Is the Internet overrated?

[aticus]

So many people have mentioned the Internet as some kind of Holy Grail or pot at the end of the rainbow. "There are billions to be made," they say.

Why then is the average dot com in the US worth over 60% less than their peak stock price? Why are most internet start-ups failing?

Is the Internet overrated, or are the people starting these businesses just doing things wrong? And how difficult would it be to make a profitable internet business in the Philippines? Any opinions, folks?

[nix]

The reason why the average dot.com is worth around half of their peak stock price is that the market overvaluated several of the companies back in the Nasdaq's boom. Several analysts were still clueless as to which business models had a fighting chance. Now that a correction has been made, we are beginning to see more realistic
valuation models. We still aren't quite there yet as regards to Net price valuations, as several of the estimates are still based on potential future earnings, with little or no historical basis for the estimates.

Asia will evolve differently, however, from US markets, as several of the countries here do not have the infrastructure to support deep fixed line IP access. Hence, wireless devices will most likely be the device of choice.

Estimates are for 1.3 million GSM cell phones by the year 2004. That's an enormous market! Couple that with the prediction that 80 percent of all wireless traffic will be in the form of data, with voice only taking a 20 percent slither, and you have the widest market breadth in the history of the consumer market, even larger than TV penetration.

Here in the Philippines, if you want to make a lot of money, wireless data application development is the road to take. There will be an estimated 12 million GSM subscribers by the end of the year 2003. Perhaps half of that would be internet data users. That number would still be significantly higher than fixed line internet subscribers.

[aticus]

good point, nix. i was thinking much the same thing as regards wap.

my only problem is: what business model will these wap providers use? how will they make money? there is no current protocol for charging people for wap, and the only people making any kind of money now are the telecomm companies (though they only "earn" due to increased usage for those using wap). and even they aren't earning much (last i heard, Globe only has 1,000 wap subscribers).

when wap does become that much more popular, how will you make money making wap sites? by selling them to telecomm companies (and giving up proprietary rights)? by charging for the service? (how to collect?)

lots of questions. i think you're right that it's a huge potential market, but i don't know if anyone in the world has come up with a good business model for harnessing that potential to generate real earnings.

[nix]

Future iterations of WAP will bring new business models, higher data transfer speeds, and new functionalities (graphics for example). GPRS will bring packet based downloads of information which becomes a much more viable business model. Most Telecoms around the world will be introducing their GPRS Service by end of this year.

Correct me if I am wrong also, but surfing a WAP site counts as traffic for the fixed line internet counterpart. This traffic can be monetized with Advertising deals.

NTT Docomo of Japan I think, with their over 10 million i-Mode subscribers, has gotten a pretty good business model so far. Also, all over the world, subscription based services have been preferred over variable pricing models as subscribers feel that they will be getting more bang for the back as a result of discounted bundled services.

[aticus]

good pts.

i think you're right about the improvements in telecomm infrastructure bringing new business models. maybe we should take a page from japan.

but how do you think this wap (soon-to-be) revolution will affect the normal course of internet commerce currently in effect? will it have any effect on B2B commerce on the Internet? Right now it seems WAP is only B2C, but of course I may be wrong. Are there possibilities for B2B commerce using WAP?

[zimdude]

Well my thought on this is... in the Philippines, companies are using less Internet than they need or afford.

[aticus]

so would you say that internet usage is underutilized and can still grow? does this mean the potential for Business to business commerce is still unrealized?

[AlphaMale]

Mind if I join? =)

I believe the world is still experimenting. There are failures and there are successes, but frankly the purpose of these is fodder for our overall growth. From these we learn and move on.

Is it overrated? Well to try and answer your question I hope you don't mind if I tell a little factoid. When I initially 'got into' the net, my opinion of this technology was that someday it would Save The World. You know, ideals like 'end to world hunger', 'bring about world peace', and stuff like that. Call me corny but with its borderless way of sending information, it seems possible, doesn't it?

So it's a yes and no.

As a way of bridging cultures, bringing people together, as a tool for unity and spreading knowledge for the purpose of removing biases, prejudices and hate, (a consistent root of many conflicts), it is underutilized and the promise is great.

But as a venue for a business model, yes it seems overrated. There IS money to be made, but not as much as some dotcoms say it would.

[aticus]

Alpha Male, I think what you said is very interesting.

I agree that the Internet, as a communication model, is vastly underutilized. Its biggest impact, then, might be not in how much money it can make for people in traditional ways (like e-commerce), but rather in how people can interact and exchange information and opinions.

