Sramana: In 1996, you added more people and secured an office. Was there any difference in your distribution or customer acquisition strategies?
Tony Ellison: There was a lot of change in 1996. The biggest expansion was in terms of people and our margins started to erode because of that added expense. We also started adding other products that did not have margins as high as CD-ROMs. My vision was to concentrate on B2B customers as opposed to running a B2C business because B2B customers spent 15 times as much. We also spent a lot of effort retaining those customers instead of acquiring them. That is how the model progressed and evolved during our first three years.
When we looked around at our competitors, we noticed something interesting. All of the sites back then were a billboard. They all had their products listed and they all had a shopping cart. There was not any competitive advantage from one site to another one. At that point, I realized that we needed to do something more. We had a tremendous selection, which was an equalizer when it came to competing with the big guys, but we saw that customer acquisition was quickly sky rocketing in our market. That was especially true in 1998 and 1999.
We decided to offer an e-procurement platform. We shifted our focus entirely to B2B. Around that time, Ariba had a very successful IPO. I had the idea that we should take 20% of the functionality from Ariba that is used 80% of the time, and make it available to small and medium sized businesses that could not afford the $750,000 for those types of applications, and create a retention strategy around that. It has worked and has been a great success for us. That is how we started retaining customers, especially from 1999 to 2000 when customer acquisition was shooting through the roof. We were profitable and had better retention rates than our competitors.
Sramana: How were you selling to your B2B customer base?
Tony Ellison: We have a sophisticated platform. By 2000, we were offering close to 200,000 items. We realized that we would need to bring in inside sales people to engage in relationship building and explain the benefits of e-procurement. We had to show what the impact was to people who had never thought of using our platform before. Once we showed and demonstrated that to potential customers, they realized how much time they could save and how we were saving them time. They could see how easy it was for them to control the purchase process. There was not a way for small and medium sized businesses to have purchase enforcement across their company. We made that possible for them.
Sramana: What timeframe did you start the B2B business ?
Tony Ellison: By 1997, we had the e-procurement platform in place. We had solid ground to pursue businesses. By that time, we knew that B2B was the customer base we had to focus on.