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Lemonade Stands On Electric Avenue


Business Week e.biz -- Net Culture

Lemonade Stands on Electric Avenue

Net sales booths sell everything from staplers to pet products

You won't find many shops on Main Street that sell strictly refrigerator magnets. The items are cheap, and demand for them is rarely strong enough to justify renting an entire storefront. They're the ultimate in a niche business. On the Internet, however, none of that matters.

Just ask Chris Gwynn of Quincy, Mass. His two-year-old online magnet store, Fridgedoor.com, which he started as a part-time gig, has allowed him to quit a well-paying job and focus exclusively on his startup.

The Web is spawning a world of just such virtual lemonade stands--home-based businesses that hawk everything from staplers to accessories for Jack Russell terriers. Thanks to the Net's global reach, these tiny sales booths can appeal to a highly dispersed group of customers--and prosper. Gwynn is making 200 to 400 sales a week: Austin Powers and Scooby-Doo! are hot right now. "An inch wide and a mile deep," says Gwynn, who was formerly an analyst at Yankee Group Research Inc. "That's what I'm going after."

If 1998 was the year that mainstream Corporate America discovered E-commerce, 1999 may well be the year that all the Toms, Dicks, and Harriets with dreams of being their own bosses hang out a shingle in cyberspace. "There are a lot of people who have a passion," says Bo Peabody, co-founder of Tripod, an online community hosting the home pages of 3.7 million members. "Now they're turning that passion into a business."

And they're doing it in droves. Around 30,000 small businesses--outfits with annual revenues of less than $10 million--now take orders over the Web, according to Keenan Vision Inc., a San Francisco consulting firm. That's up from just 200 companies in 1996--and should grow to 400,000 by 2003. Already, some 3 million more people make a living from home than was the case in 1995, according to International Data Corp. And experts believe many of them soon will start selling via the Web.

It all adds up to one of the few big exceptions to the massive consolidation trend of the past decade. Large numbers of people who have full-time jobs can experiment with E-commerce businesses on the side, boosting their income or living out a fantasy. A subset of them will even quit their day jobs. "This is a fundamental transformation," says Steve Westly, vice-president for marketing at auction site eBay Inc.

Perhaps--but these lemonade stands still face huge questions of sustainability. After all, some of the nation's biggest sellers of goods--from supermarkets to Wal-Mart Stores to Sears Roebuck--have barely begun to dabble in E-commerce. When they go whole hog, a lot of small-time Web merchants could find their niches swallowed up. The pressure is on them to establish a position now and become big enough to fend off competition.

It's surprisingly easy to get started. You don't need to keep any inventory--or even sell your own products. The least sophisticated way that people are adding to their income is by becoming "affiliates" of larger businesses, such as the Amazon.com Inc. shopping site. Its 260,000 affiliates position an Amazon banner or button on their home pages. When a visitor clicks on the link and buys something from Amazon, the affiliate gets a cut ranging from 5% to 15%.

The key to being a successful affiliate is offering content so compelling that Web surfers not only flock to your site but also click through it to buy related products. In Britain, David Campion has built a Web site that includes the lyrics to every Nirvana song, a time line on the grunge band, speculation on lead singer Kurt Cobain's suicide--and a link via an affiliate button to CDNow. He makes a 7% commission or more on every CD sale that originates from his site.

Alison Yoshikawa, however, can tell you what happens when your Web site has little to do with the affiliate link. The business-products broker, selling mainly electrical and janitorial supplies to companies near her Northern California home, has increased sales three- or fourfold by putting her business on the Net. But she hasn't made a single cent off of the link to barnesandnoble.com that her 25-year-old daughter installed on the Web site 10 months ago. After all, how many people who are ordering a mop are inclined to buy a copy of The Iliad at the same time?

Another way to join the game is by selling goods on one of the big auction sites, such as eBay and Amazon. While most of the people who sell items at auctions are trying to clear out their attics, others are making real businesses out of it. Indeed, eBay says more than 10,000 people now make all or a big chunk of their salary through its site alone.

One of them is Wendy Gem Davis, a 30-year-old Alabamian with five children, including 5-year-old quadruplets. About 2 1/2 years ago, she logged onto then-obscure eBay to see if she could buy any porcelain figurines for her collection. When she saw all the buying and selling going on, she realized it could be the perfect way to supplement her husband's salary without leaving her kids. "I felt like I could do this," Davis says, "and it just started taking off."

She has gone from trading figurines to selling clothing her kids had grown out of to driving to the nearby Walt Disney discount outlet and stocking up on cut-rate goods. She then marks them up--usually by 100%--and sells them to people as far away as Australia and Kuwait. She brings in a profit between $1,000 and $5,000 a month, and the extra income has allowed her family to move to a bigger house.

Now, the Internet community sites plan on making it even easier for small fry to get a flying start. Later this year, HyperMart Inc. will launch a service allowing Netrepreneurs to sell goods over the Web without building their own security or electronic shopping carts. They'll simply pay $100 or so a month and link up with HyperMart's technology.

Major Internet companies also are lending a helping hand, hoping to build their own traffic in the process. They're enabling merchants to set up a store from scratch in a few days, with almost no technical savvy and for about $500 in startup costs and $150 to $350 per month after that. Web portal Lycos Inc., for example, just connected its members' Web sites to its auction listings. That enables merchants to present much more information about a product than they could on the auction site itself--and still show real-time updates on the bidding.

That's a boon to people like Davis. But it can't shield her if one day Disney decides to start selling its outlet goods online and leaves her without a niche. "These small, scrappy folks can do well," says Tim Brady, vice-president for production at the Yahoo! Inc. portal. "But it's also very easy on the Internet for Wal-Mart to see what's popular and why someone's doing well."

That's what happened to Paula Jagemann, a part-time executive assistant who last year set up a Web site to sell office supplies. Things start well enough, but then Staples and Office Depot got into the act. Jagemann quickly refocused on helping established stationers set up E-businesses.

And that's the rub. While it's true that there are enormous opportunities for entrepreneurs on the Web, they can disappear quickly. Flexibility is the watchword. Otherwise, mom-and-pop shops can be left with little more than a bitter taste in their mouths.By David Leonhardt; Contributing: David RocksReturn to top


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