Home-based e-business - an option for the self-employed?

 

Abstract

Setting up a home-based e-business is an attractive option to many unemployed individuals, since the start-up costs are low and therefore the risks are lower than most conventional businesses. Home-based e-businesses are now very common and highly developed in N. America and Europe. However, it is less common in other countries, especially developing countries where options and support are far more limited. This study aims to find out whether setting up a home-based e-business is a viable option for self-employed individuals in Hong Kong .

In this paper, comparison studies are made between different home-based e-business opportunities available namely (1) promoting affiliate programs, (2) selling physical products, (3) selling soft/downloadable products, (4) selling services. In addition, comparison studies are made on the existing e-commerce supporting services between Hong Kong and overseas. The aim was to determine which type of e-business is most suitable for Hong Kong residents, and to see whether there are any major hurdles for Hong Kong in terms of supporting services. This paper also uses a participant observer methodology as much of the research was carried out in the course setting up a real profitable home-based e-business by the author.

The study finds that it is more difficult to set up a home-based e-business in Hong Kong than in the United States because there are fewer start-up options available for Hong Kong residents. There is also a gap in e-commerce supporting services between Hong Kong and the United States , although it has closed significantly in the past year. The study finds that the most suitable type of e-business for individuals in Hong Kong is selling physical products. Initially this can be carried out through auction sites such as eBay, but eventually it may be carried out through an online shop that can accept credit card payments in real time. Selling physical products is particularly attractive because it is easy to source products at low cost in Hong Kong , and efficient postal and courier services are available. Selling soft products and services are less attractive because of the higher demand in terms of technical knowledge and competency. Although almost completely risk-free, it is most difficult to earn a full-time income through affiliate programs alone because one would have to create web sites that attract a very high volume of traffic in order to generate a decent profit.

Setting up a home-based e-business is now a viable proposition for self-employed individuals in Hong Kong , as the author can attest to this. It is quite clear though, that a home-based e-business is not for everybody as a fair degree of knowledge and competence with the use of e-commerce resources is required , especially in the area of promotion. However, the ever-increasing amount of unemployment, and with the waiver of the business registration fees for 2002 and other incentives should encourage more people to set up home based e-businesses.

 

Chapter 1 – Introduction

 

1.1. Background

 

The Asian financial crisis in 1997 and the consequent effect on the global economy after the terrorist attack on US on September 11, 2001 has given Hong Kong one of the longest period of economic instability. The rapidly deteriorating external economy and domestic structural problems have made the Hong Kong economy suffer significantly despite the fact that there have been interest rate cuts since 2001. With slackened domestic demand and asset depreciation, deflation continued, further restraining consumption and investment. The unemployment rate in Hong Kong has reached to a high level at 7.7% in June 2002 [6] and was expected to climb to more than 8% by the end of 2002.

 

The situation is extremely worrying as the redundancies are not only limited to the low skilled workers under the typical economic restructuring that appeared in the early 90's. Many professionals, experienced workers and managerial grade people were involved in the recent layoffs. According to the figures released by the Census and Statistics Department [19] & [20] (June 21, 2002), vacancies fell considerably in March 2002 from a year earlier. For all the selected major sectors taken together, the total number of vacancies in the private sector dropped by 31%. Decreases were observed mainly in the manufacturing sector and the wholesale, retail and import/export trades, restaurants and hotels sector, as well as at construction sites. Analysis of major occupation categories revealed that private sector vacancies were mainly observed for associate professionals, clerks as well as service workers and shop sales workers. Vacancies for these three major occupation categories taken together accounted for 74% of the total. Job vacancy figures by major occupation category and by selected major sector are shown in ( Appendix 1) .

 

The Government of the HKSAR has tried to boost the economy by increasing jobs or encouraging people to set up their own business. Many unemployed people have no choice but to work outside the territory (mainly in China ), or to consider setting up their own business. However, as the internal economy is still weak and there are limited resources for most individuals. Building up a home-based e-business is an attractive proposition for many individuals since the initial investment cost is low and also the risks involved. Home-based e-business has been developed for quite a long time and is very popular in the US and European. However, the rate of adoption of home-based e-business is not that high in Hong Kong which is surprising considering that Hong Kong is a well-known international city, with a well established IT infrastructure.

 

``The government should trigger more jobs by formulating policies to enhance employment. It could improve the business environment by simplifying procedures and thus encourage more people to start up their own business ,'' Henry Tang [18], the new Secretary for Commerce, Industry and Technology said on June 25, 2002. The “Self-Employment Enterprise Scheme” [33] sponsored by the Hong Kong Jockey Club Charities Trust aimed to provide re-training program for the self-employed individuals. At present, it concentrates on the training of some labor-intensive work such as house cleaning, baby-sitting, beauty care or hair dressing. The encouragement of these occupations can only help the low-skilled workers but it cannot create initiatives for the unemployed professionals, experienced workers and managerial grade people. As there is a significant decrease of vacancies at the administrative level since 2000, it would be difficult for a laid-off professional to resume his profession.

There are few options for these individuals except to be employed overseas or self-employed. For those who do not want to take high risks and prefer to spend more time with their families, setting up a home-based e-business may be a more viable and attractive option.

 

1.2. Statement of the Problem

 

The advantages of e-commerce seems to be obvious but there are still a lot of reservations when individuals or companies try to set it up, either as an adjunct to their current business, or as a pure online operation. This is especially true in Hong Kong where it can be reflected by the low adoption level and low capability of e-business in the SAR region. Unless the key inhibitors behind can be fully addressed, the situation can not be improved.

 

1.3. Aim of the study

 

The purpose of this study is to examine the difficulties e-business start-ups face, identify the criteria for setting up a home based e-business. It also investigates strategies for running a successful e-business in Hong Kong and assesses the options available for a self-employed person to set-up a viable home-based e-business in Hong Kong .

 

1.4. Research Methodology

 

In this paper, comparison studies are made on the different home e-business opportunities available, and the existing e-commerce supporting services between Hong Kong and overseas, in order to explore the opportunities and hurdles of e-commerce in Hong Kong environment. For the purpose of this study, a home-based e-business is defined as business that is performed at home and is conducted through the Internet. Much of the research in this study was carried out in the course setting up a true home-based e-business by the author. In fact, since the end of the study, the business has now grown to four full-time and two part-time staff, it is no longer a home business.

 

1.5. Structure of the dissertation

 

There will be a literature review on e-business in chapter two. In chapter three, different opportunities available for home-based e-businesses will then be explored. In chapter four, the essential components which goes into a successful e-business will then be examined and discussed with regard to the different types of e-business opportunities. In the final chapter, the different types of e-business opportunities are compared with particular regards to the situation in Hong Kong and conclusions are reached on whether and what type of home-based e-businesses are suitable for Hong Kong residents.

 

 

 

Chapter 2 – Literature Review

 

There is a lack of objective literature on home-based e-businesses. However, there is a lot of promotional literature available online purporting to show how to set up an incredibly successful home based business with little investment in time and money. Needless to say, the majority of these schemes are either scams, or do not work anywhere near as well as the authors claim they do. This chapter will review the literature concerning previously mentioned issues and the attitudes and characteristics of the people in Hong Kong in relation to the adoption of e-business.

 

2.1. Entrepreneurship in Hong Kong

Hong Kong has been an entrepreneurial society .” (Yu, 1997) [39]. Hong Kong people are well known to be flexible, adaptable and willing to take risk. They have always been keen to start their own businesses, they would like to be their own boss instead of being an employee. The Hong Kong government also encourages this phenomenon; its policies encompassed an easy access to business, a relatively small public sector and free mobility of capital and human resources. Therefore, it is no surprise that no matter in a booming or weak economy, the number of new firms established each year has always out-numbered the failed one. It was revealed by (Yu, 1997) that both the numbers of enterprises and the company formation rates, after controlling for population size, were higher in Hong Kong than in the USA. A similar survey (Yeung, 2002) [38] also indicated that the number of establishments in all sectors and establishment-population ratios in Hong Kong has doubled every 7-10 years.

 

2.2. Entrepreneurs and Micropreneurs

However, most of today's home-based businesses were not started by traditional entrepreneurs, they were started by a new breed of entrepreneurs called micropreneurs (Leboreuf, 1996) [26]. According to Leboreuf, micropreneurs usually have a different type of personality from traditional entrepreneurs. They come from different backgrounds, have different values and go into business for totally different reasons. There are basically three major characteristics that distinguish the micropreneur from the traditional entrepreneur. Micropreneurs tend to be well educated and highly employable, many hold advanced and professional degrees. The decision to go out on their own is not thrust upon them but is rather a choice they make. The greatest incentive behind micropreneurs is not money, is the promise of personal freedom, so as to achieve a better lifestyle for them and their family. Micropreneurs don't take stressful risks because they don't have to. They will take calculated risk to start a home-based business with little or no capital. This means that they can choose opportunities with high potential payoffs and little to lose. In that sense, home-based e-business can be regarded as the most suitable choice for micropreneurs.

