Kris,
Obviously you missed the following in Thursday's NP:
"WHY SOME INTERNET STOCKS ARE HOT WHILE OTHERS ARE JUST HOT FLASHES
The Difference is Who's Got a Lock on the Customers
by Robert Seeman
Amazon, eBay: Two Internet companies whose stock market valuations have managed to exceed even their impressive volume of press clippings. Are Internet stocks a bubble ready to burst - or, as some have asked, is this the beginning of the biggest wealth creation boom in history?
It all depends on which Internet stocks you are talking about. Not all Internet businesses have the same long-term potential.
E-commerce is a technology-created opportunity, much as the settlement of Canada was an opportunity created by the technology of the railroad. E-commerce arose due to the development of the Internet, a cheap global data communications network. Internet retail companies such as Amazon.com and eBay are staking their claims to the valuable land around the railway stations where most of the people are or will be. Do both companies, however, have the same staying power?
There's no doubt eBay was in the right place at the right time...and it may be there for a very long time to come. It enjoys the "Yellow Pages effect" - everybody reads the Yellow Pages since everybody advertises in the Yellow Pages because everybody reads... This effect is variously referred to as a self-reinforcing cycle, a virtuous circle, positive feedback, or my favorite: lock-in. Yahoo as it and, as a result, is one of the few major Internet content companies making real money.
How do you achieve lock-in? The easiest way is to be the first. Yahoo was the first. eBay was first. Amazon was first. Being first helps immensely to get that critical number of users necessary for the business to take on a life of its own: critical mass. Critical mass is the point when the business keeps becoming popular just because it is...somewhat like a popular nightclub.
EBay has real lock-in. It is a consumer-to-consumer auction site permitting you to sell your unneeded stuff to other lucky consumers. Why would you want to sell your stuff on eBay rather than in a garage sale? Because that's where the buyers are. You will likely get a better price if thousands of people specifically interested in Spice Girls memorabilia look at your precious products rather than just a few strollers who happened by your garage sale. All those buyers are there because, of course, that's where the sellers are. Lock-in...and a very powerful lock-in at that. Expect eBay to be around for a long time.
Does Amazon have this same lock-in? No. But there are other ways to achieve similar customer loyalty or "stickiness," as it is called in the Internet world.
People come to Amazon mainly to buy books. But just because Amazon sells those books does not mean that other on-line stores don't sell exactly the same books. The products being sold by Amazon are not exclusive; they are available elsewhere.
Amazon does lock its customers in by creating a community about books...much the same way you keep going to the same pub because that's where all your friends go. Amazon knows your buying habits by recording and analyzing buy you buy. It also has a community of people like you who actively participate, reviewing and recommending books to you.
This type of lock-in is not likely as strong as eBay's. Just as in the real world, people are fickle and like variety - especially when they can get almost the same thing down the block. Remember how you gave up on the friendly neighborhood store when the superstore opened up a few blocks away. And on the Internet, your competitor is never more than a few nanoseconds away.
With eBay, until a new technology creates a new technology, it will be very hard for a competitor to offer almost the same service. With Amazon, alternatives now exist that offer almost the same shopping experience. Proper marketing and focus should permit them to exact an increasingly larger share of Amazon's market share.
Amazon may, therefore, have difficulty maintaining its established niche in books. Hence it may have to put on hold any plans to become the Wal-Mart of the Internet, as its current sky-high valuations imply."
I think my fellow posters can find the relevance.
Regards,
Denise. |
