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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | NOVEMBER 18, 1999 MARKETING Is This the Make-or-Break Web Christmas? Relax, says e-guru Brewster Kahle. We're only at the dawn of cyber history
 Web entrepreneurs should be shaking in their boots. This Christmas shopping season is supposed to be the watershed for online commerce. If you can't establish yourself as a presence to be reckoned with come December, you might as well hang up your source code. So what if you're still struggling to put your e-commerce site up? What if you have one, but lack a cool $20 million to blow on television ads so people will notice it? Might as well throw in the towel now. Right?
Humbug! It's still too early in Web history to tell who the winners will be, says Web prognosticator and entrepreneur Brewster Kahle. Kahle should know. He has been an Internet innovator since the early days.
In 1989, Kahle founded Wide Area Information Servers Inc., or WAIS, whose technology allowed Internet users to search databases in pre-Web days. In 1995, he sold WAIS to America Online for $15 million and used the profits to start Alexa Internet, which invented a technology that aggregates consumer traffic data anonymously on the Web and hones the results of search engines. This spring, Kahle sold Alexa to Amazon.com for nearly $300 million.
Kahle recently spoke with Business Week Online's Jeremy Quittner about expectations for e-commerce businesses this Christmas and related matters. An edited transcript of their conversation follows.
Q: Why is everyone saying this Christmas season will make or break e-businesses? Are the prognosticators right? Where is this idea coming from? A: There is this land-grab feeling that if you do not settle the territories quickly, you will never be able to. It permeates the whole little subculture [of the Web.]. It comes from the e-businesses as well as the venture-capital firms. This rallying cry is certainly helpful to motivate people within those companies, and certainly it can help motivate investors to supply the money for these advertising campaigns. It also helps bring some drama to it all. [But] the number of people on the Web is still doubling every six to eight months. And whether this is going to be it -- this year or the year after, it's still too early to tell. Q: What is the likelihood that Internet companies will benefit from a huge pre-Christmas campaign? A: It's hard to see how people are going to recoup these tremendous advertising expenditures. Even though they say there are over 100 million people in the U.S. on the Internet, not all of them are shopping [there] yet. People have to become comfortable with the Internet before they start shopping. [Large advertising campaigns] may give the companies the first shot at getting customers. But on the Web it's much easier to go from one store to another than it is in physical reality, so in one click you're gone. Unless people have really concentrated on debugging their customer service, people won't stay. Q: You started WAIS when no one thought anyone could make money on the Net, and it became profitable. Today it's almost heresy to suggest Internet startups should be profitable. Do you think they should be? A: In 1992, it was impossible to raise money to build an Internet content company from venture-capital firms. You spent all of your time trying to explain what the Internet was. Currently, though -- given that capital is so easy to raise -- making a profit is not the best way to run an Internet company. [But] everyone has to have a business model that means that they can become profitable. The demands from the public market are going to start to go back to profitability as well as market share. Q:How long will it be before markets demand that Web companies become profitable? A: I have been drastically wrong on this. Back in the early 1990s, I could not see how [the unprofitable companies] could last much longer, but here it is 1999, and it is still going on. If the [venture-capital] money continues to come in and you think that you should go out and get more customers, then go out and get more customers. It seems silly in other periods of time, but right now it seems to make sense. It could [for another] 10 or 20 years. There is a logic to it. If we are building 100 of the next Fortune 500 companies, that is worth a lot of investment over a long period of time. Q: There has been a proliferation of portals supporting small businesses. They tie the inner workings of your business to theirs, for example putting your accounting functions on their servers. It's one thing if your servers go down, but what if theirs do? A: Often allying with people that have economies of scale helps a great deal, especially in reliability issues like that. Small businesses have trouble attracting the systems administrators that it takes to keep these systems up. So that is why a lot of people have gone to these hosting services and co-location facilities. [If you have everything located on your own servers,] there is a sense of control, but then you are responsible for many more components that can fail. Q: If you don't become the next Amazon.com by Christmas, should you throw in the towel? A: There are a [4,600] Web sites that receive 70% of all the traffic, but the remaining 30% is very important to people. It's the small, local sites that fill out the Net and make the niche for small business. Q: You're a Net entrepreneur yourself. What advice do you have for small businesses online? A: Keep it fun, and don't burn out. This is a longer marathon than most want to tell you.   | | |
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