Academic journal article The McKinsey Quarterly

Virtually Solvent

Academic journal article The McKinsey Quarterly

Virtually Solvent

Article excerpt

Convinced that visitor volume was the key to attracting investors and advertisers, most business-to-consumer (B2C) Internet start-ups spent heavily on branding, on high-impact public relations, and on innovative techniques such as viral and affiliate marketing. These efforts did boost the growth of start-up e-businesses in the short term, but few of them have been able to convert a solid proportion of surfers into buyers and first-time buyers into repeat ones. And without stickiness, as we all now realize, B2C companies have little chance of surviving.

As long as investor confidence remained high, these difficulties didn't seem to matter. But now that confidence has plummeted, we have an especial need for a metric that can provide early-stage e-businesses--and investors--with the kind of information that companies in more mature industries get from earnings per share and discounted cash flow and all the other techniques developed over the last century to assess the health of companies. To answer this need, the current issue of The McKinsey Quarterly is publishing, in one of its two cover articles, the fruits of the research that the Firm has conducted, over several years, into predictors of commercial success for the different varieties of e-consumer business.

As a kind of state-of-the-e-nation report, "E-performance: The path to rational exuberance" makes for a sobering read--rarely has so much been spent by so many for so little. But the article is more than a collection of data. Vikas Agrawal, Luis Arjona, and Ron Lemmens show that blindness to danger has been replaced by blindness to opportunity. Just as investors (and, more embarrassingly, analysts) refused, amid the original hysteria, to recognize the importance of data that were plain for all to see, they now seem to have abandoned hope just as B2C profitability is at last coming into view. A small but solid group of leaders has been profitably converting visitors into customers and getting them to return by following some tried-and-true business practices. …

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