| Will your DotCom Survive the Meltdown? |
Still wondering why the dot-com bubble burst? And what's going to
happen to all those smaller bubbles, the surviving dotcoms, many of them afloat solely on
their last round of financing? Back in November 1999, many of the business schools
overseas were publicly predicting the impending e-commerce shakeout. Based on research
into dozens of "old economy" shakeouts -- from the invention of the railroad to
the advent of personal computers -- Day holds that this "new economy" shakeout
is not much different.
Far too many players come in, there's lots of excitement, high visibility, low barriers to
entry -- all those conditions applied. It was like every other shakeout, just a lot
faster, magnified by free-flowing capital, incubators and a tendency for everyone to
converge in the same business model. The critical error committed by most dotcom startups
was to mis-identify the type of market they were entering. Instead of breakthrough
applications which create new products or services that would be impossible without the
new technology and which give rise to totally new industries, the dotcoms focused on
re-formed applications, which were easy to replicate
Misdiagnosing the market has led to persistent myths about the sources of competitive
advantage in online markets. The first myth is that First movers will dominate. True in a
breakthrough market, not true in a re-formed one. B2B hubs, for one, have discovered that
their greatest competition is not other B2B hubs but existing ways of doing business.
Secondly - Behavior will change quickly. In re-formed markets, customers are slow to
abandon older systems that work, even if they're not optimally efficient. For example,
many Internet banks are finding out the hard way that consumers are reluctant to give up
their ATMs and move their household banking online. Also the belief that non-traditional
pricing structures will be readily accepted is a bit tough to believe. Most consumers
still perceive a system of prices posted by sellers to be more convenient and fair.
Dotcom companies left standing after the shakeout, will fall into two categories:
pure-play start ups that managed to capitalize on their early mover advantages in true
breakthrough markets, and incumbents who managed to successfully embrace the Internet in
re-formed markets. For pure-play winners, names like rediff.com, Yahoo etc that are both
quick to exploit the breakthrough possibilities of the Internet with truly new business
models, and both have shown they can continuously adapt. For incumbents, companies which
have successfully blended their traditional scale, scope and resource advantages with the
re-forming potential of the Internet. They have respected and visible brand names, the
ability to spread marketing costs across both channels, and leverage with suppliers. So
established firms in re-formed markets have a lot of advantages.
Both pure play and incumbent winners will exhibit the qualities of the adaptive survivors
of earlier shakeouts. The companies that remain standing will be a resilient synthesis of
old and new. Indeed, it won't be long before the distinction between the old and new
economies has no meaning. The survivors who do not fall into the following traps will
stand a better chance of survival:-
Avoid Complacency: The beneficiaries of the Internet need to watch out for
innovations like wireless, pagers, broadband networks, all technologies that rivals may
begin to exploit. For instance "Tisco’s competitors, should be worried that the
company has gone from viewing the Internet as a ‘destroy your business' challenge to
a ‘destroy their business' opportunity." Exercise Management Discipline:
Fast-growing businesses must realize that when informal decision-making becomes unwieldy
and ineffective, a new working style with experienced managers from outside may be called
for.
Become Market-Driven: Businesses must experiment continually, learn from customer
feedback, and use external metrics to monitor performance. They must shift from gathering
as many customers as possible, to retaining the most valuable ones. The first lesson on
managing high growth is to "make your customer the center of your culture."
Maintain Resource Slack: "Successful e-commerce strategies have a
well-defined thrust that defines how they deliver superior value to their customers, but
enough flexibility to pursue unexpected variants and extensions as they emerge,
The remaining dotcom’s will survive if they find a market area with little
competition and satisfactory prospects for growth: so to say a find a niche they can
control.. A lesson for investors to learn from this is not to go over board in the next
revolution-the biotechnology phenomenon. Remember look for biotechnology start ups which
are breakthrough not re-formed ones: While the new technology will improve the drug
discovery process, it will not cause a wholesale redefinition of the pharmaceutical
business model.
Aru Srivastava
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