Aloha means goodbye, but it also means hello. Aloha is a good word for this period of time in the Internet economy.
It's fitting because this week I've been on the Big Island of Hawaii, delivering my schtick at Thom Reece's E-Commerce Conference & Exposition. I spent an hour going through the lessons of the fall - that you need to integrate bricks and clicks, that all valid sites are world-class (even in small worlds), and that the key asset (and limit) for every Web business is time. If your time can expand the value of someone else's time, you're creating value, and your profit depends on your ability to exploit that value.
So how do you do that? You go back to the basics. For an Internet company that doesn't just mean the basics of business. It means the basics of the Internet. Drop the big offices and embrace virtual organization charts, I said. Empower people, encourage and channel interaction, then make that available as a searchable database. Use stock (yes stock) to create confederates out of your key people. These are the basics.
The basic forgotten in the boom was scale. Fulfillment was scaled beyond sales, and marketing was scaled beyond reason. Profit was forgotten in the race for market share - no thought about whether there was a market or not. The winners were small businesses that didn't forget the basics, and those that acted like small businesses.
So you scale appropriately, you market cheaply, and you protect your good name by doing good, so your positive online notices will overwhelm any negatives. You understand that on the Web it's credibility, not market share, which counts for most. If you hose someone to get ahead it will bite your credibility, so don't waste your time fighting for the last dime - make sure there's a flow there to divvy-up instead.
I also described the move to broadband, which is slower than you think. In 2008, for instance, 6 of 10 Internet users in the U.S. will still be on modems, so don't get ahead of yourself, I said. There will be lots of different routes to broadband - DSL, cable, wireless, satellite, even fiber, meaning competition will keep prices down. Moore's Law will let new providers profit even while prices fall - this is truly a win-win-win.
The old rules still apply, or more precisely the old rules apply again. You do what you're passionate about, you offer it up, and your market will find you. If you follow your heart, keep your costs low, get adult supervision when needed and share the wealth with your confederates you can still build a great Internet business.
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Takes on the News
The Next Market to Fall
It's easy to call the fall of Webvan, even of Amazon and Yahoo. Here's a call that may surprise you.
Verisign. The company has already fallen in price from $300/share to $50, despite its acquisition of Network Solutions . The company tried (and failed) to earn big profits selling Digital IDs, and saw NSI as a way to up-sell its core product to a captive market.
But NSI's corporate suite has collapsed and the roll-out of new Top Level Domains (as well as new national domains) should finally puncture the last Bubble, namely that of domain name speculation.
Verisign has tied itself tightly to this speculation (as have other registrars) but a rapidly increased amount of supply in a slow-growing market must eventually mean game over. The market hasn't collapsed until now because the intrinsic cost of a domain ($20-35/year) is so much less than its potential value .
The popular assumption today remains that you should buy every domain name you can. This is the sure sign of a mania - everyone is buying. The market's crack will be sudden and complete. Verisign will be part of the rubble.
The Underlying Reality Is Good
My friend Russell Shaw and I have a running argument over the future of e-tailing.
He's convinced it won't amount to much. "I wonder what the maximum penetration of certain online shopping categories would be," he writes. "Toy-shopping is largely a shin-kicker -- "Mommy look!" -- experience." He's even more down on Webvan. "We will always have online ordering for gourmet items and wine, but as far as an all-encompassing Webvan-type operation, logistics are too daunting."
The reality is quite different. Last year was fine and the future looks rosy . The problem is that VC-fueled "first movers" like eToys were forced by the Internet Bubble to scale for revolution when we're really seeing an evolution.
Small online businesses that know their market, target their market, and concentrate on customer service have been profitable throughout the last two years, and they will be able to gain share by investing internally-generated profits rather than fickle investment money. Brick-and-click retailers can invest using internal profits, but they will have big scaling problems. How big a warehouse do you build? How much of the store's market will go online, and how fast? How much patience does the board have when dot-bombs are going on all around them? These questions will restrict the growth of branded competition.
Small retailers, like small ISPs, ignore distractions and concentrate on customer service at a profit. That's the strategy for success, and it always has been.
Everything is Political
There was a belief last year that "independent agencies" like the Federal Reserve Board and the Judiciary were not political.
Those beliefs have been shattered. The Supreme Court decision in "Bush vs. Gore" shattered the judicial myth. The Fed's actions over the last six months shatter the rest.
The Federal Reserve Board refused to act on interest rates, despite ample evidence the economy was softening (due to high energy prices) throughout the election season, claiming that would be "political." As soon as a politician of the Fed's favored party was in power, the agency acted quickly to cut rates. (Had a Republican Administration been threatened last fall, the Fed would have cut then.) But (and this is the important part) the action came too late. The economy is now in a real recession, and the deeper we go the harder it is to turn things around.
No politician has identified the cause yet (energy prices) so no cure is yet being offered. The recession itself could prove a "quick fix" to the problem by cutting energy demand, but that would come at the cost of capping future growth. Without a long-term cure the next recovery will be short-lived, because it will increase energy demand, causing prices to rise and leaving the recovery stillborn. The long-term cure includes a rising floor under energy prices and tax advantages for renewable energy. That's the only way to generate the investment in renewable sources needed to prevent the next oil shock. A Gore Administration would have finally come to this realization. The Bush people will deride it as "picking winners" and thus peg all of us as losers.
What can you do? First, know that everything is political and don't believe anyone who tells you different. Second invest in cutting your own energy costs, with telecommuting (passing costs to employees) among the quickest fixes you can impose. Third realize that profit is key so cut without remorse. If you're cut use the time wisely, building a life (not just a business) that will sustain you physically on minimal income and psychologically through online relationships.
Clued-in is Alistair Cooke (yes, THAT Alistair Cooke.) He understands history, the Internet, and human nature. Genius is not an age, it's a state of mind, and he has it.
Clueless is the Internet Advertising Bureau, for claiming its new bigger ad standards are somehow better for consumers. They're just clutter but the market will decide how much of that people will tolerate before turning off the medium entirely. Oh, and people won't tell you they don't like your pages - they just won't go there anymore. So you measure the impact by looking at traffic patterns. (Based on AOL's experience, people will take a lot more clutter than they've been getting.