Magazine article Management Today

Smart Cookies Look beyond the Numbers

Magazine article Management Today

Smart Cookies Look beyond the Numbers

Article excerpt

In the absence of earnings, dot.coms are valued on revenue and number of customers -- but customer quality will count for more than quantity

Why worry about this now?

The e-business world seems to have just discovered the concept of a customer -- and to be totally obsessed with it. Given that dot.coms are currently judged on revenue and on customer base, the key analyst metrics for Yahoo!, AOL, Vodafone et al are: How much did the customer base grow this quarter? How much is the market cap per customer? But just as quality-of-earnings is a big deal in the 'old economy', so in the 'new economy' we should be looking for quality of customer rather than absolute number of customers.

What makes a good customer relationship?

A relationship that is material, profitable, long-term, and defensible against competitors.

There are differences in how this works between business-to-consumer [B2C] and business-to-business [B2B] e-commerce -- although the basic principles are similar.

Take B2C first -- what's a concrete example of a weak customer relationship?

AllAdvantage is a fast-growing US internet start-up, with more than three million signed-up customers ['members']. Its proposition is simple: 'Get paid to surf the web'. The company pays you 50 cents an hour for monitored browsing, up to $12.50 per month; in return you let them stream banner ads at you, and like Tupperware, you can recruit other members and earn 10 cents an hour on their surfing. The problem is that 60% of its registered members are outside the US, Canada and the UK -- countries that account for over 70% of B2C e-commerce, and the only three markets that AllAdvantage can actually service. $150 a year may be an attractive little earner in South Carolina, but it's a real killer proposition in Mexico or the Philippines, where average yearly incomes are below $1,000. A surfer in the barrios of Tijuana may be even less attractive to advertisers than an under-employed trailer park citizen in the USA.

Does this invalidate the whole business proposition?

I'm not saying that the core proposition of AllAdvantage's business is flaky, but as an investor you would tear apart the quality-of-customer-issue when looking at that number of three million-plus registered customers. …

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