The Net was supposed to be the great equaliser. It would rip down global boundaries and let every business around the world compete on an equal footing. The little corner shops would be able to `virtually' match it with the global conglomerates, if not outmatch them, because of their nimbleness and ability to react quickly to market changes.
The vision was looking good there for a while as startup operations began to take on and beat the big boys. Amazon.com started walloping Barnes & Noble. Yahoo beat off the big media companies to establish itself as the preferred entry point to the Internet. The prophets of egalitarian trading rejoiced.
However, it wasn't long before those cheeky startups became monoliths themselves and became just as dominant, in fact arguably much more so, than their bricks and mortar rivals.
Suddenly, the secret to achieving Net success began to look the same as it is in almost every other industry. Those that achieved critical mass came to totally dominate their space. In fact, achieving critical mass has come to mean more in the Internet economy than it ever has. Not only does the old law of economies of scale hold true, but the law of diminishing returns has been replaced by the law of increasing returns.
What does this mean? The commu-nity aspect of many Internet sites means that as more people visit the site, the more valuable and useful it becomes to other people visiting the site. Again, let's take Amazon.com. Not only do Amazon customers buy books but they also interact with the site by providing book reviews and so forth. The more customers Amazon attracts, the more interactive content it attracts and the more valuable the site becomes to other customers.
Indeed, almost all of the category killers on the Internet have got to that position because they have been able to achieve critical mass, not necessarily in achieving a certain level of sales, but in building a certain level of community. If you're not thinking about your online customers and users as a community, and how you can bring them together, then you're ignoring the real strength of the Internet.eBay is another great example. There are hundreds of auction sites, but everyone goes to eBay because everyone goes to eBay and so there are more buyers and more goods being sold at that site.
By virtue of the fact that eBay built the biggest community of auction buyers and sellers, it seemed certain to own that category. However, as always, the Net is in flux. Last month, we saw a band of other auction sites including Microsoft, Dell and Lycos come together under the Fairmarket banner. In effect what they are doing is bringing together their collective communities to rival eBay.
It's a concept that ARN has long championed. While consolidation in the channel seems to be driving towards a few dominant players, smaller niche players have proven they can take on larger competitors by intelligently partnering with other complementary players.
What the Fairmarket example shows, and no doubt the model will be copied in other areas of the Internet market, is that the market is likely to move towards vir-tual consolidation. Whereas in most industries today, the market invariably narrows down to three large players, only two of which make the really big money, it's looking likely that in the online world you will have one dominant player and a collective of smaller players battling the big guy.
Even at this early stage of the game, it's worth contemplating whether you have a shot at being the Goliath or alternatively if you should start partnering towards being one of the army of Davids charging towards him.
Philip Sim is IDG Communications' Director of Digital Communities. reach him at email@example.com