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| The days of easy money are over. For a while, it seemed you could strike gold in cyberspace by just digging, as the Internet millionaires (and billionaires) from the likes of Amazon.com, E*Trade, and eBay will attest. But industry leaders (and everyone else) have figured out that there’s a gold rush going on and can no longer be counted on to sit idly by. With so much competition developing, how do you tell whether your "dot-com" idea is going to be a killer app, rather than costly road kill on the information highway? As people ask in Silicon Valley, do you have a rocket or a rock? Based on my research for Unleashing the Killer App, which I wrote with Larry Downes, and on two years of consulting since then, I’ve put together a top-five countdown of what winners do: 5. TARGET CUSTOMER TRANSACTION COSTS. Much has been made of how e-commerce is depressing prices by reducing overhead, increasing competition, and giving customers more information about suppliers’ actual costs. All of that is true, and every company will have to drive down its transaction costs just to stay even with competitors. But there is also a lucrative, often-ignored opportunity to reduce the hidden costs that your customers incur as they find your products, compare them against others, negotiate with you, and deal with you in various other ways. For the customer, reduced transaction costs translate into more efficient, convenient, and satisfying experiences. EBay, for example, may get neither buyer nor seller the absolute best price on that antique armoire, but it wins business by severely reducing the hassles of buying and selling. 4. BRACE FOR A DECATHLON, NOT JUST A SPRINT. It wasn’t so long ago that everyone thought of Amazon as a bookstore. Until recently, many assumed that Amazon’s bricks-and-mortar competitors, such as Barnes & Noble, would use their brand and physical-world muscle to throttle the digital upstart. But it’s clear now that Amazon won’t be displaced and, more interestingly, isn’t just in the book business. Books were merely the entrée that established customer relationships. Amazon is now offering those customers music, videos, toys, electronics, and even auctions. Asked about Barnes & Noble, one Amazon spokesman recently was quoted as saying, "We don’t really think about them as a primary competitor anymore." The important lesson here is that you need to evolve constantly. Digital markets are too unshaped, customer behavior too unpredictable, and competition too fluid to assume that a single strategy (either yours or your competitors’) is etched in stone. Oh, and you’d better adapt as fast as Yahoo! Once Yahoo decided to add an agenda/calendar capability to its site, it took the company just two weeks to review all its options, buy a company, and integrate its capabilities into the Yahoo site. Most companies couldn’t even schedule a first meeting in two weeks. 3. TREAT CONTENT AS THE COST OF ENTRY, NOT THE ENDGAME. The vogue phrase used to be: "Content is king." The assumption was that great content would distinguish the most popular Web sites. Television was the model (even though precious few shows have great anything). Great content is, in fact, critical. But, for most Internet surfers, the acceptable price for great content is very close to zero. Why pay for your content when others offer similar content for free? Rather than relying on selling content, successful companies will give content away to get something else back. Downes and I give away the entire text of our book at www.killer-apps.com to build brand and gain credibility for our consulting business. Zagat.com gives away its restaurant rankings to build its base of readers and reviewers. Eric Clapton gives away album cuts to sell whole CDs, and many new artists give away entire albums to build a following. An interesting case to watch will be the Wall Street Journal, which charges for on-line access while the New York Times gives almost all its content away. The Journal makes money on-line, while the Times Web site does not, but wsj.com has about 5% of the 8.5 million registered users of nytimes.com. I’m betting that the Times can parlay its customer relationships into more value than the Wall Street Journal will by selling its content. 2. ORGANIZE AROUND THE CUSTOMER COMMUNITY, NOT YOUR PRODUCTS. Rather than thinking about what differentiates your offerings, you should think about what differentiates your target customers. If they are all your customers, what else do they have in common? How might you support all their interests? Babycenter.com, for one, offers information, products, and services that guide parents from before conception, on through infant care. You should also try to get your customers to become a community and interact with each other—perhaps, if you sell medical products, you get people to share information and support each other during illnesses. As described by David Reed [See Digital Strategy, Context, Spring 1999], there’s a mathematical basis that explains the power of community interaction. Reed’s Law shows that, once engaged, members are loath to leave a community. They will even recruit new members, to increase the value of the community for themselves. 1. SEPARATE THE CANNIBALS FROM THE LUNCH. It has become clear that dot-com ventures have to be allowed to cannibalize existing businesses if they’re to have any hope of success. But that’s easier said than done. Because established businesses have markets and relationships that they need to protect, they often smother internal e-commerce ventures. Toys "R" Us, for example, told its toysrus.com venture that it didn’t have the freedom to seek the best prices; it had to work under the parent’s purchasing contracts, to protect relations with suppliers. Because of a series of such restrictions, a high-profile recruit backed away from taking the toysrus.com chief executive job, and plans for a major investment by venture capitalists fell apart. Toys "R" Us is in such trouble that Robert Nakasone resigned as its chief executive. To succeed, corporate ventures must be truly independent. They must be designed and operated with spinoff in mind. They must be allowed (and required) to pursue the market independent of corporate politics. They must be financed based on milestones drawn from their business plans, not be subjected to the normal corporate budget cycles. They must be championed by the parent’s chief executive, as Charles Schwab did with its on-line brokerage service. They must, like start-ups, provide the prospect that leaders can get rich enough to retire. The "cannibals" have to be protected. Otherwise, in a reversal of the old cartoons showing hapless missionaries trapped in boiling water, the lunch will surely find a way to toss the cannibals in the pot and will just keep stoking the fire.
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