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With each passing day, the Internet is getting more and more competitive as online businesses attempt to gain market share and claim their piece of the pie. In fact, you might remember that I wrote about how the window of opportunity for independent webmasters is shrinking as the web matures and big online brands are established in various niches. Starting a successful online business 10 years from now will be exponentially more difficult than it is today.

If you haven’t noticed, the web is already saturated in most industries and practically every big topic is covered in depth by numerous players. In order to catch up and get ahead as a leader, you’re going to need a fat wallet, a unique competitive advantage, or a revolutionary new idea – all things that most of you don’t have. Think you’re going to overcome CreditCards.com by creating a similar site and offering the same information? Think again.

Now don’t get me wrong. Opportunity abounds online and there are still a ton of ways you can make money and build a powerhouse business. What I’m saying is that it’s just going to take a more concerted effort focused in on a specific subtopic. In other words, the best online business building strategy right now is to go niche. For example, rather than compete with Zappos by selling every kind of shoe under the sun, focus on selling basketball sneakers to youth. You get the idea. It’s better to dominate a sub-niche than it is to play follow the leader in a competitive industry.

Types of market segmentation

There are 3 different ways you can segment a niche and focus in on a smaller field.

By topic
Drill down to a subtopic that has much less competition, but still has good amounts of interest. Use the Adwords Keyword Tool to gauge the search frequency for related keywords. Although you want to go niche, the last thing you want to do is focus in on a niche that no one cares about.

Example: Rather than create a site providing general guitar lessons, focus on blues guitar lessons.

By geography
The Internet has global reach, but that doesn’t mean you always have to reach out to a global audience. Focus your offering for a smaller geographic location. You might initially think you’re limiting your potential, but people appreciate the local feel and may prefer your site over others.

Example: Craigslist and Yelp both started out solely for San Francisco and eventually expanded to other markets. Do the same. For instance, rather than create a restaurant blog for an entire city, focus in on a smaller area (e.g. Midtown in NYC) and establish yourself there first.

By audience
An important rule of conducting business is that you can’t be everything to everyone. The sooner you realize this, the sooner you’ll achieve success. Rather than create content that attempts to cater to everyone, choose a specific audience and tailor your site to fit its needs.

Example: Everyone wants to give college advice to prospective students because it’s the biggest college-related market. But what about parents and counselors? It’s a smaller market but there’s a lot of opportunity.

Feel free to mix and match these segmentation methods. For example, after some contemplation your business idea might be a membership site on Real Estate SEO for Internet marketing newbies in California. Your market will definitely be smaller than the overall SEO market, but there are a lot of benefits that come with that. We’ll get into those benefits now…

3 Reasons Why Going Niche Pays (Literally)

It’s natural to feel like you need to maximize your audience and get as many customers as possible to build an online business empire. While it’s true to an extent that a bigger market means more potential, working in a general competitive niche doesn’t necessarily mean more dollar signs, especially if you’re a small independent webmaster.

In fact, the opposite is true. For Internet entrepreneurs, it pays to go niche and focus in on a smaller subtopic. We’ll go into the reasons why here.

1. Easier to distinguish yourself as a leader
What’s easier – to compete with hundreds of established sites and break into a larger niche or to tackle a smaller niche and be one of the bigger players from the start? I think the answer is obvious. Starting an online business in a smaller sub-niche means that there’s less competition and more potential. Sure your overall market will be smaller, but you’re much more likely to dominate it and establish your brand as the market leader.

As I mentioned in a previous post about how to build a brand, branding is becoming increasingly important and is crucial for surviving in the business world online. By being one of the first in a sub-niche and owning a segment of a market, you’re known for something – and that’s a heck of a lot better for your brand than being mediocre at everything and being known for nothing.

Furthermore, attacking a smaller sub-niche means that your business can specialize in something – which means that you’ll position yourself to be an expert in reality (hopefully) as well as by perception. For example, search engine marketing firms have the time and resources to be experts in the marketing sub-niche of SEM. Not only that, but because they’re specialists, they are expected to know more about the field than general marketing agencies. Image is everything and specialization gives you a head start in being the leader. You just have to be able to live up to the role.

2. More defined target audience leads to higher conversions
As I mentioned before, it’s impossible to please everyone in business. You need to focus in on a target market and work in satisfying customers’ needs. By working in a smaller sub-niche, you’re attracting a specific audience that can relate to your marketing messages and has more interest in your products and services. Because of this, you’ll see a more loyal following and higher conversion rates.

For example, if someone was an avid X-Men fan, he’d probably be more interested in a site dedicated to X-Men than he would be in a site covering all of Marvel comics. The X-Men site is more focused and targeted towards what the user is looking for.

The conclusion? A site dedicated to a smaller sub-niche means more targeted customers – which results in higher conversion rates and bigger income.

3. Better positioning for future expansion
Not only is a smaller targeted site easier to start and get off the ground, it also presents greater opportunities for future expansion. Why? Because a targeted site has a focused brand and following which it can leverage to grow into new areas. Why do you think Yelp was able to expand past San Francisco? People saw that it was popular in one city and wanted to utilize it in others as well. Similarly, a small established blog about penny stocks can more easily expand to Forex trading and beyond – a much more effective tactic than covering overall “financial trading” from the start.

The step-by-step expansion approach utilizes leverage to maximize results. By starting small, you carve out a niche for yourself and you can then take advantage of your site’s reputation and brand equity to slowly branch out into areas

Final Words

A lot of the “gurus” like to tell you to “shoot for the stars” and play in competitive markets with the most people. This is pretty much online business suicide. The competition will eat you up and you’ll be lucky to see any growth at all.

By focusing in on a sub-niche, you have a greater chance of not only surviving, but thriving as a market leader and pioneer. Your specialization will attract highly targeted and loyal customers who will give you preferential treatment and thus increase your conversion rates. Although you may initially think that you’re limiting yourself by going niche, you’re actually paving the way for future growth opportunities as well.

It pays to go niche. Start small, and you’ll see big profits. What have your experiences been in this regard? How did you start off in the online business world? If you could go back in time what would you do differently in selecting your niche?

Hopefully, this is an eye-opening article for many of you. I’m planning on launching a new membership site related to the topic of niche discovery and research very soon (sometime in mid-May). Stay tuned. It’s going to be BIG and you won’t want to miss it.

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