Milossarian, your post is exactly the reasoning that was prevalent a couple of years ago, when any company with a .com at the end of its name had stock prices in the stratosphere. If you look now, a lot of those companies are either going out of business or consolidating. Why? Because, contrary to popular wisdom, an Internet business is nothing new. The exact same type of business has been around for a hundred years (ironically, the pioneer of that went out of business last year).
The business? Mail order.
What’s the difference between a mail order house and an Internet business? In both instances you order a product and it gets shipped to you. All the Internet does is make it easier and faster to put in the order. It gives you a better look at the selection, and reduces costs by reducing the need to print catalogs and do mailings. But once the order is made, you’re no different from L.L. Bean – you have to pull it and get it delivered. One of the first times I ordered online, I was told the item I wanted was “backordered.” What a new concept!
If you’re dealing with anything tangible, then your Internet business is just a high-tech mail order house. Do you really think people would have gotten into this frenzy over L.L. Bean or Lands’ End? (Who, BTW, are doing quite well on the Internet, thank you.)
What’s left? Well, there’s information. But with so much information available for free, it’s hard to get anyone to pony up the dough to use it. You need to have something very extensive or unique (e.g., Lexis-Nexis, or the OED). Otherwise, the guy who puts it up for free gets all your customers.
What about ads? A possibility. The low click-through rate has been noted and reported as a reason why the ad-based model won’t work. If they’re right, there will be problems. But low click-through is a fallacy, akin to saying an ad is a failure if people don’t rush right out and buy the product. TV ads are run under the assumption that no one’s going to do that – but by repeating your name, it will stay in people’s minds when it does come time to buy. So, if Coke buys a bunch of banner ads, they are accomplishing the same sort of exposure they get on TV – and for a lower cost (though with fewer impressions). Ads may work once advertisers begin to ignore click-through and think of exposure, but it may still be difficult to keep an ad-based service in the black.
The shake out seems to indicate that the Internet will be primarily a tool to give added service to customers at a low cost. Some companies will make money, but saying the growth of the Internet will make the businesses thrive is like saying the fact that everyone has a telephone is why L.L. Bean will be the next big thing.