Likely Success of Internet-Related Business Models?

guess-for-success asks: "In Lester Thurow's latest book, published by HarperBusiness Books (Fall 2003), Fortune Favors the Bold: What We Must Do to Build a New and Lasting Global Prosperity, there is a chapter which discusses the beginning of new industries. During this time, several business models are introduced and only a few will survive. Looking at the PC industry, Commodore was the industry leader in the 1980's, but ultimately failed and went bankrupt in 1994. Successful business models such as Dell were not introduced until years after the industry began. I now ask the Slashdot community: which internet business models they believe are going to succeed? Which companies will rise to the top? Will they be infrastructure related companies such as Cisco and even FedEx, or will they be true dot.com's such as eBay or Amazon?"

"You can find out more about Lester Thurow here. He is a professor of economics and management at the Massachusetts Institute of Technology and has been the Dean of the Sloan School of Business at MIT. He has three New York Times best selling books to his credit and consults widely around the globe."

Comments

Blown away, already? We need a local cache!!!

[no_such_user]

*Already* this site is /.'ed beyond usability. It's too much. Slashdot needs to provide a local cache of pages it links to, for all non-major league sites. To not do so is irresponsible - and makes the point of posting the links at all pretty much moot.

Google has the right idea

[Anonymous Coward]

You do one thing (in their case) and you do it well. Then you use that one thing to make money.

Re:Google has the right idea

[Saint Stephen]

Google's search results for some searches are awful. I believe that google will fail utimately just like Yahoo, altavista, hotbot, excite. Making money and sucking are inverse qualities. Once they start to fiddle with the results to make $, people will get turned off and leave.

I've already started to use Teoma.

Re:Google has the right idea

[squiggleslash]

Google doesn't stand still. They keep adding to the service, what they don't do is screw with the core product.

I find it interesting that Commodore is given as an example of a failure. Commodore had ups and downs throughout the eighties, going into Chapter 11 on at least one occasion. For the most part, it was merely managed badly and once Commodore was able to get the Amiga on track, it did very well.

Where it went wrong was, ironically, in thinking that it needed to ape Dell. During the late eighties and early nineties, it came out with a series of Commodore-branded PCs, believing that it needed to keep an oar in that market in case the Amiga golden-goose stopped laying its eggs. This was disasterous for a couple of reasons: Amiga development revenues were diverted to PC development which meant the Amiga slowly became less revolutionary compared to what else was in the market, and the PC industry was already a commodity market - you couldn't make money there unless you were very lucky and Commodore was further hampered in that respect by having a name that didn't play well with traditionally conservative PC buyers.

Had Commodore avoided that kind of diversification, they probably would be around today. The Amiga would probably not be their base product (though, like the Mac, the name may have stayed for products that do not resemble the original in any respect), but the fact that it had a good name, was a "different choice" that would have attracted people who do not want Windows, and would have ensured Commodore had control over their own platform, would have meant the product would have had substantial reason to succeed.

Never underestimate the power of bad management decisions to kill a good business model.

Re:Google has the right idea

[Saeger]

Teoma's a great backup search engine, but it's missing Google's usenet groups, image search, and the cache. I use those things daily.

The only way I can envision using Teoma, or some other SE as my primary, would be if Google has an IPO this year (please, no!) and self-destructs because of short-sighted shareholder greed.

--

Re:Google has the right idea

[frisket]

>You do one thing (in their case) and you do it well. Then you use that one thing to make money.

Amen.

>Will they be infrastructure related companies such as Cisco and even FedEx, or will they be true dot.com's such as eBay or Amazon?

It doesn't matter, so long as they fulfil the Golden Rule:

You have to have a real product or service to sell (ie not vaporware), which people really want to buy, and you have to deliver on your sale. It doesn't matter whether you have 10 customers or 10M, because there are different scales you can use for different business models, and the Internet can cope with almost all of them.

You can tell the failures instantly: they're the ones whose Web sites or corporate literature spend more time talking about "our investors" and what a wonderful company they are for investing in, than in describing and selling the product or service.

American corporations have simply forgotten how to sell (and European ones never knew anyway). They are going to have to learn [all over again].

Re:trusted computing

[bhtooefr]

Trusted computing gives control of YOUR computer to the company that made the software or hardware. It means that the company can trust the computer. You can't trust a TC computer.

Re:trusted computing

[pheared]

I don't consider jumping on the latest tech fad to be a sound business model.

Try creating something new for a change.

And further, people don't want to hear it because they happen to value their freedom. They would rather be more constructive than destructive.

Get in?

[groves]

Get in or be left in the dust? You mean follow suit like all the other dotcoms did in the late 90's?

Gold rushes without stopping to evaluate the true ROI rarely yield results. Better off buying lottery tickets w/ next week's payroll.

