There are really only two groups on the Internet: the very big and the very dead. You’re going to be one or the other.

Let me explain how I think about becoming one of the very big.

In the century just completed, four major grids were created that affected all of commerce. We don’t spend a lot of time thinking about them because they happened before many of us were born. In order, the grids are: electricity, highways, telephones, and broadcast entertainment.

Right now, the fifth grid is being created. This grid, of course, is information, sometimes called the Internet. Eventually, it will subsume many of the functions of the other grids, so it is, in many ways, the Grid of Grids. In biological terms, the information grid is a lot like the cerebral cortex. It’s the thin layer on top of our brains that separates us from the animals. It’s apparently the seat of our consciousness. It’s certainly the seat of our higher reasoning powers. It is our ability to remember and manage memories. It is our ability to process information. It is the very thinnest layer of the brain—and it is all of what we are. Because of the Internet, we are living in the age of the wiring of the cerebral cortex of all of society. That’s what the fuss is about.

It is a marvel to watch young children essentially wire up their brains, making the millions of connections from every neuron to every other neuron in the brain. Learning to speak. Learning to think. Learning to become a person.

As a society, that is exactly what is happening. A wiring up is taking place of all businesses to all other businesses from every desktop (think of that as the neuron) to every other desktop. Properties are emerging from that wiring that were completely unanticipated. One of the most unusual things about the Internet is that businesses can grow virally. It’s like telling one neuron in your brain that the stove is hot; you don’t have to tell every other neuron. They’re all connected.

To start to apply these ideas to commerce, you have to look at how many things are moving to the information grid.

In the good old days, merchants used to print prices right on the product. If you picked up a can of coffee, the price was on it. Now, the idea of the price being on the product is absurd. The price has moved to the information grid. In stores, it may be listed on an LCD display, which gives you the price du jour. We know that the price of a stock or a bond or a commercial instrument changes a million times a day. The price of an airline seat has moved to the computer reservation system. Actually, there is no price. There’s only a market, and the market price changes just about as fast as you can make a reservation.

Transaction-related data, financing choices, customer history all move to the information layer. Even your attitude moves to the information grid. Are you happy with this product you’re being shown? Is it the right color? Is this place boring you? "Intentionality" moves to the information grid. Your intentionality is incredibly valuable commercial knowledge. Are you here to buy? Are you here to browse? Are you ready to buy right now?

Here’s something else that’s now in the information layer: the opinions of others. When you shop as a group, you ask your friend, your mother, your neighbor, the person you’re shopping with: "How does this look?" These opinions shape commerce whether they come from an expert, a friend, or even a clerk. Opinions suddenly become visible and can be captured.

How do we create a business based on this restructuring of information? There are four ways to create value that I’ve been able to find, and only four. All businesses blend them in some proportion.

The first way you create value is you entertain. If you can entertain people, you will be paid in some form, whether it’s with people’s attention or with their wallets. In our society, you can’t beat pure entertainment. A gambling site, or a sex site, is an example of a site that provides nothing but entertainment.

The second element is convenience. This is the most overrated of the methods. The early adopters on the Internet tended to be affluent white men who thought the world shopped at 7-11 and who had never been to a Wal-Mart. They think convenience drives the world. Convenience allows you to buy your time back, to shop in your slippers, to do something faster and easier, so it’s a force—just not the dominant force.

EBay is mainly a convenience-driven company. It’s difficult to visit every flea market in America overnight, so eBay accumulates them in one phenomenal place.

The third way to create value is information. This is the least valuable of the four. People typically don’t pay for information in our society. They don’t like to buy information, and, when they do, it’s called the newspaper, and they pay about 40 cents for it. Most people don’t aspire to be research librarians for a very good reason: Research librarians don’t make a lot of money.

The fourth component is value itself, typically thought of as price. Value is probably the most important factor of all. Give me more for my dollar. I have a budget, and I’m trying to get as much for my dollar as I can. People ask me about how people buy cars in America. Americans don’t buy cars. They buy payments. When you go to a car dealer, you’re thinking, "How much car can I get for $270 a month." That’s no secret to any car dealer in America. But it’s a secret to most other people. Successful businesses understand that value is driving the world. Value is why Wal-Mart is the largest store in America and why Sears is not. Wal-Mart is all about price, value, national brands. Now, some people say Wal-Mart is a convenience business because it has every imaginable product in one place, but Wal-Mart is actually inconvenient. It’s on the outskirts of town. It’s not downtown, where it would like to be. If you look at the warehouse club business, you find a $60 billion industry built entirely on price.

