Twisting in the wind amidst the carnage left in the wake of more than 50% meltdown in tech-heavy Nasdaq, internet plays have badly shaken the confidence of both the investment and business communities.  The favored slash and burn approach, based on the “create-the brand-first-build-the business-later” strategy spearheaded by the likes of Amazon.com, is suddenly called into question.  Indeed, the very existence of those pure internet content providers faces serious challenges as revenues taper off and investors patience wear thin.   Gone are the days when fancy power points projections alone, by khaki-clad college dropouts to some investors would suffice to beget a huge amount of money which was then spent like there were no tomorrow to put their young ideas to test.  Whereas the old, established businesses worked their head off before accumulating enough capital to expand to another corner store or overseas factory, these so-called new-economy pathfinders lavished other people’s money on first ‘aggregating eyeball’, under the pretence that enough visitors will lead to forming a community, who then will spend and transact, which in turn lead to revenues pouring in.  In other words, to create branding first and figure out how to build a business later.

The question with that approach is inherent and obvious: what if the business plan hatched after a website is set up fails to work?  Answer is as stark: the car will stop moving once the last drop of petrol is used up, as evidenced already by the demise of many an internet companies both in and outside of China.  Of course the euphemism here is ‘consolidation’.  Why else would China-ren have given up their independence and name to merge into Sohu, for example? Why else , for another example, are the revenue in the books of prominent players such as Netease.com and Sina.com comprised mostly of online advertisements?  They know and we know that a steady revenue stream from their own services and products, whatever it is, will keep them afloat, forget about breaking even or turning a profit, in the long run.  They know and we know, too, that they are desperately seeking and launching such services. But unfortunately , none is in the offering.  Ask yourself: when you think of those portals, what comes to mind first? Or what use can you find for and on them?

By contrast, vertical portals, which serve particular industries and do not try to be all things to all people, have a better chance of withstanding the onslaught of internet bashing brought on by the Nasdaq collapse.  They are more focused, they cater to a niche market, and they run the same mileage on less fuel., so to speak.

Take sugaronline.com (www.sugaronline.com). This small internet startup serves  but one market : the sugar industry. It outsources all of its technical support functions, effectively reducing its overhead and operating costs. It is also small in structure, only a handful of full-time employees, thus making it easy to sustain over a longer period for the same of amount of funding.  But the limited scope of the chosen market  brings its depth into sharp contrast: the website  covers the whole value-chain of the sugar industry, from beet and cane farming, milling and refining, to trading, shipping, financing and final consumers at destinations and everything in between. An objective measurement of its success is given by the world’s primary search engines. Enter the word sugar, and sugaronline’s link comes up on top at each of them. 

So what makes it different from countless also-runs?  Very simple and basic things.

First, you want to be useful to the visitors to your site. In order to be useful, you have to have what your visitors are looking for.  By and large, the first thing a surfer reads is headline news, as measured by traffic tracking software.  So sugaronline has news.  In collaboration with Dow Jones News Network, the sugar portal  provides sugar-related news 24 hours a day, 7 days a week, as they happen and when they happen.  In addition, the site feeds live streaming sugar prices in the major exchanges in New York and London to its visitors.

Secondly, sugaronline.com hosts a number of forums so that each market participant can find what it is looking for, no matter how arcane or technical your question is .  Moreover, one unique feature is the information management package for individual companies.  Coco Cola is a big user of sugar in its hundreds of bottling plants around the globe. And each plant is responsible for its own procurement of ingredients like sugar.  However, if those purchasing managers come together to one single place, by virtue of virtual conference room, to share their knowledge, to swap stories, to form a critical mass into bargaining power, there is going to be huge potential in time/cost savings and efficiency achievement. Sugaronline has just the tools and software for this purpose. And that is the soft-drink part. Think about what it can do for other similar multinationals, like confectionaries, fast-food chains.  Small  wonder sugaronline has to take on additional sales persons to handle the inquiry calls.

Last but probably most importantly, its independence and neutrality enables the site to launch a trade leads trading service where buyers and sellers can post and match enquires on the site, without obligations to contract.  This matching service, not unlike a dating agency, has already reported the first successful transaction since its test launch last November, between soft drink maker and a sugar trader.  Reuters also reported last week this ‘first truly internet sugar transaction’.

To sum up, vertical sites beat horizontals any day, especially in this post-internet-bubble day. And to sustain your business , a site has to have a laser-sharp focus, industry-trained professional management and low overhead, and a useful e-commerce application to top it all off. Brand building and expansion into new territories can wait until after a sensible business model is established and battle-tested.