 

2.3. Home-based business or Micro-business

In the United States, almost all industries in the economy are beginning to use the Internet as a means of cost savings on purchasing, managing supplier relationships, streamlining logistics and inventories, planning production, and reaching new and existing customers more effectively. (U.S. Department of Commerce, 1998 According to the U.S. Small Business Administration report on e-commerce 1999 [32], the number of U.S. households that have a home-based business currently exceeds 12%. Home-based businesses represent about 18 percent of all homes with personal computers (PCs) and 22 percent of home businesses that have made an online purchase. The number of home-based businesses in the United States surpassed 20 million in 2001, and is expected to eclipse 25 million by 2003 (see table), according to the research firm International Data Corp. (IDC) [24].

Year

U.S. Home-based Business full-time, part-time ( in million US$)

1999

18.8

2000

20.3

2001

21.8

      2002

23.3

2003

25

Exhibit 1. Source: International Data Corp

The average household income of those with home businesses topped US$57,000 in 1998, says the (IDC). Nearly 8,500 new home businesses start every day, and there are no signs of a slowdown. By 2003, home-based business technology spending is projected to be $30 billion, and 71 percent of those businesses will be conducted online. ( Forrester Research, 1998 ). Home-based e-businesses has grown substantially in the United States , but this type of set-up is not very popular in Hong Kong despite its relatively high company formation rate each year. By comparison, most of the home-based businesses in Hong Kong nowadays are still confined to some early home businesses (Hot Home-Biz Directory) [17] such as private tuition, freelancer or direct sales which have a low adoption level of e-business.

2.4. Low Adoption Level of e-business in Hong Kong

  As most of the home-based e-business is small-scale enterprises that are usually run by 1-2 persons, these can be categorized as SMEs. Therefore, to study the activities of home-based e-business, it is worthwhile to obtain more detailed information on the behavior of SMEs in e-commerce by surveys and analyses that had been carried out by different sources. To be more comprehensive, surveys of SMEs practices and their attitude towards E-Commerce in US and European countries, Asian Pacific countries, People Republic of China and Hong Kong should be included. The analyses included the classification on the SMEs adoption levels and their capability levels of E-Commerce, the perception by SMEs of the Opportunities/ Benefits and the Inhibitors on E-Commerce and concluding remarks on the critical success factors that encourage the adoption of E-Commerce by SMEs.

Under the "Survey on E-business Adoption in Hong Kong" by HKPC and IMB (2000) [21], the deployment of E-business was classified into six levels ranging from level 0 to 5, representing "No Intention", "Show Intention", "Basic Adoption", "Prospecting", "Business Integration" and "Business Transformation" respectively.

 


 

 

 

 

 

 

 

 

 


 

Exhibit 2: Source: Hong Kong Productivity Council

Besides the relatively low adoption level of E-business, the transaction rate in the Asia-Pacific regions are also ranked low as indicated in the Gartner's Predictions [13] for "B2B"  Transactions (2000-2004), 39% out of 7.29 trillion world transaction belongs to US market, and 32% from Europe. The Asia Pacific regions only account for less than 14% of the total volume. The following charts indicate the distribution of the total world e-commerce revenues (B2B & B2C) predicted from 1999 to 2000

In the survey of "KITE" (1999) [25], the opportunities offered by E-Commerce are simply split into cost savings, timesaving and quality benefits. In Cost Savings Factor, the respondents from both the survey of "KITE" (1999) and the PricewaterhouseCoopers' report (1999) [31] indicate that "Cost" is not a key driver for SMEs to engage into E-Commerce. Rather, the respondents seem to be interested in time and quality benefits which include the quicker response to market conditions, higher flexibility, gain of access to new markets, improvement in customer service and competitive position.

2.5. Barriers in adopting e-business in Hong Kong

 

Regarding the factors inhibiting the adoption of E-Commerce, the major concern perceived by SMEs varies between different surveys. In the PriceWaterhouseCoopers' report (1999) [31], the most significant barriers to E-Commerce adoption for participating SMEs in APEC member economies are the relatively low use of E-Commerce by both customers and suppliers.

In the survey "KITE" (1999) [25] that focused on the US and European firms, most respondents cited costs as the primary obstacle, slightly outweighing security and technology concerns combined. SMEs' investment costs constitute typically a greater proportion of revenue than large firms. For example a web server, database and leased lines plus case management tools, or a third party "virtual office" service run by an Internet service provider can be very expensive for a small company.

 

In Hong Kong, although the "Survey on E-business Adoption in Hong Kong" by HKPC and IBM (2000) [22] shows that the major problems among local SMEs in adopting E-business are lack of financial resources, lack of skills required and lack of human resources. It is worthwhile to be aware of the Chinese Cultural factors as raised by Deng Shoupeng [9] if the E-business involve domestic market or intend to explore and access the market in China after it enters the WTO.

 

Summary

Although Hong Kong is regarded as an entrepreneurial society, e-business has not taken off in Hong Kong . Most companies are still focusing on traditional business as reflected by the low adoption level of e-business for the SMEs in Hong Kong . In the next chapter, the business opportunities that are available for home-based e-businesses will be explored and discussed.

 

Chapter 3 - Opportunities available for home-based e-business

 

There is a perception that a home-based business involves low skilled and undemanding work that is most suitable for housewives or retired people. This may be true for the early home-businesses such as sub-contracting work of factory, house cleaning, baby-sitting, beauty care or hairdressing. With the advent of high technology and the easy access to the Internet, an individual is able to integrate all necessary processes and compete with large companies strategically in the global market. There are lots of opportunities in e-commerce where one can develop a professional business with one's knowledge and creativity.

There are lots of opportunities that can be made via the Internet, those which are available for home-based e-business, by the author's interpretation, can basically be defined into four categories: (1). Web publisher (2) Sells physical products, (3) Sells soft products, (4) Provide Services. These categories are not mutually exclusive in that many online businesses derive income from more than one category. For example, an online shop whose primary business is to sell MP3 music files may also sell MP3 players, and sign up as affiliates to sites that sell other electronic items. For the purpose of simplicity, this study will examine the 4 categories as stand alone businesses. Each category has different requirements of back-end services and technical expertise. In this study, each category is examined closely with two examples selected, in order to assess which are the best options for individuals based in Hong Kong .

3.1. Web Publisher

Many large Internet companies such as Yahoo, MSN and Netscape derive some or most of their income from publishing. A published may earn income through the following means:

•  CPM – the advertiser is charged a rate for each 1,000 banner impressions. The typical going rates are from $0.1 to $10.00.

•  CPC – the advertiser only pays when a click to his advert occurs. The most well-known CPC program is Google Adsense. The actual amount paid per click is highly variable and may vary from $0.01 to $50.00

•  CPA – the advertiser only pays if a click to his advert results in a sale or lead. Typically, the payment rate is in terms of % of the sale which varies from 3 to 70%.

•  Selling text links – the advertiser is charged a fixed rate to put a text link on the publisher's website for certain period of time. The monthly rate for text links generally varies from $5 to $100.

Taking CPM, CPC or CPA adverts provide a means for small web site owners to earn money by taking advertisements on their web sites. It is almost completely risk free in the monetary sense and is thus particularly attractive to persons who may wish to work at home. Two options will be examined below. In the first option, the individual acts as a publisher where he provides a web site that takes in advertisements. In the second example, he signs up as an affiliate for a shop-front program that provides a ready-made web site for him to promote.

 

3.1.1. Publisher

A publisher is a web site owner who publishes content on the Internet. He may offer advertising space to prospective advertisers. In general, web sites that are not well known and do not have a high volume of traffic start taking advertisements through joining affiliate programs, whereas larger and well-known web sites take in advertisers directly and generally demand a higher rate. Advertisers who want to buy advertising space on web sites may pay for impressions, click-through, leads or sales [30]. An impression is the display of an advertisement, text or graphics. A click-through is when someone clicks on the advertisement and goes to the sponsor's web site. A lead occurs when the person who clicks through gives contact information, such as name and email address. Companies may also offer to pay commission on sales, either a set amount per transaction or a percentage of sales for each sale generated by a click-through or over the course of a customer's lifetime with the company. Each affiliate program states how much it is willing to pay for which service. For example, one may pay $.01 per click-through while another may pay $1 per lead, or both [1].

To establish an affiliate program, a text or banner link is placed onto the publisher's web page that leads to the advertiser's site. Traffic referred to the partner site is tracked either by the partner site itself or through a third party such as Commission Junction [7]. Depending on the agreement with the advertiser, the publisher will be rewarded for hits, leads or sales with a certain amount or percentage-wise per sale. It could be a very time-consuming process to identify, contact, and set-up an affiliate program with various advertisers. It would be easier to do this through a third party such as Commission Junction, Link Share, bCentral. Merchants and affiliates are brought together in a 3 rd party structure that organizes the agreements, monitors the operation, and disburses the funds.

