New Models

Excitement was high as the Internet economy grew, but so was uncertainty. Companies were building out the network while entrepreneurs cobbled together new companies, with or without revenue models. That was problematic.

Who was going to pay for all this build out? The government was not going to fund its growth, despite DARPA’s involvement in the early, architectural phase. The military now had their packet-switching solution: messages could be sent without a dedicated, two-way communication channel. Push the info out in packets that could find their own way to the destination, even if half the way stations had been blown to smithereens. Academics had their collaborative network to share research and papers. Business applications, still emerging, would have to be funded independently.

This had to be revenues, but how derived? So far, sites had minimal advertising that generated a few dollars. Higher amounts were claimed by some players, but most of this activity was just portal companies like Netscape, Yahoo, eXcite, and Infoseek “selling” to each other in a back-slapping circle. I just didn’t see banner ads covering expenses, much less the fantastic profits that investors were expecting.

The businesses would have their start-up costs plus all the marketing, sales, operations and fulfillment — even if the products were digital. Not to mention the security software and systems that would be essential when money started changing hands. The market was still playing around with encryption, private/public keys, hardware dongles — with no universal solution in sight. Who was going to pay for all this?

Well, VCs and speculative investors, for a start. The new trend saw unprofitable companies racing to catch the most “eyeballs” on the net, hoping to find a revenue model later. Was this a business strategy or just one heck of a gamble?

Discussing this subject, I asked eXcite’s management about their portal growth and the monetization thereof. “So I get it that you believe ‘If you build it, they will come,’ but what are you going to serve them when they arrive? News feeds? Content of some kind? Will they be willing to pay for it?”

Expecting a confident response, I was surprised by their nervous looks back and forth, followed by a weak answer along the lines of “We’ll wait and see.” Yes, sometimes one has to experiment and see what pilot marketing will reveal; but what was the game plan, the working hypothesis — current delirium aside? Or, in the financial terms familiar to investors, “Where’s the pro forma?”

It had to be something significant enough to command revenue. Forget advertising; my bet was on transactions — people selling stuff and paying a commission. When money changed hands, it was easier to get a piece of it. Just look at the financial services industry, I mused; they made the government’s sales tax operation look like a lemonade stand!

Amazon had made the deepest foray into this transactional realm, yielding the much referenced quip of “We lose money on every book but make it up on volume!” That dystopian equation only worked in spreadsheets if plenty of Kool-Aid were being passed around.

It seemed the only ones who answered the call to “Show me the money!” were new investors desperate to score big. It just wasn’t making sense. Nonetheless, the casino had opened; a few slots had paid out; optimism was in the air; and another Gamblers’ Express was arriving.