Message
#121
Monday,
July 3, 2000
“The future enters into us, in order to transform
itself in us, long before it happens.”
Rainer Maria
Rilke (1875-1926), Letters to a Young Poet
In
the 1960s, Sir Arthur C. Clarke predicted that by the year 2000 the planets
would be colonized and the world would have a vast electronic “global library”
that would be used for business, academia and personal research. As far as I know, we haven’t populated Mars,
but the Internet is fast becoming the high-speed information resource Clarke
imagined.
Thirty
odd years later, Bill Gates topped Clarke by foreseeing, in a memo to his
staff, an “Internet Tidal Wave” that would sweep over America and rapidly
change every business and every consumer’s perception of how to do business.
Clark
was prescient. Gates made a good speech. Notwithstanding the media hype and
financial hyperinflation of the high tech stock market, the Internet itself is
a vast, fast-changing medium creating many big changes.
Big
changes create big opportunities. Always have in the history of wealth. Think steam engine. Think railroad. Think internal combustion engine.
And
big businesses create all kinds of big opportunities for entrepreneurs. Example:
I happen to know three very wealthy fellows who live within a five-mile
radius of my home in Florida. All
derive their wealth from Coca Cola, but none directly. One was involved somehow in the cleaning of
bottles; another’s grandfather did something important with pull tabs; the
third had an uncle who had a distribution license in Israel.
The
first wave of Internet wealth is pretty much over. (We’ll talk more about this soon.) But there are more than enough opportunities for you (and me too)
to make money and even create a family fortune by focusing on ancillary and
support businesses. Or, if we are in
the selling business now, by taking advantage of the Internet’s scope..
In
this and many future ETR messages, we’ll talk about ways to get rich from the
Internet. Let’s start by making three
somewhat evident observations:
* The
technology of the Internet allows for cheaper and much faster business
transactions.
* The
global nature of the Web provides Internet users with access to a huge market.
* The
economics of the Internet creates what the experts call an “atomization” of
competition: As the Internet develops, business increasingly takes place on an
individual basis.
Reducing
the cost of doing business is important, but the Internet’s effect on that is
sometimes exaggerated. Certainly, communications is cheaper. It costs less to
order a cigarette lighter on the Internet than it does to drive down to the
mall and buy one there. But how much less? The cigarette lighter still needs to
be produced. It still needs to be advertised. It still needs to be delivered to
local storing and shipping facilities and warehoused. And it still needs to be
serviced. So how much really has changed?
Likewise,
it is certainly cheaper to fulfill a subscription to the Wall Street Journal
online than in print. But what percentage of the overall cost of the newspaper does
the physical production comprise? Five percent? At best. And once this 5% is accounted
for and the market grows accustomed to electronic delivery, how is the
fundamental nature of the WSJ going to change?
In
the newsletter business, for example, delivering the message via the Internet
or on the Web saves money, but not as much as you might expect. Of the $90 a publisher spends on marketing
and fulfilling a $100 newsletter, only $6 is in delivery … thus only maybe 5%
can be saved.
Bottom
line: The economics of the Internet are
favorable to businesses for whom the cost of delivery is a significant
factor. That would include anyone in
the information business. Cheap delivery
of data will help, but it will not in itself make you successful. The information business is still about (and
will always be about) selling – selling the idea that one type of information
is better than another. If you can do
that well, you will succeed – and you will be able to enjoy nicer margins. If you can’t do it well, then your business
will fail, regardless of the Internet’s economics.
Size
is a Big Factor – It Gives You a Market You Can’t Get Elsewhere
The
World Wide Web gives you a giant market.
The whole world really.
This
is especially attractive if you are selling the kind of product that people
search for. (Example: I have a beach house I rent out. 90% of our bookings come from the
Internet. Half of them from
overseas. We do no advertising. We have simply listed our property here and
there. Sales occur because when
tourists decide to vacation in Delray Beach, they get on search engines and
look for Bed & Breakfasts. Since
January of this year, we booked more than $50,000 that way.)
I
am in Rome as I write this. Every store
in Rome is selling the same shoes, the same clothes, the same jewelry and
handbags that are sold in the United States, in England, in Spain, and so on. Like it or not, modern telecommunications
(aided now by the Internet) is fast creating a single world culture. That means if you are lucky enough to sell a
product that becomes trendy, you will be able to sell it around the world
almost instantly. (Example: Those singing wall-plaque fish that are all
over the place in the States? They are
here too!)
Of
course, many businesses will not be able to take quick and easy advantage of
the global market. If you sell fish,
for example – the eating kind, not the singing kind – you are best advised to
focus on the local market.
That
being said, there has never been a better time or an easier way for individuals
to start their own businesses and even get rich than there is right now.
Six years ago, only 80,000 Americans were on the
Internet. Most of them were college professors. Today, that figure stands at
almost 100 times that number (80 million). During the same time period, online
retail sales have gone from nothing to $20 billion per year. Industry sources
estimate this number will quintuple by 2003. Business-to-business sales are
already over $100 million and are projected to hit $1.3 trillion. And that is
just in the USA. The rest of the world, though lagging behind us now, is
expected to catch up quickly.
Obviously,
this spells opportunity. But it’s not just a chance for the Amazon.coms and the
Cisco’s and the eBays of the world.
It’s a legitimate chance for home business players.
Case In Point:
Two
years ago, TH (a client – I’ll name him if I get his permission) decided he
wanted to sell golf equipment on the Internet.
He had no retail experience and no real knowledge of the Internet. He had only one resource of any value – a friend
who could supply him with very inexpensive clubs.
His
story is a funny one – I’ll tell you later – but in an 18-month period he
managed to turn his hobby into a business that was so successful he retired
from a six-figure job.
Example
two: I just came back from cocktails
with a friend of my sister (a direct mail guy living in Rome) who just one year
ago started some sort of gay porno website. (I didn’t ask for details.) He is not happy with the results so far, but
he did admit to netting $50,000 in his first year.
There
are hundreds of similar stories. And
there will be hundreds more in the next few years. Yours can be one of them.
I’ll make it a habit to tell you stories I hear. And maybe you can tell me of any you hear
about. Between the two of us, we’ll
come up with something good. Nothing
flashy … just something that will allow us to retire comfortably and provide
for our children and grandchildren.
* *
* * *
Conventional
ideas in marketing are that (1) branding is necessary for success, and (2) you
can develop a brand name cheaply and effectively through the Internet. Like
most conventional ideas, these are
mostly wrong.
Much
of the profitable business in the world is done without the benefit of brand
recognition – and most new business is developed this way. In fact, if you
think about it, branding new products and services is in many ways a negative.
(More on this in the future.)
As
Jaffer Ali (CEO of e-mail newsletter network PennMedia.com, Tinley Park, IL)
points out, where branding should be done, it is best done offline. Companies
such as Priceline, Furniture.com and Outpost.com have discovered, Jaffer points
out, that “an ephemeral banner impression will not get the job done – no matter
how targeted it becomes.” Following such a path is crazy, because it if you
continually spend more money to acquire a customer than you expect in lifetime
profits, you are eventually (sooner, rather than later) going to go broke.
WEDNESDAY:
* What you think about in your spare time may
determine your success
* 5 reasons
people don’t buy
Happy
Fourth of July!