June 3, 2007
The first quarter of 2007 the economy has been at a near standstill and has been mainly driven by the consumer. Housing prices have fallen this year to near record lows. For the online (ecommerce) merchants the effects have been devastating.
Going back to pre 9/11 ecommerce was relatively easy and very profitable. However in 2006-2007 it has become much harder for online merchants to squeeze profits out of their online shopping websites.
You are probably asking yourself how I know this. I have been operating online shopping and online subscription websites since before the year 2000. I have seen the good times and the bad times. I Beginning with selling online advertising back in 1999 on various websites that I owned times were good, advertisers were popping up all over the place demanding space on my websites. After 9/11 I saw a steady decline in advertising sales so I looked at other ways to monetize my sites. I started with a subscription access website where customers paid to download content that we had created. It was an instant success, and still is today for the most part.
As an Internet oriented business I needed custom software to drive our websites and stores, so I began creating software to do just that. One of my products is a content management system (CMS) for use on my own websites that runs on Microsoft IIS, asp.net and SQL Server. I put several of my online magazines on the system and it works quite well. It worked so well in fact, that I started selling a version of the software to the public. I am currently working on an asp.net 2.0 version that is loaded with several great features like RSS, social bookmarking and specialized user management among other things.
The subscription websites and software sales required that we implement e-commerce store software so that we could more easily sell to the public. When the economy is strong and consumer spending is on the rise we see good revenues from our products and services that we offer on the stores.
Being that most of my products are not necessities we see good sales during a strong economy and slower sales when consumer confidence and spending decline. I can see trends in a matter of days that takes months for the larger U.S. and global economy to begin to reflect. One could say that my stores sales are a barometer for the larger global economies.
I also use and sell another ecommerce application that has generated tens of thousands of dollars every year on sales commissions for other companies (such as Amazon.com, Commission Junction to name a few). Again when the economy is strong we see excellent daily revenues, when the economy stalls or declines I feel it within twenty four (24) hours. Seeing these ups and downs so closely is much like a new stock investor watching his stocks several times a day and anguishing on each drop in price of his stocks. I try not to focus on the daily trends and more on the monthly trends, however, I have to act quickly to encourage sales or I could one day be filing for bankruptcy if I don’t.
Small ecommerce merchants see the same thing as I do, many merchants do not understand what causes the sales drops and starts thinking it is something they are not doing properly on their stores. While in some cases that can be true, most often it is the health of the economy that is causing sales to drop.
Generally one week of each month outperforms all of the others and certain days have higher sales trends than others. January through March sales and commissions were dismal, we made enough to pay the bills but that was just about it. In April of this year I did see a very good increase in monthly revenues, however, much of that was due to incentives (On Sale and Specials) that I had created. As soon as those ‘sales’ and ‘specials” ended so did much of the increase. Lately, June 2007, I am seeing sporadic spurts of daily sales increases rather than the steady revenues I generally see during a good economy.
I have found several areas (specialized niches) which are still going strong and consumers are buying even when the economy turns south. I plan on focusing on those a bit more this year so that I can ‘see’ new trends and make the necessary changes to capture as much of those revenues as I can.
in summary online merchants feel the effects of the U.S. and Global economy within days of a new trend. I am not saying that being an online merchant is a bad thing, however I am saying to these merchants should diversify as much as possible. Perhaps offer a wider range of products or have several ‘stores’ with different product lines. That way when the economy stalls you will have products that sell well. Many times being having an online ecommerce business is like shooting in the dark, until you start ‘shooting’ you really don’t know if you are going to hit anything or not, but you still need to keep 'shooting'.
References
US sees weakest economic growth in more than four years
Vehicle sales rebound in May
US economy nearly hit standstill in first quarter of the year
Greenspan rattles markets, again
Wary of inflation, Fed holds steady
Economic Growth Slows to Weakest Pace in 4 Years
Allen Harkleroad operates an IT services, Online Publishing and Software development business in Statesboro and has nearly 15 years experience with IT services, online commerce, web design and software development. You can find out more about his company GMP Services here.
Copyright © 2007, Allen Harkleroad, All Rights Reserved