7 Rules of the Internet Road

| 16 Feb 2015 | 04:13

    Any list of the 1990s begins with the end of the Cold War and ends with the beginning of the Internet age. These are the bookends of the decade. We don't yet know where geopolitics will take us, but we now have a fairly good idea of what the Internet means to business and commerce. Following is a list of what the Internet has taught us in a very short period of time:

    1. You Can't Raise Prices Anymore. Federal Reserve Board Chairman Alan Greenspan is forever getting credit for "tackling" inflation through adept management of monetary policy. And more power to him?he's done a great job. But his job has been made much, much easier by Internet technology.

    Consider a small sliver of the domestic economy, the commercial printing business. Commercial printing in the United States accounts for 1.5 percent of GDP. So-called "big

    shops" account for one-third of the business. So called "mom-and-pops" (shops with 10 employees or fewer) account for two-thirds.

    The big shops get all the breaks. They get the best equipment at the best prices. They get bulk orders of paper at favorable rates. Mom-and-pops, it almost goes without saying, get the short end of the stick. The markups for them on machinery and materials are debilitating.

    Enter PrintNation.com, a new Internet company that services that underserved two-thirds of the market. PrintNation does what the Internet does best: it aggregates customers and offers an auction service that enables mom-and-pops to compete against the big shops. One mom-and-pop can order one roll of paper with no price leverage. They need the paper, they have to pay whatever the price is that day. But 5000 aggregated mom-and-pops become, in essence, a big shop and thus can demand the lower price that big shops get.

    Because of the Internet, the cost of commercial printing will not increase in the next decade. It will remain flat or even decline.

    The commercial printing business is a metaphor for what is happening in the economy as a whole. Because Internet technology is so effective at aggregating demand and creating auction sites that allow markets to clear, the tamp-down pressure on prices is constant. As General Electric CEO Jack Welch said a few years back, price increases without added value are no longer possible.

    2. Power Really Does Flow to the End User. Internet enthusiasts repeat this mantra to the point of annoyance, but it's both real and true. Businesses and companies that don't "get it" have already paid the price and will continue to do so for as long as they deny the new reality. Simply put, customers rule. And as more customers get better wired, the more power they will have.

    Want to buy a DVD player? In the old model, you could check the ads in your local newspaper and hope that one of the retail outlets had a special on DVD players. In the new model, you go to Accompany.com, pick out the DVD player you want to buy, Accompany.com aggregates your order with hundreds of other orders for the exact same DVD player, offers it up to the three highest-quality manufacturers and says, essentially, give us your best price. Instead of paying $500, you end up paying $350.

    The company that doesn't deliver a discount doesn't get bulk-order business. Companies that have to sell DVD players one at a time go out of business.

    Internet-driven customer power has shaken even the mightiest enclaves. Consider the financial services industry. As recently as 1997, Merrill was the major market-maker on Wall Street. Customers sooner or later had to deal with them and on Merrill's terms. Merrill never imagined that the Internet would turn their business model upside down. They thought the Internet was some kind of fad. When it did, and all the E*Trades and Ameritrades and Charles Schwabs ate their lunch, the boys at Merrill found themselves scrambling to get with the program. They're still scrambling. They may have to merge with some other financial services concern to survive.

    3. There's Nothing in the Middle. In the Internet age, companies have to do one thing really well or provide what IBM calls "end-to-end" solutions. In other words, they have to be small, very smart and fast or really big, smart and capable. Midsize companies can't provide the kind of specialization that some customers want, nor can they cover all the bases many customers need covered. No one wants a midsize bank. What's the point of that?

    No one wants a midsize hardware store. No one wants a cellphone provider that only works in one area. People want highly personalized service and/or they want clout. This is why there has been such consolidation across so many industry sectors. Midsize companies can't cope in the Internet economy. They're caught in the pincers of specialization and global reach. To survive, they must either sell themselves to a bigger player or break down what they do to its component parts.

    4. Everything's Up for Grabs. TheStreet.com columnist Jim Cramer recently asked the following question: Where will you be banking five years from now? He included one bank on his list of possibilities. The other names listed were Yahoo!, Charles Schwab, Goldman Sachs and Microsoft. He might have added General Motors, General Electric and America Online. The Internet gives companies the ability to partner with and invest in businesses far beyond their corporate "categories."

    As technology advances and Internet "ease-of-use" improves, these opportunities increase. Ten years ago, my newspaper was The New York Times. Today, my newspaper is MyYahoo!. Today, my local phone company is Bell Atlantic. As soon as possible, my local phone company will be whatever wireless outfit offers me the best service and the best price through MindSpring.

    5. Branding Is Interactive. The old model of branding was that a company communicated (through its advertising agency) what it wanted you to think about its brands. They etch-a-sketched on your brain. Because you deleted these messages as fast as you received them, companies were required to advertise constantly to keep their products "top of mind."

    The Internet doesn't change the need to be known and understood, but it makes the branding process interactive. What you know and understand is, increasingly, gleaned from interaction. As Internet technology becomes ever more ubiquitous, the importance of this interaction grows. Amazon.com is an amazingly powerful brand not because of its advertising (which is great), but because of its customer service. General Motors will be the hot brand of the next decade because it's working toward "mass customization"?cars specifically designed by you (on the Web) and engineered accordingly. The more people get used to the idea of mass customization (I can tell them exactly how I want their brand), the more difficult it will be to do business any other way.

    6. There's Nothing It Doesn't Touch. In the very beginning, the Internet was about sex, sports and stocks (and some e-mail, although too many people didn't have an address). Today, it's about everything. It's about education and medicine and health care and financial services and politics and governance and national security and architecture and publishing and the list just never ends. The notion that it can't happen here or it doesn't affect my business is not just wrong, it's dangerous. It affects everybody's business and it "happens" to virtually everything.

    7. There's No Turning Back. So much bandwidth is being built (or is about to be built) that Wall Street now debates whether there is "bandwidth glut." There isn't, but that's another story. The bandwidth "glut" debate is emblematic of a huge shift in the business world. Five years ago, people argued about whether the Internet was a transformational technology. Today, people argue about whether Internet technology needs so much pipe. The importance of Internet technology is a given. Indeed, it is now the central fact of the new economy.

    E-mail: jellis@nypress.com