We meet a lot of big, established companies who don’t ‘get’ the Internet.
“We’ve got a guy looking at that.”
“Most of our customers don’t use the Internet anyway.”
“We’ve already got a website. I haven’t really used it, but it looks really nice.”
Many businesspeople dismiss the Internet as a place for their website and email. That’s equivalent to seeing the PC as a nicer looking typewriter, and about as dangerous. History is littered with the carcasses of once great companies that failed to embrace revolutions: from the combustion engine to the microchip. Just like these, the Internet changes the whole game.
Why you’re not worried enough
The most common mistake is to assume your customers don’t like or use the Internet, or that what you do isn’t affected by it.
Put ten random people in a room. Ask them:
- When was the last time they bought a holiday without using a website?
- What about car insurance?
- Who’s bought something from Amazon.com?
- Have they used online banking? Would they switch to a bank that didn’t have it?
- Who doesn’t read a newspaper anymore because of the Internet?
- Do they own an iPod? Have they bought music for it?
All of these are established multi-billion dollar industries (insurance, travel, finance, books, news, music) that have been utterly transformed within 10 years. Almost all have seen new industry leaders start and take over within that same period. Apple and Amazon are now the largest distributors of music worldwide. Google is the largest supplier of advertising, almost equal in revenue to the entire newspaper industry. Right now, the entire newspaper industry is fighting for its life, largely because of a company that was founded in 1998 by two fresh graduates in a garage.
How the world has changed
Marginal costs approach zero
Marginal cost is what you have to spend to sell one additional unit.
To sell a holiday offline, you need a person to answer the phone, accept enquiries, prepare responses and process orders. To sell more holidays, you need more people, so your costs increase alongside your income. Because demand fluctuates, you’re always inefficient – there is either too much or too little capacity at any time.
On the Internet, your marginal costs approach zero. Once you’ve built your online holiday store, the cost of serving 10 customers or 100,000 is almost the same. For more orders, you just need a bit more electricity and computing power, and the odd person to handle issues that occur. Demand can fluctuate and you’re much more flexible.
This enables business models that couldn’t exist before. Ryanair can sell you a flight for £10 online and make a profit. Apple can sell songs for 79p each, earn a higher margin and employ a fraction of the staff of a traditional music retailer.
If you’re stuck with higher marginal costs than your competitors, you’re doomed to cost more, make less or go bust.
Barriers to entry drop
Increasingly it becomes easier to build a new online businesses:
- Technology is ubiquitous and cheap.
- An online presence is affordable by individuals, nevermind companies.
- Smart individuals can outdesign large companies.
- Technology is getting better all the time.
- Demand is increasing all the time.
- Physical offices are not required.
- Marginal costs are extremely low.
- A 24/7 global presence is possible from a back-yard.
Virtually every household Internet company started as a couple of people programming on their own computers, often without offices or staff. From these foundations, giants such as Google, Yahoo, Amazon, eBay and Facebook have risen. Typically these companies will secure modest funding around $100,000 early in their life to sustain themselves. Increasingly many are entirely self funded.
Right now there’s probably a guy in a bedroom working on how to do what you do better online, and what’s scariest is he has a chance of succeeding.
Scalability approach infinity
Internet business can scale very, very quickly. Internet companies have demonstrated the fastest growth rates ever seen by business. Google became “the most powerful brand in the world” with a market cap around $150 billion within 10 years.
Growth costs less as marginal costs are so low. Expanding into new territories doesn’t have to mean new offices or staff. The automated, electronic systems which power your business (such as your website) don’t sleep and can expand almost at will.
Note that is only applies if the technology and the design is right. If they’re not – say you didn’t plan for internationalising your product – then you’re stuck. But your competitors might not be.
Globalisation becomes the norm
As scalability increases, it becomes far easier to serve a global audience than before.
With the enormous opportunities this presents – of drastically increasing revenue at relatively low cost – the most successful companies almost invariably expand in this way. This means that unless you’re the best in the world at something, there’s a good chance someone better will expand into your turf eventually.
This creates incredible opportunities for the world’s best companies, but serious threats for the worst.
Protectionism fails
Traditional legal protections are relatively ineffective on the Internet. Regardless of the law, people will copy content you write, comment freely on your products and services and relentlessly duplicate anything you do which appears to be successful. On a global stage, combating this is an exercise in futility.
Some of the most powerful corporations in the world are either thriving in this environment, or being decimated by it. Most of the music and film industry has bemoaned how the Internet is destroying their livelihood through piracy and the ‘expectation of not paying’, and have spent a great deal of that time chasing criminals, instead of delivering a legal alternative. Meanwhile Apple spotted a new opportunity – people wanted their music over the Internet – developed iTunes and now is the largest music seller in the US with around 5 million songs sold a day.
More transparency, less loyalty
Your customers don’t care about you, or your website.
They probably have many alternatives. They are empowered like never before to research you, compare you and reject you at their whim. Consider how you buy car insurance or a holiday online, how much choice you have, and how long you’ll stick around if you get frustrated trying to use one provider.
If your business is based on hoodwinking, you probably won’t survive in the Internet marketplace. But if you offer genuine value, you’ll likely do better than ever.
Awareness
If you can grow very quickly – and so can your competitors – then your game changes.
You need awareness to succeed. Many insurance companies are at the mercy of brokers with more popular websites, like www.confused.com, simply because they attract more business. Barnes & Noble have their own website – launched just two years after Amazon’s – but it attracts only a fraction of the traffic Amazon gets, and even less business.
Whoever holds the majority of attention wins.
This has lead many Internet companies to go to incredible and ingenious lengths to make their presence known. Many Internet startups secure funding solely for this purpose. Internet Marketing may appear very alien to traditional marketers. In most cases, it no longer means getting people to type in your web address directly, instead you want them to find you via a Search Engine (like Google), social network or other sites.
If you don’t know your YouTube from a Tweet, you need someone who does. It’s not forgiving territory to the uninitiated. Know this: it doesn’t reward large spend like traditional interruption marketing.
Technology is a workforce
Increasingly your website is what people see first, and possibly the only thing they see. As automation increases, think of your technology as much of your sales force, marketing material, fulfilment and after sales support. Just as in the real world, the quality of these is hugely important.
Many people struggle to evaluate how ‘good’ a website is, or they’re not sure how to make them better. It’s a lot more intuitive to say all your sales guys need to wear suits than to make an intelligent comment on drop-down menus. Hire at least one expert. Test your site endless on real people. At a minimum, read this book.
Continued in Part II: Taking advantage of that Internet thing
