Ever wonder what factors cause a whopping business success to whop in the first place? At Context, we think the answer is killer apps. These days, winners win because they uncover some radically new, important approach to business. Losers lose because they don’t. In the past, companies could win by making steady progress in a static environment. Think Emerson Electric. Today, the game is to innovate in a chaotic environment. Think Amazon.com.

The winners are...

 
START-UPS

Here’s how it happened (or, rather, almost didn’t happen): Sheridan Forbes, who helped to launch Digital Equipment’s powerful AltaVista search engine, says that in the early 1990s she met with two Stanford students who were in "Ph.D. avoidance mode." They had developed a nifty search tool and were figuring out what to do with it. "We tried to merge the two search engines," Forbes says. But Digital’s management didn’t get it. Digital and the two students established a minimalist alliance, but it was quickly ended. Forbes, meanwhile, was accused of being "too visionary" and was demoted two levels.

The students were, of course, Jerry Yang and David Filo, who founded Yahoo. Today, their combined net worth is within shouting distance of the $9.6 billion that Compaq paid to acquire Digital Equipment in 1998.

Another little-known story: In the early days of Yahoo, an executive from rival Infoseek often passed Yahoo’s offices on his way home late at night and banged on the window of Yahoo Chief Executive Tim Koogle. Koogle says the executive yelled that he was going to bury Yahoo because he had far better technology. Koogle says he thought to himself: "He doesn’t get it. It’s not the technology. It’s the brand."

The Yang/Filo idea and the Koogle insight were the reasons that Yahoo started so strongly, but they don’t come close to explaining why Yahoo is being inducted into the Killer App Hall of Fame. Yahoo has been remarkably protean, transforming itself from a "search engine" to an aggregator of content from lots of sites, to a generator of its own content, to a company that provides personalized services that keep users loyal.

Yahoo reconfigures fast because it possesses "great partnership skills," says Context editorial board member David Reed. You could say that the ability to form partnerships on an unprecedented scale at astonishing speed is Yahoo’s killer app—or, at least, its latest killer app.

Amazon enters the Hall of Fame because it has had, if anything, an even more drastic effect on the competitive landscape. In every industry.

Amazon taught us all about potential first-mover advantages—founder Jeff Bezos was so determined to be first that he wrote parts of his initial business plan in the car while his wife drove them across country. Bezos made the "dot-com" appellation fashionable. Most importantly, he convinced businesses far and wide that consumers really would buy things on-line. Until Amazon came along, many companies were in deep denial about e-commerce.

Bezos isn’t done, either. His decision to go beyond bookselling and become a merchant for nearly anything is testing what could be a killer concept—that the way to approach the Internet is to line up a group of customers and then sell them everything. In other words, to organize by line of customer, not line of business.

EBay’s pony-tailed founder, Pierre Omidyar, contends he’s "anticommercial," even though his stock in the on-line auctioneer is valued at nearly $3 billion. But we believe him. At the heart of eBay is a kind of populism.

EBay enters our Hall of Fame because it has convinced so many other businesses of the value of populism—what’s generally referred to as the importance of communities. [For more on how eBay carefully fosters community feelings, see " ‘Amazoning’ Amazon".] EBay also has shown that auctions can be an exceptionally powerful tool on-line—another idea that is reshaping the whole business landscape.

Runners-up

We should all be so lucky to be also-rans here. We’d be filthy rich.

America Online nearly made the cut for showing the importance of community and of ease-of-use. E*Trade and Wit Capital may change Wall Street forever. And there are hosts of other companies with killer apps in the making.

In other words, there will be no shortage of candidates for the Hall of Fame next year.

 
ESTABLISHED BUSINESSES

Ginger Rogers could do everything Fred Astaire could, the saying goes, but backwards and in high heels. Well, what if she had suddenly been required to dance on roller skates? In one movie, she did.

Charles Schwab is inducted into the Killer App Hall of Fame as a Dancing Dinosaur because it has been the Ginger Rogers of business. It seems to be able to keep dancing whether it’s moving backwards, is wearing high heels, or is forced to wear roller skates.