When an individual has decided to attempt to earn a living by being a publisher, he should first to create a web site that can attract high volume of first time and returning visitors. Generally, forums, interest groups, chat rooms or hobbies sites are comparatively easy to set up and be able to attract high traffic of target groups and have a higher potential to generate actual sales. Accepting of advertisements on a web site inevitably affects its image to its visitors, people may find it very disturbing especially with pop up ads, flash banners or some ads that stop you returning to the original window. Therefore, a publisher should carefully select the ads for his web page. Basically, it is better to choose some ads that are related to the theme of your web site and are also more effective in generating click and sales. There are a lot of affiliate programs on offer with some offering a very attractive rate of remuneration. However, many do not provide a means to the publisher of tracking his performance and entitled remuneration. Therefore, one should always select well-known advertisers such as Amazon.com. Another way to promote affiliate programs would be through an opt-in mailing list that the affiliate has built up. The affiliate would typically e-mail members on his mailing list making recommendations on merchants he is affiliated to. Provided that the mailing list is large and targeted, the affiliate can often generate a lot of conversions if this copy convincing enough. Another method would be to buy advertisements from search engines such as Google and Overture and direct the traffic onto the merchant's site. This may sound an ideal way to earn money as it does not even involve making a website or constructing a mailing list. Certainly, some affiliates have reported huge earning using this method. However, the financial risks are quite high since advertising is quite expensive.

The other option would be a third party agent service like Commission Junction [7], which it brings many affiliate programs together in one place. Both publishers and advertisers have the advantage of tracking many affiliates or affiliate programs together. The publisher simply selects the programs he wishes to join and the agent will make the necessary arrangements. Commission Junction is widely regarded as the best agent on the market at present and therefore it is examined in more detail. Publishers from all countries, including Hong Kong may sign up with Commission Junction. Payments are made once a month that consists of all the earnings from the different affiliate programs that the publisher has joined. The advertisers pay all the agent fees.

 

Estimate of publisher earnings

A prospective publisher should estimate the amount of traffic required for his site to generate enough hits or sales in order to make a desired income. The below is an estimate of the potential earnings that can be derived from CPM, CPC, and CPA programs for a website with 10,000 page views per month. In the case of a CPA program, an average order size of $50 is assumed.

 

              Impressions   Click-Thro Rate      Sales      Commission          Earnings 

CPM           10,000                            $0.2-10                         $2-100

CPC           10,000                2%                      $0.01-0.5           $2-100

CPA           10,000                2%           4          5-75% per sale      $2.5-150            

Text Links         -                 -           4          $5-100              $20-400                                                   

 

From the above figures, it seems apparent that the payout from CPM, CPC, and CPA are similar but in practice, the actual CPC and CPA earnings depends very much on the site. In the case of Adsense, the payout rate for clicks differs dramatically depending on the actual keyword. The variation is even greater in the case of CPA programs. In general, the higher the commission rate, the harder it is to generate a sale. The publisher may wish to drive sales by advertising their site but this would increase the overheads of the business. Morover, since the margins for CPA programs are often thin, it is quite possible that the publisher may lose money especially if they are not experienced. However, affiliates can also promote merchants by means through their own opt-in mailing list. However, this is not easy to attain a large mailing list of committed invidividuals.

Selling text-links actually does not depend on the traffic that a site receives. Rather, it depends mainly on the “Google PageRank” which is a method used by Google to rank sites. Buyers of text links hope that it will help their sites to obtain a high PageRank in return and possibly more traffic from Google and other search engines. However, it is apparent with the recent changes in Google's algorithm that “PageRank” has become much less important. To maximize income, it is possible to put more than one program on the site e.g. join a CPM program, join adsense, promote affiliate programs and sell text links at the same time. Therefore it is quite possible to earn up to $500 with a website with only 10,000 page views per month.

Generally, it is not difficult to generate 10,000 page views per month for a normal web site with a moderate level of promotion. However, if one wants to go beyond 10,000 hits, it will require more effort and creativity to attract recurrent visitors. To earn a full-time income, one would have to operate one or more web sites with more than 100,000 page views per month which is extremely difficult to set up and daunting for the beginner. The alternative would be to set-up multiple sites with 10,000 or more per month. Besides being proficient in web design, the webmaster must also be proficient in promotion. Affiliate programs are now well established as an integral part of e-business in N. America and Europe but not so in Hong Kong . Therefore, prospective publishers must sign up with advertisers that are based overseas. One approach is to build up hobbyist web site targeting Chinese cusotmers, e.g. on watches, stamps and models, and have links to the appropriate retailers overseas. This approach would however be only successful if the items are more expensive or not available locally. Another approach that is taken by many is to set up a free adult website with a soft content with links to paying adult sites with a much harder porn content or retailers in sexual accessories.

Setting up a high-volume web site is not an easy matter for the beginner. A high degree of knowledge competency with the Internet, and also with the content of the web site is required in order to become a successful publisher. To earn a full-time income, several web sites may have to be set-up. However, once a web site becomes well established, advertisers may come to the webmaster directly offering much higher remuneration rates than would have been otherwise obtainable through the usual affiliate programs. Advertisers are often willing to pay rates of up to US$35 per 1,000 impressions in comparison to the figure of US$ 0.2 – 10 [1]The degree of monetary risk involved in setting up as a publisher is much lower compared to other types of e-business. The only risks involved are amount of time and money spent in setting up the website and promoting it.

New Developments – Google Adsense

Important developments have occurred that made affiliate program and publisher a much more viable preposition. The appearance of Google Adsense has revolutionized the market for publishers. Google Adsense is a CPC program and of the highest paying programs available, with effective CPM ranges from $0.5 to $4.00. Morover, since Google is the largest advertising agency on the Internet, there is usually a lot of advertising inventory available, unlike other networks. The advent of Adsense has enabled many webmasters to go full-time. However, the income is highly variable. Again, it is possible to supplement the Adsense income by putting CPM and CPA ads on the same website as well. The downside is the number of clicks and the income generated is highly variable. Other programs are becoming available such as the Yahoo network and BrightAds by Kanoodle.

 

3.1.2. Complete Website provided by the merchant

Another twist to the usual affiliate programs is the emergence of shop-front affiliate programs such as V-store.com [36] that allows people to break into e-commerce quickly and simply at minimal risks. Anyone can set up a professional looking retail site as if it were his own at no cost. Up to unique stores can be created per unique e-mail address and options are available for persons to select the background and colour schemes. V-store provide millions of products in seven categories which includes recognized brands, such as SONY, Pierre Cardin, Nintendo, Sega, and Philips. Once the store is created, you are responsible for marketing and promoting the store that will attract visitors to your page and get them to purchase goods. In return, you get a 2-15% commission from each transaction depending on the individual product purchase. V-store will take care of the actual sales, shipping and customer service. Therefore the only risks are the time and money spent in promoting the site.

In theory, the concept of Vstore appears to be attractive but in practice, there are a lot of problems that have led to a lot of complaints from people who signed up as members. The prices of products carried by Vstore are slightly higher but is still broadly competitive with other well-known Internet retailers such as Amazon, cdnow or Etoys etc. However, it was commented by other members that some of the “hot items” are frequently out of stock. No telephone number is given and all communication to Vstore has to be done by e-mail. If a member fails to generate any sales in six months, his web site will be automatically shut down despite the effort and money that the member may have spent on promoting that shop. It appears that much of the business that Vstore generates is from the members themselves or their friends and family. There are very few reports of members making a decent income from Vstore.

Another alternative is to make your own website from a datafeed provided by a merchant. The datafeed would contain a catalog of the products carried by the merchant. It is possible to use a software program to generate a new complete website from the datafeed and this can be done in minutes. This tool would make affiliate marketing easier for many people.

 

3.2. Selling Physical products

In this scenario, physical products are sold through the Internet, either through auction sites such as eBay [11] or through a fully-fledged e-shopping web site. Amazon.com is an archetypal e-shopping site. It started selling books initially but is now a fully-fledged online department store. Selling physical products will come as second to many in Hong Kong . Hong Kong has been a major trading port with imports, exports, and re-exports accounting for an important part of its GDP. Its close proximity to China means that it had access to one of the greatest sources of manufactured products in the world. Its proximity to other major manufacturing nations in Asia, such as Japan, Korea, Taiwan, Singapore and other Asian countries means that there is an abundance of imported products from these countries which are suitable for re-export. Besides having access to an abundant supply of manufactured goods, the postal and courier services from Hong Kong are highly efficient which make it highly suitable as a base for mail order companies that ship internationally. In this section, selling physical products through online auctions and selling them through a fully-fledged online shop are examined.

