Web Businesses | Article
We’re Not Just a Business With a Web Site Anymore
It has been almost a year now since Egghead Software left their nest of 270 retail stores to go virtual. The retailer decided that they didn’t need bricks and mortar to hold them together, only a worldwide web, and their initiative is working so far. Rebuilding their company to one that exists only on the Internet, egghead.com (their new name) has saved on overhead costs, excess inventory and staff, and they are now able to sell more products. Besides their staple of computer hardware and software products, they now sell computer and office supplies, consumer electronics, sporting goods and jewelry.
Helping them crack into the Internet commerce business was Digital Pulp, an advertising agency and Web developer, which covers both coasts with offices in San Francisco and New York. Digital Pulp has transformed egghead.com into an online superstore. Egghead.com’s revenues for fiscal 1999 after three quarters, which ended Dec. 26, 1998, were $106.4 million. This was an increase of 94 percent from the proforma ongoing revenues of $54.9 million for the same period in fiscal 1998.
A Shift in Thinking
Many companies are reevaluating what they do and are moving to the Internet, says J.P. Frenza, author of Buying Web Services: The Survival Guide to Outsourcing. “In the beginning it used to be we are a company with a Web site; and along with that Web site exists a range of marketing options that include an annual report, a marketing brochure, a sales brochure and product literature,” Frenza says. “And in the last year companies are saying we can no longer be a company with a Web site, we need to be Web company.”
Businesses are no longer hiring someone to put ten pages on the Internet, Frenza continues. That is something that can be done in house. What businesses are doing now is hiring someone to come in and completely change the business. “It doesn’t really matter what product you are making or selling; in the future you will be a Web company,” he says. “Nobody thought that anybody would buy wine online, but now Wine on Line is commonly accepted. No one thought that people would trade stocks and marketing services in the financial industry online and now half the people you meet have accounts with online brokerage accounts. Nobody ever thought that people would buy airplane tickets online; now if you don’t buy your airline ticket online you’re wasting money and time. It is permeating every market. If you’re in business you have to figure out how to survive in this medium.”
Frenza says Companies like Digital Pulp are coming in and transforming businesses. Developers are challenging the foundation. They are striking at the very core of what the company is really doing and how it is organized. Frenza says that the top 100 Web developers all have really good Web design; but it is the backside — the technology behind the design, the interactivity, the commerce and the customer service ? that makes the difference these days. “You’re are not hiring a Web developer anymore, you’re hiring a business partner who has some serious business knowledge,” he says. “They come in and take your business from an analog to a digital firm and that is a big transition.”
The Web Development Market
The Web services outsourcing market is huge, Frenza says. Forester Research, an information technology consulting company, found that 60 percent of Fortune 1,000 companies outsource to two or more Web development shops. Programming (coding and scripting) is the number one Web service being outsourced, he says. This function accounts for roughly half of the outsourcing pie, followed by Web design, development and management, systems management (hosting and consulting), and Web strategic planning, respectively.
The companies who are outsourcing these services say cost is a factor but not a very important one, Frenza notes. “If I’m a company in Minnesota who sells ball bearings, it would be hard to hire ten people who would be interested in building Web sites to sell ball bearings,” he says. “So the access to employees and their expertise and knowledge is a huge reason to outsource. It really has to do with ability and not the price of that ability.”
There are a number of Web developers that have matured and are doing excellent work, he says. Some of them are Vivid, T3 Media, Tom Nicholson Associates, Red Sky Interactive and IBM, which is the largest Web developer in the world. The costs of developing a Web site range in price. A small Web site will cost $25,000 to $50,000, a medium site between $50,000 and $250,000, and then $250,000 or more for a large Web site.
When a company begins their search for a Web developer they should read a lot on the subject, Frenza says. Businesses should immerse themselves in the industry and find out who is out there and come up with a short list of five or six developers. Contact those developers and ask them what they think. “But most importantly, make sure the developer is financially stable and is going to be around to take care of your $800,000 Web site,” he says. “The larger Web developers may be the answer and do have the advantage because they are going to be around tomorrow.”
Frenza is the author of Buying Web Services: The Survival Guide to Outsourcing and The Web and New Media Pricing Guide. He became involved in the Web services arena in 1994 as the director of business development at a pharmaceutical company that morphed into a Web site called Medscape. The site is hailed by many critics as the most important site for medical information on the Internet in the world. After leaving Medscape in 1995, Frenza went to work at United Digital Artists, which was the first new media talent agency in the United States. Frenza is now the director of the Earth Pledge Foundation (www.earthpledge.org), a nonprofit environmental technology foundation that promotes the concept of sustainable development.
Lesson from the Outsourcing Primer
- Many companies are moving their products and services to the Web to reduce overhead and inventory.
- Sixty percent of Fortune 1,000 companies outsource to Web development shops.
- Programming is the number one Web service being outsourced.
- Companies are outsourcing Web services because they are looking for talented developers.
- Companies should find a Web developer that they know is going to be around for a while.
Category: Articles, Retail & e-commerce
