Has the e-commerce bubble burst?

Many e-commerce ventures have fallen out of favour with venture capitalists as Nasdaq stocks lost their lustres. As a result, many of them ran out of capital and threw in the towel in the past two years. Has the e-commerce balloon burst?

No. Despite the failures of many online retailers, I am still confident that e-commerce will become an integral part of our lives in the not-too-distant future. What went wrong? In my personal opinion, the growth in supply has outstripped demand as online retailers enter the market to compete with brick-and-mortar retailers for the same consumers' dollars.

To make the matter worse, many online retailers operate in a scale that is excessive for the current level of demand. This exacerbates the supply-demand imbalance and put tremendous downward pressure on prices. Many online retailers resorted to cut-throat pricing and costly promotions to drive up sales turnover. This forced demand is not sustainable.

It has become clear that forgoing profits for the sake of increasing market shares and revenues is no longer a viable strategy in the ever-changing e-commerce arena.

During the peak of the e-commerce boom, the ready suppy of venture capital funds has nurtured an unhealthy habit of spending beyond our means. In the aftermath of the Nasdaq's collapse, sanity has settled in and netrepreneurs are now going back to the basic rule of business - the key to business success depends on how effective you are in keeping costs below the rate of growth in revenues.

The right way to building an online business is to "go local", instead of aiming for national market coverage and distribution right from the beginning. You can start small with a limited amount of capital; build a viable online business around your neighborhood; and expand it to nearby neighborhoods and towns as profits start rolling in.

That is how businesses are run in the physical world, and there is no reason why e-commerce has to be done differently. After numerous trials and tribulations, it has now become clear that existing brick-and-mortar retailers have a better chance of success in e-retailing. These click-and-mortar retailers could tap on their existing resources, manpower, inventories and marketing efforts to support the operations of their e-stores, and vice-versa.

With only marginal increases in total operating costs, they could develop an economically viable business model that will grow along with the increasing rate of growth in online shopping. In times to come, this online market could become a very lucrative one no different from that of the mail-order industry, as consumers begin to appreciate the convenience and time saved in shopping online.

About the author

Patrick Tan, an entrepreneur and former journalist, offers a complete range of e-commerce solutions and services (editing, writing, translation, content development, web design, etc) to help you build a successful career online. Visit his site at aloha-city.com for more information. He publishes a free newsletter to share his experience and business know-how. Subscribe Now! basics@aloha-city.com

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