What We Learned In The New Economy

There have always been advantages to being the first in a market, New Economy or no New Economy. The key is knowing there's a true need for a product, and being able to respond when a competitor jumps in after you. "If you do it first and you do it right, you can win pretty big," says Kevin O'Connor, the cofounder of DoubleClick. "But it's much better to do it right than first."

Sounds obvious after the fact, but as Carl Prindle, CEO of Furniture.com, remembers, it wasn't so clear at the time. The onetime McKinseyite joined Furniture.com in 1998. The site grew to $84 million in sales, burned through $100 million, and went bust in 2000. "Rational businesspeople could see that what was being spent on marketing to deliver each order did not point to a sustainable business," says Prindle. "That said, the people funding these companies believed that the first mover would reap significant rewards." If you wanted the money, you had to go, go, go.

Unlike most other dotcom tales of woe, Furniture.com has a second chapter. In December 2000, Prindle and three others bought the remaining assets for $1 million and resurrected the company. This time, it has two brick-and-mortar partners--Seaman's Furniture and Levitz Home Furnishings. While it still sells to the consumer, Furniture.com's role is now much more to help existing furniture companies than to compete with them. "When major retailers start to think about going online," Prindle says, "we are seen as a proven solution."

Perhaps the better way to think about the first-mover notion is to split it in two, says Kellogg's Greenstein: the traditional first-mover advantage, and the attacker's advantage, where the first to move can put incumbents on the defensive. But attackers also need to remember that for every action there is a reaction. The big slow guys finally did get off their duffs and managed to learn quite a few things from the upstarts. The lesson: The first mover wins, but only if it also has lots of other vital requirements for victory.

Boom-Time Buzz: The Internet gives the customer new, limitless power.
Cold Reality: New power, yes. Limitless, no.

To understand how the Internet has changed consumerism forever, visit Bizrate.com, Shopping.com, or any one of the half-dozen other comparison-shopping Web sites that have survived the dotcom implosion. Search for, say, Sony's latest camcorder. You'll get not just dozens of reviews from consumers who have bought the camera before you but also a selection of a dozen or more retailers--also buyer-rated--selling it at prices that may vary by 30%.

Think about that. A decade ago, you bought a camcorder by reading Consumer Reports, then visiting two or three stores to see what they had in stock. Today, you can buy from a retailer who knows you know all about the camera, who knows you know what it's selling for anywhere in the world, and who knows you know his reputation. Is there any question which experience better serves consumers?

The Internet has delivered as promised: Greater market transparency, yielding more access to useful information, gives consumers more power. Some 20 million people a month get information about their health from WebMD; 2.5 million check Fedex.com every day to track the delivery of their packages. The payoff? Well, it's hard to prove yet on a grand scale, in part because a relative minority of people shop online. But consider this: In the 1980s and 1990s, consumer prices (excluding housing, energy, and food) rose nearly 50% faster than producer prices. Since 2000, consumer price inflation has averaged less than producer price growth.

Consumer power isn't universal, of course. As always, in markets dominated by one or just a few manufacturers or retailers, or where a popular product--Apple's iPod, for example--can't easily be replicated, the Internet doesn't make prices any more elastic. And in niches such as mattresses, sellers have successfully kept useful product and pricing information out of buyers' hands.

But "manufacturers' and merchants' ability to control information is going away," says Nirav Tolia, Shopping.com's COO. In more and more markets, "you can't control anything except building great products and providing great service." Tolia says that half of visitors who buy via Shopping.com choose a retailer whose price is in the lowest quartile of those offered. But price isn't everything: A retailer with a five-star buyer rating is 35% more likely to win the sale than one with three stars. And five-star products win twice the sales, per visit, of three-star rivals.