 

3.2.1. Auction Sites

The simplest way to sale physical products online is to list them in an auction site such as eBay [11]. It is not difficult to make a profit from buying and selling in auction sites but one will need to do some research. It is better to either select some rare item that people are willing to bid at a higher price, or some hot items that offer a lower than market price. The main advantage of selling through auction sites is that very little technical knowledge is required. One does not even need a web site or carry out other forms of promotion. The only requirement to sell through an auction site is a valid e-mail address. However, the way that the item is presented i.e. pictures and description, may affect the final price realized by the auction. Many traders sell their products through auctions exclusively, whereas others use auctions as means of generating traffic to their site. Traders can also use auction sites to test the market response to individual products.

eBay [11] is by far the most popular auction site and is an online marketplace that creates a powerful platform for the sale of goods and services by individuals and businesses. There are millions of items across thousands of categories for sale on eBay and it is an easy to use auction site. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Sellers have to pay fees for listing their products and selling their products through eBay. Fraud protection is provided by eBay up to a value of US$250. There are a lot of options and strategies available for selling on eBay and other auction sites in terms of setting the open bid price, whether or not to set a reserve price, multiple item auction, and to pay more to eBay for extra exposure. Which is the best approach depends on the individual product and experience has to be gained through trial and error.

The charges levied by eBay on the seller are quite high, especially for low value items. If the seller chooses to accept payment via credit card through PayPal or other payment processors, then the final fees could be as high as 10% for items below US$25. Moreover, prices realized through eBay are usually at a marked discount to comparable products sold in online shops. Therefore the selection of the products is paramount to success in eBay. In general pre-owned items tend to do better than new items as pre-owned items have hard to compare prices. Collectible items such as pottery, porcelain, old toys or watches also do quite well on eBay.

A winning bidder or seller in an eBay transaction can leave feedback for other users. This is the only means by which a prospective buyer can judge the reliability of the seller. These comments can be positive, neutral, or negative, depending on your experience. Every eBay member has a feedback profile, this is an important detail when it comes to avoid being cheated upon. Therefore, it does take time for an individual to build up his reputation on eBay.

Individuals who wish to sell a quantity of product will use Multiple Item Auctions (Dutch Auctions). However, one has to be resident in the U.S. or have a feedback Rating of 50 or above. This makes it difficult for newcomers to eBay in Hong Kong who wish to sell a large quantity of a particular item in one go. The US$250 guarantee provided by eBay against fraud is vital as a confidence building measure for both sellers and bidders. Recently, eBay acquired PayPal, which is the most commonly used means of payment at auctions. This should lead to an enhancement of the service provided by eBay.

 

3.2.2. Online Shop

 

The most important decision is in selecting the product for sale. Products that sell well on the Internet are usually either rare, or at a marked discount to street prices. They should be easily recognizable to the customer so that he will know what he is buying without seeing and handling the items, unlike jewelry and clothes. The items should preferably be small and light in weight so that they can be posted easily. The price of the product should preferably be between US$20 to US$250, because if the price is too low, then it would not be worth the effort as substantial time is required in processing the order. Conversely, if the price is too high, the risk to the retailer is increased. Moreover, many prospective customers are unwilling to spend large amounts of money online because of fears over credit card fraud.

The advantages of running an online shop is that it markedly diminishes the need to keep a large inventory of products. Provided that reliable suppliers can be found, it is possible to operate the business on a just-in-time inventory basis so that goods are only ordered from the supplier when there are actual orders from customers. However, more often than not, suppliers do require their customers to keep substantial stock and thus a fair amount of risk. There is also a certain amount of risk from orders lost through the post. In the author's experience, the rate is well less than 0.5% for orders sent by registered mail but substantially more for those that are not. Orders sent by courier reach their destinations much faster and are less likely to be lost, but are much more expensive in terms of shipping costs. There is substantial risk arising from credit card fraud. In general, web sites that sell items with a broad appeal that can be easily resold e.g. cellular phone and flash memory are much more susceptible to credit card fraud. Whereas those that sell products to professionals are much less susceptible. However with practice, it is quite easy to detect the majority of fraudulent transactions.

Another possibility is to use drop-shippers i.e. order from wholesale companies who will drop-ship to your customers. The advantage of this approach would be that there is no stock to carry and thus no financial risk of unsold inventory. However, the suppliers normally charge a high price for drop-shipping and thus the profit margins would be lower. Moreover, unless the drop-shipper agrees to use the merchant's own company logo, there is a chance that they may steal the customer. Many users have also complained of a high entry fee charged by drop-shippers and have even been scammed in the process.

 

3.3. Selling Soft Products

Soft products are those that can be transmitted directly through the Internet to the buyer after payment is made. It can be in form of graphic images, documents (eg. ebooks), software programs, music (MP3 songs or even mobile phone ring tones), games, movies or pornographic photos and videos etc. Selling soft products through the Internet appears to many as the perfect business. The business can be based anywhere in the world and there is very little maintenance i.e. there are no articles to post, no services to provide, and unlike affiliate programs, little maintenance of the web site is needed. Indeed adult web sites are probably the most profitable segment.

The main disadvantage of selling soft products is that the merchant is much more liable to credit card fraud. It had been reported that as much as one-third of credit card transactions through site selling soft products are fraudulent. Although unlike physical products, there is no monetary risk in losing the product, the merchant is still liable for a chargeback fee of up to US$30 per transaction. Moreover, sites where a lot of chargebacks occur are liable to have their accounts terminated by the payment gateway provider. In this section, two opportunities will be reviewed: selling ebooks and setting up an adult site.

 

3.3.1. eBooks Re-seller Scheme

An eBook is a book published in electronic form. It can be downloaded readily from a retailer web site after payment by credit card. One can either create an eBook, commission one, or buy reseller rights from others. There are many ebooks re-seller programs available in the market. Most of the ebooks for resell tend to concentrate on business opportunities although there are others that deal with popular topics such as relationships, keep fit, and self-improvement. After surfing extensively through the web, the author found a particular e-book re-seller package that is going from US$10 to US$99 [12]. One of the web sites is shown as follows: There are a total of 61 books, the majority of which deal with e-business opportunities. It is quite clear that it is the same scheme being offered again and again by people who have signed to it. Therefore it appears to function like a pyramid or multi-level marketing scheme where only the first few individuals are expected to make any decent money.

 

3.3.2. Pornographic Site

Although it may not be ethical to run a pornographic site, it is no doubt that it is by far the most profitable e-business. According to an unofficial investigation, Hong Kong people spent most of their time on adult site when they use Internet than anywhere in the world. In April 11, 2002 edition of Next Magazine, it had reviewed how a young man made make a fortune by running an online adult chat room in Hong Kong. The registered member of this chat room has grown to over 70,000 members in two year's time. The site offers online chat and real-time streaming videos of young ladies in a state of undress. Obviously, setting up a site of this sort requires a great deal of expertise. The bandwidth demand on the server would be enormous and one may have to buy a dedicated server. Setting up this sort of business in one's home may quickly lead to complaints by neighbors and potential trouble from the underworld. Another possibility is to construct a more passive site that consists of streaming videos that are not in real-time and also still images. Most frequently, instead of making or buying one's images and videos, they are usually stolen from other pornographic sites. It is also possible to act as resellers for established pornographic sites. As in the case of Vshop, the reseller is given a web site that he has to promote. More often than not, this is done through unsolicited e-mails or other unsavory means.

Although potentially carrying the highest rewards, running adult web sites carry a certain amount of risk. First and foremost, web-hosting company charge many times more for adult sites so that it may be more worthwhile to buy a server. Secondly, promotion of adult sites is much more difficult because the competition is so cutthroat. The use of unsolicited e-mails is the rule rather than the exception as are a number of other unethical techniques, like copying the contents of well-known non-adult web sites and have it redirected to the adult web site. Not to mention the possible legal ramifications since piracy and illicit activities may be involved. Therefore although the potential rewards are very high, this is clearly not a good proposition for most people.

 

3.4. Services

Hong Kong is services based economy to many, offering services through the Internet is an attractive preposition. A broad range of services are available through the Internet nowadays e.g. financial, medical and legal advice, stock brokering, real estate, travel, web design and secretarial services. Needless to say, not all of these opportunities are suitable for everyone who wants to start a home business. Some require a large amount of investment whereas others require highly specialized skills. However, even if one does not have any professional knowledge or capital or connections to a particular service industry, it is still possible to enter the business through re-seller schemes. In this section, two different home business opportunities will be examined.

When choosing a service business, it would somehow limit your income potential. First of all, you have to spend most of your time completing the chores you're offering your customers. This leaves very little time for advertising. However, if you want your business to grow, promotion should always be your main concern. The second reason is that you'll have limitations on the number of customers you can handle. If you hire people on the job, you will have to train them so that they can offer the same level of service to your customers.

