Who Shall Inherit the Internet?
What ails the Internet industry is the same thing that ails every new industry: It's difficult to tell the difference between vision and delusion. Sure, in hindsight it's easy. But where's the profit in that?
In the last couple of years, we at PENNMedia.com have had hundreds of companies advertise with us. In this time we have developed an idea or two about which companies might actually have sustainable business models appropriate for the Internet. So many Internet disaster stories abound. Admittedly, it is easy to pile on negative comments, but this was envisioned as a positive article. If you work in the Internet industry, you are not quite as eager to publicize this fact at cocktail parties for fear of being on the receiving end of a pitying glance.
But what ails the industry is the same thing that ails every new industry. There is a difficulty in ascertaining the difference between vision and delusion. Of course it is easier to discern the difference in the rearview mirror. Pets.com: delusion; GO.com: delusion; Mercata: delusion; and so on. FuckedCompany.com has made a business out of identifying delusion, albeit in the rearview mirror. People such as Paul Allen, John Chambers, Michael Eisner, David Wetherall, and a host of other pretty bright guys have not been that successful in separating the wheat from the chaff. Certainly Henry Blodget from Merrill Lynch has not been someone I would follow with any confidence.
So it is with some trepidation that from the south suburbs of Chicago, I weigh in with my company’s view. I already see the emails flooding in: “Who the hell do you think you are?” Certainly time will either make me eat my words or pave the way for a new future. Below are some ideas that I believe apply principles that will thrive into the future.
It seems to me that the Internet is ideal for the purpose of lowering transactional costs. There are several categories that fit the bill.
Customer relationship management. It costs a lot of money to communicate with customers in the offline world. There is mail. But postage, paper, lettershop, and so on are expensive. There is the phone. Even with declining long-distance rates, there are a lot of personnel costs in manning the phones. Companies that provide mechanisms to lower the costs of communicating with a client base and use the Internet seem a pretty safe bet.
Online research. Think about how all of the old-guard research companies conduct research. Mall intercepts are expensive — they take personnel and time. Doing research by phone is another expensive proposition. You need a one-to-one relationship over the phone, usually via long distance. Small sample sizes are used, not because they are so statistically impressive, but due to the high cost of gathering the data.
The Internet destroys the cost structure here. Sure “advertising costs” replace human gathering costs, but you can still lower the transactional costs. Research can be done quicker online than anything offline. Mark this as a “can’t lose” category in the future.
Sales promotions. Again, here is an area in which the Internet can be used to lower costs and improve efficiencies. I am not speaking of the type of promotions done by MyPoints or coolsavings.com (in the delusion category for being more technologically savvy than marketing savvy). I am speaking of ways to promote product launches and movie releases. I am speaking of premium giveaways. A company that specializes in this kind of Internet business will quickly be in the black because you can do this so much less expensively than offline.
Recruitment and job placement. The offline world is wedded to classified ads inside newspapers. This is not only expensive, it is a traditional business on the wrong side of a business life cycle. Recruitment and job placement can be done quicker and less expensively online than placing ads in newspapers across the U.S. Monster.com has a real business, and most of its competition is clueless as to how to get a piece of this significant pie. Put this in the vision column long-term.
The Internet is not an environment for stand-alone e-tailing operations with razor-thin margins. (eToys, buy.com, Petopia, and Amazon.com are all in the delusion category.) The areas I’ve mentioned above may not be sexy, but they do hold promise as real moneymakers. The thing they all have in common is that they take offline businesses with real clientele and lower the transactional costs for clients. This is not the only business model with potential. But it’s a beginning.
