Angling For A Piece Of The E-Commerce Market

Three years ago, Mike Marquardt's business, Firsttel.com Corp. (Coeur d'Alene, ID), primarily installed phone systems and interconnect services. Now Web site design and hosting for large to small businesses accounts for 85% of Firsttel.com's sales revenue and continues to grow rapidly. The number of online buyers (not just shoppers) is expected to double to more than 58.5 million households by 2004, says analyst eMarketer. As a consequence, retailers of all types feel the pressure to establish a Web presence, though they may be reluctant to spend the resources to hire full-time personnel. This trend could net new opportunities for resellers like Marquardt.

A former data sales manager for Sprint, Marquardt considered a move into Web site services as early as 1996. The growing number of e-tailers and increasing expectations that companies should have Web sites made it clear that there was a need for this service. What wasn't clear were customer expectations for content, functionality, and usability and appropriate price points. To get a broad view in a metropolitan market, Marquardt contracted market research in the southern California area.

The encouraging results gave Marquardt a good picture of current demand and the price the market would bear. A fully functional e-commerce Web site starts at about $10,000 plus annual maintenance fees and increases in price according to complexity, number of statistics pages, and level of service. Enhanced shopping cart functions and more complex database designs are among the features that can add value to a site. Firsttel.com also promotes search engine placement. By acquiring information about common search terms and searching habits from search engines and other sources, Firsttel.com Web designers can analyze the best way to design a site that will be included among the top rankings in a particular category. Since Internetstats.com finds that 80% of Internet user sessions begin at a search engine, customers find that the $3,500 to $10,000 price tag for search engine optimization is quickly justified with increased traffic. In fact, one customer who sold 700,000 lamps from a Web site last year only made four sales in six months from a physical storefront. Even for sites where the focus is customer support, ROI can be illustrated with monthly activity reports that outline where a site ranks when a search is conducted, the number of hits on the Web site, and data about the viewing habits of visitors. "It's more attractive financially for a company to deal with us than to hire an IT guy at $80,000 a year just to run the Web site," notes Marquardt.

Build New Portfolio From Existing Customer Base
Unfortunately, a good product and overall demand for it don't automatically create sales. Firsttel.com's first Web development client actually came to them to inquire about a phone system. Marquardt recognized the unique product offered by October Country, which caters to a niche market in black powder rifles and accessories, and felt it would be a good proof of concept. Firsttel.com offered a detailed proposal that included actual site design. "We had to eat it a bit and give them a really good deal," admits Marquardt. But securing octobercountry.com provided a very important resource - the first site to have the Firsttel.com name at the bottom.

The inability to show a site with a Firsttel.com copyright, says Marquardt, was one of the early challenges the company faced. "Our designers came to us with impressive portfolios," says Marquardt. "Even though we could show that quality product to customers, it's not the same as one with our name on it. After the first six or ten projects, it got a lot easier." In fact, Marquardt has found that testimonials and referring accounts are far more powerful any other form of marketing. Consequently, Firsttel.com includes extensive customer comments on its Web site.

To launch the Web development initiative and help build a customer portfolio, Marquardt hired Steve Bergman as VP of design. Joining Firsttel.com after five years of Web design experience which included freelance work and employment by a competitor, Bergman used his contacts to help recruit Web professionals. Appropriately enough, they also employed the Internet. The opportunity was posted in such a way that anyone who responded had already proven his ability to properly use search engines. Candidates were asked for a portfolio of their top six innovative designs, examples of their ability to drive Internet traffic, and references. "After that, it all came down to their mindset and a willingness to learn," says Marquardt, who found that getting designers to work in-house at salaries starting at $18,000 to $45,000 a year wasn't such a tough sell.

Build It, Don't Buy It
Firsttel.com opted to write its own software for all Web site functions, including shopping carts. It was cost-effective to use in-house expertise rather than pay an outside vendor, and his designers have become proficient at writing code. Firsttel.com was also concerned that a packaged application wouldn't be flexible enough to meet client needs. For example, designers generally handle all of the modifications and changes as part of the service contract. However, White's Outdoor wanted to maintain administrative control over some aspects of the site. Programmers designed an extension to allow the client to modify content via a browser. Marquardt says that salespeople are confident about what they can offer customers because designers aren't "stuck inside a box" when a client wants something out of the ordinary.

Though the applications may originate at Firsttel.com, the actual hosting doesn't. Firsttel.com's client Web sites are located on servers owned by Hostcentric (Houston). Marquardt made this decision for two major reasons. First, it would cost millions of dollars and take months to build the infrastructure necessary for such an undertaking. Second, he is keenly aware of how important a 24/7 storefront is for many businesses. He believes a hosting partner's redundant connections and ability to scale to customer needs protects his customers while shortening his own time to market.

Compete On Service, Not Price
Amateur programmers working from home pose one of the greatest threats to companies like Firsttel.com. Their low overhead results in prices that can't be beaten by a corporation with expenses. Bad experiences with novices have also made many people hesitant to get involved with a Web services provider. Second-rate features, absence of marketing expertise, and self-hosting over unreliable DSL (digital subscriber line) connections are common mistakes made by these competitors. Marquardt's sales strategy isn't focused on approaching a customer site with the lowest price, but on providing the highest level of services in the most professional manner. He backs up these claims with customer testimonials and the ability to track and report results with hard numbers.

"Over the next five years, I believe a lot more people will put their trust in Internet shopping which will prompt stores to lower overhead by expanding Web sites rather than stores," comments Marquardt. Cahner's In-Stat Group concurs, predicting that the revenue for providing Web site services to just the small business sector will reach $600 million by 2004. Those numbers and Marquardt's experience suggest that there's something fishy about rumors surrounding the death of the dot-com. VARs who have avoided the admittedly murky waters of Internet commerce may be missing the boat.