Will Jeff Bezos be the Samuel Insull of our time?
Let me explain. Insull was a great industrialist who created today's regulated utilities as a way to conserve capital and serve people throughout the Midwest. In the process he built an empire. (Among other things, he's father of the Chicago "El" trains.) But it all collapsed in the Great Depression, and when it was learned Insull had personally speculated on his stocks he became the Great Scapegoat for his era. His trial was spectacular, and while he was acquitted he died nearly penniless and (but for this forgotten.
Bezos' Amazon is now threatened by a tax dodge, a scam really, designed to thrill equity investors. The fancy bookkeeping could, if Amazon and the economy fell, make Bezos a scapegoat for the 21st century. Simply put, he's sticking his fulfillment costs into his marketing budget to make his gross margins look bigger. Even with Amazon continuing to lose money, Bezos claims success because he has gross margins, which supposedly will one day exceed those marketing costs and lead to profits. But if your margin is absent your cost of delivery, it's no margin.
Add slowing growth, high debt, investments in other Web companies that aren't panning out, and it's now easy to see Bezos' big gamble coming up snake-eyes . (It's also easy to see Amazon's hand in the latest mergers by Pets.Com and Homegrocer - they've got to get out from under, preferably without losing the underlying businesses.) Meanwhile, analysts figure that if Amazon's no good, maybe e-tailing itself is a bad business.
The result is the renewal of a boom-bust cycle familiar to lovers of mining and Malaysian stocks. I said last year that e-tailing was not as good a business as folks were making it out to be, but it is also not as bad as folks now claim, either. Thousands of companies are making it online, as the Boston Globe recently discovered . (At the time this story came out I was researching a feature on another such success story. Those who ran businesses as businesses, growing profitably while avoiding hype and debt, are still doing fine. The fast-buck artists backed by Clueless VCs, meanwhile, have been unmasked.
The fact is the current "shakeout" is impacting only the top-end of the market, those idiots who fought for domination of an anthill they thought was a mountain. First-mover advantage only gives you a chance to participate in a long, drawn-out business game - it is a guarantee of nothing.
Now that this is obvious another false assumption is developing, that click-and-mortar plays are the only way to go. Like the first-movers, these folks only have an opportunity, not a guarantee. The failure to drive down fulfillment costs, to integrate the technology of all channels, and to concentrate on customer service will kill dot-bricks as surely as it has dot-coms.
Meanwhile the successful "mom-and-pop.coms" will, like ISPs before them, face the problems of growth. Standing still will mean stagnation and eventual acquisition. The big problem will be scaling to handle growth. While business grows arithmetically, the requirements for efficient order handling grow more suddenly. A single straw can suddenly break the camel's back of existing systems, which have to be torn down and re-built while business continues. This is where professional management pays, in operations, rather than financial finagling. Each growth spurt also requires a new level of marketing and a better handle on the money. But this is the way businesses grow in the real world - welcome to the real world.
What's amazing is that, while you'd be a fool to launch a dial-up ISP today (it takes broadband, professional hosting or a bundle of services to succeed now) it will remain possible to launch and grow an online retailer for years to come. A different product mix, a unique product, a different procurement or fulfillment story, even a different lifestyle target will always work. Again, just like in the real world.
So the new world of e-tailing is a lot like the old world of retailing. That's still a huge opportunity for those with a Clue. Amazon may or may not fail, but Wal-Mart will always be as vulnerable as Sears was.
I'm not here the next two weeks. It's time for my vacation. But don't worry. As in past years we'll have some interesting think pieces for you, right here. And when we get back, maybe there will be some announcements as well.
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I write daily for ClickZ, and weekly at Andover.News. I write monthly for NetMarketing, Boardwatch, and Intellectual Capital. I've been in Advertising Age and the Chicago Tribune .Once every other month I'm in CLEC Magazine. You can always buy my book . Subscription instructions are at the bottom of each issue.
Remember that it's journalism that keeps the Clues coming...
Takes on the News
Yahoo Tries a Comeback
I've been down on Yahoo for months so the company's two moves this week were intriguing.
Yahoo is said to have bought the services of Google based on price, but it's not true that Google is equivalent to Inktomi - it's a giant step forward. In fact Google's index is also superior to that of Yahoo.
That may be why Inktomi is still the offer for "Corporate Yahoo," , which is about three years late. Getting H-P as a re-seller for the service is good, but it's got to provide more than mere "portal" services. The future of these things is as a wedge toward becoming an ASP. Can Yahoo handle corporate computing on a massive scale? That's the only way to justify its present valuation.
Convenience Seeks Its Price
The merger of Webvan and Homegrocer is the first shot in what will become a long war over a new "corporate home delivery" market.
Outfits like Abilizer are making a handsome living in Silicon Valley handling chores for busy workers, and this will become a growing trend among Clued-in companies everywhere. Once delivery becomes a corporate perk, the industry's profitability problems disappear, and major chains like Publix, Safeway and (yes, even) Wal-Mart have to get into it. That gives Kozmo an exit strategy.
Everyone is wondering whether convenience services have a future. The fact is they do. They're proving their value, and soon they'll get their price.
Why Netizens Hate Government
The hatred of government by Netizens is a mystery to some given that government subsidy made the Internet possible. But it's not a mystery when you consider the government instinct toward control.
Even when it's waning (as in the U.S.) it's always a threat . In nations where free speech isn't guaranteed, even democratic governments can be unyielding opponents of what technology does.
The best example is Australia, where Sen. Richard Alston has pushed through the most draconian (and most widely ignored) set of laws since the U.S. 55 mph speed limit. He's at it again , this time by trying to prevent the delivery of Internet video because it might compete with broadcast monopolies. The only reason Australia isn't a technology wasteland is because Alston's decrees are ignored, and he should be glad for that. If they were enforceable, a coup in the Solomon Islands would have remained a secret.
So there is no mystery. Netizens hate government because government is Clueless. If government could enforce its Cluelessness, the Net would be brewing a revolution.
Clued-in is PC World for blowing the whistle on "sneakwrap" - terms of service subject to change without notice.
Clueless is Delta Airlines. They cancel flights, but somehow can't get the system for renewing (or changing) arrangements on their Web site - you have to go through an 800-number. (Come to think of it, Expedia has the same problem, so let's have them share this award.)
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