 

3.4.1. Travel Agency in a Box

This program is offered by Global Travel International (GTI) [16]. One can act as an outside agent when he is paying a joining fee of US$495 (the annual renewal fee is US$99). GTI would provide you with a training manual and most importantly, a photo ID with Global's IATAN number. (IATAN stands for the International Association of Travel Agents) . This number can earn you discounts on hotels, car rental agencies, cruises, and commissions on airline travel. An outside agent can earn up to 50% GTI commission plus steep discounts on his own travel packages. Agents can also receive a referral fee between $100 to $150 per each referral depending upon the current promotion for every new agent that he refers. It is claimed that with Travel agency in a box package, anybody can become a full-time travel agent. The independent agents do not carry out any actual booking themselves, all orders are referred to 120 full-time consultants in one of several departments such as domestic travel, international travel, cruise, packages and tours, group and meeting planning, and corporate travel.

Although touted as a potentially profitable home-based business. It is very difficult to make a decent amount of money. Besides the high joining fee, each agent has to pay an annual renewal fee (US$99). According to an article in the New York Times [35] on October 24, 1999, only four agents have earned more than US$5,000 in 1999, roughly 1 in 6,500. Therefore, this program is more suited to owners of small and mid-size businesses who wish to cut down the traveling costs for their staff. Indeed the biggest customers are often the agents himself, his friends and family. Therefore it appears that Travel Agency in a box operates in a similar manner to Vshop, where many members end up being the customer. (GTI)[16] accepts application all over the world. At present, it employs some 40,000 agents in 21 countries. However, since this is a US based company, it may not be able to offer the same discount for travel package outside the country. This is surely a disadvantage to overseas agents. Nowadays, because of the keen competition, the prices for some advance-purchase fares inside US (available to anyone) are already lower than the prices from the GTI. (The New York Times on October 24, 1999 ).

 

3.4.2. Web Hosting Re-seller

Web hosting re-selling is often touted as one of the basic stepping-stones into a home-based e-business. It allows anyone to enter this fast growing market without having to make expensive and highly risky investments in buying servers and data centers, and be involved in the upkeep of the equipment By signing up as a reseller, one is able to start a web hosting company quickly. Most of the time, it is not possible for prospective customers to know whether he is buying web space from a reseller or not. Web hosting services are often offered in conjunction with allied services such as search engine submission and web site design that could bring in extra revenue.

There are lots of re-seller plans for one to choose from in the market, and the prices are highly variable. Some hosting companies may charge a fixed fee for a fixed or unlimited number of domains, whereas others charge a fee for each domain. The choice should be made carefully because it could bring disaster should the need arise to switch to a different hosting company. All your clients' data may be affected or lost during the transfer. Moreover, your clients will not be amused if their site goes down regularly. Some web hosting companies such as donhosts.com [10] and fasthosts.com [15] offer unlimited domains, unlimited web space, and unlimited e-mail accounts for a very low fixed monthly fee of GBP 35-49. In theory, these accounts offer unlimited potential for profit: a reseller based in Hong Kong would be able to undercut the prices charged by all local web-hosting companies. However in practice, there have been a lot of complaints about their services and business practice. Accounts are often shut down suddenly without notice because the hosting company felt that the account was consuming too many resources. In order to have the account re-opened again, the reseller is asked to pay an exorbitant fee. A more reliable bet would be reseller schemes that offer much less on paper but ones that guarantee a 99.99% uptime. However, the potential profits would be much less. Therefore it is quite true that one gets what one pays for in purchasing reseller schemes.

 In selecting a web hosting re-seller program, there are two major criteria other than price, capacity and speed, these are the up time guarantee and the technical support. If your clients' web sites are always down, it will surely affect their business and lead to dissatisfactory. Web hosting companies that can provide an up time guarantee are more reliable and can save its re-sellers a lot of potential trouble. Since web hosting is a service business, it will inevitably get a lot of customers' requests and inquiries. If you are a re-seller with little technical knowledge in this field, it is better to choose a main host that can offer 24 hours technical support. Some host can even provide an unbranded support center where they can answer all technical inquiries directly from the end users. One should also be aware of the fine print in any re-seller agreement, such as restrictions on the web sites that can be hosted, bandwidth use, and the right for them to terminate any account without notice.

Summary

There are many e-business opportunities available for home businesses. They are broadly be divided into joining affiliate programs, selling physical products, selling soft products, and services. The requirements of which vary widely depending on the particular business. In the following chapter the essential components that goes into a successful e-business will be examined and discussed with regard to the different types of e-business opportunities.

 

Chapter 4 – Essential components of e-business

 

In this chapter, the various components of a successful e-business will be examined with respect to the requirements of the different e-business opportunities in the previous chapter, and also to the situation in Hong Kong . The basic components described below apply to all types of e-businesses that require a functional web site. The basic elements of a successful e-business can be divided into:

 

•  Technical aspects - (a) web site design, (b) web hosting, (c) carting system, and (d) payment processing

•  Strategic aspects – (a) promotion and (b) customer service management.

 

4.1. Technical Aspects

 

•  Web site design

 The design of the web site is very important in order to give a favorable first impression to prospective customers. If the potential customers get an unfavorable experience at the site, they are unlikely to make a purchase at your site. A virtual shop web site should be designed in the following manner in order to attract and retain more customers:

•  Easy to navigate - The web site should be user-friendly and easy to navigate, customers are able to access to any page and accomplish whatever they want within three clicks. There are no deeply buried pages. As a result, shoppers will find this site very easy to use. This site is also easy to maintain where products or prices can be changed quickly.

•  Quick download time – research indicates that 80% of web users cite download time as the number one problem (Terry Sullivan, 1999). Most customers nowadays are still connecting to the Internet via slow modems and recent studies indicate that slow-loading web sites cause online consumers to abandon up to 50% of online transactions (Keynote – http://www.keynote.com) . A web site should be clean, simple and direct, with no fancy element such as whistles, glitz, moving words and flash animation. There should be no excess graphic and the resolution of all necessary photos is reduced to a minimum so that the loading time of each page is only a couple of seconds.

•  Clean and accurate product information and presentation - Since customers cannot actually see, touch and feel products in person, the presentation must be clear and visually accurate. All products are described in simple English with clear specifications and photos. It is better include a FAQ section in its Web site so that most of the common questions were already answered in advance, it also save a lot of labor hours to answer repeated questions.

Although designing a web site could be daunting for the beginner, professional help is readily available in Hong Kong at a low cost, and shop-front solutions are now readily available (see TURNKEY approaches below)

•  Web hosting

  Once the web site is designed, it needs to be hosted with an Internet Service Provider. There are basically three options on web hosting. The first choice is to buy one's own server but it is very costly both in initial hardware, software and maintenance, and therefore not suitable for a small home business start-up. The second choice is to use a free web hoster. There are a lot of free web-hosting services on the Internet but in return, most of them require placing some form of advertisement on your site. These could be quite disturbing to the potential customer and affect the image of the web site. Besides, the performances of these free web-hosting services are often unstable, and can seriously affect the business should the hoster go down. The third choice is to rent space on a paid web hoster. All it requires is to pay a monthly fee and there are technicians to set up and maintain your server regularly. Many web-hosting companies have a 99.9% uptime guarantee and this could be critical for success.

The standard and charges of web hosting service providers varies greatly in the market. Generally speaking, those from the developed countries such as United States , United Kingdom and Hong Kong are very reliable. The charge range from a few US dollars to several hundred dollars per month, depending on the services you choose. Normally, for a new start up small business, the package with minimum services is good enough and additional services can be added on later. In selection of the service provider, make sure that it has adequate space, bandwidth, reliability, knowledge and capability to handle a fully functional e-commerce site. In general, the author would recommend a free-hosting company in the initial start-up phase, but switch quickly to a paid web hosting company once the business takes off. The following is a comparison on free and pay web hosting services:

 

 

Comparison of Free Web Hosting & Pay Web Hosting Services

 

Free Web Hosting Service

Pay Web Hosting Service

Poor Services - web site can be shut down without any notice.

 

Good Customer Services

No Data Transfer Service

 

Have Data Transfer Service

Not as Reliable- no up-time guarantee

 

Some plans have up-time guarantee

Little or No Technical Support

 

 

Have Technical Support, some are 24 hours and with telephone support

No control of advertisements (distracting)

 

No compulsory advertisement

Loading time is long as the resources are usually shared between many users

 

Loading time is fast because there are fewer users to share resources

Normally will not host domain (only sub-domain)

 

Can host your own domain

(Exhibit 17)

Source: researched and analyzed by the Author

•  Carting system

  It is desirable for online shops to have some sort of carting system that allows prospective items to be added so that the total price including shipping is calculated. On completion of the order, the merchant will then be notified of it by e-mail. The orders can then be downloaded into the merchant's database. Besides calculating the total costs, some carts offer other features such as discount coupons, mailing list, and affiliate tracking. Although not essential for sites selling a small number of items, it is nonetheless highly desirable and is obligatory for sites for selling a larger number of items. There are two types of carting systems available; first party and third party carts.

