The Three Rules to Keeping Your Internet Business Alive

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by Pete Cooper

If you're starting, or have just started, an Internet business then you're probably full of hope and confident that it'll succeed. After all you have a solid business plan, right?

But so did other companies who've recently taken a turn for the worse. I'm not trying to scare you, but I want to highlight the history behind some of the failures and, more importantly, give you a few key tips in running your own Internet business.

But first, the history...

A crumbling empire

It's been a whole six years since the first serious Internet businesses started to take shape. Back then it was a major risk starting up an Internet-only company since the 'success' of the Internet wasn't as obvious and ensured as it is today.

Nearly everyone knows that the first successful online businesses were porn sites. The online adult industry is still bringing in big bucks (a Web industry whose companies boast actual profits!?) but other industries have blossomed online too. However, over the past year we've seen the IPO stars of 98 and 99 start to flicker and dim a little. Confidence has been sagging and things are beginning to look grim. Why?

The demise of Internet business?

The simplest answer to this is we don't know. Or, at least, we can't come up with a single reason. It seems to be a mixture of reasons in each company's case. Remember, however, that each major IPO had a distinct and promising business strategy and plan. If they didn't, they wouldn't have received their initial investments. After all, investors don't willingly invest in companies which are doomed to fail, do they?

I believe the reasons for the recent stream of company shutdowns came after the business plan stage and are to do with decisions made while running the company. It's all very well drawing out a wonderful plan and sticking to it, but only the true masters quickly redefine and remodel their business plans as market situations dictate. Other companies have failed because they've just made incredibly bad decisions at times of crisis.

It's far easier to explain these scenarios by using a realistic industry case study. The world of portals and search engines is a particularly fickle one, so perhaps they could prove to be the best indicators for the state of Internet business?

Portals: The Best Indicators?

The most visited Web sites are the 'portals' such as Yahoo, MSN and AOL.com. This has been true since 1994 when Yahoo was one of the few available services and Google wasn't even conceived. These businesses have based themselves upon a single solid fact. People will always need a way to search the Web.

In the early days, most 'portals' were really just search engines or indexes such as Yahoo, Webcrawler, and Infoseek. Over time, of course, they started to add features such as news, weather and offered 'personalized' pages to their users. This was the dawn of the true era of the 'portal'.

Towards the end of 1999 the word 'portal' was starting to become overused and people's enthusiasm for them began to wane. They all offered the same thing, and bad decisions were being made in several areas. Suddenly things started to change.

Move up to late 2000, however, and all has not been very well in the portal industry. In September, AltaVista announced that it was laying off a large portion of its staff and reverting to being 'solely a search engine provider'. It blamed the decision on the difficulty of establishing a major portal in a market dominated by Yahoo, MSN and AOL. AltaVista was throwing a lot of money at a problem without actually adding anything radically new to catch attention.

The first rule of good Internet business

Within that explanation is our first major rule of running a successful Internet business! Throwing money at a problem on the Internet seems to work poorly. If your service is exactly the same as the others the only thing money can do is market your service further. Unless you're going to use the money to construct radically new services and tools, why bother? Spending money to keep up with the competition is a bad idea on the Internet. Do not do it.

The second rule of good Internet business

Another company, which hasn't seen a real improvement in its market standing, has been Excite. A large number of services have actually been added to the portal, but Excite has failed to market and develop them fully. An ex-Excite executive actually told me that the root problem at Excite was that they didn't enter and expand into the portal market rapidly enough. They were slow and didn't adapt to market conditions quickly.

Therein is our second rule! You cannot stick to your initial business plan and expect it to work for ever. You must change.

This is actually a business policy preached by Bill Gates. He says that the new way in which computers can facilitate business has enabled Microsoft to radically change and redefine the way it works. It's this digital culture that enabled Microsoft to quickly enter the Internet industry and produce the popular Internet Explorer Web browser.

So, to recap, you must adapt, but without throwing piles of unneeded money at the problem as in our first rule. That's because adaptation isn't a problem, it's a natural part of doing business on the Web.

The third rule of good Internet business

Yahoo has consistently been the best portal around since it started life on the Web. It's also one of the most unbiased portals in existence, since AOL.com and MSN.com rely on the large user-base of their products and services to ensure their popularity. Yahoo truly are a paragon of Internet business. Why?

Yahoo holds our third rule of good Internet business. It has always stuck to its core services, and whenever it has wanted to expand quickly into other areas it has usually formed a partnership with an existing company. It has not squandered millions in a 'quick fix' solution, but has invested in a partnership that has pre-existing clients. Wonderful!

So, our third rule is to develop profitable partnerships. Partnerships are not a sign of a weak or unskilled company, but of a company that recognizes its limitations and is focusing its core resources in the areas it knows best. Companies that stretch themselves too far (as Amazon is starting to do) are taking a big risk. On one hand, they might boom and become a market leader. On the other, they could have thrown their business away into an abyss. Sadly, the latter seems to most popular, don't let it be you!

Conclusion

In 2003, this article might be redundant but for now it's not. These are lessons learned the hard way by the large number of businesses that have had to shut down in the year 2000. They're lessons that haven't necessarily applied to off-line businesses before but they're ones that apply now.

If you're running an Internet business and you have aspirations of making it to the top, use previous Internet failures to help you determine the best way to the top, if you find the key reasons for business failure, then you can also find the main routes to success.

I wish you the best of luck, and if you end up avoiding disaster by reading this article, please remember who helped you out!