Is Internet Franchising a Sure
Entrepreneurs interested in signing with an Internet franchise
business will find no shortage of opportunities. The concept of
franchising has enjoyed great success in traditional business
models, but does it work for online commerce? Prospective
franchisers may want to investigate short-term, renewable
partnership affiliations as an alternative.
Looking for a franchise opportunity? The World Wide Web is
overflowing with Internet-based businesses for sale.
An online search of the term "Internet franchising" will reveal
dozens of Web sites promising both online business and franchise
opportunities in a variety of Internet-based companies. The
listings go on and on. They include the promise of success and
fortune for every conceivable type of business.
However, just as prospective franchise signers should not plunk
down thousands of dollars based on a newspaper ad, would-be
entrepreneurs should also not be too hasty to click their way to
online storefront ownership.
Getting involved in an Internet franchise could be riskier than
surfing the Web without a firewall. A safer approach is to
investigate short-term, renewable partnership affiliations
rather than more costly franchises.
"Partnerships work better on the Internet. I don't see why
franchises exist," Thomas Harpointner, CEO of AIS Media, told
the E-Commerce Times. "Cookie-cutter franchises don't cut it
What Exactly Is Franchising?
According to Franchising.com, franchising is a business strategy
for getting and keeping customers. Those who join a franchise
use a prescribed method for distributing products and services
supplied by the business plan of the franchise company.
Franchising is replete with many misconceptions. Among the
biggest is that obtaining a franchise is equivalent to buying
the franchise or owning the business. This is not the case.
Franchisees invest their assets in a system to utilize the brand
name, operating system Manage remotely with one interface -- the
HP ProLiant DL360 G5 server. and ongoing support, the
Franchising.com Web site explains. All franchise participants
are licensed to use the brand name and operating system in
exchange for paying the initial and monthly franchise fees and
other charges specified in the franchise agreement.
Statistics provided Franchise.com claim that in the U.S. there
are over 2,500 franchise systems having in excess of 534,000
franchise units. This represents 3.2 percent of total businesses
and controls over 35 percent of all retail and service revenue
in the U.S. economy.
A Different Model
Harpointner started AIS Media in 1997 after looking at various
business markets. His online business develops, deploys and
manages e-business applications and services over the Internet.
He saw lots of companies using a franchise business model and
going bankrupt in the process. He favored a partnership with
other firms seeking to grow related online business offerings.
"The survival rate with franchising is not as high as with other
types of business models and has more risks," he said.
Proprietary businesses such as partnerships have a competitive
advantage, Harpointner found. From his view, bad business models
do not franchise well.
"Now, [with partnerships] it is a fairly level playing field. We
decided against franchising," he said.
In 2002, Harpointner launched channel partnerships through his
Web site. Rather than charging partners monthly fees as
franchisers must pay, he said his partnership participants share
all benefits of being in business without the downsides of a
For example, those involved in a franchise cannot diversify
their business. Instead, they must adhere to the company line.
"No two businesses are alike. Partnerships work better on the
Internet," Harpointner said. "Success [online] is based on the
ability to market and sell. We see many of our partners
discovering the benefits of partnering over franchising."
According to Harpointner, many entrepreneurs are mislead and
confused by Internet franchising. Their business has no physical
location and no brand names to boost their business.
Instead, a franchiser's Web site looks like everyone else's
Plus, there are high royalty fees and monthly franchising fees.
"Why not save that expense by just partnering?" he asked. "We
rebate all of our partnership fees back to our partners once
they start producing."
In comparison, franchise fees and royalties are never refunded
in franchising agreements. Franchising fees can be as high as
$10,000 per month, said Harpointner. In addition, franchisees
must sign long-term contracts that include default penalties.
Chuck Fuller, senior vice president for marketing Email
Marketing Software - Free Demo development at Entrepreneur.com,
views the business-venture capabilities of franchising on the
Internet as having both good and bad points. The cost per lead
is a lot less on the Internet, but the lead quality it produces
often suffers quite a bit.
"The Internet presents considerably more quality issues," he
Franchising versus partnering on the Internet are not the only
There is more opportunity using the Web as a vehicle for more
traditional consulting and networking services, said Vincent
Thompson, principal at Middleshift. His company focuses on using
or creating revenue for Internet businesses by empowering those
in the middle-management environment.
"I am not seeing people actually licensing products on the
Internet as much as I am seeing pay-for-post activities," he
Thompson believes that any time an entrepreneur can use the Web
to sell is a good thing. He sees people submitting content to
Web sites and participating in Web networking activities. This
forms the biggest use for business over the Internet.
After spending seven years at America Online running Internet
sales in the western U.S., Thompson's business helps companies
learn how to sell products.
There will be more networking on the Web instead of franchising,
Thompson predicted. "In earlier years, Internet franchising may
have made more sense, but no longer. The Internet has changed
drastically since then. Business[es] online need much more than
[what] is available through a franchise," he added.
Fuller noted that the Internet provides access to a variety of
franchising opportunities. People considering an Internet
franchise need to exercise considerable caution.
"Investing into a business is just like building a house. You
have to become qualified for the purchase and the financing,"
The Federal Trade Commission Latest News about Federal Trade
Commission (FTC) offers would-be franchisees some protection
against fraud. For example, in order to offer distribution
franchise businesses, a firm must register the franchise
offering with the FTC.
The FTC regulates all franchises, requiring a full disclosure
that details training, support, fees and purchases, Fuller said.
Also, a franchiser cannot just sign up a franchisee online. By
law there is a cooling-off period for the franchisee. Some of
the arrangements, from recruitment and research to
prequalification, can be handled over the Internet.
By Jack M. Germain
07/04/07 12:00 PM PT