The recent high profile collapse of Boo.com, the Internet sports accessories and clothing company, has sent shivers through the Internet venture capitalist community on this side of the Atlantic. For the past few years, industry analysts and government agencies have been preaching the gospel of e-commerce. Like the gospels, the message is delivered in a distinctive messianic vocabulary: re-engineer your company's business model to leverage the power of the Internet or you will very soon be history.
Many chief executives and senior management throughout industry are in their 50s. Very few had exposure to computers at university and many can only use a PC for typing, e-mailing and accessing the Web. Even among the few who have a high level of Web savvy, there is a great deal of suspicion about the utterances of IT gurus.
Less than a year ago, many of these executives attended expensive seminars where they were lectured to on the apocalyptic consequences of their inertia in dealing with the then impending millennium bug. Vast sums were spent on ensuring that industry's systems were Y2K compliant, and yet there was scarcely a morsel of news over the New Year silly season. Like the man scattering elephant repellent in Central Park who replied "It's good stuff isn't it?" when it was pointed out that there were no elephants in the park, it would have done the IT messiahs no harm at all if a few elevators had got jammed here and there to prove their case.
In a recent survey of the senior managers of 500 global companies conducted by the Economist, 90 per cent of those interviewed ticked the box saying that the Internet would transform their business and reshape world markets. Nine out of 10 looked at the dotcom emperor and admired his new clothes.
While it would be foolish to think that the Internet will not have a major effect on most industries, it would also be wise to consider which existing industries are most likely to prosper by adopting an e-commerce business model and which Internet start-ups are likely to survive and prosper.
In the first instance, any company whose main product can be delivered by means of a digital electronic signal will have to prepare for the Internet becoming its major sales channel in the long term. Banking transactions, computer software, music and video can all be digitised, and we have already seen the transformation of these industries by the Internet.
However, if your end product is a concrete item that cannot be pushed through the wires of the Net, you have to consider what competitive advantages the Internet will give - which telephone ordering has not already provided.
It is worth remembering that all e-commerce orders from a website make their way down the telephone wires as an analog signal - just like speech.
Whenever e-business proponents talk about e-commerce, you can be certain that the words Amazon.com will not be far from their lips. Amazon started out selling books over the Internet in 1995. An analysis of its main product reveals that it is, to a certain extent, "quantised". I borrow this term loosely from physics because I believe it is important in analysing why some products can, and other products cannot, be sold successfully over the Internet. In the e-commerce sense, a material product is quantised if it can be sold in units that are perfectly defined for the purchaser.
If I order Frank McCourt's 'Tis in hardback from Amazon, I know in a certain sense what I am going to get. I can be certain that it will be the same as the item I would get if I bought it in a high street bookstore. But if I buy tennis shorts from an Internet company such as Boo.com, type of fabric, size, and general overall quality are not well-defined. I cannot even be exactly sure of the colour, because what I see in my browser window depends on my personal settings. For these reasons, I believe, Boo.com was doomed from the start.
Branded goods may be considered well-defined, but only if the purchaser is familiar with the brand, and there are no other variables such as size or colour. For e-venture capitalists assessing start-up companies planning to trade exclusively over the Internet, the fundamental question must be asked: Will the customer know exactly what they are getting? If any variable issues arise, the backing should be reserved for a more certain runner.
-gibney@ireland.com