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A Web Site Is Not a Business

The one thing which all the examples I have just shown have in common is that the Web sites themselves are not trying to be businesses, but are used as ways to facilitate business. Wired News and Slashdot, for example, sell advertising; on the surface they look as if they exist to provide news and information to their readers, but the main business of these sites is selling ads. That's where their money comes from. Many online publishers that started in the mid- or late 1990s didn't seem to realize what business they were in, and built staffs larger than any amount of ad revenue they could possibly generate would ever support. Most members of this crowd have either gone broke, gotten acquired, or are limping along and hoping for miracles that probably aren't going to happen.

On the ecommerce front, MexGrocer.com's owners know full well they are in the business of selling non-perishable food, not in the Web site business. Ignacio Hernandez, who runs it, sold wholesale Mexican food products "the old fashioned way" for over 30 years before there was an Internet. His son, MexGrocer.com Vice President Ignacio Hernandez, Jr., worked for an online grocery company in Switzerland before coming home to work in the family business. MexGrocer.com was started with no outside venture capital. No immediate investment in warehouses or delivery infrastructure was required because the Hernandez family had already been in the grocery distribution business for three generations in Mexico and the United States.

For the Hernadez family, a Web site serves two simple purposes: It is a low-cost way to reach customers that might otherwise not buy from them, and it makes ordering more convenient—and lowers order processing costs—for existing wholesale customers. These are entirely reasonable expectations. The Hernandezes may not get rich overnight from an IPO, but MexGrocer.com is being built on a permanent foundation that gives it a fair chance of earning a steady profit, not only for its current operators but for future Hernandez generations.

Contrast this with Pets.com, a company that was founded as a pure ecommerce venture in 1998, raised $82.5 million in a public offering in February, 2000, and closed its virtual doors in November, 2000. Pets.com had a much slicker Web site than MexGrocer.com and probably spent more on advertising in its short life than the Hernandez family has spent in any whole decade. But Pets.com had no retail, warehouse, delivery, or manufacturing capability to build on when it started. In essence, Pets.com was nothing but a Web site. The Pets.com URL now directs users to PETsMART.com, the online affiliate of "brick-and-mortar" chain pet supplies retailer PETsMART, which has been around and growing steadily since 1987.

When I first started advertising my limo service online in 1994, I already had established contacts among local hotel concierges, wedding planners, and others who could and did help me find customers. I owned an old (but impeccably maintained) six-passenger Lincoln stretch limousine, and had the insurance and licenses I needed to operate as a commercial transporter in Maryland. Between 1993 and 1996, at least 1000 entrepreneurs tried to start online limo booking or marketing systems of one sort or another, either local, national, or international. They all wanted to charge limo operators either monthly fees or commissions in return for getting bookings for them. One of the old jokes in the limousine industry is that it would be a perfect business if you could just eliminate its three main headaches: vehicles, drivers, and customers. That's essentially what all the online limo booking entrepreneurs tried to do, but almost all of them are gone now. New ones keep springing up and disappearing, too. The only limo Web sites that seem to stick around, and the only ones that seem to make any money, are those run by limo operators who actually own (and carefully maintain) limousines, deal directly with customers, and have real, live drivers working for them.

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