•  First Party – The cart software resides in the same server as the web site. The cart software is either purposefully written for that particular web site or purchased from a third party. Examples of which include Miva Merchan, Actinic OS Commerce, and X-cart Many of these proprietary carts come with a shop-front (online catalogue) system that allows the webmaster's to display his products easily in a professional manner, thus making the design process of the web site much easier. Many of these shop-front packages are offered as a TURNKEY approach that includes web hosting, shop-front/cart.

•  Third Party - The cart itself is hosted at a remote third party hoster. Examples of third party carts include 1shoppingcart.com [40] and Mal's e-Commerce (mals-e.com) [27]. One has to sign up and pay a subscription fee for the service.

The vast majority of online shops opt for first party rather than third party carts. In general, first party carts are more difficult to set up (except for TURNKEY solutions) but there are usually no recurring charges once the cart had been set up. Third party carts are usually easier to set up and are more flexible. However, the merchant would be very dependent on that system; should the servers of the third party cart goes down, the cart would be inoperable. The author consulted several web hosting companies in Hong Kong and it appears that cart software tend to be purposefully written for a particular web site. This is probably the most inflexible and expensive approach and would make the merchant totally dependent on the web hosting company.

 

Comparison of (4) Different Carting System:

 

 

3 rd Party

1 st Party

TURNKEY Storefront

Custom Designed

 

Examples

1shoppintcart.com

Mal's e-commerce

Dansie Cart [8]

Clickcartpro[5]

Clickandbuild [4]

Worldpay [37]

Large shopping sites such as Amazon.com

Ease of set up

 

Easy

Medium

Very Easy

Difficult

Flexibility

 

Very

Medium

Low

 

Low

Catalogue display of products

 

No

Yes/No

Yes

No

Expense

 

Medium

Low

High

Very High

Dependence on hosting company

 

No

Yes/No

Yes

Yes

Dependence on third party server

 

Yes

No

No

No

(Exhibit 18)

Source: researched and analyzed by the Author

 

4.1.4. Payment Processor

It is essential for an online business to have a means of accepting payment from its customers, especially credit card that accounts for over 90% of transactions carried through the Internet. It is in this area that e-businesses in Hong Kong is at the most disadvantage compared to North America and Europe . However, the situation has vastly improved in the last year with the availability of PayPal and also several payment gateways that will accept merchants based in Hong Kong . Previously, a merchant based in Hong Kong would have to open a merchant account with a local bank that could be very difficult and expensive. The merchant would then have to seek authorization from the bank by phone for each individual. This is a rather tedious process and adds significantly to the labor time. It is virtually impossible for a home-based business to open a merchant account with a local bank as a deposit of up to US$100,000 is required and even then, there are no guarantees that the application will be accepted. Listed below are the options available for e-businesses in Hong Kong to accept credit card payments.

 

(1). Escrow Agency

An escrow service receives money from the customer. It then authorizes the merchant to ship the order. The money is released to the merchant once the customer had indicated that he has received and is satisfied with the order. Examples of escrow services include escrow.com [14] and escrow.ca. The problem with escrow is that there is a substantial time lag before the merchant receives the money. Moreover, there is substantial work involved in setting up an escrow transaction. Moreover, the buyer himself must become a member and this may put prospective buyers off because of the extra time and hassle involved. In my experience, around one third of escrow transactions are abandoned by the buyer. However, there is no possibility of the merchant being defrauded by credit card fraud as escrow assumes full responsibility for the transaction. Escrow services are especially useful where large transactions are involved. The escrow charge of around 4% of the value of the transaction is quite reasonable. .

(2). PayPal

PayPal [29] has truly revolutionized e-commerce, particularly for the small merchant. For the first time, there is a means for private individuals to accept credit card payments with ease. It is now an attractive proposition for small merchants in Hong Kong especially since it allows withdrawal of money to a Hong Kong bank account, whereas up until last year, this was only available to residents of the U.S. and Canada . PayPal is now the major means of payment for online auctions and eBay [11] had now taken over PayPal. However, like escrow services, the buyer must sign up for PayPal before being allowed to pay, and likewise, this may put prospective buyers off.

(3). Payment Gateway

A payment gateway allows the customer to make a purchase by credit card and have it processed in real-time. The payment gateway sends a request for authorization directly to the computers of the credit card holder's bank. On authorization, the funds are captured. After a holding period of around 4 weeks, the funds are disbursed to the merchant. This leads to substantial savings in time for the merchant in that he need not seek authorization by phone from his bank. To date, no locally based payment gateway is available to merchants based in Hong Kong . Payment gateways are usually based in the U.S. or Europe and are available for merchants based in their respective countries only. Although this can be got round by opening a “Shell” company in the U.S. , this process is tedious and expensive. As from last year, several payment gateways have begun to take in customers based in Hong Kong at a reasonable cost. These include 2checkout.com [41] and Worldpay [37]. Some like 2checkout.com will take in new merchants without doing a background check but whereas others like Worldpay would require a company registration certificate and also a thorough background check. The quality of the service provided varies enormously, particularly in the case of fraud screening.

 

(4). The issue of credit card fraud

Credit card fraud is one of the most destabilizing factors in e-commerce. The banks and credit card companies regard e-commerce as a high-risk activity, and thus the merchant is liable for all the loss sustained through credit card fraud. To add insult to injury, the merchant also has to pay a charge-back fee of around US$20-30 for every fraudulent transaction as a reimbursement to the banks for the time spent in investigation. Typically, the buyer makes a purchase with a credit card issued by a bank in a particular country and asks the goods to be sent to another person in another country. There are also other means of checking the validity of the purchase e.g. by verifying that the invoice address given is correct and also that the customer has entered the correct 3 or 4 letter security code.

 

4.1.5. TURNKEY Approach

Setting up a web site and integrating it with a carting system and a payment gateway could be a very daunting and complicated task for the uninitiated. For this reason, a number of TURNKEY approaches are on the market offering a combination of the above elements in a single package. The most common combination is to offer web hosting with a shop-front/shopping cart system offered by hypermart.net and retineada.com. Another combination involves combining a shopping cart with the payment gateway such as 2checkout.com. Packages are becoming available whereby web hosting, shop-front, and payment gateway is combined into one package. A good example of this is the ‘click and build' [4] system offered by Worldpay [37].

 

4.2. Strategic Aspects

4.2.1. Promotion

With the exception of selling products through auction sites where a web site is not required, all online businesses with a web site requires a great deal of promotion in order for the business to succeed. No matter whether it is an online store, site selling services or sites that have joined affiliate programs, promotion should be regarded as the most important component of the business. However good you web site is, it will not generate a single sale if nobody can find it.

A lot of online retail businesses failed in the first place because they did not know how to utilize their advertising budget effectively. Many different promotion techniques are available, and it could be very daunting for the beginner. There are lots of advertising programs that sound impressive and charge a lot, but deliver little or nothing in terms of sales. It takes a lot of experience to sort through this minefield.

 

Top Ways Web Sites are Discovered

 

 

Banner Ads

1.0%

Targeted emails

1.2%

TV spots

1.4%

By Accident

2.1%

Magazine Ads

4.4%

Word-of-mouth

20.0%

Random surfing

20.0%

Search engines

46.0%

(Exhibit 22)

Source: IMT Strategies – imtstrategies.com, April 2000

 

The table above shows the relative importance of various sources of web site promotion in relation to each other. In general, for small business sites, the most important means of referrals come from Search Engines and Directories, classified advertisements, and referrals from past customers. Banner advertising and pop-up ads are least effective but they allow a site to have the greatest amount of exposure throughout the Internet. One has to spend one's advertising budget very carefully. The different promotion techniques available are discussed further below.

 

•  Search Engines and Directories

This is usually the main means by which a particular Web site can be found. Therefore it is extremely important to be included in all-major search engines and directories such as Yahoo, Google, Inktomi, Alta Vista, MSN, Looksmart, DMOZ and Excite. However, being included in them is not enough, your site must be returned within the first 10 results for any particular search term in order for there to be a reasonable chance of the searcher visiting your site. Achieving a good ranking is not an accident but can be done through the design of the web page. It is an extremely complicated subject that is often very time-consuming and costly. The biggest problem with search engines and directories is that it will take weeks or months before a site is listed and even with expert help, top ranking cannot be guaranteed especially for common search terms. It may take a lot of experimentation in order to achieve top ranking but even then, a good ranking in one search engine doesn't mean it will rank well in others.