I think the best possible business models, then, would be those that concentrate on emphasizing the strengths of the Internet (ease of communication, speed of data transfer, availability of information) rather than the advertising models (ad banners, sponsors' links, etc.) that some companies initially believed would be most profitable. After all, I don't think there are more than 10 non-porno sites that are making money through internet sales (not counting bricks and mortar companies like Dell using it as a tool to facilitate normal product sales). I can't think of any, actually, other than maybe Yahoo!

This is probably why B2B commerce is growing at a faster rate than B2C. Businesses need efficient data and information transfers to minimize costs. Banks are a key example. But customers? Right now, with the exception of some sites, there doesn't seem to be anything being sold online that would replace its normal physical counterpart.

[nix]

A big number of the B2C sites in the US would start making money if they stopped advertising. Most companies just choose to go for top-line growth instead of bottom line profits. These are really two opposing goals. Most groups go for market share and pocket share (share of a consumer's wallet) in the hopes of reaching critical mass (this varies on a per company basis).

[AlphaMale]

Aticus,

I think you hit the nail right on the head when you mentioned that the internet business models that'd succeed are the ones that MAKE USE OF THE INHERENT ADVANTAGES OF THE NET, or in other words, use the net in ways that were previously impossible using traditional media. 'Yung b2b exchange like I-steel, I think, is a superb idea.

Which also means that if you're just proposing a 'better way' of doing things, it is akin to a better mousetrap, and probably just as unappealing in the long run.

In the meantime however, many are making serious $$ supporting the infrastructure, like consulting (aray), programming, telcos *the bandwidth people*, and others, including the anti-virus people i guess. If you count them, then YES there is money on the 'net.

But it's what they are supporting (websites, etc.) that isn't making any.

[AlphaMale]

uhmm... whilst malalim ang pinaguusapan natin, Id like to share one other observation.

I've yet to see a way of categorizing webbased businesses into the following categories:

a.) supporting existing business - like say, a manufacturer, deciding to go online and going ahead offering their products onto the net.

b.) brand spanking new service - only possible via the net.

c.) In between - An existing business that increases its effectivity by getting on the net. A bank, for example, can suddenly allow the ability to offer new services previously unheard of because of the net, but it's still banking.

If I come across a site or a webbased idea that doesn't fall into these categories, I find it hard to see that business thriving. An e-zine for example, seems to me too weak an idea to sustain, unless it is a category C (supporting an existing publication), and so on.

I wish someone would start a thread about "weak websites". Right now it's a case of "The Emperor's New Clothes", with people afraid to say how weak some well - funded local websites are out there, but man they are out there.

[TNT2bluz]

Well, the old world fundamentals should still be followed. The pragmatic rule of thumb for any service, online or otherwise would be, if it saves you time and/or money -it's worth a go.

If not -it's all hype. There are many dotcoms out there where 60% of their tangible assets are sitting out there in their parking lots.

Commonsense still follows. I don't see any reason why it shouldn't be.

[lupuS]

I'd like to propose a simplistic analogy to help appreciate the internet economy.

Think of our system of land transportation. We have the people who build and maintain the roads (infrastucture), people who build the vehicles (the content providers), and people who use the vehicles on the roads to go about their daily lives (the content users). In this analogy, who benefits most from this system? I would say the users.

If you stretch the analogy and apply it to the internet, I would think that the users would also, in the long run, derive the most benefit. That's where the best business opportunities lie.

[aticus]

hey lupus, i like that analogy. kinda catchy.

there just seems to be one problem with the way the internet works, though.

you see, in the real world, people don't mind paying large amounts to buy cars. they know they need them. they know that companies won't make them without getting paid. and they know that they have to pay up to get them.

The problem I see with the Internet is that many, many businesses have adopted the model that nix alluded to: top line growth versus bottom line profits. What does this mean for many other businesses? Well, they have to get used to the idea that the millions they spend developing their web-site will have to be recouped elsewhere because THE CUSTOMER EXPECTS EVERYTHING TO BE FREE. In the mad rush to get "market share" and internet traffic, so many companies sacrificed a huge opportunity to make money. Now customers don't even like going to sites that (heaven forbid) charge for their services. I mean, if the New York Times doesn't charge me to access their archives, for example, why should I pay $1.95 PER ARTICLE to the Denver Post? Who cares about the Denver Post???

Seriously, everyone who regularly uses the Internet will admit they need it. Some of them are even "addicts" so to speak. Yet they don't expect to pay (except to ISP's, of course) for almost everything. Free long-distance calls. Free web-sites and web-hosting. Free downloads. Free music.

I don't necessarily think that businesses can't make money from all of this. I just think that they have to find new ways to get the customers' dough.

[nix]

Yes, on the Internet, most content is free. Advertising subsidies have been few and far between so far, as most consumer brand companies are still hesitant to advertise on the Web.

