On Management

Dec. 21, 2004
Can the dot.coms defy gravity?

Every periodical or new Web site I peruse these days seems obsessed with some form of "e-marketing" or "dot.com" development. The amazing thing about most of the stories is that, somehow, because of the power and reach of the Internet and the explosion of computing technology, the basic rules of business and marketing are believed to be no longer valid. It's a bit like suspending the laws of gravity temporarily in a flight simulator. The upstart companies seem to think that if they can fly high enough, fast enough, and reach enough people and attract enough investors (who also will suspend belief in the basics of business and marketing), they can defy gravity. Well, I have some bad news: They can't. Start-ups are exciting and investors flock to them in the hopes of finding the next Yahoo! or eBay. But for every highly publicized home run there are hundreds or thousands of strikeouts. Seldom do the business magazines cover the failures. Consequently, the perception of the investing public is that all of the Internet e-commerce start-ups enable early investors to strike it rich. This mentality is reminiscent of the 19th-century California Gold Rush. The stories spreading eastward made it seem that the gold was just waiting to be dug up by new settlers. Many flocked to California only to discover that the gold was sparse and only the most persistent-and luckiest-found enough to make a living. Few really struck it rich. The same is true for e-commerce stocks. Mind you, I am not talking about companies such as Cisco, Nortel, or Lucent. These are Internet infrastructure companies that make tangible things like switches and routers. Such companies pass most, if not all, of the traditional tests of financial viability and attractiveness, with the golden aura of the Internet as a bonus. America Online Inc. (AOL) is a viable, profit-making enterprise. So is Yahoo! Inc. Their brands alone are worth a lot of money, as are many widely known brands. If this value didn't exist, media powerhouse Time Warner Inc. wouldn't have considered AOL a suitable merger partner. But it wasn't always so. At one time, AOL was almost a bad joke-"America on hold," home of the busy signal. Early investors had to weather a waiting period, but AOL's economic model was much clearer than that of many of today's billion-dollar babies. Companies such as Webvan Group Inc., which offers home delivery of groceries, may make it, but the evidence to support its viability thus far is slim at best. Ventures such as Priceline.com Inc. are battling to protect the only thing that makes them valuable-a questionable patent on the concept of buyers stating the prices they are willing to pay and sellers fulfilling the order-if, or when, they can. This is precious little upon which to bet billions. In the era of e-commerce, speed and innovation beat analysis and deliberation, and building a brand can be done in months instead of decades. Any company that thinks it can ignore e-commerce and the reach of the Internet is just as foolish as one that thinks the Internet suspends the basics of business. E-commerce permits one-to-one contact with consumers and rapid feedback on how they like a product or service -- no more waiting months for market research reports. E-commerce allows sellers and buyers to share information openly and make decisions rapidly and collectively. The challenge for management is to figure out how to capitalize on this before the competition does. It is a whole new world. Principles learned over decades must be retested, refined, and applied in less time than it took the old calculators to run a "net present value" computation. To master the era of e-commerce, you have to be bold, brave, prudent, impetuous, mature, and childlike -- all in the same week. Are you ready? If so, hang on for the ride of your life.
John Mariotti, a former manufacturing CEO, is the author of Smart Things to Know About Brands (1999, Capstone Ltd.). His e-mail address is [email protected].

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