The old business rules still apply, more than ever

[tekiegreg]

What makes a business work you ask? Well let's analyze some of these examples:

• Amazon: Found a need for an online bookstore where there was none, and capitalized on it...
• Fedex: Found a need for overnight delivery service where there was little, and capitalized on it...
• Cisco: Regarded as the highest quality maker (tho some may contest but the reputation is there) of networking equipment, realizes the need for the best hardware for the best systems...
• Ford Motor (my pick): Recognized a need for cheap automobiles and capitalized on it...

Now the negatives:

• Commodore: Entered an industry well penetrated by apple, IBM, Tandy (back then) and company and tried to play along, didn't make it....
• Webvan (my personal pick): Tried to make it in an online grocery world where profits are slim and competition in related industry (traditional grocery) is fierce.

See a pattern here?

In short, to launch a successful business, you need to have a core competency in mind, that is an idea that is:

• Rare
• Unique
• Hard to duplicate
• Hard to substitute

If you have that, and all the other elements of a proper business (good management, proper quality, good promotion, etc) fall together, I should see no reason why a business couldn't succeed. I'll defend this against any reply or email to the contrary.

Anyways there's my 2 cents from a person who just graduated with a Bachelors in business, I'd love intelligent replies from people who think otherwise, thanks!

bad example and poor question

[Anonymous Coward]

Commodore went out of business because the people running the company were corrupt and stealing from it - ask any Amiga fan ;)

The internet is just a thing , you know? If you have a product/content people want, they will buy it.

Re:The old business rules still apply, more than e

[hey]

What about Dell and Walmart. They don't do anything
rare, unique, hard to duplicate or hard to substitute but they are huge successes. Why?

Gold Rush

[core plexus]

Take a lesson from any Gold Rush in history: the people supplying the shovels, sex, and other services were the ones who really got the gold. Let that guide your business model.

-cp-

President Bush to Liberate Alaska!

Remember when...

[sparklingfruit]

yahoo, excite and hotbot were called search engines?
And Amazon sold books, and did it well?


Then somebody said "Portals" and they became "portals".
Then somebody said "Auction" and they all followed e-bay.
Then somebody said "e-commerce" and they all started selling everything.

And books became Amazon's sideline to their patents on everything but the color of money. And their site became a Navigational Nightmare(TM) (patent pending).

Now everybody wants to be a search engine again.

The reason Google is succesful is because it does it gives people the information they want, and stays the hell out of their way.

Re:Amazon is where it's at

[Simonetta]

Amazon grows because it partners (only English lets you make a verb out of a noun, or modify one type of word into another easily. That's why it's the most flexible and most important language in the world) with its customers to create a service that is more valuable than the retailing alone.
By allowing its customers to contribute on-line feedback about its products (that is, people can upload their opinions about the books that they have bought; positive or negative), Amazon has created the model internet business. Customers work with Amazon to deliver better product and service to other customers.
It helps that Amazon is big enough now that it doesn't have to worry about Betelsman sueing it out of existance every time someone writes a less-than-positive book review. Compare that the dasmo (Dumb-As-Shit MOtherf---ers) Anti-virus company that included a clause in it EULA that prohibited anyone from saying anything less-than-positive about the product in any public forum (including a web site with ten hits in a year).

Generally internet companies take the first step to success when they have the epiphany that their customers are all smarter than they are. But since that happens to so few companies, internet successes remain few and far between.

Thank you,

Re:Let's See...What have we achieved so far

[2nd Post!]

You mention iTunes MS but forget the iPod and Mac product lines which is the real money maker for Apple.

WalMart and Microsoft stores don't *follow* Apple's internet business model.

If the next bubble is content, you need to device a profit center. The internet is good at distribution, therefore removing the costs associated with it. I suspect the next bubble is not so much content, but content awareness: If Apple can make it easy to find stuff you like amidst a sea of choice, then you will keep using iTunes MS and a future prototypical Video Store.

The money of course is when you buy a device to store/facilitate all this content. A video iPod is about as likely to occur when you start seeing 300 disc DVD changers; then Apple will produce the digital equivalent, iPod2, which can store 300 DVDs in a convenient footprint and equivalent quality.

Business Models and Reality

[salesgeek]

I've owned three companies, so I'm no master of the art of building businesses. What I can tell you from my experience is The "Business Model" rarely is responsible for success or failure. Blaming failure on "the model" is about as accurate as say, blaming the OS for a complile time error in your code. Reality is there are very few business models. Here are some examples:

* Comodity service, periodic (annuity) style bill.
* Distributor
* Reseller (buy, markup, market, resell)
* Service - flat fee (I'll do that website for $50K)
* Service - hourly rate (I'll bill you $150/hr)

The top causes of business failure are well documented. If memory serves correctly here are five top business killers:

* Undercapitalization - Not enough jack, jack.
* Demand Over/Under estimation - Build it they don't come... or too many crash your party
* Fraud & Embezzlement - Where did the money go?
* Cost overruns - 50% of the budget on furniture? Eghad!
* Poor sales - We're a ____ company. Our product is 733t. We don't need to sell anything.

