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Successful Internet Businesses

April 24th, 2003 · No Comments

The titel of this Business 2.0 story – How to make Money on the Net – caught my attention. It was the subject of a seminar we had conducted in Mumbai in August 1995! The article discusses the strategies of 6 companies:

The Cross Selling Machine: Wells Fargo
The Deal Monger: Restaurant.com
The Opinion Catcher: Harris Interactive
The Entertainer: Skyworks Technologies
The Minimart: E-Trade
The Low-Cost Alternative: United Online

Successful Internet companies, Yankee Group analyst Robert Lancaster says, exploit the Web’s unique ability to attract and engage. “They’re building profiles of their customers, understanding what they like to do, and delivering a service.”

Yesterday, I received William Gurley’s latest newsletter about dotcoms that are working. His reasoning:

1. They werent bad ideas. In fact many were good ideas. Were there too many consumer startups? Yes! But there were also too many software companies, semiconductor companies, telecom equipment companies, and the list goes on and on. As we later learned, over-funding (i.e., too many startups with too much capital) was the key issue, not the particular investment category. Low-cost, high-scale marketplaces do in fact exhibit increasing returns. And these marketplaces have incredible “moats” (to borrow a Buffetism), that represent unprecedented barriers to entry.

2. Rationality set in first. As the first to fall, consumer Internet companies were the first that were forced to recognize that money is not in fact cheap, but expensive, and that profitability is the real goal to the game. As such, these companies adjusted and learned lessons earlier than most. The results are apparent.

3. Quick capacity reduction. Unlike many other sectors, capacity adjustments come quite quickly in the consumer Internet space. There is no such thing as a web site that is selling ads at a discount just to help offset fixed costs. There is also no heavy “infrastructure” that negatively affects the industry dynamics.

4. Internet growth is systematic, not cyclical. Consumer spending may be down 5%, but online spending is still such a small percentage of overall consumer spending that growth results from the continued increase in online usage. With IT expenditures already at 50% of corporate capital expenditures, the opposite is true for traditional information technology spending.

Gurley’s last line says it all: “Perhaps being a dot-com isnt so bad after all.”

Tags: Management

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