To buy or to build - there lies the rub

Feature

To buy or to build - there lies the rub

When faced with implementing an e-commerce project should IT managers purchase a dotcom or build in-house? Julia Vowler gets some advice from Robin Bloor

When it comes to decision making skills, the build-versus-buy dilemma has been a regular feature of the IT director's portfolio.

The pros and cons of either option are by now little more than routine when it comes to choosing whether to let loose the developers or put in a package for a new system. However, the build/buy dilemma is now being applied to a whole new ballgame - e-commerce.

As dotcom disarray implodes across the western world, that favourite old ad-man's gambit "there's never been a better time to buyÉ" can ring like a tempting jingle in the corporate ear. But should it be heeded?

"If you're looking to buy a dotcom there are quite a few sanity checks you need to run," warns Robin Bloor, chief executive of Bloor Research.

Foremost is, "The only reason to buy a dotcom is if it's able to do something you can't," he says bluntly. "If you have the people, the talent and the business plan then buying a dotcom is foolish."

Why? Because, says Bloor, there are an awful lot of totally dire dotcoms out there. He likens dotcom fever to the gold-rush fever which drove people to cross oceans to dig for gold when they had never held a spade in their lives. Two guys in a spare bedroom setting up as rootbeer e-tailers is the dotcom equivalent.

"Hundreds of dotcom companies haven't got a prayer," says Bloor. Except, perhaps, being bought by a misguided corporate.

So is it more likely to be skid row, rather than fast-track, when it comes to buying your way into e-commerce? Not totally, but finding something of real value to buy requires careful sifting.

"If you're interested in buying a dotcom, among other things you should be aware of certain criteria," advises Bloor.

First and foremost, the most valuable asset a dotcom can possess is its name. Look for a genuine brand, where people are drawn to the site by the brand name. "The trouble is," points out Bloor, "there are not many around. It is extremely difficult to get attention on the Web."

But how do you know if your prospect is a good brand? As Bloor points out, "You'll know it's a good brand if there are a lot of people coming on to the site irrespective of whether it's got a wacky name - www.hell, for example, gets one million visitors a month just because people are curious about what 'going to hell' is like."

But deciding whether the brand name is too "wacky" to be usable by a major corporate is another issue, he points out.

The next asset to evaluate, says Bloor, is the dotcom's IT engine. "You can buy a dotcom with a good engine," he says. And he doesn't mean the hardware. "If it hasn't got a software infrastructure it hasn't got a Web engine," he says.

Not all perfectly good Web sites have engines, however. Many are outsourced, which is not to say that you can't buy the dotcom. You just need to be sure what it is you actually get with the acquisition. Also, check whether it integrates, or needs to, with your existing technical infrastructure.

The third asset to evaluate is the dotcom's human resources. Without a doubt, good Web skills are still hard to find. "Buy them if they have good art skills and know how to build a site," says Bloor. And, of course, ensure they won't walk right out the door before the ink is dry on the contract.

The fourth asset to evaluate is the site's visitors and customers. "Sites are being sold for their lists, from e-mails to cookies," says Bloor.

The final asset a dotcom may possess is, surprisingly, money in the bank. It's OK to buy a Web site, allows Bloor, "if it's making a profit".

The trouble is, like the issue of brand equity, not many dotcoms are in profit to any extent. Even lastminute.com is reputed to make only 50p per buying customer, and is spending about £60 per customer acquisition, warns Bloor.

Unfortunately, profitable dotcoms cannot be picked up for a song, although their ailing counterparts may be.

But a profitable dotcom will have more of a golden glow about it. If ordinary businesses are traditionally valued at about 12 times earnings, a dotcom can expect multiples of 20 to 30 times earnings, says Bloor.

"A high street shop selling for say £500,000 would sell for five or six times that if it were a dotcom with the same revenues," he points out.

All in all, the case for buying a dotcom is not pressing. Even talent, argues Bloor, can be poached, not bought with the dotcom, and for less money. And the other key argument in favour of buying - getting to e-market faster - is highly debatable.

"Although not to be despised, absolute belief in first-mover advantage is stupid," he says. "If you've got a really good business idea you don't have to be on the Web in three months."

Growing up too fast can even be a disadvantage for bricks and mortar companies with established brand names if quality is compromised in the rush.

But while consumers may be tolerant of low quality dotcom sites, they will be far more judgmental of badly-presented, rush-job sites for familiar brand names.

So when it comes to dotcoms, the best corporate bet may well be a spot of DIY.

Shopping around for a dotcom

It is safe to buy a dotcom (for the right price), if it has got any or all of the following, says Bloor:

  • A good brand name

  • A good technical engine

  • A good talent pool

  • A good set of customer lists

  • A good profit

    Otherwise, build it yourself.

    Win the book

    We have five copies of Robin Bloor's new book The Electronic Bazaar to give away to readers who send us details of how their company is going about developing a dotcom. operation. The best five win.

    Please send your entry to: Ross Bentley, "Dotcom competition", Computer Weekly, Quadrant House, The Quadrant, Sutton, Surrey SM2 5AS


  • Email Alerts

    Register now to receive ComputerWeekly.com IT-related news, guides and more, delivered to your inbox.
    By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

    This was first published in August 2000

     

    COMMENTS powered by Disqus  //  Commenting policy