Saturday, April 23, 2011

What are the Pros and Cons of Doing Business Entirely Online?

The internet and related technology has opened new frontiers for entrepreneurs seeking to start new ventures. E-Commerce is not suited for every business situation. Entrepreneurs need to carefully review the pros and cons of an online business and decide if it is a good fit with their business model and personal strengths and goals.

eBusiness Pros:

Lower costs: Start-up costs are relatively cheaper than bricks and mortar businesses. If you are setting up your own website with your business plan you may only need to pay for a domain name and web hosting which could cost less than $100. More complex sites may require many thousands of dollars to develop but when compared to opening a restaurant, for example, the costs are very low. In addition to lower start-up costs, overhead, operational costs and administrative expenses are also relatively lower than other businesses due to little or no staff required as well as lower (or zero) physical location costs.

Global Web presence: International customer access is crucial to many businesses in our global economy.

Business conducted 24/7

Quick response to customers: Information that customers need can be readily available online in a convenient format. Technology also enables many automated services which makes shopping fast nad convenient for customers.

Control and flexibility: The fact that they are doing if online means they can do it anywhere, anytime, be it at the office, at the park, or from the comfort of your own living room. Work from home or remotely: Spend more time with your family.

eBusiness Cons:

No immediate customer visibility: Customers cannot see or evaluate your location. Customer awareness for your business may be slow to develop due to the considerable time and expertise required to build web traffic.

Lack of physical contact with customers: Customer loyalty is often forged with direct physical interaction with customers. Credibility and trust are also enhanced when customers know where to find you. Online is still seen as inherently riskier.

Constant need to maintain sites

Long hours: Just because there is more flexibility with an online business does not mean a reduction in working hours. In fact, owners of online businesses may find it difficult to distinguish between working hours and personal/family hours.

Competition is high: Increasingly people are becoming aware of the advantages of running an online business and also more technology savvy and are starting and growing online businesses. With the number of people starting a business online increasing at high levels there is greater competition for traffic which makes it harder to break through. Even when the entrepreneur has a winning business model, competitors can often easily copy it and therefore impact negatively on profits.

Consumers prefer to buy some products in stores: Some products are better sold in stores where they can be inspected, tried on, or tried out. (Interestingly, there is a growing segment of consumers who will inspect a product in a store and order the identical product online.) Other reasons to buy products in stores include convenience and additional services such as installation, expert advice, maintenance agreements, etc.

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  1. Rick, I enjoyed this blog and your thoughts on the pros and cons of internet sales. I thought you would like to know that when i was doing research for one of the questions in this class your blog came up first in the search engine.

  2. Hi Rick,
    Concerning Alan's comment above, it's incredible that you would already be first in a search engine. I believe your destiny is in e-business.

    Your answer is to the question is very clear and complete - excellent job.

    About the last item, "Consumers prefer to buy some products in stores", I've been surprised at some of the items people are willing to buy online. For example, started selling women's shoes. I don't know the product, but I definitely want to try on and look at any shoes before I buy. And while they make it easy, returning anything is a pain for me. But Zappos is very successful and has expanded beyond shoes.
    Good post, Les

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  4. Rick I think you did a great job outlining this topic. I enjoyed the way you laid it out in a clear and concise manner. I agree that online companies do have to work a lot harder at maintaining a loyal following. Also it is clear that certain markets are suited better for online sales.

  5. Rick,
    Hadn't given the physical presence trust factor as a "con" to doing business entirely online a thought. I do usually tend to only shop with those that I know have a storefront. I don't need to even visit their storefront, but to know that it is there in case I ever need it has given me comfort.