To
    Netpreneur Exchange HomeTo Netpreneur Resources

AdMarketing | Funding & Finance | Netpreneur Corner | News Center | Quick Guide | Home

Event Summary
Go to: Transcript | Video | Speakers | Resources | Back to Archive  
The Future Of Portals, Internet Telephony And Steel Mills
Legg-Mason's Whyman Explains How The Internet Changes 
Doing Business

(McLean, VA -- October 21, 1998) Which industries win because of the Internet, and which lose? Bill Whyman answered that question for October's Coffee & DoughNets audience using inside analysis from the recent "Net Impact" report, which he conducted for Legg Mason Wood Walker's Precursor Group (http://www.leggmason.com).

Few industries will remain unaffected by the Internet, said Whyman, and wealth will be both created and destroyed in the process. But we're still in the beginning stages of this development, and much depends on evolving regulatory climate and maturing economic models.

"The impact is universal, but it's not uniform and it's not simultaneous," explained Whyman, an Internet Strategist at the Precursor Group, which advises institutional investors about major developments in regulation, technology and competitive conditions. The group studies the technology and communications sectors as well as other industries that are substantially affected by the Internet.

Vertical industries from software to real estate will change dramatically, largely because of the Internet's "Five Cs." These new rules of business alter the competitive landscape and redefine business processes at all stages of business development. There are abundant opportunities for netpreneurs who can capitalize these changes.

Clearly, all industries won't be affected in the same way or at the same time. There are major differences of the Net’s impact even within a single sector. For example, take retailing. Software vendor Egghead closed all of its 110 retail outlets in favor of selling over the Net, yet Saks Fifth Avenue doesn't even have a Web site to promote its specialty apparel. Why the difference in strategies? Software is easily digitized and customers are comfortable buying over the Net. With clothing, however, the shopping experience is critically important.

So, how do the industry effects break down? Whyman said to look for near term (less than one year), mostly positive impact in the Software, Telecom and Retail sectors. During the midterm (1-2 years), expect a mostly positive impact in Banking/Financial Services, Content and Manufacturing, with some significant negative impact on some companies. Over the longer term (2-3 years), Whyman sees positive impact for Smart Consumer Devices, but mostly negative impact in the Energy; Real Estate Brokerage, Transport and Metals sectors.

Of course, these are broad, industry-wide perspectives. Even within industries that may be boosted by the Net, some companies will flounder, and vice versa. "If you're a high-cost steel mill, the Internet is your worst nightmare," said Whyman. "It just pushes you down the value chain and makes you even more of a commodity." Steel service centers, on the other hand, will use the Internet to lower cost and provide additional services.

So, how can you begin to gauge the promise of your Net business opportunity? Look to sectors that are helped by the Five Cs, and look specifically for three things. "Any time you have high asset intensity, high customer switching costs and conflict between existing channels and Internet distribution, this is going to retard the pace of Internet change and it's going to favor the big incumbents," said Whyman. The less these issues are a factor, the more conditions favor new entrants.

We also must remember that cyberspace is still very immature, and that much of the effects will only appear as the economic and regulatory climates evolve, said Whyman, who was formerly a business strategy consultant with McKinsey & Co. and Director for International Economics at the White House National Economics Council.

Despite conventional wisdom that the Internet is free space, Whyman said that the Internet is already highly regulated and more regulation is likely on the way. How that regulation comes out will define which economic models are ultimately viable. Take taxation for example. Net-based retailers have a three-year tax advantage over brick-and-mortar retailing. The five to 10 percent sales tax customers pay at ToysRUs, but not at eBay, is a substantial advantage, he said.

The evolving regulatory climate is just one of the reasons why the underlying economics of the Internet today are fundamentally unsound. Another is that low flat-rate pricing makes many services almost free. "If the price of a good is free, demand goes almost out to infinity. People use the bandwidth of the Internet inefficiently, and you have limited differentiation and inadequate quantity."

And despite regulatory and economic uncertainty, Whyman thinks that the government wants the Internet to succeed. His own estimates calculate governmental support for the Net at about $10-$15 billion a year. That creates a powerful "tailwind" of positive energy behind netpreneurs.

What advice does he have for Net based start-ups? "When I talk to investors, I actually think they're getting a little more realistic about Internet business models," he said. "They will insist that you have a very clear defensible and sustainable business model, and that you can very clearly and in compelling terms tell them how you are leveraging the Internet to provide new products and services in a cost efficient way that your competitors can't."

An edited transcript of the event is available at: http://netpreneur.org/events/doughnets/whyman .

 

top


 

AdMarketing | Funding & Finance | Netpreneur Corner
News Center | Quick Guide | Home

By using this site, you signify your agreement to all terms, conditions, 
and notices contained or referenced in the Netpreneur Access Agreement
If you do not agree to these terms, please do not use this site. Our privacy policy.
Content copyright 1996-2016 Morino Institute. All rights reserved.

Morino Institute