DAILY RECORD -- Morris County's Newspaper
Sunday, May 24, 1998
by Ron Day, Daily Record
James Pitney spent about $180,000 to start an Internet-based business selling compact discs, Wrangler jeans and videotapes from a Web site. Ten months later, five to 10 orders a day trickle into his basement computer.
"We'd like to have sales a little higher," said Pitney, who lives in Hanover and makes a few dollars on each sale from Entertain Net Depot (www.etdepot.com). "I know it was a big investment, but this thing is going to grow."
Pitney isn't the only Morris County entrepreneur to have found that, despite the hype surrounding all things World Wide Web, opening a business on the Internet does not mean instant riches.
Crafts seller David Danson of Parsippany and book sellers Shinu and Kavita Gupta of Parsippany know that firsthand -- Danson said his sales so far are disappointing, and the Guptas, while they are seeing strong sales growth, have yet to produce net income after three years.
"Among the major online retailers, none are profitable," said an editorial in the online version of Internet trade magazine The Industry Standard.
"The current buzz about online retailing may soon be muffled by market realities," the editors wrote recently.
It's not that no one is buying. Experts predict a better than eight-fold increase in the amount of goods sold on the Web in the next few years -- $17 billion will be sold by 2001, up from the $2 billion spent in 1997.
The big names in this nascent industry -- compact disc seller CD Now and bookshop Amazon.com -- report growing sales and large losses. Amazon.com of Seattle, calling itself the nation's third largest bookseller, saw its 1998 first quarter sales rise 32 percent to $87.4 million, yet it showed a net loss of $9.3 million.
Profits, experts say, are being used to overcome the biggest stumbling block to making money on the Internet -- getting noticed. It's easy, they say, for a business to get lost among the estimated 350 million Web sites.
"Nobody can hear you scream in cyberspace," said Internet researcher Vernon Keenon of Zona Research in Redwood City, California.
HEAVY INVESTMENT
E-commerce companies are spending millions of dollars to make their presence known. Amazon.com, CD Now and Barnes & Noble's Web sites all have launched expensive television or radio campaigns.
"We are in a heavy investment period," said Cliff Sharples, president and chief executive officer of Garden Escape, an online garden supply store based in Austin, Texas. He also chairs an e-commerce industry association, Shop.org.
Sharples acknowledges there is a gold-rush type mentality about getting rich on the Web, where entrepreneurs think all they need is a Web page and a few products and money will roll in.
"It seems very easy to throw up a Web site and put products on it, but people who do that are not finding any success," he said. "Setting up shop on the Web is pretty expensive."
Danson, 62, who started The Modern Way (www.themodernway.com) about 11 months ago to supplement his retirement income, said trying to get noticed is the biggest impediment to the business taking off.
"The hardest thing is getting people to know about your existence," he said.
The 62-year-old Parsippany man spent $10,000 to get the crafts site up and running. Rather than selling goods, he rents out space on his online mall to artists and craftsmen -- he charges them between $10 and $30 a month -- and then takes 10 percent of each sale.
The $750 or so a month he brings in falls short of his expectations.
"Sales have been disappointing. I wouldn't try at this point to live on the money," Danson said.
Len Muscarella, an Internet business consultant and executive with Interactive Media Associates in Parsippany, said business owners must do more to let the world know they exist on the Web.
"I'm wary of get-rich schemes on the Internet. You can make it work if you are smart," Muscarella said.
Online promoting generally takes a few forms, Muscarella said. Web sites can be registered with search engines like Yahoo!, which help users find sites of interest. Arrangements can be made to install "links" on other Web sites that jump Web users from one site to another with a mouse click. Another common promotion is "banner" advertising, which appears like small billboards on other sites.
"If you're savvy about advertising and promoting on the Web, you can drive people to your site at a low cost," he said.
Pitney said he has tried hard to raise awareness of his site. Entertain Net Depot is registered with all the major search engines, linked with other Web sites, and his banner ads appear all around the Web.
But more than the awareness problem, his sales grew slowly because his prices, at first, were too high, he said. Web shoppers have become price conscious thanks to search engines that scour the Web for the site selling an item for the cheapest price.
Currently, he said, consultants, marketers, and Web site designers are making money.
"The only ones making the money are the ones selling the shovels," he said. "The ones panning for gold have to wait."
Shinu and Kavita Gupta's site, called A1 Books (www.a1books.com), is a relative old-timer at three years old.
The Parsippany couple sold $300,000 worth of books last year, and expect to sell $1 million worth this year. They already sold $150,000 in this year's first three months.
Any gross profits go to Kavita Gupta's salary and improving the business, said Shinu Gupta, a former Wall Street programmer who makes his income designing Web sites.
"The business is sustaining itself," said Shinu Gupta, whose goal is annual sales of $10 million to $25 million in the next two to three years.
A1 books buys books from publishers and wholesalers at a 35 percent to 45 percent discount from retail, he said. It sells them from the Web site at 15 to 25 percent discounts, racking up average profit margins of about 20 percent, he said. So on a book it sells for $20, the couple makes about $4.
The orders come to the Guptas' computer night and day, and Kavita Gupta or their employee downloads them each morning. Kavita Gupta orders books from publishers and warehouses, who then ship the books back to her. Then she repackages the orders and ships them to customers.
Customers also pay shipping. For example, a $17.95 book will cost a customer $3.95 in shipping.
1,000 ORDERS A MONTH
Shinu Gupta said the company takes about 1,000 orders each month.
Pitney sends his orders directly to a fulfillment center, which fills and ships customers' orders, he said.
The Guptas, who started the business after Kavita Gupta had a child and wanted to work from home, are looking for a "venture angel," a capitalist with deep pockets to inject $2 million to $5 million into A1 Books.
They have two more Web sites -- www.centsoff.com, where people can order store coupons, and www.eorganizer.com, which features an online planner.
