Internet: Revolutionary or evolutionary?

Since several of the above investment themes involve the Internet, it makes sense to separate the hype from the reality. Businesses that have staked their future on the Internet maintain it is a revolutionary technology, having a dramatic impact on work and home life. InterSurvey Inc., for example, a Web-based survey firm, reports that 25% of its respondents say the Internet has decreased the amount of time they spend reading newspapers; 46%, the amount watching television; 22%, shopping; 10%, time with family or friends (26% also report working more from home).

For economist Robert Samuelson, writing in Newsweek, these changes are not in the same league with the printing press, electricity, airplanes, the telephone, movies, television, antibiotics or automobiles when it comes to having a massive and permanent effect on people's lives. He considers the Internet an evolutionary technology, and points out a good part of the reason behind its growth is that most users are massively subsidized, paying little or nothing for its development and maintenance, and enjoying below-cost or free access.

Agreeing would be Malcolm Gladwell, writing in The New Yorker, who makes the point that e-commerce is really an extension of the mail order catalog business, dependent upon the same real world infrastructure. The building of these back office, fulfillment, distribution, transportation and delivery systems over the past 20 years was powered by other innovations: toll-free telephone numbers, widely available credit and credit cards, and volume-priced delivery services. E-commerce would be impossible without this extraordinary infrastructure already in place.

Also separating Internet hype from reality are recent issues of Money and Inc. magazines (the former with tips for investors, the latter with tips for entrepreneurs). Here they are:

THE 5 GREAT MYTHS DF INTERNET STOCKS

1. Profits don't matter. Eyeballs do. Reality: The business model most likely to work on the Web is based on selling high-margin products, not volume sales.

2. If it's a public company, it must be a real business. Reality: An IPO alone isn't a true sign of a solid business.

3. In cyberspace, the early bird gets all the worms. Reality: The advantage doesn't go to the first mover. It goes to the company which customers find too expensive or inconvenient to leave.

4. The Internet is a superior business model because costs are so low. No stores, no salespeople, no inventory. Reality: The cost savings of the Web are wildly overrated.

5. Old-line companies don't get the Web and never will. Reality: All businesses will incorporate the Internet, but few businesses will be exclusively Internet-based.

THE 7 MYTHS OF THE WEB ECONOMY

1. Building a Web site is easy. Reality: Oh, yeah? Try putting a traditional business online.

2. Traffic will make you rich. Reality: Selling well makes you rich. Traffic only provides eyeballs.

3. Smart money makes you smart. Reality: Smart money doesn't come unless you're already smart.

4. Razzle-dazzle makes Web sites great. Reality: Bells and whistles are fun but are not always functional.

5. Brand is everything. Reality: Image is fine. Sales are better.

6. Wild ads make Web stars. Reality: Just because an ad is brilliant doesn't mean it works.

7. Community, community, community. Reality: Not every business begets a cult. growth Strategies Implications: If you're not online yet, you will be soon. Just don't expect it to be easy or cheap. As

a communication medium that connects users to a network, the Net is akin to the telephone system - a ubiquitous, indispensable technology that's gone from revolutionary to evolutionary. Forgive the cliche, but like all technologies, the Net is a tool used to accomplish tasks, and as far as businesses are concerned, is more likely a cost center than a profit center.

Copyright FutureScan Feb 14, 2000
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