Most of these mistakes are fairly easy to make and usually gang rape the business owner - as in you are undercapitalized because you underestimated the demand, cant produce enough widgets to fill orders and are experiencing legal expenses because you overpromised and underdelivered.

no, you really CAN trust a TC computer...

[rbird76]

...to screw you over and take away your rights and freedoms in ways that give dictators wet dreams. TC wants to control what people see, whether they can print or save it, listen to it or watch it, and where they can do so.

Science is built (at least in part) on the concept of reproducibility - people can generate results and ideas previously seen by others and thus verify their truthfulness. This filters into how a free society works - people gather information, and others attempt to verify it and act on that which is verified. With TC, and the differential permissions it allows, one cannot necessarily verify information collected by others, thus disabling individuals from distinguishing between truthful information and lies. (By disabling the ability to transmit content, it isolates those who have the information and judgement to distinguish fact from lie from others while allowing them to be found.)

TC will likely be difficult to hack. If it can be hacked, it dies. If it can't be hacked, it gives a lot of power to people in high places who have already shown that they can't be trusted. Giving a lot of power to the untrustworthy (and even if they could be trusted, with that kind of power, they won't be trustworthy for long) so that I can pay to watch movies and play music on my computer (or pay for whatever else someone wants to sell me) doesn't seem like a good deal to me, but I guess the TC people are big believers in Barnum.

All your rights are belong to us. And you even get to pay for the privilege.

As someone else put it before, TC says "We don't trust you. You have no choice but to trust us."

Re:The old business rules still apply, more than e

[Justice8096]

Actually, that is only one business model. Loosely stated from my operations management book:
1. When a new idea is found, the initial companies need to move in fast and get name recognition. Sponsoring events, Charity work, etc. is the Advertising medium used here.
2. Once a demand for a product has been started, companies need to provide quality, which they can charge more for. Word-of-Mouth is the advertising media here.
3. Once the market has developed enough customers, companies need to provide low price products. Advertising sales works here.
4. Once all 3 are fulfilled, a company needs to dominate via saturation and economies-of-scale. Word-of-mouth and advertising sales work here.

The examples for department stores are:
1 is Sears, Gimbels, Macy's etc...
2 is Nordstroms, Nieman-Marcus, etc...
3 is KMart, etc...
4 is Walmart.

Eventually, there is only room for stores that fit 1, 2 and 4. In terms of internet firms, if I am buying on impulse I'll go with Amazon or Travelocity, because those companies are the first I think of. There are plenty of firms that will sell things for cheaper prices, and I'll use Google to search for them if I don't like the price I found initially. But I don't know of any companies that started on the Internet that have a wonderful service or quality reputation where I would shop which would fulfill 2. And as of 4, I don't know of any company that I would trust to always have the product I want.

Re:My experiences with tech business trends

[Dalcius]

This is question I've wrestled with for a long time.

I think it boils down to one thing: people just don't care.

Corporations grow so large that instead of long term gain in mind (making the customer happy), they try to find each and every way to improve the bottom line.
Minimize inputs: employee pay, design/research time, manufacturing/testing time, customer support.
Maximize income: lots of marketing (IMAGE is everything), high prices, lots of control over the end-product after it's left the shelf.

You get bombarded with ads to buy crappy products, made by overworked and underpaid people, and as an added bonus get to fuss with control measures that make it difficult to switch to a competing brand. Cellphones sound familiar? CDs?

And everyone eats it up because they don't care. Capitalism works if the consumer is interested in looking out for himself, but these days most folks are completely happy to give everyone their money and say "Take care of me." This is why nobody sells a product anymore, they sell a "solution."

Politics is the same. Nobody takes a vested interest in taking control of their lives and exercising their own power. People contract with the cellphone company that promises them the best service, pay loads of money and then get reamed and the same is true with politicians. People elect politicians who promise to take care of them, happily turn over 20%+ of every penny made and most end up hating the government.

Nobody cares. Society has no problem giving up every dime if someone promises to take care of them -- but it's rare that anyone is held accountable.

