FYI
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Who'll Break from the Pack?
Silicon Valley: Most Internet businesses have won investors while
losing loads of money. But in 2000 we'll begin to see successes and
failures.
By Brad Stone
December 6, 1999
Predicting the next big hit in high tech is a little bit like betting on horses. You
sit at the paddock, inspecting the muscle in each company's business plan, the
potency of its funding, the stamina of its management team. Then you shrug
your shoulders and go ask the handicappers who they think the next big
winners are going to be.
In Silicon Valley, prediction is even more daunting because everyone's racing
well. There's just too much capital and hype for companies to slow down
now. That brings us to the first fearless prediction for next year: this will
change. Wall Street, so lax in letting e-companies burn cash in the holy pursuit
of new customers, will start picking out the leaders, who will be allowed to
continue to grow aggressively without turning a profit. Everyone else still
mired in red ink will be frowned upon. "We're just at the tip of the iceberg,"
says venture capitalist Jim Breyer of Accel Partners. Next year "we're going
to see a significant differentiation between the long-term winners and the
companies that need to scramble to survive." It sounds like a scary ride, and
for investors whose horses are stuck in the pack it might be. Luckily, the
handicappers, in this case venture capitalists and analysts, have a few ideas
about potential big hits from Silicon Valley in 2000:
l Web devices. They're the industry's answer to the aging personal computer.
While the PC is currently sitting in more than 50 percent of American homes,
it's now widely seen as a complex piece of machinery that, thanks to Moore's
law, delivers more computing power than most folks could ever need.
"There's just a huge segment of the marketplace that will never buy a PC,"
says Tim Dooley, executive vice president of the Morgan Hill,
California-based Cidco, which is leading the charge to offer cheap, simple
appliances whose only function is to connect to the Net. Its MailStation
($200, including a year of service) is essentially a two-pound phone attached
to a small flat-panel screen that lets you write and send e-mail in addition to
making regular calls. Next year, a wave of similar devices with Web access in
addition to e-mail will be available from the big guys, like Microsoft, IBM,
Compaq, Dell and Gateway. If the units take off, expect to see models
tailored for your bedroom, kitchen, den, perhaps even the bathroom.
l Browser phones. If you want Net access on the road, you'll have to take
along your mobile phone. Europeans know all about tapping out e-mail on
those small keypads. Next year Americans will start playing catch-up. By
2001, analysts say, browsers using the wireless applications protocol (WAP),
which formats Web content for wireless networks, should be on more than 80
percent of all new phones. That means users can pay extra to send e-mail, see
stock quotes and get other information on their tiny phone screens.
Meanwhile, companies like Yahoo! and AOL are busy configuring their sites
to take advantage of the new technology. This fall, for example, Yahoo
announced it would make users' personalized Web pages available on Sprint's
PCS cellular phones; other agreements with carriers will follow next year, say
execs. "The goal is to get Yahoo onto every conceivable device," says Yahoo
senior producer Brian Sparks.
Up Highway 101 in Palo Alto, Mike McCue wants to make the Web
available for a slightly older device. The former Netscape exec envisions an
Internet portal that's accessible over the 125-year-old telephone. Think
MovieFone, but instead of just buying tickets, you can call up and do
everything from getting a weather forecast to ordering pizza to making a plane
reservation. Details of the plan are still top secret, but the start-up's pedigree
is impressive. McCue is joined by other Netscape and Microsoft expatriates,
and has secured funding from former Netscape CEO Jim Barksdale and
former Microsoft VP Brad Silverburg. The unlikely alliance of onetime
enemies in the browser wars is sure to make a big splash when the company
launches in February.
l Virtual trade shows. Another new idea causing ripples in Silicon Valley is the
so-called business-to-business e-commerce sites. Unlike the
consumer-oriented sites such as Amazon.com, they bring companies together
in highly segmented online marketplaces. This is where the smart money is
headed for next year—the idea of using the Net as a never-ending virtual
trade show, cutting out expensive middlemen and the costs of finding
customers. Today each industry, it seems, has its own ambitious start-up
pursuing this goal, from Chemdex (chemicals) and e-Steel (steel) to giant
VerticalNet, which covers 36 industries. Tech analysts at the Gartner Group
say there could be more than 1,000 such sites by the end of next year, up
from 300 now.
With so many e-commerce sites out there, how do you find your way to the
best deals? Companies like MySimon and Shopping.com provide pricing and
quality comparisons for the shopper before he or she prepares to take out the
credit card. A new technology, called instant buying advisers, acts as a plug-in
to your Web browser, telling you of better prices elsewhere the moment you
click on the buy button. The Tel Aviv-based RU Sure captures this
information by scouring the Web for better deals; Dallas-based iChoose
actually partners with merchants, who can then offer up special deals to woo
new customers.
l Broadband hopes. Another sure bet for next year: we'll still be talking about
broadband, and for most of us, it still won't be ready. Currently less than 2
percent of the world's Internet users have chucked their modems for a speedy
broadband connection, and that will creep up only slightly next year.
Moreover, cable modems and Digital Subscriber Lines (DSL) have been
introduced in regions scattered around the United States, with few markets
enjoying any kind of choice. That will change as the phone companies get
more aggressive marketing DSL, and cable giant AT&T finishes digesting its
acquisitions of TCI and MediaOne. The added competition between DSL
and cable modems in some regions, says Jupiter Communications analyst Joe
Laszlo, will cause each side to get more serious.
They might also begin to understand just why phone giant AT&T has gone
about making itself the world's largest cable provider. It has said it wants to
end-run the Baby Bells and offer local phone service over an upgraded cable
network, and next year it could finally happen. If the company can finish its
trials and get the technology ironed out by the middle of next year, expect Ma
Bell to be back in the local phone business by 2001.
There's one other new idea in the tech capital that is ready to make big waves
next year. Well, maybe it's not so new: profits. Thomas Wurster, author of the
book "Blown to Bits" (Harvard Business School Press. $27.50), says he
expects "much more of a focus on the logic behind the loss position." He says
that companies who lead their categories, like Amazon, Yahoo and eBay, will
still be able to justify their bottom lines against the glory of their future
prospects. But companies that lag behind in particularly crowded spaces, like
health and consumer retail, will have a much more difficult time. Wurster also
singles out for skepticism companies like online grocery retailer Webvan,
which aims to build a network of warehouses around the country. That's more
a "physical play in the Internet space, and may be of less value than an
Internet play in the Internet space," he says. Stay tuned. Next year we'll finally
find out who the winners are in the Internet horse race—and who comes up
lame. |