Some search engines such as Google Adwords, Overture, Findwhat and Kanoodle will list your site for particular search terms for a price. The actual ranking in the search result depend on the price you are willing to pay for an individual click to your site. The bidding usually starts at US$ 0.05 but can easily go up to several dollars for pole position. Pay per click engines are widely believed to be the most effective means of advertising but one must be very careful since some large shops may be willing to bid any price for top positions. The best strategy would probably be to concentrate on rarer search terms. Country or region specific pay per click engines will also be used.

 

•  Classified Sites, Message Board and Forums

Classified ad sites, message boards and forums can be surprisingly effective. The keyword here is targeting. One must target your ad to the target audience; therefore ads in sites with related categories in general would be the most effective. Advertisement in other sites such as web site design would be far less effective. It is essential to write eye-catching ads that stand out. It may be a good idea to couple the ad with a discount coupon. One added bonus of this approach is that the effectiveness of various campaigns can be monitored.

•  Unsolicited e-mail

A lot of companies seem to think that this approach is effective and spend a lot of time and money. In experience, the response rate is very poor (around one in a million) and none of our customers have returned for further purchases. Furthermore, your web site may be forced to shut down or the ISP will threaten to withdraw its services due to a lot of complaint. There is also a lot of potential damage to the image of your company.

•  Opt-in mailing lists

This could be a very effective means of promotion if you have your own opt-in mailing list from your site. However, this list will take some time to build. The key would be to give news on new editions and discounts from time to time. Response rates of as much as 15% have been reported. Another approach could be to pay an advertising agency to send e-mails to third party opt-in lists. However this is very expensive in comparison to other methods of advertising.

•  Banners and Pop-ups

Banners are the most widely used form of advertising but is also the poorest. The click-through rate is very poor and the industrial average is around 0.4%. Even after a click-through, their response rate is reported to be poor relative to other forms of promotion. Despite their poor response rates, banners remain the most popular of advertising because there is no form of advertising that can generate such a massive exposure. There are only a finite number of searches performed on a search engine on a given day but there are thousands of high traffic sites that can take banners. One can use banner advertising sparingly in the beginning until satisfied that the response rate justifies the cost of the campaigns.

Pop-ups generate a higher response rate but are generally annoying to web surfers and may damage the reputation of the company. Again one can only use pop-ups sparingly in the beginning until one is satisfied with the response rate. Despite the well-known poor response rate of Banners and Pop-ups, it is still necessary to use Banners and Pop-ups because this is the only way of generating huge exposure on the Internet. However, this has to be conducted extremely carefully.

•  Shopping and Auction Sites

Shopping such as Yahoo shopping and Amazon provide a highly effective means for third party online retailers to sell their products. However, these sites are not open to retailers based in Hong Kong . Auction sites such as eBay provide a useful means to sell products. However, prices realized on auction sites are generally very low and therefore auctions will normally be reserved for unsold stock.

•  Affiliate Programs

Affiliate programs are now recognized as one of the most efficient means of generating sales. A web site owner is paid for a fixed amount or percentage of every sale he generate. Affiliate programs are now thought to account for up to one-third of all Internet transactions. The downside of affiliate programs is that they can be very expensive and complicated to maintain, and are also subjected to a high level of credit card fraud.

•  Other online methods

Other online methods of promotion include hit-exchanges, banner-exchanges, FFA sites. However, the response rates of these programs are low and those that take part in them tend to be very small business promoting multi-level marketing, promotional techniques or even fraud. Therefore it is not advised to participate in these programs.

•  Off-line Advertising

Off-line advertising includes advertising in magazines, newspapers, billboards and even television. One may consider advertising in magazines devoted to a related field in different countries

 

4.2.2. Customer Service Management

The Internet has often been criticized for its lack of human contact and interaction. This is a major hurdle for the growth of e-commerce because many prospective customers are very wary of sending their credit card details over the Internet, particularly so to businesses based in another country. Therefore, many consumers would prefer to pay more by purchasing at a physical establishment locally rather than from another country through the Internet. Therefore it is very important to gain the trust of prospective customers, and there by retaining them and gaining their recommendation. The following are aspects of customer services that an online e-business should look at:

(1). Access to customer service – most online business, including provides access by e-mail only. Access can be enhanced by the provision of a telephone number, preferably one that is toll-free. However this is not practical for many businesses because of the time difference between different countries. Where e-mail is the only means of contact, it is essential that they be answered promptly, courteously, and in detail. It is also a good idea to provide a contact form on the web site so as to allow the customer to make inquiries more easily. More specialized third party customer service modules are available where a support ticket system is used. Another possibility is the use of the live chat system which is essential a variation of ICQ where the customer and merchant can communicate in real time.

(2). Timely and Quality Service – when delivering products or services, it is essential that it is done in timely manner. Products should be packed in a presentable manner and sent off promptly. Where services are involved such as web site design, it should be done in a professional manner with the input of the customer.

(3). Contact with customers – online businesses should make every opportunity to contact their customers. The customer should be notified once an order / service has been completed. They should be encouraged to give feedback and also join the mailing list of the company.

 

•  Requirement of essential elements for different e-businesses

Different types of e-business required different level and combination of essential elements:

 

 

Web site Design

 

Web site Hosting

Web site Maintenance

Carting System

Payment Gateway

Promotion

Customer Service

Affiliate Programs

 

Low to

 High

Low to

High

Low to Medium

N.A

N.A

 

Low to High

N.A

Physical products

•  Auction Sites

 

•  Online Shop

 

N.A

 

Medium to High

 

N.A

 

Low to Medium

 

 

N.A

 

Medium to High

 

N.A

 

Medium to High

 

Low

 

High

 

Low

 

Medium to High

 

 

Low

 

High

Soft Products

 

Low to Medium

 

High to Very High

Low to Medium

Low

Very High

Medium to High

High

Services

 

Low

Medium to High

 

Low to Medium

Low

Low to Medium

Medium to High

Very High

(Exhibit 23)

Source: By the Author's research and analysis

 

4.3.1. Web Design – web sites that sell physical products require the products to be presented in an attractive manner with good images and descriptions. Nowadays, many shop-front programs are available thus making the task simpler. However, the software is often expensive and could be a deterrent for beginners. Sites that sell soft products are generally not as demanding in terms of presentation but would require a more complicated set-up in order only to allow those who have paid to access the product. Sites that sell services are even less demanding in terms of presentation but may require very complicated set-up as there may be a need to connect to other external database e.g. that of the travel agency. The demands of publishers in terms of web site design are variable. However, those that generate a high volume of visitor traffic tend to have their contents refreshed at regular intervals.

4.3.2. Web hosting – web sites that sell physical products do not require a lot of resources in terms of web space or bandwidth. However, sites that sell soft products require a lot of web space and bandwidth, and therefore much more expense. The requirements of sites that sell services are much more variable and depend very much on the service provided. Publisher sites that are successful generate a lot of traffic and are thus very demanding in terms of web space and bandwidth. It is because new content is added to these sites all the time, and these sites often provide services such as chat rooms, forums and free e-mail accounts that consume a lot of resources.

4.3.3. Carting System – a carting system is almost obligatory for web sites selling physical products, and optional for sites selling soft products and services. It is not required for publisher web sites.

4.3.4. Payment Processor – with the exception of publisher web sites, all other e-business web sites require a means of accepting online payments, preferably through a payment gateway. Sites that sell soft products would require a much high degree of fraud screening and protection than others.

4.3.5. Promotion - although promotion is required for all four different types of e-businesses, it is much harder for some than others. Those businesses with a lot of existing competitors will find it much more difficult to promote than other e-businesses. These businesses are generally the ones that are widely perceived to offer high rewards such as adult sites, or those that require little skill or investments such as reselling web hosting.

4.3.6. Customer Service Management – with the exception of businesses that derive their income from publishing, all online businesses including those that sell their products through auction sites require some degree of customer service. Obviously, the requirements would be greatest in those offering services.

 

Summary

Different e-business opportunities have different requirements in terms of technical and strategic aspects. It is now quite clear that Hong Kong has closed the gap considerably with N. America and Europe in terms of technical aspects, especially the processing of payments. Promotion is critical to the success of any e-business and there are many methods available. In the next chapter, the different types of home-based e-business opportunities will be compared in terms of risk, investment and reward. Conclusions will be reached as to whether and which type of e-business is most suitable for Hong Kong residents.

 

Chapter 5 – Analysis and Conclusion

 

5.1. Comparison between different types of e-businesses

It is obvious that the requirements of the four different types of e-businesses are vastly different in terms of the knowledge and commitment required, and also potential risks and profit. In this section, the different types of e-businesses will be compared with regards to (1) start-up costs, (2) running costs, (3) specialist knowledge, (4) technical knowledge, (5) time to profit, (6) risk (7) profit.

