Internet-based businesses try for a comeback

by Bob Mook

 Hawk attributed the growth of the online sector to the fact that online retail sales aren't taxed in Colorado.

The venture capital poured into online businesses seems to back up ancedotal claims that a dot-com comeback is afoot. According to Dow Jones VentureOne, venture investors put $254.9 million into blogging and online social networks in the first half of the year -- already exceeding the 2005 figures. Meanwhile, VCs invested $156.3 million in online video, which is also poised to surpass last year's statistics.

The payoff for those who persevere on the Internet may be great: Established online businesses in Denver report that business is brisk. After hitting a post-Sept. 11 rough patch, Peter Cobb, founder of eBags, said the Broomfield-based online luggage retailer draws as many as 170,000 visitors a day. Denver-based TattooFinder.com claimed its sales have grown more than 1,000 percent in four years.

Eric Laughlin, CEO of VoIP Review, a search tool for Internet phone services, said that online businesses in 2006 are more likely to succeed because more people have access to broadband than in 2002.

Russ Bryant, the Denver enterpreneur behind GoUrban.net, said the so- called "digital divide" between the technology haves and have-nots is closing quickly. Bryant said GoUrban.net, scheduled to formally launch in mid-August, will be the Amazon.com for young African-Americans.

The capital expenses for operating an online business are relatively inexpensive compared with brick-and-mortar ventures, said Christian Sterner, founder of WellcomeMat.com, a new site that gives real estate brokers a new portal for presenting video tours of homes. Sterner added that a lot of underemployed people with technical skills may be willing to put in "sweat equity" in lieu of a paycheck in order to be on the ground floor of a potentially promising idea.

Terri Saeed, co-owner and co-founder of tellmegirlfriend.com, said that online ventures have discovered the most effective way to market an Internet-based business is through the Internet -- either by paying for key words or through viral marketing. Such approaches are more practical than blowing a company's entire marketing budget on a single Super Bowl commercial, as some earlier dot-coms learned, Saeed said.

How do these businesses make money? Like the joke goes: "volume."

Laughlin said turning a good idea into a lucrative one is often a matter of getting more eyeballs focused on your site. Laughlin said his VoIP Review draws about 170,000 visitors a month. The site charges clients on a per-click basis similar to Google's mode of operation. Laughlin claimed the model is working extremely well, although he declined to divulge revenue figures.

Along with the per-click approach, many online companies are relying on advertising, much like their predecessors in the Internet 1.0 era. But while more Americans are using the Internet, online ad sales still lag. According to comScore Networks, a market research firm, based in Reston, Va., about 172 million Americans visit the Web every month. However, online ad sales are expected to be $16 billion in 2006 -- a small fraction of the hundreds of billions of dollars spent on advertising annually.

Despite these mixed signals, a recent MoneyTree survey shows that venture capitalists -- who took a hit from the dot-com bust -- may be warming up again. Venture capital investment in Internet companies was up to $2.9 billion in 2005 from $2.4 billion in 2003 -- still a far cry from $3.7 billion in VC money invested in the Internet in 2002.

Melody Callaway, senior account executive for Volume Public Relations in Centennial, said she's getting more business from Internet-related businesses. "Marketing is the first thing to go when there's financial trouble, but it's also the first thing you want when you're ready to go to market," Callaway said.

Christopher Jeffers, CEO of netFactor, a Ken Caryl-based startup that provides "caller ID for Web sites," said jaded investors have forced online entrepreneurs to fund their ideas "organically." "During the first generation, [investors] were enamored of the possibilities on the Internet," Jeffers said. "Now, you need a proven product and a proven market before you can expect outside investments."