It may seem less than stunning that Schwab moved so quickly into the market for inexpensive, on-line trades. After all, Schwab got its start two decades ago when a regulatory change created the opportunity for discount brokers. In fact, it’s rare for a company to launch more than one fundamental innovation, and what Schwab has done marks an astounding transformation both of the market and of itself.

Schwab has had help, from E*Trade and others, in moving the market on-line and threatening the cushy margins that have let Wall Street thrive for so long. But Schwab has become the driving force, capturing more than half of the market for on-line trades. And Schwab will keep pushing. With on-line holdings representing less than 10% of the $15 trillion in U.S. consumer investments, Schwab will undoubtedly lure lots more on-line business.

To transform the market, Schwab had to overcome enormous internal obstacles. In particular, Schwab had to convince all those who had built their careers around the firm’s network of brokerage offices that it was actually a good thing to have customers ignore those offices and trade on-line. How hard was that? Merrill Lynch, which, like Schwab, saw the on-line possibility in 1994, is still wrestling with how to get its brokers on board and has fallen perilously far behind in the on-line market.

Our hats are off to Schwab’s management for having the courage to take the leap. A shaky landing in the on-line unknown could have degraded Schwab’s brand, cannibalized its high-commission business, sent mixed signals to the marketplace, wasted investments, and deflated the stock price. In fact, David Pottruck, Schwab’s co-chief executive and the man who did the operational groundwork for on-line trading, admits he was uncertain. But he says Charles Schwab, the founder and other co-chief executive, didn’t blink. According to Pottruck, Schwab said, "This isn’t that hard a decision. It’s just a question of when, and it will be harder later."

Words to live by.

Runners-up

We also seriously considered Edmund’s, the auto-rating business. Although Edmund’s has long made its money by selling books, it offered its information and services for free on-line. Now, customers use its Web site as a jumping-off point for traveling to a wide range of auto, insurance, and other businesses that pay Edmund’s a fee for every transaction that results. Another pretty slick tango.

 
ROAD KILL HALL OF SHAME

The thing about flattened raccoons and possums is that they were going someplace. Or so they thought.

Which brings us to Encyclopedia Britannica. For more than 100 years, Britannica had gone proudly on its way, spreading the very best of reference knowledge and gracing family libraries with its imposing volumes. Then, in 1993, splat.

It didn’t have to be this way. Bill Gates had approached Encyclopedia Britannica in the late 1980s to see about jointly doing an encyclopedia on CD-ROM. Britannica declined. The medium wasn’t ready, it said. CD-ROMs couldn’t do justice to its content.

The problem wasn’t just a technical misjudgment. Britannica’s whole business was built around its expensive sales force, which mostly went door-to-door and sold impressive sets of books for $1,000 or more. Management couldn’t even begin to contemplate selling encyclopedias for less than $100 through retail channels.

But Gates could. He did a deal with second-tier publisher Funk & Wagnalls and launched the Encarta encyclopedia. For $99 (or far less, when Microsoft wanted to bundle Encarta with other software as a loss leader), people could get pretty good information and some useful features, like keyword searching, that aren’t possible in books. Encarta sales took off while Britannica’s sales collapsed.

Later, Britannica went back to Gates to see if it could resurrect the deal, but Gates said his research found that Britannica’s brand had been devalued so quickly that a deal would actually hurt Encarta. Every one of Britannica’s door-to-door salesmen was out of a job by 1996. Senior management has changed several times. And despite its recent decision to put its content on the Web, Britannica is still dead meat.

Britannica no doubt thought it was zooming down the road nicely, but then, like Wile E. Coyote in the Roadrunner cartoons, it looked down and realized there was no road there any more. Welcome to the Road Kill Hall of Shame.

Runners-up

Many other prominent companies are in danger of an imminent encounter with an onrushing bumper. They still have time to avoid an abrupt end, but so far they aren’t moving. So we’re starting a Deer in the Headlights list.

