A Fundamental Question:
(Sorry about the length)
Has anyone thought about the business model that AOL is moving toward lately? I'm referring to the 'virtual mall' concept for Internet commerce. Does anyone out there, bull or bear, think that this notion has a snowball's odds in Hades of surviving, much less making any sustainable profit?
Generally, analogies made between the real world and cyberspace work only to a point, and mostly serve to provide an initial reference for discussing virtual concepts. Specifically, I don't believe the concept of a 'virtual mall' makes any sense in the on-line world.
In the real world, a mall works because it is essential (for proprietors to maximize business traffic) and convenient (for shoppers to transport their bodies minimum distances) to aggregate physical businesses in close proximity. Because of this undeniable physical relationship, such an arrangement works well for the mall operator, the mall business, and the mall client.
This model has no benefit in cyberspace. The business operators don't need it. Sure, they need to advertise a bit, but they certainly don't need a fee-charging/profit-splitting middleman to 'aggregate' them at a particular web site. They could just as well aggregate themselves, or they could hire a college student to aggregate them at a third-party web site for peanuts, or you could set up an 'aggregating' web-site as a hobby in your spare time and take it public in six months (better do it quick) for a seven-figure payday! <g>.
The business clients don't need it either. With the flood of goods and services offerings mushrooming all over the Internet, why would anyone limit themselves to the meager 'aggregation' provided by any one site. Furthermore, we are now on the cusp of intelligent agent technology.
Intelligent agents will know of dozens of excellent on-line businesses that can serve your request, whether it is plane tickets, books, clothing, interest rates, movies, sporting goods, musical instruments, specialist medical care, autos, etc. You tell the agent your criteria for pricing, customer service rating, availability, and delivery time, etc. The agent then hits the entire Internet, and returns with the top candidates that satisfy your request, or it will negotiate and complete the transaction on your behalf (while you sleep!) if you so desire, all subject to revocation, at your discretion, within 48 hours. How does an Internet 'aggregator' compete with this? It's ludicrous. AOL does not lead the Internet; the Internet leads AOL, and everyone else out there for that matter, by the nose.
For the commerce client, the ultimate goal is to locate the best price, with the best reliability, with the best delivery time, and with the least hassle. A profit-oriented aggregator will not share this goal and will actually try to obstruct it in a medium, a virtual medium, that, in its present state, denies all such obstructions. And this is one of the most powerful characteristics of cyberspace: disintermediation, in essence, removing the go-between from all dialogues, commercial or otherwise.
There will be a race towards minimum price and maximum convenience among all Internet participants. This will not be a safe place for the middleman. This is a trend that middlemen the world over will fight mightily, but it is a fight they cannot win, unless they should somehow manage to legislate a role for themselves. However, since the Internet is a global phenomenon, and both consumers and original producers of goods and services have a strong interest in dealing with each other directly (client/lower prices, seller/lower overhead), I don't think a legislated role for the middleman will happen. AOL appears to be setting themselves up as the ultimate go-between in a world that doesn't want, doesn't need, and won't tolerate middlemen.
Bulls should ask themselves: Am I long this stock because I am bullish, or am I bullish on this stock because I am long? It makes a difference.
Regards |