Some people take a business in the physical world that has some combination of these four elements, put it on the Internet, and think they’ve done something. They haven’t. Putting a business on the Internet is no different than taking a business and putting it on the electric grid or making sure that cars can get to it or putting phones in the office. That is not a business. Businesses take a plant that grows in Australia, put it in the Antarctic, and wonder why the plant doesn’t thrive. If that’s all you’re doing, you don’t have a sustainable, competitive advantage. Just give up now and save yourself a lot of heartache.

Sustainable competitive advantage can be generated only by exploiting one of the radical changes created by the Internet:

Absolutely free communication. This is the biggest one of all. Communication has always had a cost. Suddenly, the Internet allows you to send a million, 10 million, a billion e-mails a day, and there is zero variable cost. Imagine if the Postal Service were free.

The total collapse of geography. If you had a niche market for geographic reasons, it, and you with it, will soon disappear. On the other hand, the Internet means that if you have a sustainable, competitive advantage, you can build a market throughout this planet that is about to be completely wired. In theory, that means that ornithologists could find the 200 people willing to pay an ornithologist $10 a week to identify birds in their backyards. That business was never practical before, which is why most ornithologists are starving to death. However, that’s going to change. We’re going to have at least two very happy ornithologists.

Access anytime. The world is open 24 x 7. You must be, too. Imagine, as you read this, that no matter what time of day or night, somewhere on Earth there are tens of millions of people on tens of thousands of Web sites.

Instant adaptability. Business must learn to adapt on the fly and be better at the end of the day than it was at the beginning. Even if only 0.2%, which compounded makes for a 5% increase at the end of a year and 100% every five years. I’m not talking about bigger. I’m talking about better. I’m talking about learning. Business now has perfect memory, and businesses that use this notion of never forgetting can suddenly create another dimension of competitive advantage.

Cross-subsidized transactions. Say I want to buy something on the Internet and know where I intend to buy it. Another company wants my business. It can stop me before I buy and offer me the product for free, if only I’ll agree to do something with a third company. It would be as if somebody walked up to you in the supermarket and said, That’s nice meat you’ve got in there. If you’ll test drive a Ford Bronco, we’ll give you all the meat free. Oh, really? OK. In fact, a million airline tickets on the Priceline airline service have been sold using cross-subsidy. Cross-subsidies are a very important change.

Anonymity. The ability to communicate anonymously is an enormous new capability. A lot of people are embarrassed when they buy things. A lot of people don’t want to reveal their identities. A lot of people would like to just not give their names but still shop, still interact. Anonymity is a very powerful social force.

Self-pacing. People who want to go slow can go slow, and people who want to go fast can go fast. Most people want to go slow, by the way. They can’t go fast, but they don’t want to be embarrassed because of it.

Demand collection. Most of the world is seller-driven. As a buyer, you have to decide which of the sellers’ choices you want to take. One more generation, and that will be gone. Then, buyers will drive the equation. They will specify the trade-off, will specify personal preference. Buyers will be in command.

There is, of course, one way to make money without a competitive advantage. You can play a sort of game of musical chairs and sell before the music stops. Many companies have made fortunes by doing that, but it’s not a business model that you want to work on. A business you want to work on is one where you have a real advantage that you can explain to your mother in 30 seconds. Mom can understand a sustainable, competitive advantage when she hears it. If she’s confused, then you are, too.

So, the question of the day is this: What can I do that nobody else can do? The answer is probably not much, which is why the days of easy money are over on the Internet. But if you can deliver real value, convenience, entertainment, and information in some right proportion, using some of the radical changes created by the Internet, then you have a competitive advantage.

By the way, that’s just the entry point. You have to sustain that advantage. Good luck.

Walker is founder and vice chairman of Priceline.com. This article was adapted from a talk he gave at the Digital Frontier Conference at Northwestern University’s Kellogg Graduate School of Management. Walker can be reached through Priceline, at www.priceline.com.