Lexis-Nexis, the on-line proprietary database, predates the Web by 20 years. But, having built up a corporate clientele accustomed to steep fees and dedicated terminals, Lexis-Nexis has been so insulated it can’t see that the Internet is a serious threat. Although Lexis-Nexis objected strenuously when Context ran a tough piece about it earlier this year, Reed-Elsevier, the company’s parent, has since acknowledged a major problem with earnings and cited Lexis as one of two main sources.

As for Merrill Lynch, you’d think it had made a lover’s death pact with every one of its 15,000 high-priced brokers. Most of them are about to go over the falls. The question is whether Merrill has the time, the moxie, and the will to change.

Toys "R" Us had looked like it might be making a good, aggressive move when it announced a deal to set up toysrus.com as an independent venture that would draw funds and expertise from venture-capital firm Benchmark Capital. But Toys "R" Us backed out of the deal, and its chief executive resigned. Management is simply scared to do anything that might be seen as threatening by its franchisees and network of company-owned stores. In the meantime, the company faces huge customer-service issues, and its stores are shabby and dated. Internal dissension festers, and morale is in the basement.

Deer sightings like these go on indefinitely. Members of our editorial board had plenty more nominations for our list. Among them:

Print newspapers—"Dead meat," Mohanbir Sawhney wrote.

Large travel agencies and auto dealer networks—"The efficient systems of a dying era," David Reed said.

Are those the screeching tires of change approaching?

CHARTER MEMBERS

Barring the discovery of the ultimate End of Time App, no one Killer App can endure forever. In the hypercompetitive ferment of the Internet, they summon their own antitheses. Yet, like seismic spikes on the historical graph of commerce, there are some apps that will always stand out:

In an age before Internet time, Dan Bricklin, a Harvard MBA student, grew tired of recalculating figures, again and again. So, he and friend Bob Frankston created software so any computer could generate a spreadsheet. The VisiCalc spreadsheet, marketed by tiny VisiCorp, had unexpected effects. One example suffices. Spreadsheets made it possible to aggregate data in countless legal agreements and re-sort the numbers into piles of risk and return now known as financial derivatives. This led to the creation of the junk bond.

As disseminator of "browser" technology, Netscape helped ordinary folks find their way around the Web. Until then, the Internet was a meeting place for academics and government scientists. The browser democratized its use, creating something with unlimited social and commercial potential.

Netscape’s stock run-up also ushered in wacky Internet IPOs. Outrageously high market capitalizations for untested companies have changed relative valuations so completely that AOL has more than twice the market value of GM.

VisiCorp is long-departed. Netscape disappeared into AOL in a takeover late last year. So, Killer App companies don’t necessarily win. But they certainly change the market for everybody.

EDITORIAL BOARD OF JUDGES

John Perry Barlow is a retired cattle rancher and former lyricist for the Grateful Dead who has written extensively on how business and society are becoming more virtual.

Gordon Bell, a senior researcher at Microsoft, led the development of the first minicomputer at Digital Equipment.

Mel Bergstein, chief executive of Diamond Technology Partners, has a distinguished record as a consultant in technology-based strategy.

Tim Gallwey is the author of the best-selling Inner Game books on learning. His latest: Inner Game of Work.

Alan Kay is widely regarded as a principal inventor of the personal computer. He was a founding principal of Xerox PARC and is currently a Disney fellow.

Andrew Lippman is a cofounder of MIT’s Media Lab.

Heidi Mason is a managing director of the Bell-Mason Group, with Gordon Bell.

Anthony Paoni is a professor of technology at Northwestern University’s Kellogg Graduate School of Management.

Joe Pine, an authority on mass customization, has most recently co-written The Experience Economy.

David P. Reed is a consultant on information architecture. Previously, he was chief scientist at Lotus.

Mohanbir Sawhney is the Tribune professor of electronic commerce and technology at Kellogg.

John Sviokla is a partner with Diamond and a former professor at Harvard Business School.

Marvin Zonis is a professor of international political economy at the University of Chicago Graduate School of Business.