Welcome To Zero Gravity: The E-commerce Model Of The Future

John Glenn prepares to blast off into space again some 25 years or so
after he first experienced weightlessness when he crossed the heavenly
divide, between the Earth’s constant tug and the less than feather feel of
space. Coincidentally, some 25 years after the Internet first launched a
new era it experiences something I have come to call “zero gravity.” It may
very well be the future of e-commerce.

In a few words, what is “zero
gravity?” I define it as a purely digital way of doing business, without
the encumberment of moving real goods and services over land, sea and
air.

The key slots for capitalizing on this concept lay at the “zero G”
stage of (forgive me for another new term here, “Webline,” the Web as
continuum, like time or space).

For example, the browser itself,
chatting, e-mail, Web page communities and such, all represent the
tools that enable zero G (which is another way of saying the best
spot for e-commerce to happen, scale, and leverage a global information
network). A basic sketch of how firms stack up in a zero G environment,
with a constant pull, one way or another:

As soon as you introduce gravity, literally with buildings, warehouses,
shipping by petro-based vehicles, into any e-commerce scenario, it costs net
income margin and tilts the scale toward losses or high costs of doing
business.

For example, if we take Barnes & Noble (NYSE:BKS), the
land-based chain of stores, they are heavy G, bricks and mortar, lease
obligations, tens of thousands of sales clerks, logistical shipping
problems, and a lot of elbow grease at the buying and selling point, where
a customer plops the book on the counter and the sales associate rings it
up, wraps it in paper or plastic and repeats the process.

At every point
in the overall scenario (which is much more complicated than I outline),
real Earth gravity takes its toll: net income margin. Pay for fuel,
shipping, buildings, people, lights, flooring, painting, maintenance, and
more, all to get to one moment: the buyer buying a book.

To be fair,
advantages exist in having gravity at times, one reason why Barnes
generates billions in revenue annually. The “experience” has a tangible
value, being in a book store, having a coffee, undergoing a “social” moment
with a “community” of like-minded book worms.

That level of human
interaction will not be replaced with a few icons on a Web page.

What
could likely occur if the theory of zero G proves true is that digital
enterprises, I believe, have the ability to scale to levels never before
seen in the gravity-bound environment of buildings, cars, stores, freeways
and parking spots.

A Disney, for example, makes plans to open only a
limited number of Disney stores (or ESPN sports stores). Times Square in
New York City or London. Gravity takes its’ cut of the effort immediately:
the mall or storefront space must be leased, merchandise ordered, stocked,
sales associates trained, managers to oversee each store. The store may do
phenomenally well when evaluated against peers in the same street or
mall.

Meanwhile, in zero G, a Disney store is as endless as the company
wants it to be, and 24/7/365.25 (open always). Everything Disney makes or
sells or wants to sell can be stocked. It may require about as many people
to operate this zero G store as it does to operate five heavy G stores. But
sales for the zero G store could surpass the entire land-based Disney store
chain.

The purely Web-based enterprises in all areas know or are coming
to realize the benefits of not being land-based. That’s e-commerce today.
But that’s like a kid jumping up and for a few seconds imagining he or she
is Buck Rogers.

Inklings of more zero G-like e-commerce emerge but that
doesn’t mean they are developed or successful–yet. Looking at the Wright
Brothers fumbling with a bi-plane in corn fields, you would never imagine
walking on the moon. But truly one led to the other while everyone else in
the “transportation” business was betting on railroads.

Pure zero G
requires purely digital products. Our showing Priceline.com, for example,
isn’t an endorsement of it. You can be free floating and think you’re doing
it, like astronauts going on the Shuttle just for the view. In zero G,
things must be set up properly also in order for mission accomplishment. In
this case that means profits.

The challenge is to create a value chain so that these as-yet undetermined
products and services generate profits for those who do them (otherwise it
won’t support itself).

That explains why most things on the Internet
today are free. Not because they lack value but because the value of them
is difficult to determine. The Wright Brothers didn’t invent the airline
ticketing industry directly or the abominable food airlines serve. These
services and value systems emerged after the industry got
wings.

Similarly, content of every flavor, services of every nature,
haven’t been able to price themselves for any long-term haul when there are
so few passengers today for e-commerce.

The music industry, for example,
struggles with college kids who are copying CDs and distributing them all
over the Internet for free. Copyrights, pirating and other terms describe
this unlawful behavior.

Take something like ICQ, on the other hand, the
instant chat and message software. AOL paid more than $287 million with
another $120 million based on performance over the next 3 years for
ICQ-Mirabilis. That’s $407 million valuation.

AOL based that on the
ability or promise of ICQ to be a channel to reach people to sell them
things or sell those people to marketers who want to reach them.

October 28, AOL reported ICQ registrations surpassed 20 million, up nearly
double vs.
when it was acquired in June, because people are encouraged to pass it
around.

Similarly, what the music industry doesn’t understand is that its
business model is out of step with a digital era. The music industry
doesn’t realize that it’s in the community industry and that artists
represent community leaders or distribution enablers. You can pay $15 and
listen to Sting or The London Philharmonic on something called a “CD” as
many times as you wish.

To “zero G ” the music industry, you could sell
concerts, merchandising, memberships to users to join the artists’
community, which includes chat, custom e-mail services, personal Web-based
calendaring featuring the artist/band, audio birthday greetings, etc. And
sell the whole community to marketers and manufacturers from whom they may
wish
to buy from.

>From an investment perspective I encourage you to use this
metric, hold it up against any Internet stock and ask yourself how much
gravity they have sucking away net margin.

Several Internet firms that
we all know and love are close to zero G and moving that way. But old-world
business models zap their thinking because those are the models most
familiar. Gravity.