(This article was written in 1997 and appeared in a number of
magazines and newspapers. Some of the mistakes it
uses as examples have since been fixed, but the points remain valid.)
How can you make money online? You can start by avoiding the ten
classic mistakes that trip up online merchants. If you merely
avoid these mistakes, you will be most of the way toward succeeding
1. Lack of Focus
On the Web, even more than in the physical world, a small
business has to have a sharp focus. A Web giant like Amazon.com
can go after a big category, like books. A small business has
to aim for a more sharply-defined niche.
As a rule of thumb, a business will do well on the Web if it could
prosper next door to Wal-Mart. There is no physical distance
on the Web: you are next to Wal-Mart. So if you are just selling
a smaller selection of the same products, you don't have a chance.
How do you succeed? Specialize. There are thousands of
profitable niches that the big players don't have the time
to focus on: skateboard wheels, organic seeds, antique watches,
you name it. The key point is to choose a niche that is the
right size for you.
2. Lack of Promotion
You can't just open a Web site and expect people to flood in. You
may get some amount of traffic from search engines for free, but
if you really want to succeed you have to create traffic.
You can't wait for customers to come to you. You have to figure
out where they are, go there, and drag them back to your store.
That is, think of what sites your customers would be likely to
visit, and either run ads there or do revenue-sharing deals in
return for referrals. Then measure which sites send you the most
sales per capita, and focus on them.
3. Obstacles to Shopping
The single biggest mistake in e-commerce was probably one
made by Wal-Mart. For their first two years online,
they made visitors create an account, with a
user id and a password, just to put something in a shopping
That kind of obstacle stops shoppers like a concrete wall. Most
people who put an item in their shopping basket are still just
browsing. They are not committed to buy. If you put a big obstacle
in their way that early, they'll just leave.
It's common sense: don't make people jump through hoops in order
to give you money. If you are going to put obstacles in people's
way, at least wait until after they have given you their credit
Tracking your customers by making them register is like measuring
how much water there is in a glass by dropping it on the floor.
It's easy to buy lists of millions of email addresses. You might
think that sending email to a million people would be a good way
to promote your site. Such email is called spam, and it is a big
You may draw some traffic, but you will also label yourself to a
million people as dishonest and amateurish. That is bad for any
business, but it is a disaster for an online store, where consumers
have to trust you without seeing or talking to you.
As an online merchant, you need a spotless reputation. Spam is
not the way to achieve that.
5. A Dynamically Generated Site
Some Web sites are dynamically generated. The pages are created
from a database as the visitor looks at them. It sounds like a
good thing for a Web site to be "dynamic." In fact, it is the
worst thing an online store can be.
The reason is, search engines ignore dynamically-generated pages.
A dynamically generated site looks to a search engine the way a
stealth plane looks to radar.
And search engines are the source of traffic for every Web site.
So unless you make up for it by spending a lot on advertising, a
dynamically-generated Web site will get almost zero traffic.
It's surprising how few people realize this. Most merchants who
have dynamically generated sites don't realize it, in fact. They
just wonder why no one comes to visit them.
6. A Slow Site
When you design a Web site, it is tempting to put in a lot of fancy
graphics. They make your site look so much better, at least on
your graphic designer's desktop computer.
It doesn't look the same to consumers. Most of them will be looking
at your site through a modem. And all those juicy graphics make
your site slow to download.
Which means, if your site is too fancy, people won't even wait to
see it. They'll just leave and go somewhere else. Remember, these
people are called "web surfers." Like TV "channel surfers," they
are not interested in waiting.
The worst place to put a huge image is right on your front page.
Unfortunately, that is just where badly designed sites usually have
7. Amateurish Appearance
Overall the Web is pretty sloppy, but an online store can't afford
to be. An online store is trying to convince people to buy. So
your online store has to be the graphic equivalent of the big marble
building a bank might build to show how stable and trustworthy it
If you want visitors to take out their credit cards, you have to
look the same: solid and expensive. How do you do that? Graphics.
All there is on a Web page is text and graphics. The text all looks
the same. So except for spelling mistakes, only graphics differentiate
one site from another.
You have to be careful. If you misuse or overuse graphics, you'll
have a slow site. But if you know what you are doing, or use
software that knows what it's doing, you can make top quality Web
pages that download in under 10 seconds.
8. Regular Retail Prices
It is usually a mistake to charge regular retail prices on the Web.
Security is not what stops people from ordering online. It's
unfamiliarity. You have to train people to buy from you. Unless
you give them an incentive, they won't take the plunge.
Low prices are the best incentive. You can afford it, because
selling on the Web is so much cheaper. Perhaps $20 per order
cheaper than catalogs, for example. Why not split the difference
with your customers? If you don't offer this incentive, your
Amazon.com gives such big discounts to online shoppers that they
don't make a profit. Are they stupid? No, they are training
shoppers to buy from them. It works. Now that I know how to order
from Amazon, I have no incentive even to look elsewhere.
9. Bad Domain Name
Amazon.com makes more money online than Barnes
and Noble. There are various reasons why. They are a lot more
aggressive, and their site looks better. But I am sure that part
of the reason is simply that Barnes and Noble has such an awful
Who wants to type that into their browser? It's awkward even to
think about, let alone to type.
The worst domain name, of course, is no domain name. You should
try to be something.com, and there are still plenty of good short
10. Your Own Server
Setting up your own Web server is expensive and a constant source
of headaches. Most of the companies that set up their own Web
servers don't actually need them. They do it because it sounds
impressive to have your own server. In return for sounding
impressive, they trade reliability.
No matter what the salesman says, running a Web server is not like
plugging in a toaster. Something breaks every couple days. Anyone
in charge of a high-traffic Web server carries a pager, without
exception. That alone should tell you what is going to happen if
your company has its own server.
© 2001 Paul Graham. Feel free to reproduce this article
anywhere, so long as it is reprinted verbatim, including this message.