This Week's Clue: The Ground War
SSP (Shameless Self-Promotion)
Dad's Favorite Mistake
Are Republicans Really Anti-Government?
Missing the Story (Again)
One of my continuing themes this year has been what the Internet is doing, and will do, to the real world in which we live. I've insisted that the great changes made possible by cyberspace really don't mean much unless and until our daily lives change as a result. Those changes should be reflected in our business infrastructure.
You can see the differences easily in visiting Lands End and your local Wal-Mart. Both companies are heavy users of computers, and both have Web sites. Lands End has a huge warehouse in order to pick, pack and ship millions of small parcels. Wal-Mart ships big boxes to stores and, while it knows how many units of what move how quickly where, it doesn't know exactly what homes they're going to and it still ships these units by the gross.
In order to make its new Web site work, Wal-Mart turned to Fingerhut, a unit of rival Federated Department Stores Inc. Fingerhut will warehouse, pick and ship products bought in Wal-Mart's online store. In theory, this will let Fingerhut expand dramatically. In theory, Wal-Mart will be able to take over the chore once the site is big enough. But that second theory is wrong, unless the contract calls for Fingerhut to handle all of its Wal-Mart work separately from its other fulfillment work, preferably from Bentonville (or some other centralized Wal-Mart facility). That doesn't appear to be the case.
Federated has used its Wal-Mart contract to enter a new, hidden Internet market battle, the race to build tomorrrow's huge Commerce Service Providers (CSPs). The other major participants in this, so far, are Amazon.Com, UPS and Federal Express. UPS and FedEx are obvious players, and their strategies are obvious, too. That is, both will work within a company's existing warehouse and keep doing what they do now - ship.
Amazon has been far cleverer, and much less has been written about it. The company is building a network of warehouses around the country, ostensibly to serve its book business. But these can be quickly adapted to serve the other businesses where it's taken big positions. There is also a new truck fleet, ostensibly for its small grocery operation but that can be expanded to deliver other products as well. The idea is that Amazon will offer an entire electronic mall within three years, all delivered right to your door, on your schedule. If it can get where it wants to go before rivals even know it's going there (or know that they have to get there too) Amazon can replace Wal-Mart.
Amazon will not, however, be the only company involved in this new Internet ground war. Streamline competes directly with HomeGrocer, and is building its fleet a market at a time. Large CSPs like OrderTrust, Sunset Direct, and Eliance Corporation are discovering the problems of fulfillment as they grow, and seeking solutions.
This new industry is not sexy, and it is very capital-intensive. A Web site, even a powerful back-office system, may be just 10% of the necessary costs. But without a powerful fulfillment system no e-commerce business can scale, at the low costs necessary to long-term success.
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I'm taking the latter half of this month off, but you won't be bereft. As we did last year, we'll have Clue features on topics too complex (or non-newsworthy) for most weekly issues. Hope you like them.
You can now get your Daily Clue at ClickZ, putting a "clued-in" spin on the day's news. I'm also a semi-regular on TechEdge Radio and I'm continuing monthly columns for NetMarketing, Boardwatch, and Intellectual Capital. I'll also begin work soon with the IC folk on a book project concerning politics and the Internet, which will appear first on the Web. A-Clue.Com is also the Monday e-commerce column of Andover.News. Buy my book now. Subscription instructions are at the bottom of each issue.
Remember that it's still journalism -- checking the news, calling people, listening carefully and writing on deadline -- which keeps the Clues coming. If you're looking for excellent work, give me a call at 404-373-7634. Now back to the show...
Dad's Favorite Mistake
My dad always fancied himself an "idea man." He was constantly coming up with great business ideas. He imagined himself at the center of the resulting big businesses because they were his ideas.
This misconception has become a favorite fantasy of many Web-trepreneurs. They all want to be Jerry Yang or Jeff Bezos, but when I ask them to describe their "great idea," they hide it behind a Non Disclosure Agreement (NDA), and even then they may not reveal it. There are thieves everywhere, they say. Ideas to them are like precious gems.
But are they? Let's look at those two examples, given by the Idea gem-masters, for Clues to the truth of it.
Jerry Yang (and partner David Filo) actually had a working index before they met the moneymen. They were lucky, due to their location and the urgency of the market - they were able to assemble a team of executives and VC people who could build their index into something worthwhile very quickly. They could be the "rainmakers," the living embodiment of the business, the "Colonel Sanders' of search." Jerry's business card calls him the "chief yahoo," and that's about right. Is he worth the billions he's made? Maybe not, but he was able to put together a team and the capital to build what he wanted, and his (relatively) small piece of the result is what became worthwhile. The idea created the demo, and the demo got things started.
