Who needs profits?
- 04 August, 1999 13:05
The one thing that has surprised many as the new Internet economy explodes has been how easily startup companies have pushed aside the much larger and more powerful companies that ruled the old economy.
When companies like Amazon.com came to prominence, many industry observers predicted they would be nothing more than a flash in the pan. After all, when the big bookstore owners like Barnes & Noble came into the market they were expected to be able to leverage the brand recognition they had spent so many years and so much money nurturing and developing.
Apparently not. To date, history has shown that Internet brands like Amazon, Yahoo and co. are the clear leaders of the Internet economy. They have shrugged off challenge after challenge from established retail and media giants.
How have they been able to do this? To me, there is a very simple answer. Non-Internet companies have certain profit and loss expectations - ie, they expect to make a profit. While many have identified the Internet as being strategic to their future, they are still somewhat guarded about how much money they can make on the Internet today. With good reason, too, because there are not a lot of profit-making companies on the Net yet. Certainly, even though companies like Amazon are clear leaders and turning over big dollars, they are still running up huge losses.
Understandably, then, not many of the non-Internet companies have been overly keen to let that money-losing operation cannibalise their bread and butter retail operations.
That's a good business decision for today, but how about tomorrow?
Clearly, the stock valuation of Internet companies is not based on what they are earning today but on what they will earn in the future. When you consider the impact the Internet is beginning to have on our lives, it is almost mind-boggling to imagine the effect it is going to have 10 years down the track.
I noted with interest that Masayoshi Son, the Japanese entrepreneur many are dubbing Mr Internet because of his significant shareholding in companies like Yahoo and E-Trade, is working to a 30-year plan.
He thinks Internet stocks are in fact undervalued because the market is guaranteed to grow at such a phenomenal rate in the future.
"Name another industry where you can close your eyes and be almost certain that in 10 years it will be at least 10 times larger?"
Of course, it's fine for billionaires like Masayoshi Son to try and base a business on what the world will be like in 30 years time. They can afford to withstand the losses until the Net starts turning a profit.
But what if you're a small business, as most resellers are, trying desperately to stay afloat day by day? Where do you find the money and resources to invest in new Internet technologies or revamp your business model so that it is more services oriented?
If I knew the answer, I would of course be earning a lot more money than I am now, but I would suggest a good place to start is to partner. Work with businesses where the combination is greater than the sum of both parts. You may not have the money to expand into their field and they may not have the resources to expand into yours, but if two companies can work together effectively that doesn't matter because you can conduct business as if you were a much larger, broader business.
Philip Sim is editor-in-chief of Australian Reseller News. Reach him at email@example.com