Dot.com and Dot.go?
Observer, January 2001
Yahoo.com, the flag ship company of internet trading, is laying off staff. The share value of internet stocks has fallen by one-half over the past three months. Is this the end or does the internet still have a business future? If we reflect on the whole mania over the past couple of years, it is clear that the fault rests not with the technology but with those who tried to make a fast buck without adequate market testing. In their impatience to be overnight millionaires, the internet entrepreneurs and their venture capital friends, chose to ignore a number of good old fashion, age-old basic business principles.
One of their biggest mistakes was to expect that the design of clever software would change customers' lifetime shopping habits. Particularly in a business culture which is supposed to have a friendlier customer focus. Isn't this what all those corporate customer care training programmes are supposed to teach us? The whole dot.com revolution was driven by the psychology and assumptions of internet service providers rather than our knowledge of customer shopping patterns. Even a first year University lecture in sociology or retail management would have told the dot.com founders that shopping is not a chore for the majority of the US and UK adult populations but a shared family activity. The outstanding success of the Bluewater and Lakeside shopping centres in the south and the Metro Centre in the northeast of England are confirmation of this. Equally, the continuing congestion of retail high streets.
The most elementary market research would have told them that online shopping would never be anything more than a niche market activity. Certainly, there is likely to be demand among high earning professionals who have limited time and who prefer to trade online for purchasing 'commodity products' such as holidays, travel tickets and financial services. These are exactly the same people as the dot.com founders themselves. In the absence of detailed market research, they assumed that all consumers would seize at the opportunities of internet technologies just as they had.
A further fact which the dot.com boom and bust illustrates is that you cannot avoid undertaking detailed business planning in start-up situations. This means making projections about future earnings, break-even analyses and income and expenditure budgets. The result is that you're more likely to make a success of it if you have some solid business experience. It is not enough, as with Boo.com, to have as founders a Swedish fashion model and an academic poet. As this same business demonstrates, revenue is unlikely to be generated by having nightly champagne parties and weekly Concorde flights across the Atlantic. As every ex-employee of the company now laments, 'it is a pity the business has gone bust because it was such a great company to work for'. You bet. But setting up a viable business requires a bit more than having one long party.
A further failure has been in their management structures and their use of human resources. Many of them failed to introduce salary systems that bore any relation to employees' value creation. Several of them failed because of bad management. They were proud of their 'alternative' business cultures with the absence of reporting mechanisms, lines of responsibility and personal accountabilities. For external PR it may be 'fun' to represent this alternative approach by throwing away the jacket and tie but at the end of the day, business reality kicks in. Projects have to be managed and staff recruited, motivated and rewarded according to the value which they create. Otherwise, as so many of these companies demonstrated, the money very quickly burns away. How much was it at Boo.com? £80 million in less than a year? It is not surprising that employees of the company had such a great time.
Does this mean the neglect of basic business principles has destroyed the credibility of all online business ventures? It is likely it will take the dot.coms some time before they can regain investor confidence. Consumers have become numbed by their advertising campaigns. Once they switch off, it is difficult to regain their confidence. It is not surprising that many of the companies set up to be solely on-line traders have re-invented themselves as 'clicks and mortar' ventures and, even, as entirely off-line high street retailers.
Where internet trading will continue to expand rapidly is in business- to -business transactions. Present trends confirm the earlier predictions that eighty per cent of internet use will be for this purpose. It has the capacity to revolutionise global supply chains, inventory management and rationalise relations between retailers and manufacturers. In some sectors, it is allowing smaller manufacturing companies to compete with larger businesses in their dealings with retailers. In the furniture industry, which consists of a very large number of small manufacturers and retailers, online platforms are emerging which allow more efficient delivery systems to be put in place. Corridor, a platform recently launched by its parent company, United Business Media, aims to do this. It will allow retailers to have access to a far greater range of manufacturers' products which they will be able to view and to order on-line. They will be able to compare manufacturers' prices and to negotiate with them. It will allow retailers to offer a broader range of products to their consumers. Customers who demand greater choice in their search for life style individuality. Corridor's platform will allow retailers to inform their customers of precise delivery dates as a result of their on-line tie-ups with manufacturers and distributors.With B to B it is unrealistic for small retailers and manufacturers in any economic sector to directly trade with each other on-line. The cost of investment in the appropriate technologies and the skills required put this out of the question. What will emerge with B to B will be on-line brokers that offer intermediary services. The opportunities are in most areas of niche retailing, from childrens' toys to office stationary. These will be the real drivers of 'clicks and mortar'. In the near future it is not difficult to envisage that on-line brokers like Corridor will give small retailers access to manufactures on a global basis.
The internet also allows companies to relocate many of their back office activities to low wage economies. In the near future financial institutions will outsource their data processing functions to operations in India and other English speaking parts of the world. Many back-office work activities that have been the drivers of job creation in the south-east over the past thirty years could be eliminated over the next ten. It could have big ramifications for a regional labour market that is presently facing acute skill shortages.The internet will let employees to do more of their work from home. We will be able to break away from the work patterns imposed by the requirements of the industrial economy. Then workers had to go to work because that was where the machinery was bolted to the floor. But the five- day a week commute for large numbers of 'knowledge employees' renders this redundant. Flexible office hours, working at home for twenty per cent of the time, and remote working allows companies to implement more family friendly policies. It will also contribute to reducing traffic congestion and environmental pollution.
It is in terms of the internal and external trading relations of companies that the internet will have its major impact. On reflecting upon the past twelve months, it is unfortunate that those with neither business knowledge nor experience have undermined the credibility of a technology that is truly capable of revolutionising the ways we do business. But in a similar fashion as the dotcom entrepreneurs of only last year, there is the risk that the advocates of B to B may promise too much too soon. There are still many technological and organisational challenges to be overcome before we reach the promised land.
© Professor Richard Scase