$15 off $15.01, $20 worth of free postage, and a chance at $10,000,000 just for using a, search engine. Only three years ago these business tactics would be considered ludicrous; now, they are considered legitimate “”growth strategies.” Most large and “growing” Internet companies are literally giving their products away in a desperate attempt to grab onto the influx of internet users interested in buying products and services online.

Online retailer Buy.com is perhaps the most aggressive online retailer. Ever since their inception they have been selling many of their products for a loss, while offering $ 10 off $ 10 discounts to new customers and equally enticing offers to their returning customers. These offers have led to outstanding revenue growth, but losses have continued to rise nearly as fast as revenue. Virtually all other large Internet retailers including Amazon.com, bamesandnoble.com, and CDNow.com have posted impressive revenue growth but continue to post earnings in the red zone. Given the inability of large online retailers to post positive earnings, is it possible to run a profitable online retail business on the internet? Using my knowledge of internet advertising, web design, and the internet economy, I was able to run a very small yet profitable online with virtually no up front investment.

I choose to create the business using the groundwork of the buy.com. Business model. I contacted several fulfillment companies that offered competitive prices, full customer support, and a wide variety of consumer electronics. The basic buy.com model allows anyone with a few hundred dollars and knowledge of web design and the internet economy to start a profitable online retail business. Since I never had touched any of the products nor answered any of the questions regarding the products, I was able to run the business alone and with a miniscule overhead. In order to raise some money to fund a full blown e-commerce site, I needed to find an inexpensive way to raise some money. I got product lists from several fulfillment companies and matched their prices against the prices that those particular products were selling for on major auction sites. In only five hours I was able to locate six products that I would be able to mark-up and sell for a nice profit. I then proceeded to mike advertisements for each of these products and by the end of the day my auctions were up and running. After 1 month I had made nearly $2,000, while spending only 3-4 hours per week sending out e-mails, cashing checks, and faxing orders to the fulfillment companies.

Now that I had raised nearly $2,000, 1 began to set up a fully functional e-business site. After spending about $400 and 30 hours setting up the website, I was ready to open the gates. Once the website was up and running, I entered the most complicated a problematic stage of running an online retail storefront: driving customers to the website. This is the stage in which most of the larger retailers go wrong. Most big online retailers, pay big dollars to plaster their advertisements all over the Internet. Instead of limiting themselves to the potentially profitable CPC (cost per click) and CPS (cost per sale) advertising, in which the companies don’t pay unless a customer clicks on their banner or buys a product, these companies usually rely on much more expensive forms of advertising, spending hundreds of thousands of dollars on CPM (cost per impression) advertising in which they pay only for exposure and not necessarily results.

I was forced to end my experiment 3 months later after a serious software glitch. Despite this glitch, I was able to post revenues of over $30,000 with profits of over $5,000 in only 3 months. While the revenue numbers are not the least bit impressive, my little company made infinitely more money than retailing giants have in over 2 years. Some retailing giants can duplicate the success of smaller online retailers by making minute changes, while others would likely need to revamp their entire business model and infrastructure in order to reach profitability any time soon.

Despite the apparent failures of the big internet retailers, there is still money to be had on the internet. Companies with already existing retail stores can expand to the internet and avoid spending millions on branding and infrastructure. Start-ups can also become profitable as long as they stick to sustainable forms of advertising and use cost-effective business models. If the big retailers fail to make the necessary changes, they will continue to struggle and may be forced into mergers by those Internet companies that changed their ways. The path towards profitably is here: follow it.

Eric Wolff (17), is a Junior at Brentwood School.