I'll end this with a favorite quote of mine:
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen." [Samuel Adams]

Need to be hard to replicate

[Stuntmonkey]

To become a business that succeeds over the long haul, you need to become difficult to replicate for some reason. Fundamentally there are only a few ways to stand out, and not all of these are necessarily viable strategies for a given market:

1. Low cost
2. High quality
3. Monopolistic control of a scarce resource
4. Privileged position in a market with network effects

Companies that undoubtedly have a defensible position include:

• Walmart. They are the largest player in a market that is scale-dominated, so they have an automatic advantage re: costs.
• Microsoft. Bill's genius was his early understanding of the importance of network effects, and then using them to catapault the OS and Office products to market dominance.
• Mercedes-Benz. Quality is a difficult dimension to gain a defensible advantage along, since intellectual assets are easy to imitate (IP rights to too temporary and too specific). One way to do it is build a brand cache that maintains over time. I might also put Sony and Apple here.
• Shell oil. They control scarce resources (oil rights) that make them hard to replicate.
• eBay. The auction market is a network-effects market if there ever was one, and eBay has all of the business.

Companies that are iffier:

• Dell. They are a low-cost producer, but are doing it through intelligence rather than scale. Until they get scale, intelligence is too easily copied.
• Google. They stand out in terms of quality, but a smart competitor with equivalent technology could easily pull users away (remember Altavista?) so this isn't defensible in the long run. What they should try to do is convert their market into one where their scale gives them an advantage, but they haven't done this yet. For example their approach toward sponsored links doesn't give them a scale advantage, since they are compensated on a per-clickthru basis by their advertisers (so as an advertiser I would be just as willing to pay Startup X for this service). It's possible that their service will become sophisticated enough that only they will have the scale needed to build the infrastructure to deliver it (the situation the large chip fabs are in today).
• Amazon. This is a tough one. While they don't have scale dominance in terms of volume relative to Border's etc., they certainly have the largest mail order retail distribution system in their target markets. So Border's etc. may not be able to compete with them effectively if it turns out that distributing to individuals is sufficiently different from distributing to stores that their scale in the latter can't advantage them in the former.

Re:Need to be hard to replicate

[eschipul]

I agree with your points 1 through 4, but I would like to point out that all of the successes you listed are strong brand names. The frog-men of Madison Avenue may be odd, but they are very good at working towards creating long term value through a strong brand. OK, PR starts the brand but you know what I mean.

The biggest issue with branding is that it takes time. 10 years from something I read, which sounds about right to me. So successful online companies need to profitably survive for at least 10 years to create a strong online brand. People pay a premium for one Coke for a reason.

But again, great points on the defensible position, I just wanted to bring in the concept of branding as part of the GOAL for a successful long term business.

Amazon

[WatertonMan]

I'm truly impressed with how Amazon has improved over the years. I actually did something like 90% of my Christmas shopping through Amazon buying sheets, books, bathroom stuff, lingerie, winter coats and more. It was very convenient, somewhat like a shopping mall experience without the crowds and with very good information online. Now I'm rather spoiled by brick and mortar experiendes (although clearly they are important for some products).

The thing about Amazon is that they haven't sat on their laurels. Digitizing whole books and making them searchable is invaluable and basically mimicks that old ability to browse books.

I worry though that we'll end up with these large super-conglomerates who hold whole market segments, somewhat like Microsoft achieved in computers in the 90's. The only real competitor to Amazon for books is Barnes and Nobel, but Amazon's really beating them in many ways.

Re:The internet and business model are no differen

[srleffler]

Frankly Amazon.com is nothing more than a large catalog mail order store. Its just that the catalog and much of the ordering process has been automated by computers.

I think that this underestimates the significance of what Amazon has done. Your typical pre-internet mail order store took six weeks to deliver an order from the time you mailed it in, and had a much more limited selection of items. Amazon's key innovation was speed: they have a huge stock of items that can be shipped in less than a day, and their order fulfillment is extremely dependable. Because you can get an item delivered in only a few days (or 1 day if you're willing to pay extra), people will buy things on Amazon that they would otherwise have gone to the store for. Conventional catalog houses did't "steal" business from the brick and mortar sector this way. It can actually be quicker (in terms of my time) to order something from Amazon than to drive to a store and look for it, especially if the item is not guaranteed to be in stock at the first store I go to. Amazon has certainly changed the way I shop, and I suspect many others would say the same. That is a new business model at work.

Similarly, EBay has created an entirely new market for used goods, like nothing that existed before. Yes, it is similar to conventional auctions, but it draws in an entirely new pool of customers who would never have bought or sold at an auction before. That is definitely a new business model.

Re:Yes, operations matter

[alizard]

Actually, in their core competency, intellectual content, they can at least survive against WalMart.

Do you shop for books and music at the brick-and-mortar WalMart? If you're here, you almost certainly don't.

If a store doesn't have what you want, the lowest price doesn't matter.

It's widely known that WalMart selects its intellectual content to be "family-friendly" and forces publishers to censor what it does buy.

I don't buy censored books and movies and you probably don't, either.

Amazon makes its money selling to literate people, a market the WalMart doesn't even understand.