Click Till You Drop
The Internet has become a shopper's paradise, stocked with everything from wine to cars. Business will never be the same
By MICHAEL KRANTZ San Francisco
"I know we're not normal," Jerry Yang says with a boyish grin, making a halfhearted effort to straighten up his cubicle for his visitor. It's not much of an office by mogul standards: just a nondescript desk, a couple of cheap plastic milk crates bulging with papers, an old futon. Magazines are piled in a corner, and a window offers a distinctly declasse view of the parking lot.
Of course, by the standards of David Filo, 32, Yahoo's other co-founder, 29-year-old Jerry's digs are West Coast Donald Trump. Filo's office is truly a Salvation Army collection center of a workspace, with dirty socks and T shirts jumbled in with books, software and other debris. Even more startling is his office computer: a poky clone running an outdated Pentium 120 chip. Why wouldn't the chief technologist of the Internet's No. 1 website use the top of the line? Filo just shrugs. "Upgrading is a pain."
Could this be the face of 21st century capitalism? You'd better believe it. Two years ago, conventional wisdom still derided the World Wide Web as an amusing toy with little practical application. No more. With striking speed, the business that Yahoo (or, as the company formally calls itself, Yahoo!) has been pioneering has grown into nothing less than a new economic order, a Net Economy! whose exclamation point came in early July, when shares of Yahoo surged to more than $200, making billionaires of two young men who just a generation ago would only be beginning their climb up the organization ladder.
Instead they're already creating a world that is about to become your own. The Net economy that Yang and Filo are building doesn't exist merely in the 115 million Web-page views that Yahoo serves up to hungry surfers every day nor in the stock-market pyrotechnics that have given their venture an explosive $8 billion valuation. The real economy exists in the thousands--even tens of thousands--of sites that together with Yahoo are remaking the face of global commerce. Want to snag a $900 suit for $150? Try countryroadfashions.com (but be warned: they're based in Thailand, so you'll have to take your own measurements). Looking for that hard-to-find anthropology book? Amazon.com is your best bet. Yearn to have groceries delivered to your door? For Americans, Peapod.com exists to make grocery shopping easier--and it even lets you specify how ripe you like your bananas. In Europe similar services are starting. How about if you want to know the difference between several brands of stereo receivers? Try Compare.Net, which offers a free online buyer's guide that allows users to compare features on more than 10,000 products.
And that's the pitch for this new electronic world: faster, cheaper, better. It's the same line we've heard for decades from computer manufacturers, stereomakers and software firms like Microsoft. "Information at your fingertips" is what Bill Gates called it as far back as 1990. Then it was an unimaginably seductive vision. Now it has become a lucrative reality for a select few. Compare.Net, for instance, has grown from four employees to nearly 40 in less than two years, and its revenue growth is a stunning 25%--every month. Yahoo's lucre spreads beyond Yang and Filo. Just ask the dozens of other post-pubescent millionaires who prowl the firm's Santa Clara, California, headquarters. Barefoot.
The real promise of all this change is that it will enrich all of us, not just a bunch of kids in Silicon Valley. With online price comparisons, automatic grocery shopping and the ability to get whatever we want whenever we want it, the 21st century will witness a radical reshaping of the consumer culture we've been building since the 1950s. Think, for a second, about the revolution that shopping malls created in the West in the 1970s and more recently in Asia. They defined not only how we bought stuff but also how we spent our time. The malls themselves became essential parts of a new suburban design, where castles of consumption shaped town layouts in the same way the Colosseum shaped Rome. At its heart, cybercommerce isn't just about building businesses either. It is also, explains Yang, about building a new culture of convenience and speed.
It's an attractive idea. By the year 2000, according to the GartnerGroup, online consumer sales will reach $20 billion, an increase of 233% over this year's estimated $6.1 billion. And online commerce between companies (places like Boeing that now buy computers online from Dell) is growing even faster. In 1998, says the GartnerGroup, business-to-business trades over the Internet will total $15.6 billion--and by 2000 that figure will reach $175 billion. "The new economy," says Joe Carter, managing partner at Andersen Consulting, "could rapidly overtake the existing economy as we know it."
There are skeptics. Stephen Roach, chief global economist at Morgan Stanley Dean Witter, suspects that e-commerce is being oversold, though he admits it's growing rapidly. "I question if it'll ever be big." He is right when he notes that e-commerce is no more than 1% of the U.S.'s $8.5 trillion economy; in fact, consumer online sales now account for only .2% of total retail. And e-commerce, Roach argues, is hardly on a par with the Industrial Revolution. "This is an intangible cerebral revolution, which is a lot harder to pull out."
But for hundreds of front-line businesses, this cerebral revolution has become very real. And very unpleasant. Talk to the folks at 230-year-old Encyclopaedia Britannica, which two years ago dismissed its entire home sales force in North America after the arrival of the Internet at $8.50 a month made the idea of owning a $1,250, 32-volume set of books seem less appealing. Kids, everyone knew, were just as happy to get their information online or from a CD-ROM. In fact, they preferred it. The 170-year-old Journal of Commerce, which made most of its money from publishing shipping logs every week, has been forced to set sail on a new digital ocean in order to survive. "The future is electronic," says publisher Willy Morgan, who shed 65 staff members and hurriedly set up a website last year when he discovered advertisers were junking the paper in favor of the Net.
The geeks have usurped an old financial term, disintermediation, and given it a new meaning to describe what happened to Britannica. To them it means the removal of middlemen, the intermediaries who smooth the operation of any economy--folks like travel agents, stockbrokers, car dealers and traveling salesmen. These people are the grease of a consumer economy, the folks who help you do things more efficiently than you could do them alone. But that's all changing: the Net is creating a new, self-service economy. Gates, who was late in recognizing the value of the Net, nonetheless has come up with the mot juste for this development: he calls it "frictionless capitalism."
Say you're planning a trip. Two years ago, you would have phoned your travel agent. But now the complex, proprietary database systems that control the world's airplane-reservations systems are available online and free, reduced to a set of Web pages so simple that even technophobes can book a trip to Paris. And at sites like priceline.com, you can actually tell the computer what you're willing to pay for a ticket and then wait to see if it can find an airline that's willing to take you. But will this replace your traditional travel agent? Do you really want to do your own travel planning? That's the crux of the conflict at the heart of this new economy: which services will survive and which will fail, who will invent new ideas (and reap new millions) and who will close up shop, as useless today as buggy-whip manufacturers became when Henry Ford built the Model-T.
Few businesses illustrate this sort of generational corporate conflict better than the book-selling industry. If you want a snapshot of the e-economy, 1998, you could do worse than Jeff Bezos, the founder of bookseller Amazon.com. One day last month, as his stock price rose and fell with typical volatility, he stalked through his shuttered Seattle office, on a phone call, staring at his wristwatch, pacing, talking, thinking, plotting, scheming, then glancing at the watch again. Like the Net Economy, Bezos is all about motion.
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