Jeff Bezos was more ambitious. He had the b-school and consulting experience to become the CEO of Amazon.Com. With relatively modest capital, he was able to get early foot in a fast-growing market. He used this advantage wisely, and is now executing a very risky strategy. He may become the Bill Gates of e-commerce. He may also become the Dennis Hayes of e-commerce. (Hayes was liquidated early this year.) The point is he's working hard and his story isn't told yet.
The Clue I get from these stories is that an idea by itself isn't worth much. It's not a gem, it's a seed, one which needs money and talent to grow. If you've got executive talent maybe you can execute the strategy. If you don't, find the people who do and take a smaller piece of whatever results.
It's the ability to come up with ideas, not ideas themselves, which is valuable. If you can do this, become a writer, a copywriter, or a consultant. If you want to follow one of your ideas become a businessman, but if you do be prepared to do business.
Are Republicans Really Anti-Government?
Republicans like to portray themselves as the party of less government, portraying Democrats as the party of more government. While most Democrats do take more from the rich to give to the poor than most Republicans, both parties are happy to give to the rich, and the assumptions are all wrong regarding the Internet .
While Al Gore didn't "invent" the Internet, he should get credit for pushing the flow of research dollars into the network in its early days, and for the Administration's hands-off attitude toward the Net in the 1990s. He's been wrong on encryption, but he's been better than some alternatives. Republicans, meanwhile, haven't seen anything about the Web that couldn't be solved with more cops and more laws - cops work for the government, laws are government creations.
Here are two quick examples.
Michigan Republican Spencer Abraham (facing re-election next year) and two GOP Presidential candidates - Orrin Hatch and John McCain - are pushing a bill that would make habitual cybersquatters into felons. The bill would also aid reverse hijackers (big corporations that intimidate valid registrants into giving up valid names) by putting cops with handcuffs alongside them. The WIPO and ICANN have already agreed privately on ways to solve the problem, so shouldn't government butt-out? And what would the Abraham Law do to presidential candidates who buy-up a host of domains to protect themselves from satirists? Throw them in jail, Spence? (Oh, and which party's Congressman is doing everything he can to continue Network Solutions' monopoly?)
Now chew on this one. Elizabeth Dole, seeking (supposedly) to shore up her support among conservatives, would cut off all federal funds to libraries that don't submit all patrons to Internet filtering, in the name of fighting pornography . Never mind that no filters are foolproof, that filters often throw-out protected political speech with the obscene bath water, that an acceptable use policy can do the job better, or that this is a federal mandate against local governments. I guess the thinking goes this way -- the American Libraries Association hates filtering, they're all liberals anyway, so burn their cyber-books and throw them in jail.
Don't get me wrong here. Liberals do many of the same things, maybe for different reasons, but they do them. Before your political knees jerk, take this Clue to look at the issues, and look at what your favorite candidates really plan to do to the Internet. You may be surprised.
Missing the Story (Again)
As harried mainstream journalists drown out industry journalists on Internet stories, a lot of bad reporting is becoming accepted as gospel. Your Clue is not to believe it.
Here are two quick examples. Drugstore.Com and Healtheon-WebMD are supposed to be the dominant players in online medicine, the first because Amazon owns a big hunk, the second because Wall Street has poured over $9 billion into the stock. But look more closely. E-prescriptions are certain to be the most regulated form of e-commerce, and insurance companies have yet to be heard from. That's why Drugstore.Com followed the lead of its smaller rivals (Soma was bought out by CVS, Dr. Koop did a deal with Drug Emporium) and agreed to sell one-third of its stock to Rite Aid and GNC . Oh, and Walgreens is going into this business on its own .
Another example can be found in the business of lending money. Getting money out online is only half the battle, something even intelligent journalists are missing . The winners here will be those who combine low-cost loan execution with low-cost capital acquisition. Follow that trail for your Clues, not the headlines from Wall Street.
Clued-in is Dr. Koop, a company we praised last month for its deal with Drug Emporium. This time they've added the largest provider of clinical trials to their service. They understand that compelling content draws the patients, that patients are more important than doctors, and selling drugs online is a job for experts. Right, right and right.
Clueless is most reporting on the MP3 story, especially from Bloomberg, which bought the industry's spin without question. My apologies to Robert Lemos of ZDNet for mentioning him here, but it's just to point out the contrast - his story was clued-in.
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