Mark and thread --
This just crossed my PC and it bears directly on some of the mental wrestling matches we're having about whether the Internet and e-commerce is arriving or departing.
George Colony writes these commentaries every so often (too infrequently, I think). And, though it focuses specifically on AMZN, I believe its larger lessons/messages are applicable to any Internet follower.
For those of you who are intent on making the Internet the latest examples of tulips, railroads, transistors, this might give you pause (or not, if you're Hector...). For those who think this is just biotech all over again, think about how far the Internet penetrates its market vs. the incredibly slow spread of biotech (compared to its promises).
For those who judge this as the end of the Internet "bubble" (not my word) just like computers in the 80s, ask yourself, "What has a basket of PC stocks done in the past 10 years?" Not too freakin bad. Not the rocket we've seen in the past 18-24 months, but probably better than virtually any other sector. So maybe it's not the end of the bubble, but the start of a seismic shift into a greater maturity that will -- for the best companies -- be marked by steadier, more sustainable, but nonetheless spectacular (for mature companies) growth.
Anyway, here's George's article -- Great stuff. Enjoy:
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My View: Beyond Amazon
From: George F. Colony, President, Forrester
Quickly: It's too early to call the winners in the Internet economy. Example: Amazon.
Content: I was reading a breathless article in The New Yorker recently about Mary Meeker. Mary is the financial analyst at Morgan Stanley who has taken a lot of Internet companies public over the last several years. Mary was spouting the conventional wisdom that the "land grab" on the Internet is under way, and the big grabbers like Yahoo!, AOL, Amazon, and eBay verge on domination due to their vast "land holdings." Here's how she puts it: "In some categories, it's already 'Game over.' I wouldn't want to be competing against Yahoo!. I wouldn't know how."
This is garbage. In the Internet economy, we are sitting around campfires in loincloths chewing on bones -- it's very, very early in the development of this economy. Check out the Amazon case.
Amazon supposedly will dominate because of five factors: 1) Its brand is well-known; 2) it is gathering the best customer information; 3) its access to capital is endless; 4) it has the best technology; and 5) its syndication tactic (selling at other sites) makes it forever ubiquitous.
Here's why this thinking is wrong:
1) On-line brands are fleeting. Yes, the Amazon electronic brand has strength. But Forrester's survey of 100,000 Americans has shown that loyalty in the on-line world does not match loyalty in the physical world. New brands are always just one click away -- just ask CompuServe, Prodigy, or PointCast. And four-channel brands -- which span brick-and-mortar, mail order, phone order, and Internet commerce -- will have a reach advantage over one-channel brands like Amazon.
2) Customer information will be ubiquitous. Yes, Amazon is gathering a formidable database on its customers' preferences. Problem: In the future, information on consumers will be detailed and widely available. No single company will have a monopoly on customer behavior or attitudes.
3) Capital markets cut two ways. As evidenced in the May 31, 1999, "Amazon.bomb" article in Barron's, the capital markets aren't going to perpetually fall for Amazon's ". . . don't expect us to make money for a long time" rap. And the free-flowing equity and debt markets help and hurt. Capital is gushing into the Internet economy -- funding companies that want to cut off Amazon's head. BuyBooks.com's strategy is to forever underprice Amazon, an early harbinger of the emerging competitive forces.
4) Technology IQ is growing. When Amazon started up, the technology smarts of companies like Barnes & Noble were subterranean. But standard packages like Vignette and the spread of best practices are leveling the playing field.
5) Syndication will be challenged by new software. Amazon's strategy of selling books at other sites will be attacked by technologies like Vstores. This system enables any site to start up an on-line bookstore quickly and easily, with fulfillment coming directly from the book distributor. Why give Amazon a 10% cut when you can do it yourself?
What It Means -- No. 1: It's early. Hypergrowth in the Internet economy in the United States will not begin until late 2000. The game is not over; it's just begun. No one company has built an unassailable citadel yet, despite what the eIntoxicated investment bankers might say. Land that's been "conquered" by the Yahoo!s, Amazons, and eBays can be recaptured and shared.
What It Means -- No. 2: The power of multichannel plays has yet to be seen. So far, only a few small examples -- REI and Eddie Bauer, with sales via retail, mail, phone, and Internet -- have really attained traction yet. I believe that multichannel plays will have extraordinary power if companies elegantly blend and synchronize those channels. Who will be the Wal-Mart of the Net? Wal-Mart -- if it has a high technology IQ and the organizational flexibility to break down barriers between its channels.
What It Means -- No. 3: Brand equals giving customers a great experience in the on-line world. That means new brands can come to the fore with blinding speed based on the use of new technology. Priceline and eToys could be left with legacy technology, while newcomers entice away their customers with more immersive, interactive experiences.
The upcoming threats to Amazon give a glimmer of how hellishly competitive on-line commerce will be, complete with unfaithful consumers, new challengers, and a relentless pace of technology change. Multichannel presence will be a major advantage in this world. |
