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The New eConomy

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- 2001.02.07 - Tip Jar

Like a rabbit being chase by a hound, the Internet economy took off like a shot in the 1990s. It looked like every dot-com had the Midas touch, and a "new economy" was born.

Yes, Virginia, there really is a new economy. More precisely, there's a new part of the economy that plays by a new set of rules.

I'm part of that new economy. So are all of the Web sites you visit. In many ways, the presence of the Web has created a whole new playing field. Of course, sometimes the quarterback doesn't know those rules or anticipate how the other teams are going to play.

I don't know the precise statistic, but a majority of startups fail within two years, whether that's a brick-and-mortar establishment or an ecompany. We've been hearing about Kmart closing stores, General Motors shutting down the Oldsmobile division, Chrysler eliminating 26,000 jobs - all old economy businesses.

Dot-Com Boom

And we've heard about all the dot-com failures, mostly new startups without the history of Kmart, Chrysler, or that Wintel clone manufacturer down the street. Why have we heard so much about dot-com failures? Because they're spectacular.

With little more than a vague business plan and no track record, startups were able to find investors ready to throw incredible amounts of money at them in hopes this would be the next Amazon.com.

Yeah, right. Amazon hasn't turned a profit yet, has just announced layoffs of 15% of their workforce, and could conceivably turn a profit later this year. Maybe.

Amazon.com has a brilliant business model: move the product through the warehouse within 24 hours of receipt. Keep as little inventory on hand as possible. Don't offer free overnight shipping. Don't charge buyers extra to use credit cards. Do make buying as simple as possible. Do offer exceptional customer service. And, while you're at it, offer good prices.

My theory is that each niche will have one winner and a lot of also-rans. Among booksellers, Amazon.com is the winner, while Barnes & Noble will remain a niche player. For Macintosh news links, Applesurf is nice, but I don't anticipate them unseating MacSurfer's Headline News.

One winner and a lot of niche players. If the niche players know the game, don't expect to unseat the top dog, and are content no to be #1, they can survive and thrive. (Low End Mac will never be the #1 Mac site on the Web. That's fine with me.)

The Playing Field

The rules are different A.W. (Anno Web) than the were B.W. I never would have dreamed of publishing a book about old Macs or creating my own Mac magazine, but marginal costs are minimal on the Web. I created LEM in my spare time, I had no idea it could even become a business, and I've lovingly nurtured it into a great resource for almost four years. All the money I've paid for hosting over the years is probably less than it would cost to design and print a single book or magazine.

A good Web site can minimize or even eliminate the need for a mailed catalog. My former employer, Baker Book House, has a great search engine on their site that makes it very easy for bookstores and individuals to find any title they publish. They even have links so you can conveniently order them from Amazon.com.

Amazon.com, of course, is the best known success story of the new economy. Unless you're spending over $30, you probably don't save a cent compared with running to the local Borders or Barnes & Noble. And it usually takes a few days for your order to arrive. You avoid the trip to the bookstore and don't get the book as quickly when you order through Amazon.com, but you can order 24 hours a day and have it delivered right to your door.

I shop Amazon.com as regularly as any etailer, mostly to add Star Trek: The Original Series DVDs to my growing collection. I don't think I've ever ordered a book from Amazon, and only a single CD (Beatles 1). But to get that 30-40% preorder discount on DVDs I know I want, and by buying two at a time (since that's how Paramount releases them), I do come out ahead and also receive the DVDs just a few days after the stores do.

The hot online business should be computer etailing - and that is a good part of the new economy. Sure, like Amazon.com they're shipping you hard goods, but they also know that you're a computer user simply by the fact that you've managed to visit their site.

Each etailer tries to differentiate itself from the competition. I'm a real fan of Buy.com, because they tend to offer some of the lowest prices on the Web. When buying backup tapes at my last job, I want to MacMall, because they had consistently good prices on AIT tapes. But my favorite until now has been Outpost.com, which offered free overnight shipping on everything.

Yes, you read right: past tense. Unfortunately, overnight shipping simply isn't cheap, and people ordering a $25 Kensington Mouse-in-a-Box Optical and nothing more probably resulted in a net loss. (Guilty, you honor.)

Free overnight shipping differentiated Outpost.com from the rest. You knew the cost going in - no big charge for shipping tacked on at the end of the order process. And you still get that if your order totals over $100. If not, prepare to ante up $12.95 for overnight or $8.95 for second-day delivery. (We wonder why more etailers don't use Priority Mail from the Postal Service, which costs just a bit over three bucks.)

After all, dot-coms need profits just like brick-and-mortar stores do.

The New eConomy

The Web has created new kinds of businesses, particularly etailers (such as Amazon.com and Outpost.com) and content sites (like Low End Mac). It's created new ways for traditional businesses to market themselves and sell product. It's expanded the market for personal computers and Internet Service Providers.

A lot of the rules have changed with the Internet. Some have gone out the window. Others haven't been impacted in the least.

The dot-com boom didn't go bust, just a very visible chunk of it. There are still hundreds of etailers and thousands of content sites going along as if nothing happened. These people understand the basic rule of business, new economy or old, is making money.

The big failures I mostly attribute to people who didn't know exactly what they were doing, had too much of other people's money to work with, and spent that money as if they were assured of success.

As Aesop taught us in the story of the tortoise and the hare, slow but steady wins the race.

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Dan Knight has been using Macs since 1986, sold Macs for several years, supported them for many more years, and has been publishing Low End Mac since April 1997. If you find Dan's articles helpful, please consider making a donation to his tip jar.

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