7 Lessons Learned From The Dot-com Fallout

Layoffs have plagued the Internet industry. First came the initial waves of dot-com failures. The dot-com consultancies weren’t far behind, as they too began laying off employees.

Surely, amid the rubble that was the Internet bubble, there must be some lessons we can all learn. Some of these are so obvious it’s almost too embarrassing to list them. But since (presumably) smart people parted with their money, I’m going to go ahead list them anyway.

1. There is no substitute for business experience.
Genius is close, but few true geniuses do very well in business, so genius is an inferior criterion for investment. Most venture capitalists that gave millions of dollars to twenty-somethings were simply gambling that only a small fraction would pay off.

2. The Web is not (and doesn’t have to be) the most economical way to shop.
Neither B2C nor B2B commerce is exclusively about offering the lowest price. That’s okay, though, because the most desirable customers aren’t the most price conscious customers. In fact, some customers aren’t price conscious at all. The perception of abundant inventory doesn’t drive all shoppers to price bots.

Catalog suppliers like Eddie Bauer have done well precisely because they have not tried to compete on price. Offer service and convenience, and you will attract customers who won’t click away even when you charge a US$3 per order handling fee (such as Eddie Bauer does).

3. Free is an unsustainable business model.
I’m inclined to add a “duh!” to the end of the previous sentence, but I still hear from readers who are trying to make a go of offering something for free now, only to start adding fees at some future date.

It reminds me of an old episode of “The Twilight Zone”. A stranger arrives at a woman’s door and hands her a box with a big button on it. He tells her that if she presses the button, she’ll get a large sum of money and someone she’s never met will die. After looking at the box for a several days, she presses the button, and right away the doorbell rings. It’s the stranger with her money. She asks where he’s taking the box, and he replies, “Don’t worry. I’ll give it to someone you’ve never met.”

When you open your doors and offer something for free, you’re sounding the death knell for that company (storage provider, ISP, or some other interchangeable service) that has been in business for six months, giving their own services away, and has recently decided to charge. On the other hand, you’re only six months away from having to start charging for your services, and consequently being put out of business by someone else’s free service.

4. E-everything is about time and money.
For some the savings will be time, for others it will be money. For few parties will it be both (directly). For e-business, long-term relationships matter most.

5. Standardization is good.
Even if the Internet disappeared tomorrow, we’d still have XML. XML permits business applications and even businesses to communicate with each other in a standard (non-proprietary) way.

The standardization that you want to avoid is any standardization decided by someone other than the market. Who should really be surprised that standardization is good? Isn’t this why we have patents? Every company would move toward the ideal model on its own if we didn’t give proprietary ownership of the ideal model to the patent owner (for some limited period of time).

6. Spend marketing money wisely.
marchFIRST filed for bankruptcy last week. I knew they were some type of dot-com services company because their frequent television commercials (and I don’t watch three hours of television a week) told me nothing about them. Quirky and mysterious is not great branding for a consulting firm.

Also, unless your product or service is targeted to a general audience, don’t advertise during “ER”. Television commercials for dot-coms seem to be more about executive egos than about driving traffic and selling products.

7. The Web is a channel.
The Internet is not really a sector of the economy, the way that consumer goods and energy are sectors. The Internet is more like accounting. It’s a part of every company, with some companies making it all they do, but only to the degree that they can help companies with their own execution of this specialized task.

Actually, NASDAQ (and my portfolio) aside, the dot-com meltdowns weren’t necessarily a bad thing. Most industries take years to mature. The Internet industry is maturing at the speed of … well, the Internet. Those of us who need to take action today ignore these lessons at our own peril.

This article has been reprinted from ECommerce Guide.com, a sister site to asia.internet.com.

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