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The electronic commerce landscape has changed radically since 1995. Alas, many investors and venture capitalists haven't figured that out yet, and smooth Web development outfits have convinced some to fool away their money investing in e-commerce opportunities that don't exist.

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Electronic Commerce Trends

The Internet Company is Dead

by Charles Morris, June 12, 2000

Companies that use the Internet, however, are red hot.

Note: This page is a mock-up or replica of an article that I wrote for the (now defunct) Web Developer's Journal, and it is here solely for you to admire my writing. The links no longer work, and some of the information may be out of date (while some may not be).

What's an Internet company?

  • Companies that sell products and services to the Internet-using community, such as Yahoo and Netscape, are definitely Internet companies.
  • Companies that provide hardware and software for the Internet, such as Microsoft and Sun, are partially Internet companies.
  • A company that sells products or services over the Internet is not necessarily an Internet company. Just because you use the phone for your business doesn't make you a phone company, and neither does using the Internet make you an "Internet play".

That's worth remembering these days, when we've just seen a feeding frenzy in which investors, in the words of one analyst, "threw money at any company with a Web site". Well, they've lost their shirts now, haven't they, the greedy buggers! During the past year's madness, hundreds of companies with dubious long-term strategies, or none at all, were set up to cash in on the money men's appetite for "Internet companies". Many quickly went belly-up, and the rest will soon follow.

Back in the early days of the Internet, a lot of people set up companies based on their Internet expertise alone. They concentrated on figuring out how to sell stuff over the Internet, and worried about what they were going to sell later. At the time, this made a certain amount of sense. In 2000, this strategy means certain failure.

A perfect example is provided by the dozen or so pet supply Web sites that cropped up in what will probably prove to be the last wave of such ridiculous recklessness. "We'll sell pet supplies over the Web!" they shouted with glee, the money men got swept along, and billions of their dollars got swept away. In their haste to sell something - anything - online, they overlooked the half-dozen other outfits that were also attempting to slap a dot-com onto this low-margin business, to say nothing of the fact that there was, and is, nothing to prevent the established pet suppliers from setting up e-commerce sites of their own and quickly burying the underfunded upstarts. Bye bye, pet supply sites.

Ah! you say, but Amazon was the archetype of an Internet-centered upstart, and they've been a big success. Or have they? Their stock is now worth about half what it was at the height of "the madness", and is unlikely to go anywhere until they report a profit, which seems as remote a prospect as ever. Of course, success is not to be judged by stock price alone, and most of their customers would probably attest that they have been successful in terms of delivering a good service, building a strong brand name, and furthering the cause of e-commerce in general.

Amazon succeeded where a thousand others failed for a couple of reasons. First, they simply built a high-quality site. Unlike some ambitious e-commerce sites, Amazon's ordering scripts actually work, and the books usually get there on time. But their real edge was simply timing. They got into the game while the big booksellers were sound asleep, and their Web expertise gave them an edge that few organizations had in those days. By the time their bricks-and-mortar competitors realized what was going on, Amazon had established a beachhead from which it may prove impossible to dislodge them.

Since those glory days, a couple of important things have changed. First, the old-line bricks-and-mortar companies have begun to understand the importance of the Internet. Unlike upstart "Internet companies", these mature behemoths don't have to spend huge sums attracting new customers. They've already got the customers. And they don't have to worry about whether their Internet operations make a profit. They've got plenty of cash flow from their existing business to subsidize their new e-commerce ventures for decades if need be.

The second important factor is that there is now a substantial pool of Web development talent out there, available to anyone with the dollars to pay. In the early days of the Web, tech talent was priceless, as a well-designed Web site could put you head and shoulders above your competition. Fortunately, nobody realized how priceless it was, and talented techies slaved away for pizza and stock options, building all kinds of public-spirited sites before the tide of money rolled in. Nowadays, any organization with a fat treasury can simply hire all the Web talent it wants.

When and if a big "old economy" company decides to dive into the Internet, all they need to do is get out their checkbooks and build themselves a state-of-the-art Web site.

Late start? Maybe, but who are you going to bet on: the hare with a dwindling pool of VC money, or the tortoise with billions in cash in the bank?

Corporate culture shock? A very real factor that has crippled many large organizations' Web efforts (see Bruce's recent rant, (How Corporates Poison Their Own Web Efforts). But being big doesn't always mean being stupid. Wise CEOs will give their Web divisions the necessary autonomy to get the job done, and keep their IT and legal departments muzzled, setting up the Web team in a different country if need be. Organizations that succeed in doing this need lose no sleep over spiky-haired barbarians at the gates. They'll have their own barbarians to guard them.

As revolutionary as the Internet is, in the end it is simply a tool, yet another handy way to deliver media or sell things. If you have a product or service to sell, then by all means sell it on the Internet. If you have lots of Web knowledge, but no product to sell, then set up as a Web design shop or an ISP, because you do not have an e-commerce business.

A solution in search of a problem. A cart sitting in front of a horse. Lots of sizzle and no steak. A lot of buzzin' going on, but no honey in the hive. These are just a few of the bons mots that describe many so-called "Internet companies". The moral of the story? Beware of any company that talks more about how they're going to use the Internet than about what they're going to use it for. The Internet is no longer a secret. Everybody's using it, and the economics of starting a business have reverted to what they were before 1995 - For a new company to take a bite out of a large, long-established industry player's business is almost impossible.

So, are there no more fortunes to be made? Au contraire. The Internet has become a critical part of doing business, and the process of utilizing it to its full extent has only begun. Companies that leverage the power of our worldwide computer network will gain a tremendous edge over their competitors. Although most of the "old economy" organizations will figure this out eventually, some will not, and they will die. Along the way, technology will open up whole new types of businesses that didn't exist before, and upstart young Turks will find plenty of opportunities to do what the Amazons of the world did back in 1995, although in other areas. Just remember this: As you place your bets, keep an eye on the calendar, and keep chanting to yourself: "This is not 1995...This is not 1995..."

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