The Internet is big. Really, really big. And really, really valuable too. Google has indexed over 40 billion pages and counted more than 1 trillion unique URLs. Estimates of regular users have ranged from 500 million to a billion (although no one really knows how to produce accurate user figures)… and retail sales have been estimated at as much as $178 billion in 2008 alone.
Those are huge figures. The revenues are the kind of money that could make a noticeable hole in the national debt, keep a small bank afloat or even repay Bernie Madoff’s victims several times over. It’s no wonder then that so many businesses have built an online presence, hoping to pick up a slice of those online billions – and make sure that their competitors don’t take a chunk of their offline market share too.
Growth figures certainly appear to make that a sensible decision. The top 500 online retailers enjoyed increased sales of almost 12 percent in 2008. Total US retail sales might have grown by as little as 1.4 percent in the same period. Amazon alone reported an increase in revenues of 18 percent in the first quarter of this year despite the downturn, taking gross income to $4.89 billion and net revenues to $177 million. That’s not bad for a retailer without a single High Street store.
Almost Half of Online Purchases Are Abandoned
But looking at the size of online sales alone misses the bigger picture. While Internet retailing might be weathering the recession better than bricks and mortar stores, it still only makes up around 6.5 percent of total sales. To put it another way, Amazon, which now sells everything from groceries to televisions, isn’t just missing 93.5 of purchases. It doesn’t even have a way to compete for any of those deals directly.
Worse, while Amazon’s size means that it is able to tempt shoppers doing online comparison shopping, its additional logistics expenses can sometimes leave it — and other online retailers — uncompetitive. According to a recent Paypal survey, a full 45 percent of online shoppers abandon their shopping carts before completing their purchase. They walk away when they realize how much they have to add for postage and packing, a figure usually hidden until it’s time to enter their credit card details. If almost half of all shoppers abandoned their carts at the checkout line in bricks and mortar stores, the other half would never be able to reach the cashier.
The size of the opportunity available away from the computer has prompted some online businesses to look offline for growth. Threadless, a t-shirt company that invites designers to submit their designs, started online but opened its first store in Chicago in September 2007.
“Why a store?” the company asks on its site. “A zillion reasons. Most of them revolve around ideas we come up with for giving back to the Threadless community and not having the staff, resources, venue or time to make happen. Ideas like teaching design classes, hosting galleries with Threadless artist’s work, having real-world group critiques and other various events.”
That willingness to offer more than a product — including services that are difficult to deliver online — may be one reason Threadless is still around while other online retailers that expanded offline, such as gift sellers Satinbox, have failed.
Other businesses though are ignoring the Web almost entirely. While it’s difficult to find any business larger than a mom-and-pop hardware store that doesn’t at least have a website, 63 percent of hospitals are said to have “little or no online presence.” That might be sensible. The same survey found that 37 percent of hospitals have “prevalent negative reviews online” suggesting that a dynamic website acts as a magnet for public complaints when what patients really want to know is whether the institution accepts their insurance and how they can reach it.
Press the Flesh, Not Just the Keyboard
Perhaps most tellingly, despite the growth in online networking, despite Facebook’s ability to renew old friendships, LinkedIn’s skill at identifying business contacts, and Twitter’s popularity with middle-aged managers looking for connections, the most valuable networking still takes place at conferences and conventions. Hitting the keyboard might be easy — and useful too — but there’s still nothing that can come close to the value of pressing the flesh in person.
Of course, none of this means that online retailing is overrated. A fifth of whatever retail growth took place last year happened online and there’s every sign that online sales are going to continue to take a larger share of retailing as a whole.
But just as it’s hard to think of a business that can’t benefit from the most basic website, so it’s difficult too to imagine an online company that can’t earn more by looking beyond the Internet. Even sellers of digital products and publishers who earn from online ad revenues can pick up some extra cash, stronger partnerships and new ideas with offline networking. And if a program sells well when downloaded from a website, there’s no reason it won’t sell just as well when burnt onto a disk, packed into a large box and placed on a shelf in a major computer chain.
The challenge though will be getting around the risk and the additional expenses of setting up in the real world. It can cost nothing to launch a website, and a professional site can be created for just a few hundred bucks. Maintenance costs are negligible, marketing expenses are easy to measure and predict, and you don’t have to worry about location. Renting a store, on the other hand, will require months of searching, negotiation, inventory storage and ongoing costs that often bring a company down before it can generate a profit. Even convincing a retailer to hand over a little shelf space can take a great deal of persuasion — and a willingness to take a smaller share of the sales price. Dealing with affiliates is always easier.
But remembering that more than 93 percent of business is being conducted offline should be enough to incentive enough for any entrepreneur to look again at the offline world… and step away from their computer.