Think that your business should be making big bucks selling online? Wrong. Most businesses lose money online and have unprofitable online operations. Walmart’s online operations and Wayfair both lose money, and thousands of other businesses do, too.
There is a popular myth that online sellers are casino-like winners with the winning slot machine bells sounding with each order—generating buckets of quarters (profit) for the business. Casinos often produce losers, and most websites do, too.
A successful website is often best setup to perform like a tool, not an experience, and it’s primary goal should be to help the visitor complete an action such as buying something (Amazon), paying someone (Venmo), or learning something (Wikipedia). Facebook serves many of these needs, too, and is one of the world’s most visited sites and most profitable companies. It’s not pretty. It’s utilitarian. It’s a tool. Just like Mark.
And even if one does create a good digital tool, that is still just part of the equation. A business also needs: a network.
Networks grow a business by reducing customer acquisition costs and enlisting users to perform free work and sometimes generate free content. What network does Wayfair have? Walmart? Have you invited your friend this week to join you on Wayfair? No, but you may have invited him or her to join you on Peloton, sent money via Venmo, shared a playlist on Spotify, or shared products via Bridge. And partially because of this lack of a network, Wayfair spent $311 million on advertising in the fourth quarter alone. A year, that’s likely over a billion dollars on advertising. Viewed another way, it gives up $28 on each order due to ads. Let’s hope that order isn’t for a $55 bookend set.
I advocate for setting better expectations for the web and what our businesses can accomplish. This will help us better spend our time and is ‘way’ more ‘fair’ to our staff, investors, and selves.