Dots Dashed

Dick Sabot

Cofounder and chairman
eZiba.com
North Adams, Massachusetts

Look around at the carcasses of first-generation companies littering the Internet landscape, and you'll see several common characteristics -- all of which came back to bite them. For instance, no one could understand why Time Warner's Pathfinder didn't fly. Here was a company, backed by some of the best media brands in the world, spending $3 to $4 million a month on a project. But to succeed on the Net, you have to do something that truly takes advantage of the medium. Pathfinder couldn't attract an audience because it simply repurposed the content of magazines like Fortune, People, Sports Illustrated, and Time as digital texts. A company like eZiba, on the other hand, can exist only in cyberspace, because we're dealing with such thin inventories. If we tried to sell through a paper catalog, we'd be sold out the minute the catalog hit the mail.

But the biggest downfall of many first-generation companies was under-capitalization. Too many thought that they knew when their ship would come in. If you wait until you're desperate for money, no one will want to talk to you. One of our mantras has been "If we survive, we'll succeed." Back in January 2000, our first order of business was to get enough funding to ensure a low burn rate. We now have years of financing in our pocket -- a big competitive advantage over anyone who tries to enter our space.

One of the results of the Darwinian shakeout is that with each consolidation and failure, the pie just keeps getting bigger. Anyone who emerges intact is going to have a larger slice of a much larger pie.

Dick Sabot (dick@eziba.com), professor emeritus of economics at Williams College, was a cofounder and chairman of Tripod Inc. before launching eZiba.com in November 1999. EZiba offers handcrafted home furnishings, art, and apparel through an online catalog and auctions.

Chunka Mui

Partner
DiamondCluster International Inc.
Chicago, Illinois

The market appears to have turned against startups, but the startups still won the game. When you look at the last four years, it was the startups that recognized the Internet's technological capability, built the infrastructure, and created new business models that enabled us all to understand the possibilities. As a result, several enduring brands remain.

Nevertheless, if we learned anything from the last year, it's this: The Internet race is a marathon, not a sprint. It's about fundamentally transforming the way that you operate; it's not a get-rich-quick scheme. It's still important to be early to market, but it's more important to be first to reach critical mass. A lot of dotcoms got big on the backs of irrational marketing plans that didn't pan out. That time is over. Companies that survive today will have sustainable models that can scale.

The big question now: What will large Net companies do next? The issue of privacy could easily be where companies trip themselves. The critical thing that the Internet allows is a strong consumer relationship. Selling out that relationship for a quick direct-marketing opportunity won't pay. Smart companies will turn the respect of privacy into a quality of their brand.

But large companies also should look closely at the horizon: There's a whole new set of disruptive technologies looming that will completely change the game. The move to mobility, for example, means that customers will no longer be sitting at their PCs; they'll be using a range of new information appliances that will dramatically affect how they expect to be served. Things will get better for customers -- but harder for companies. Companies that don't see this new wave coming will end up creating opportunities for another generation of startups.

Chunka Mui (chunka@diamtech.com) leads DiamondCluster International's innovation programs. He is coauthor, with Larry Downes, of Unleashing the Killer App: Digital Strategies for Market Dominance (Harvard Business School Press, 1998).