TCS Daily


Extreme Fakeover

By Dominic Basulto - August 12, 2003 12:00 AM

The Internet boom and bust cycle produced its share of spectacular flops, poorly constructed business models and inappropriate assumptions about the power and distribution capability of the Internet. In an ironic twist, though, companies from nearly every corner of the Internet are now recycling old CEOs, old business models, and old names (Napster returns in December 2003!).  B2C companies such as Amazon and Yahoo are reinventing themselves as B2B players, B2B players are reinventing themselves as enterprise software vendors, enterprise software vendors are transforming themselves into IT services companies, and U.S. IT services companies are transforming themselves into global offshore IT services providers. Everyone else is trying to position themselves as the next Dell, the next Cisco, the next Amazon, or the next Yahoo.

 

That's not all. Entire industry segments that were once left for dead are now showing signs of rebirth. Take the online grocery business. Start-up FreshDirect.com is trying to succeed where companies such as Webvan failed miserably by tweaking the online distribution model for fresh groceries. In the paid media content business, Louis Borders (of Webvan fame) is back in the limelight as the creative force behind KeepMedia.com, while Tony Perkins (of Red Herring) has created a media hybrid called Always On. Search engines are now the hottest segment of the Internet industry after a period when investors tired of companies such as Excite, Infoseek, Lycos and Magellan.

 

So what does this extreme makeover within the Internet sector mean? Pessimists may dismiss it all as a cynical bid to cash in on the success of Internet superstars such as Google, eBay and Amazon. From this perspective, companies are simply following the herd and hoping they can find some venture capitalists to bankroll their ambitions. Optimists may view these extreme makeovers as a harbinger of a new golden era for the Internet in which lessons have been learned and business models have been suitably adjusted to optimize the risk-reward equation. As venture capitalists are fond of noting, these new companies have real products, real markets, and real cash flows.

 

However, the real answer may be that companies are struggling with the labels that investors, analysts, and market watchers have placed on them. The companies themselves do not know what they are doing, as they attempt to adapt to a vastly different competitive environment. As the best-selling book Built to Last by Jim Collins makes clear, even visionary companies with long-term staying power often were not the result of a brilliant and complex strategy. They did not have a "master plan"; instead, they tried a lot of stuff to see what works and were sometimes forced to make a "bet the company" type of wager. In other words, companies that were "built to last" often did not know how to build a company to last.

 

Since the Internet has broken down many of the barriers separating industries and sectors, the ability to obtain an extreme makeover is relatively easy. For example, there is no longer a wall separating "content" companies from "technology" companies. Is a company like Blogger a content company or a technology company? There's not even a wall separating "Internet" companies from "manufacturing" or "retail" companies. Is Wal-Mart a retail chain store or a supply chain integration specialist? In a recent article in Strategy + Business, Booz Allen Hamilton likened FreshDirect (an online grocer) to a build-to-order manufacturing operation, a la Dell Computer. (Speaking of Dell Computer, the company recently changed its name to Dell, to emphasize that it now provides IT services as well.) When McDonald's introduces Wi-Fi access to each of its restaurants across America, will it still be "fast food" business or some kind of "food transaction-connectivity" hybrid?

 

Ultimately, the most successful companies may be those like InterActiveCorp (formerly USA Interactive), which has managed to create an entirely new industry category ("interactive transactions"), or Microsoft, which has $53.5 billion in the bank and enough money to be anything that it wants to be. After all, Microsoft is more than just the sum of Windows and Office -- it boasts five billion-dollar business divisions that are responsible for products such as Xbox, MSN, server platforms and Pocket PCs.

 

For companies hoping for a successful extreme makeover, it won't be an easy task to emulate the current market leaders. The Internet is a difficult nut to crack. As Michael Wolff notes in his classic book Burn Rate, the Internet is a "speeded-up version of culture itself, a series of fads and trends mixing with social and historical and economic forces and technological advances and roiled by constant upheaval and sudden reversals..."

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