If the Internet truly has no boundaries, does that also hold true for online direct marketing?
“It’s everyone’s focal point,” says Michael Petsky, CEO of The Winterberry Group, New York. “How big is it and how big can it get?”
According to Petsky and two recent reports from his firm – a financial consultancy specializing in Internet businesses – very big indeed. And the potential for growth extends beyond companies related to electronic commerce.
In an industry that effectively did not exist three years ago, e-commerce transactions totaled $2 billion in fourth quarter 1998 and $3 billion in the first quarter of this year. Such numbers, he believes, probably will continue to rise.
Petsky suggests that e-commerce’s growth reflects the DM industry’s year-to-year expansion. He credits the increase of online firms to “the fact there’s so much private equity pouring venture capital into the companies. Every niche product and service segment is being chased after by a related Internet business.”
Of course, he warns, “There is no way all those companies can survive. There has to be a fallout and consolidation.”
Petsky says that usually consolidation occurs when a market or industry is mature. With e-commerce, however, there is consolidation while the market is still developing. “The companies need to get bigger faster. It’s easier to buy than to grow.”
So far there are very few case studies to show what the limits of growth might be. According to Petsky, the oldest long-term players – Yahoo! or Amazon.com, for example – have been able to smartly manage growth.
The stock market supports the exponential growth. “Priceline loses $30 million, but it’s worth $10 billion,” he says. “Without the market it wouldn’t have any more value than a small catalog company.”
Petsky feels the trend is still toward acquisitions. Noting that Amazon.com just bought a sporting goods firm because it’s a hot e-commerce category, he says: “One road to success is to establish leadership in a niche and sell as soon as Amazon.com comes buying.”
However, the Internet’s genius in finding partners and creating alliances goes beyond being site-specific. Real money also can be made by supporting the risk-takers.
“The nice thing about Internet entrepreneurs is that they’re open to the path of least resistance,” Petsky says. “They’re not too proud to outsource the back end.”
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