Reshaping Traditional Business Landscape with the Internet

Sometime back, I was referred by an entrepreneur to answer a question from another entrepreneur whose area of expertise is in traditional businesses. Out of curiosity, he was interested in establishing an online presence for his business in a different way, “What is so special about the internet that my traditional business should be interested?” I am pretty sure that most traditional businessmen don’t like the internet. They are not able to see how the internet translates value to them. I conjured and flashed out a couple of answers off my mind but what turns out to be the most prevailing and consistent argument that I came up with is about how pricing becomes the central key to reshape the business landscape for the internet.

The problem with most internet entrepreneurs in Singapore is that they are going for the businesses that are contested already by 1st and 2nd movers in the market. There is no point building another search engine, news and hyper-links aggregator, or even online social networks. Even if you manage to do that on your own a new search engine, you clearly lost the speed of innovation against other competitors and not to mention that you are not even in where most of these people are, that is Silicon Valley.

Coming back to the question at hand, I want to address why the internet can add value to traditional businesses.

• 1. Making business transcations without meeting the customers face to face: Think about the many business transcations that pass by EBay, iTunes and Amazon everyday, and ask yourself, “Have the sellers and the consumers ever met?” The answer is no. The follow-up question is that how big the online store is. The answer is also interesting: you can now build online store with an inventory that supercedes that of traditional physical stores. If you don’t notice lately in Singapore, CD stores are slowly closing down, because online music stores are slowly disrupting their businesses. How did they do that? The online stores can provide the most esoteric titles, and deliver the product without the user taking a walk down to the nearest CD store. With the DRM taken off, people will move closer to just shopping in the online store to buy their music. Here is the link to traditional businesses (be it clothes, watches and other goods), if you find a cheap way to set off your distribution and have a gigantic inventory, you can cut down costs on physical presence. The internet makes thing cheaper, but you must be able to manage your cashflow such that you can acquire the same revenue with lower costs.
• 2. Viral marketing via reviews: Customer reviews are really rampant with the blogs, podcasts and even vodcasts. In fact, if you want to launch a product, you ask the PR people to get the media to come. If you are a small company, where can you hire these people? You can’t. What’s the best thing to do? Go and spread the news via the internet. This viral marketing is usually abused more by the MLM and some internet marketers (who market no products but the sake of marketing). The key thing is seperate the noise from the product. Look at how Engadget and CNET review new technology products. With web 2.0, there is more interactivity between the consumer, the community and the entrepreneur that comes in the form of feedback.
• 3. Internet re-adjusts the pricing mechanism: This is the most powerful argument I have as to why traditional businesses need to use the internet. It has the capability to change the pricing mechanism. An established industry such as the media may have evolved to a complex revenue model. Let’s try the advertising model for a start. Say, you need to advertise a product on the newspaper, you need to put up posters and collaterals everywhere, and your costs is split between the advertisers who provide the logistics and the people who design the marketing collaterals. However, if you have google ads, what you are effectively doing is to re-adjust the pricing mechanism and at the same time, simplifying how the ads are distributed across the web. It is no longer your responsibility to find places to put up your ads. The automated search engine tags will sieve your ad based on relevance. That extra revenue is mitigated by automation. Can you find something in the traditional market place that can be revolutionized by automation? If you can, then you are getting onto something.

The bottom line is that you need to think about the management of cashflow more than the idea and technology itself. If you are fascinated in building internet technology for fun, do think of how it can change a traditional way of doing business.