People think that its easy to make money from the Internet. While the cost of setting up a company has gotten cheaper on the average compared to the Industrial Age overhead. You also have more people with the same idea to compete with now. So in exchange for less capital, you get more competition. If its not one thing its the other.
There is a theory why not everybody, a large majority of online businesses fail to make money online: The Pareto Principle.
Simply stated. The Pareto Principle posits that there is an imbalance in the way wealth flows. A significant minority of a certain group will always get a larger share than the rest of the majority in terms of certain desirables like profit, market share, customer satisfaction, etc.
Most people tend to assume that all things are in equilibrium in one way or another. It was assumed that 100 units of input usually and logically gives you simply 100 units of output as well. But this is not the case. This fallacy is so prevalent most people take it at face value.
The Truth is that 100 units of input can actually give you back 0 to more than 100 units of output. If in actuality, you take a look at reality, when the causes and effects of a phenomenon are analyzed, more often than not it will show an imbalanced result.
We use the numbers 80/20 to show the disparity in general, but the results arent usually along this ratio. There is usually no 50/50 balance but more often an 80/20, 70/30, or even a 99/1 ratio. Therefore, when we have grasped at the true critical relationships of a phenomena, then the natural state of things is most likely to be significantly imbalanced.
So what does this have to do with making money online? Very elementary, Dear Watson. The Pareto Principle also applies in force to the Internet. Why are most businesses not making much money online? It is because a businesss presence is not optimized to its strengths, giving Murphys Law a big field day.
To be more specific, here are the reasons why:
1. Great wealth flows to the most optimized. Businesses that have spent the time to capitalize on their strengths and protect their weaknesses will have the advantage in attracting more business. This is because most people online who want to purchase a service or a product prefer that it can be reliable as well as trustworthy with the money they spend.
Businesses that have determined their target market and spent the time aggressively wooing these customers get the most revenue. Take note that even a slight advantage is highly valued by customers.
2. Concentration on a strength that matter to the customer. Markets are fickle. And online businesses that take the time to identify their target markets needs and wants will always get the customers favor and money.
Another benefit on making the effort to communicate with the customer is the surgical and precise allocation of capital to support and enhance a feature customers value. Businesses like these are never flying blind.
3. Businesses that react or initiate actions to positive or negative customer feedback the fastest gets the businesses. Companies that address a customers feedback for better service and sustains it while making a profit, gets more customers to be loyal to the business.
Since customers mostly do not want to start searching for a better business unless they see the advantage from a competitor or worse, forced by incompetent service from their current provider, it would logically be better for a business to just make significant adjustments to keep customers than lose them to competitors.
Most online businesses do not see the potential dangers of ignoring feedback from customers and not taking action to rectify their concerns in the most effective way possible. The next point explains this.
4. Small factors exponentially affect huge outputs. Imagine a herd of zebra in an African plain. When one zebra spots a lion nearby, it alerts the rest of the herd, and they run for safety.
Same goes with the money from customers. If at a crucial moment negative feedback from customers hit critical mass, customers will start moving to the nearest seemingly competent competitor for safety. Customers follow safety in numbers.
This is also the same for making profits. Customers who found gold in a company in terms of product or service will try to get everybody else on the bandwagon, creating a vortex of spending that concentrates on the lucky company. Sales will be exponential as long as it can sustain the phenomena that customers are crazy about.