DMA study: Marketers making money online

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Contrary to popular belief, many companies are making money on the Internet. In fact, of direct marketers engaged in electronic commerce, nearly half are making a profit with online transactions -- and business-to-business marketers are leading the way -- according to the Direct Marketing Association's "1999 Electronic Media Survey."

"B-to-b direct marketers are among the first companies to actually make money on the Internet," said Robert Wientzen, president-CEO of the New York-based DMA.

The DMA survey also found the following:

  • Of the 43% of DMA member companies accepting online orders, 49% say they make a profit from the transactions.

  • About 95% of direct marketers are using the Web for sales or marketing, up from 83% last year.

  • About 67% of DMA member companies' Web sites target businesses.

    Online marketers run gamut

    Three out of every four dollars in sales on the Internet are b-to-b in nature, said Bill Whyman, Internet strategist for Legg Mason Precusor Group, Baltimore. Mr. Whyman's assertion is backed by Forrester Research, Cambridge, Mass. A Forrester study estimated that b-to-b Internet trade reached $43 billion in 1998 and will surge to $1.3 trillion by 2003 -- an annual growth rate of nearly 100%.

    Mr. Whyman noted that b-to-b industries conducting online transactions run the gamut from steel to chemicals to medical. Leading the way are the computer and electronics industries, where e-commerce revenue is projected to grow from $19.7 billion in 1998 to $395.3 billion in 2003, according to Forrester's forecast.

    "The real success stories on the Internet are b-to-b companies on the high-tech side, companies like Dell and Cisco Systems," Mr. Wientzen said.

    Dell Computer Corp., which many consider a manufacturer, is "an Internet company every single step of the way -- orders, inventory, production, communication and services," Mr. Whyman said. "The application of Internet technology all the way through the business enables them to be profitable."

    The company's online site debuted in March 1997 with revenue of $1 million a day, five days a week, said Anne Birlin, Dell media relations specialist. Today, the company's Web site generates sales of $14 million a day, seven days a week, including phone orders generated from the site, she said.

    Ms. Birlin said 80% of Dell's overall business is transacted with other businesses; 60% of its online transactions are b-to-b.

    Premier Pages

    The company's Premier Pages display Dell's b-to-b orientation. These are Web sites that Dell customizes for its corporate customers. Dell initially offered Premier Pages a year ago to 400 corporate customers, including Ford Motor Co. and Shell Oil Co. Today, 14,000 businesses worldwide have Premier Pages, Ms. Birlin said.

    In addition to handling ordering, Premier Pages allow Dell customers to access support and service online. For instance, through the Premier Pages or Dell's main Web site, customers can check the status of a shipment.

    "It saves us phone calls," Ms. Birlin said. "Over 100,000 users a week access order status, and it frees up our tech support personnel."

    San Jose, Calif.-based Cisco Systems is another high-tech, early adopter of e-commerce. That is not surprising, given that Cisco markets the routers, switches and software that make the Internet possible.

    In 1994, Cisco started its own Web site, the Cisco Connection Online. By 1996, it was practicing e-commerce in earnest, selling its products direct and pointing customers to resellers through its Web site.

    Cisco Connection Online has served three main purposes for the company:

  • It provided a place for Cisco to develop and test new products that it would eventually market to customers.

  • It is a marketing effort that proves the company is a true believer in Internet e-commerce, said Keith Fox, Cisco's VP-corporate marketing.

  • The Web site improves the bottom line, saving Cisco, by its own estimate, $500 million a year, or more than one-third of its 1998 net profit of $1.4 billion.

    While the Internet is an obvious move for high-tech companies such as Cisco and Dell, other, more traditional b-to-b marketers have been slow to adapt to the Web.

    "Many companies are hung up by a sales force and can't get out of it," said Tracy Emerick, president, Receptive Marketing and Taurus Direct Marketing, Hampton, N.H. "It creates problems because everything is wrapped around the sales force in a traditionally structured company.

    "Most companies look at the Internet as a communication tool and not as a business strategy. Companies say, `I sell books by direct mail, so let's put a bookstore online.' Instead, they should say, `We are in the information business, why don't we convert the entire business to online information transfer?' "

    Tech media companies such as International Data Group, Framingham, Mass., and Ziff-Davis, New York, seem to have followed Mr. Emerick's advice. Both engage in a form of e-commerce, offering advertisers' products for sale on the Web and taking a piece of the transaction. And, through its research arm, IDG sells research direct online.

    Market showcase

    Selling direct through the Web has become so attractive that many companies with traditional business models and sales forces are moving toward e-commerce.

    Provo, Utah-based Novell, a provider of networking software for the Internet, launched ShopNovell, its e-commerce initiative, in March. The launch posed a dilemma for the company, which wanted to showcase its e-commerce networking products but also continue to support its resellers, which account for 77% of its business.

    "Essentially this is . . . an example that Novell technology can really shine in an e-commerce environment," said Mark Taylor, the company's director of e-business.

    At the same time, ShopNovell, with features such as its "Partner Locator Tool," which can connect customers to resellers, supports the value-added resellers who account for most of Novell's revenue.

    "This is the year the rest of the economy says the Internet is for me, too," Mr. Whyman said. "There's huge wealth, huge savings and better customer service. Competitive pressures will make companies become Internet companies."

    The DMA survey's findings support Mr. Whyman's argument. About 90% of the survey's respondents expect to increase their investment in electronic media during the next three years, and 87% expect increased revenue.

    The "1999 Electronic Media Survey" was sent to 3,684 DMA voting members in January of this year. For a response rate of 13.7%, 507 surveys were returned.

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