailers

(Net-only retailers) are profitable at an operating level.

The report finds that the movement toward profitability is due, in large

part, to online retailers placing tighter controls on their marketing

budgets. You think?. As a result, customer acquisition costs for all online

retailers fell from an average of $38 in 1999 to $29 in 2000. Web-based

retailers (the stickiest of the wickets), in particular, were able to bring

them down from a high of $82 (ouch) to $55 (still not great) over the same

period. The best-performing Web-based retailers (the top 50 percent) reduced

acquisition costs to an average of $14 (yea!) per customer rivaling the

performance of catalog-based retailers.

The report concludes that Internet retailing is alive and very much healthy.

Yet it also warns that each category of Internet retailer still has plenty to

learn about running online stores. "Web-based retailers need to learn the

basics of retailing," said Peter Stanger, vice president and leader of Boston

Consulting Group's business-to-consumer topic area. "Store-based players are

new to home delivery and selling to consumers one-on-one from a distance.

Catalogers have a leg up in many dimensions, but they need to perfect ways to

exploit the relationship-marketing opportunities. The winners will be those

companies that can most effectively acquire or develop the capabilities they

lack and integrate them with their existing strengths." Amen.

Hats off to the Net boom. They say the king is dead. We say, long live the

king.

About the Author

Rob Spiegel is the author of Net Strategy (Dearborn) and The Shoestring

Entrepreneur's Guide to the Best Home-Based Businesses (St. Martin's Press).

You can reach Rob at spiegelrob@aol.com.