 

 

Start-up Costs

 

Running Cost

Specialist Knowledge

Technical Knowledge

Time to

Profit

Risk

Profit

Affiliate Programs

 

Low

Low to

High

Low to High

Low to Medium

Very

Long

 

Very Low

Low to Medium

Physical products

•  Auction Sites

 

•  Online Shop

 

Low

 

Low to

Medium

 

Low

 

Low to Medium

 

 

Low

 

Low to Medium

 

Low

 

Medium to

High

 

Short

 

Medium

 

Low

 

Medium

To High

 

Low to Medium

 

Medium to High

Soft Products

 

Low to High

 

Medium to High

Low to High

Medium to High

Medium

Medium

To High

Low to

Very High

Services

 

Low to High

Low to High

 

Medium to Very High

Medium to Very High

Medium

Medium to High

Low to High

(Exhibit 24)

Source: By the Author's research and analysis

 

5.1.1. Start-up Costs

The start-up costs are lowest for businesses that derive income from affiliate programs and selling physical products through auction sites. Online shops require expenditure in setting up a web site with a carting system and payment gateway. Web sites selling soft products or services may require to pay additional fees to third parties for use of their products or services e.g. resellers licenses for software, integration into airplane ticket booking systems.

5.1.2. Running Costs

There is little running cost for businesses selling physical products through auction sites. An online shop selling physical products may have to pay for web hosting, use of cart/shop-front system, and access to a payment gateway. Web sites offering soft products and services may have to pay extra because of the extra demand in web hosting resources and also recurrent reseller or rental fees for software or integration into other computer systems. Successful publishers earning money through affiliate programs often run web sites that require a lot of web resources. There are also substantial advertising costs involved in each category with the exception of selling physical products through auction sites. The advertising costs vary greatly and depend very much on the demand of the products or services offered.

5.1.3. Specialist Knowledge

Obviously, businesses providing specialized services such as advice on legal, financial and medical matters require a very high degree of specialist knowledge. Those that sell physical products require some degree of knowledge of the products they sell. Prospective customers are more likely to buy from sites that provide clear and detailed information on the products. Those that sell complicated soft products such as software require a high degree of specialist knowledge in order to help the customer install and run the software. The specialist knowledge required for affiliate programs is variable but generally, web sites that offer better information on the subject are much more likely to do well than those that do not. This is because surfers are more likely to trust web sites that provide good specialist information and buy the products that the web site is promoting.

5.1.4. Technical Knowledge

For the purpose of this study, technical knowledge refers to competency with the technical aspects of e-business discussed in the previous chapter. Businesses that sell physical products through auction site do not require much technical knowledge except in using the auction site. Online shops require some degree of technical knowledge in order to be set up correctly although TURNKEY solutions may make the task much easier. Similarly, businesses that sell soft products may need to set up password protected directories or download areas and thus need some degree of technical knowledge. Web sites that sell services require the highest level of technical knowledge, as it may require the integration of the web site into other computer databases such as those for airline and hotel reservation, or use of complex technologies such as streaming video for adult sites.

5.1.5. Time to profit

For the purpose of this study, the time to profit is regarded as the time taken to reach a decent profit, it is not the same as time to profitability. Publishers may start to earn a little income from affiliate programs straightaway but it will probably take months or years before a decent profit can be returned as a long time is needed for a large volume of traffic to build up on their site(s). Businesses that sell physical products on auction sites can turn in a good profit straightway provided that the right products are available. Web sites that sell physical products, soft products and services will take a few months for medium volume traffic to build up if their site is listed on search engines and directories.

5.1.6. Risks

Setting up as a publisher and joining affiliate programs carry minimal risk except in terms of the time and money spent in setting up and maintaining and promoting the web site(s). There is very little risk with selling physical products through auction sites unless one takes in a lot of stock that could be left unsold. The risks are higher for an online shop because of the extra money involved in setting up the site and also the possibility of taking in stock that could not be sold. Similarly, selling soft products may involve the purchase of expensive reseller's licenses or development costs for a particular soft product. The situation is similar with services where one may have to pay expensive reseller fees.

5.1.7. Profit

It is very difficult to turn in a high profit earning exclusively from affiliate programs because it is extremely difficult to produce and maintain high volume traffic web sites. In the case of selling physical products through auction, the margins are generally much lower than those of an online shop, and the profit realized is somewhat unpredictable. The profits that can be obtained are higher for sites that sell physical products, soft products, and services as are the risks involved. The highest profits of all can be derived from adult sites but the competition is also the highest.

 

5.2. Conclusions

Based on the findings and analysis reported previously, the author has arrived at the following conclusion:

 

5.2.1. It is more difficult to set up home-based e-business in Hong Kong than the United States

First of all, there are fewer e-business start-up options available for Hong Kong people. It is obvious that many e-business programs such as “Vstore”[36], “Travel Agency in a Box”[16] or “Yahoo Shopping” mainly caters for US residents. The same applies to many affiliate programs that are not open to Hong Kong residents. The choice of e-business solution providers is much more limited to Hong Kong residents. Where available, TURNKEY shop-front programs and payment processing are very expensive. However, it must be said that with the availability of PAYPAL [27] and international payment processors like Worldpay [37], the gap has closed considerably. There is a general lack of experience and technical knowledge with regards to e-business in Hong Kong, which is hindering the growth of e-business in Hong Kong . This is also the main reason why a lot of SMEs in Hong Kong are still hesitant in setting up a fully-fledged function e-business.

  Although web site design in Hong Kong is now as good as anywhere else, there is still a lack of experience in web site promotion in Hong Kong which reduces markedly the chances of success. Internet surfing is very popular in Hong Kong , and is reported to be among the highest in the world. However, due to the dot.com failure and the traditional Chinese shopping culture, there is still a perception in the society that e-business is not secure and is non-profitable. Although Mr Tung Chee Hwa, the chief executive of HKSAR has shown his concern on the development of high technology in Hong Kong since his first term of office, little has been done to help on the SMEs with the application of e-business.

 

5.2.2 Home-based e-business is not applicable for everybody

Unless the target market is entirely based locally or in Greater China, it is essential to have good competency with English in order to communicate effectively through the Internet. It is especially true if the business is to sell physical products or to provide services online. A certain degree of technical competency with the Internet is required in order to run a successful e-business. Different types of e-businesses may require different level of investment in terms of cost, specialist and technical knowledge. However, all types of e-business demand a great deal of commitment in time and effort. Therefore, to set up and maintain a successful home-based e-business, one should have good self-management skills. Most people working at home may find it difficult to define work and home business. They may be distracted continually at home by their children, or work so much that their family life is distracted. After all, an online business is a 24 hour a day, 7 days a week business. Therefore a lot of self-discipline and motivation is required in building up a home-based business.

 

5.2.3. The most suitable type of home-based e-business for Hong Kong residents

After reviewing the various opportunities available, the author has come to the conclusion that selling physical products is the most viable option for a home-based business in Hong Kong . Firstly, it is relatively easy to source products cheaply and import tax-free in Hong Kong . Secondly, the postal services are pretty efficient, and Hong Kong has a stable currency that is linked to the U.S. dollar. Lastly, trading goods has always been something that Hong Kong is renowned for, and is one of the key pillars of the local economy. However many products can now be obtained more cheaply in the U.S because distributors there are able to obtain much larger discounts through high volume orders [23] compared to those in Hong Kong. As a rule though, most online shops in the U.S do not ship outside the U.S. thus providing an opportunity for businesses based in Hong Kong . It is now very easy for a person to start trading physical products through eBay [11] and other auction sites. Moreover, it is now much easier to set up an online shop as TURNKEY solutions are available through a number of web-hosting companies in Hong Kong and abroad. It also much easier to accept credit card payments online for Hong Kong residents nowadays.

It would be extremely difficult for Hong Kong residents to earn a full-time income through affiliate programs alone. Firstly, it is extremely difficult to build up web sites with high volume traffic, and secondly, many companies offering affiliate programs will not accept Hong Kong residents. Many of the opportunities available for selling soft products function in a very similar to multi-level marketing (MLM). Unless one gets in very early, there is very little profit to be made. That is unless one is willing to spend the time and investment in creating a unique soft product oneself. Even then, piracy could severely limit the profit that can be made. Although vastly profitable, adult sites are not for the average person. Unless one has a specialized service to offer, it is normally very difficult to set up a successful online business. Similarly as in the case of soft products, many of these so-called opportunities like “Travel agency in a box” function like an MLM business.

 

5.3. Final Conclusion

Setting up a home-based e-business is now a viable proposition for self-employed individuals in Hong Kong , as the author can attest to this. Although still lagging behind North America and Europe , the basic infrastructure is here, especially the means to accept online payments. The level of competency in English is high in Hong Kong and there are efficient and economic postal and courier services. However, a home-based e-business is not for everybody as a fair degree of competence in the use of e-business resources is required