When we at Context started writing about killer apps almost three years ago, we carefully placed the term in quotation marks because it was little-used outside the computer industry. Today, killer apps are everywhere, both in the language and in the business world, where monster, disruptive ideas have changed how we view commerce. We take the ubiquity of the term as ratification of our idea that executives should no longer be focusing on incremental improvement but, rather, on breakthroughs that rewrite the rules of their industries.

The winners are...

 
START-UPS

Napster scares the pants off the music industry. Rusty Harmon, who represents Hootie & the Blowfish, says, "This type of Web site makes us sick." The file-sharing service, which lets people swap songs free of charge, also threatens to overhaul Hollywood and book publishing.

Even if Napster disappears, Intel Chairman Andy Grove says "Napster-like technology" could reshape the Internet’s very structure. That is because it introduces the idea of peer-to-peer use of the Internet. In other words, people won’t just download information from corporate servers but will link their computers directly to each other when swapping files.

"When I saw Napster for the first time, I got the same tingly feeling I did when I had my first look at the Mosaic beta back, I think, in 1992," recalls Context editorial board member John Perry Barlow. Mosaic, of course, was the free Web browser that helped launch the Internet revolution. Barlow says, "Napster is the killer app because it showed us the way to the ‘True Net’—that is, a Net where all [users] serve and receive symmetrically."

This means "the consumer is the Internet," Forrester Research argues. Context editorial board member David Reed adds: "Why would anyone want to go back to letting a conspiracy of radio stations and talent agents select what you hear?"

Move over Visa. Make way American Express. Here comes PayPal.

This personal online payment system makes sending and receiving cash as simple as zapping a chum an e-mail. And it is free.

Let’s say that you score a bottle of vintage port on eBay. You go to PayPal’s Web site and then type in the e-mail address of the seller and the amount you want to send. You click on the "Send" button. Voila! The recipient gets an e-mail with a credit he can redeem, even if he hasn’t yet signed up online as a PayPal member. The new refrain of the online world might become, "You’ve got cash!"

PayPal also makes it possible for people to divvy up a dinner tab by using their cell phones. The person who wants to pay someone else launches the Web browser on the phone and goes to the PayPal Web site. He keys in the right amount and the e-mail address of the person to be paid. PayPal takes care of the rest.

You even earn a few bucks from using the system. You collect $5 from PayPal after opening an account, and $5 for each friend you refer—if you e-mail someone a payment of just, say, $3, and that person then signs up for PayPal, you could actually wind up ahead on the transaction.

PayPal has been attracting new customers at a rate of 15,000 to 20,000 a day since the service was launched last November. By mid-July, it had signed up 2.5 million customers.

It’s not a big threat to the credit-card companies right now. But it’s a looming threat," says Avivah Litan, research director for payment systems at Gartner Group, a research firm. Banks are vulnerable, too, she adds. "Many banks get half of their revenue from payments. This takes the money out of the banks and into the PayPal system. I’m pretty cynical about most companies, but PayPal is definitely an exception. It has made it really easy to pay other people.

Like Napster, PayPal has no guarantee of success. It recently killed a service that let users "beam" money from their Palm organizers to others’—giving up on the millions of Palm owners. Instead, PayPal is betting that Web phones will become nearly ubiquitous, and quickly—a projection that is, at best, unproven.

Still, even if PayPal stumbles, there are plenty of other services, such as Western Union’s MoneyZap, that likely will fundamentally alter how people send and receive money.

 
THE DANCING DINOSAUR

Who would have thought a once-sleepy gas-pipeline company would one day go into the movie business? That is far-fetched, even for Hollywood. But Enron doesn’t follow a script. Just look at its deal with Blockbuster to broadcast movies to consumers’ televisions via souped-up telephone lines. The "online VCR" system will let users pause or rewind the movie, unlike existing video-on-demand services. For Enron, the deal reinforces the company’s mantra: Capitalize on the chaos unleashed by deregulation and technology.

That attitude has landed Enron a spot in the Killer App Hall of Fame. Enron is what we call a Dancing Dinosaur—an old timer that tangos with the times. Years ago, the company created private markets for gas and electricity. It didn’t stop there. Enron is in the business of creating new businesses. Despite its industrial origins, it is a hotbed for new ideas and killer apps.

"It’s coming up with strategies that will make Enron a significant player in new and developing industries," says analyst Mark Easterbrook, of the brokerage firm Dain Rauscher Wessels. "It’s a unique, very innovative company."

At Enron, oddball thinking is de rigueur. That atmosphere helped Tom Gros mastermind Enron’s plunge into trading telecommunications capacity, or bandwidth. Gros, who first scribbled the idea on a napkin at a Manhattan bar, probably would have had a tough time selling the concept to top executives at another big company, but he worked for Enron. The company took the plunge. In January, when Enron formally unveiled its bandwidth-trading system, its market value rose some $10 billion that day.

The company’s groundbreaking efforts are evident elsewhere, too. Consider its online commodities-trading system, EnronOnline. Launched in November 1999, the Web-based system handles more than 800 contracts. Dealers can trade, say, natural gas, pulp and paper, weather derivatives, or bandwidth— cutting deals with the click of a mouse. Enron acts as the "principal," serving as a buyer or seller in each trade. In less than six months, EnronOnline grew into the world’s largest e-commerce Web site. In the first seven months of 2000, it handled more than $100 billion in trades. EnronOnline has become a profit machine, generating 60% of Enron’s total trading volume at midyear. Within five years, the company expects that nearly all its trading revenue will come from Internet trades.

