Thursday, February 24, 2011

Challenges facing Internet startups

Based on the Taxi Magic presentation and the case for next week, what do you think are the key challenges facing Internet startups as compared to brick-and-mortar companies?

Obviously, brick-and-mortar companies encounter several obstacles that Internet startups do not, but here, we discuss the other way around: the key challenges that Internet startups face compared to brick-and-mortar companies:
1. Harder to build trust
When people open a brick-and-mortar company, customers come and feel more secure doing business with them because their presence is known to several parties: property manager/landlord, county/city tax department, distributors, and so on. From customers' perceptions, brick-and-mortar companies also tend to stay long-term since it takes time to move away with  furniture and goods/products. On the contrary, customers tend to be more suspicious when browsing a website because the website can disappear in an hour without leaving any traces and customers have no way to track down if they lose money, need to return, or simply contact the company. As an example, Tim Csontos said they initially asked customers to give credit card info and no single person was willing to do that. If it had happened at a brick-and-mortar store, the chances that customers accepted that request would have been higher. Similarly, among the feedback from MusicJuice was "I do not trust the website with my money." This trust issue can have domino effect: I don't trust it, then my families and friends don't trust it, either.
2. More competitors
Brick-and-mortar companies do have competitors but usually within a specific region, there are no or just a few competitors. In contrast, Internet startups usually encounter more competitors due to:
- Internet is borderless, so competitors can be all over the world. For MusicJuice based in Toronto: competitors Sellaband from Amsterdam and Slicethepie from Berkshire.
- Internet businesses can be easier to be copied. Brick-and-mortar companies usually involve customer services and harder to imitate. For internet startups, if their business models are good enough, giant companies can copy and with their brand names and huge resources, they can beat those startups.
3. Unable to reach customers
Brick-and-mortar companies usually target on local people, So, they usually pick a great location with high traffic or in a shopping mall, so they get more exposure to local people. They can drop leaflets at residential homes to invite them to visit. For Internet startups, they need to deploy different marketing strategies. Taxi Magic resorted to well-known "tech people" such as the co-founder of Twitter and a person in San Francisco who has more than 1 million followers on her blog. It also managed to get voted among the top choices on Apple apps. They also offered free text messages for taxi companies to reach customers. MusicJuice depends on Google AdSense.
4. Website
Since this is the place that customers visit and decide if they want to do transactions with the company, it must invest significantly in design, making the website attractive and at the same time easy to navigate and take actions. The website performance, reliability, and security are also crucial. With limited cash at the beginning, the website development cost almost all of its cash, with only $5,000 left. Since there are millions of websites, it's very hard to design one website that stands out and attracts many people, both the look and feel and the activities. That's why MusicJuice got the feedback of boring website with few activities.