But consider the following trends:

1.) Time will become the most valuable resource moving forward, especially for highly developed, "rich" nations. -- A prediction I have read somewhere states that 90 percent of all consumer purchases in the US will be home delivered by the year 2010.

2.) People have been willing to pay for service upgrades -- Broadband for example. For as long as the service or content is truly compelling, then people will be willing to pay for it. The only thing is, most of the compelling services will be found on either wireless data devices (location based services), or high bandwidth fixed line connections (TV on demand). We may have to wait a while (short though) for this to happen.

3.) Bandwidth from this point onwards will at least double each year. More bandwidth equals to richer and more interactive content. Perhaps people will be willing to pay for this better form of content (or advertisers will flock to this medium).

4.) Metcalf's Law: The more people who are connected to the Net, the more powerful it becomes.

5.) The Nasdaq correction will lead to more prudent spending, better business models, and profit based initiatives. Hopefully, people will concentrate on technology and content more than offline marketing to improve their services.

I really have high hopes for the Net-Economy. I just hope that the revolution happens sooner than later.

[aticus]

well, nix, on that subject, would it be possible for ANY site to survive with no revenue from its customers in the long run?

Especially sites/companies based in the Philippines?

It seems the US based sites at least have the advantages of companies advertising with them(over US$3 billion a year). Though at a less than 1% click-through rate, I'm not so sure this can be justified to the advertisers much longer. These US sites regularly get millions of visitors a month. Our Philippine sites (and the top ones right now are Inquirer and Bulletin, last I checked) get at most 200,000 to 250,000 unique users a month. Not very encouraging to an advertiser. At current statistics, only about 2,000 people AT MOST may even view my products if I advertise on local sites. That's not very encouraging. Even regular mailing campaigns get better response rates than that.

I think if we rely solely on corporate funding to make our sites profitable, wouldn't we be running the dangerous risk of potentially losing all that funding in the future? Especially if some new, "hot" site comes out? I'm not sure if this is a silly analogy, but I'm thinking of the capital flight that occured in 1997 that led to the Asian crisis. And that was much, much harder to do, since it involved investments (though, admittedly, mostly in easily negotiable stocks and bonds). Imagine if all the advertisers decided that a site had no more potential. No advertising. No funding.

I mean, should companies already have a business model that would allow them to survive WITHOUT advertising and other traditional forms of revenue?

[nix]

Well, PinoyExchange can support itself on banner ads alone. So can EdsaMail. The same can probably be said for most of the million page views and up web sites. All we have to do is never to spend on advertising again.

Also, what the Net brings is highly targeted advertising, as opposed to mass market reach. For example, PEx's users more or less fall around certain market profiles that several consumer brands would find attractive to market to.

[aticus]

kinda like one-to-one marketing. excellent book.

but can PinoyExchange, and other industry leaders in the Philippine IT industry, afford to rely on banner ads alone? I mean, the Wall Street Journal's research shows that click-through rates for banner ads are so low that they may not justify banner advertising (unless you advertise on Yahoo!).

What would prevent an upstart RP company from copying Pinoy Exchange's model and competing head on? Especially if it had foreign backing? What would happen then?

I'm just curious to know if you have any provisions against competition.

The beautiful thing about the PinoyExchange model, however, is you have extremely low costs and a self-sustaining/operating system. You would hardly need any kind of technical work as long as the CGI you have can sustain the traffic (and there's no reason to believe it can't). I love the fact that this whole thing is based on forms, CGI scripts, and a few, dedicated administrators. Kinda cool. The most difficult thing about PeX is getting it accepted and finding a loyal group of customers. Now that you have over 13,000 registered users (probably about 20% active to very active)you don't have that kind of problem.

Oh, and your Sprite tie-up was brilliant. Constant marketing exposure without shelling out a cent. A marketing coup after my own heart!

[This message has been edited by aticus (edited 09-21-2000).]

[aticus]

umm... nix, or whomever is in charge of the web-site...

I keep trying to click and view some member's web-sites, but I always get an error message because I think the coding for the link is something like

/yourhomepage.com

which obviously makes the browser just want to find the page WITHIN the current directory (or cgi-bin, as it were).

Is it possible to re-write the code so the link would be a simple
http://yourhomepage.com

It's very easy to do, and this way we all get to see each other's web-pages very quickly. Hope this wouldn't be too much trouble. Thanks for listening.

** Start of edited message **

Umm.. I checked again, and I find that some people do have http:// format links. I guess the problem isn't in the linking, it must be in the inputting by the members themselves.

Oh, well... maybe it won't be so simple after all... Sorry.

** end of edited message **

[This message has been edited by aticus (edited 09-21-2000).]