Also up Enron’s sleeve is a nationwide fiber-optic network scheduled to stretch 18,000 miles by year end. It can zap those Blockbuster movies to consumers’ boob tubes—or transmit live coverage of Wimbledon tennis for the match’s official Web site, as it did last summer. The network also is a key piece in Enron’s bandwidth trading, enabling the company to transmit spare capacity on behalf of customers.

This dinosaur is definitely doing an out-of-the-box step.

 
ROAD KILL HALL OF SHAME

Time Warner heads the list of this year’s digitally departed. One of the world’s most powerful media conglomerates, founded in 1923 with the launch of Henry Luce’s Time magazine, Time Warner makes the list because it has agreed to be taken over by America Online. In a year when numerous grand old brands were taken over by New Economy upstarts, Time Warner makes for the most intriguing example.

"One of the interesting things about Time Warner is that we could easily be praising it now, if any of its umpteen forays online had panned out," says Context editorial board member Joe Pine. "The irony of it is that Time Warner could have easily done the reverse, purchasing AOL years ago probably for little more than it put into that one Orlando experiment."

Back in the mid-1990s, Time Warner deployed its ballyhooed "Full Service Network" in Orlando, an interactive TV service that let some 4,000 subscribers shop online for pizza, movies, and other goods as well as play two-way games. By 1997, the company pulled the plug after spending tens of millions of dollars. One problem: The set-top boxes cost thousands of dollars apiece. Had the system worked, Time Warner could have had a pioneering, national interactive network.

In 1994, Time Warner launched its Pathfinder Web site to house its branded products under one umbrella. There, surfers could flip through Time and other offerings online. But key executives came and went. Advertisers weren’t enthusiastic. And consumers showed little appetite to pay for visits. Pathfinder was scrapped last year.

"I spoke at a Pathfinder off-site meeting a few years ago. Hopeless. The majority of the staff was pierced kids who got it. The managers—and there were plenty of them—were all old Time troglodytes," John Perry Barlow recalls.

While others see tire marks on its back, Time Warner sees itself cruising down the information highway. "The merger of AOL and Time Warner is the embodiment of the digital transformation of Time Warner," a spokesman says. Time Warner, to its credit, got a decent price from AOL: roughly 70% premium above its stock-market price before the announcement and a 21% premium over the valuations the stock market was assigning to comparable companies.

Our other road kill recipients also got splattered in an explosion of new money. The other venerable brands that agreed to be acquired in the past year include:

Seagram, the spirits company founded by Samuel Bronfman in 1924, snapped up well-known brands such as Sandeman port over the years, before settling on Universal Studios (formerly MCA) in 1995. The idea: to morph into an entertainment juggernaut boasting movies, music, and TV. But the Internet complicated matters. The AOL-Time Warner deal underscored Seagram’s lack of a viable distribution channel for its content. Now, Vivendi—a French water supplier that got religion about opportunities in the digital economy—and its pay-TV unit, Canal Plus, are buying Seagram. Vivendi hopes to fuse Seagram’s entertainment assets with Vivendi’s wired and wireless delivery systems.

Hong Kong’s largest telecommunications company, Cable & Wireless HKT, became food for Internet upstart Pacific Century CyberWorks, showing how little fish eat big fish in the Digital Age. As Hong Kong’s former telephone monopoly, HKT had more than 125 years of history under its belt. But it fell prey to new rivals in the wireless and long-distance businesses.

Mannesmann was snapped up by Vodafone AirTouch. The largest deal in history demonstrates that while Mannesmann was well-run and profitable, it wasn’t immune to being devoured by a younger, smaller company. For Mannesmann, an industrial company that became a telecom heavyweight, it’s so long to more than a century of history.

France—which is obviously not a brand or a company and isn’t being acquired—belongs on the list anyway because it has squandered so many natural advantages and positioned itself so poorly for the Internet Age. [For more on France, see "European Disunion."]

 
WHERE ARE THEY NOW?

What has become of last year’s winners and losers? In other words, how good are Context’s judges?

One Hall of Fame member, Amazon.com, has hit rough sledding. In June, its stock tumbled 19% in a single day after Lehman Brothers called the online retailer’s credit situation "extremely weak and deteriorating." Amazon Chief Executive Jeff Bezos calls critics full of baloney. Certainly, Amazon remains one of the most disruptive forces in the short history of e-commerce.

Auctioneer eBay, too, has taken some lumps because of a hacker attack, because of a scandal involving a fake Richard Diebenkorn painting, and because of the general disenchantment with Internet stocks. Still, eBay is one dot-com that makes a profit, and it has a valuable franchise.

Internet portal Yahoo! also is profitable and attracts a growing horde of visitors—155 million in June alone.

Discount brokerage firm Charles Schwab is doing just fine, too. As of June, Schwab held $418 billion in assets for online investors.

Encyclopedia Britannica, which had the dubious distinction of capturing Context’s first Road Kill Hall of Shame award, has tried to peel itself off the macadam. Last fall, the 231-year-old company put its 32-volume encyclopedia on the Web free of charge. A flood of visitors crashed the site, but Britannica.com has won good reviews. Still, Britannica’s revenue "can’t be close to what it was generating from the sale of encyclopedias," says Jonathan Gaw, an analyst with research firm IDC.

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 is chief executive of Diamond Technology Partners.

DAVID CROSON is an assistant professor of operations and information management at the University of Pennsylvania’s Wharton School.

TIM GALLWEY is the author of the best-selling Inner Game books on learning. His latest: The 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 co-founder 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.

MOHAN SAWHNEY is a professor of e-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.