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The Great Eyeball Race: From Dot.com to the Dot.bomb and Beyond

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Lee Caldwell looks at the history of the dot.com, the inevitable fall from grace, and the reality of today's ecommerce possibilities, and shows you that it's still possible to exploit the world's best Internet technologies in order to run your online business in a results-oriented, cost-effective manner.
This chapter is from the book

When Alexander Graham Bell invented the telephone in 1875, he actually was trying to invent a talking telegraph. His associate, Thomas Watson, fashioned the device we now know as the telephone, by assembling a wooden stand, a funnel, a cup of acid, and some copper wire into a contraption that would carry sound over a long distance.

And before you could say, "Mr. Watson, come here. I want to see you," the Great Eardrum Race was on.

On March 7, 1876, Bell received his first telephone patent, and that was the beginning of the Bell Telephone Company. By 1881, every major city and town in the United States had its own telephone exchange. Everybody who was anybody had a phone.

However, the real floodgates for this new technology didn't open until Bell's second telephone patent expired in 1894. From that moment forward, and for the next 10 years, more than six thousand telephone companies sprang up in this country, and the number of working telephones skyrocketed from 285,000 to 3,317,000.

Does this ring a familiar bell with any of you? If not, allow me, please, to dial you in.

Just about one hundred years later, when the Internet went public in 1995, our own generation's technology floodgates were opened, and the Great Eyeball Race was on. Fasten your seatbelts ladies and gentlemen. This is going to be a bumpy ride.

7.1 Reach Out and Touch Someone

When the Internet went public in 1995, tens of thousands of enterprising folks rushed down this new primrose path to profitability. The theory was that, if you could get enough eyeballs looking at your new Web site, somehow serious revenues and profits magically would appear at your doorstep.

The first successful forays into delivering content on networks were adjuncts to traditional publishing in professional fields. For example, Lexis-Nexis delivered a variety of services to lawyers, accountants, and doctors, and Westlaw offered a competitive service. Early versions of these services bundled in network access, a workstation, and a monthly subscription.

These businesses made a go of it because they had high value content and lots of it. Professionals were now able save countless hours of tedious effort, thanks to their newfound ability to do textual searches of this content. Even though lower-cost clerks and paraprofessionals performed much of the research, it was still costly, highly skilled work.

Before 1995, three very popular online services were available: CompuServe (a subsidiary of H&R Block), AOL (which was in its infancy at that point and not Internet based), and Prodigy (which was an IBM-Sears joint venture). In the mid-1990s, Prodigy was the largest of the three online services.

The folks at H&R Block had powerful centralized computers that they used during tax season, but, during the off-season, which made up most of their year, these computers sat idle. Such a waste. That's when some of the brightest H&R Block folks came up with an ingenious idea for putting these computers to good use. They started a subsidiary called CompuServe, a company focusing on providing content to professionals.

CompuServe, AOL, and Prodigy were what we call today "walled gardens," environments in which people work in communities and access online services in a prepackaged way. People were signing up for these services in droves. Within a couple of years, millions of subscribers were using CompuServe, AOL, and Prodigy and forming reasonably large communities in those environments.

CompuServe tended to be more business oriented than the other services. Interestingly, Prodigy became a consumer-oriented company, and it was among the first of the companies to adopt Web-based family fare and services.

When Steve Case joined AOL, he brought with him a very strong consumer focus that he acquired when he was a top executive at Proctor & Gamble. One of the first things he did as Chief Operating Officer (CEO) of AOL was to hire a seasoned executive team with a fair amount of media and entertainment experience. The vision and flair of these executives can be seen in the user-friendly interfaces and the myriad family services that AOL offers.

Prodigy quickly discovered that one of its most promising sources of profitability could be found among its online communities, so Prodigy threw a great deal of resources into developing its user communities. CompuServe, on the other hand, focused its attention on developing content. It had lots of databases containing professional content, and millions of users were accessing this information. CompuServe was making a pretty penny by charging its users a premium for accessing various services. AOL also was charging for its premium services, but it quickly discovered that additional revenue streams could be gleaned from its user communities.

As the Internet caught fire, Microsoft also joined the gravy train by introducing its own online service, MSN. Microsoft's entry into this arena was seen as a huge threat to the entire industry. Many thought Microsoft's pre-existing grip on the eyeballs of so many millions of people on their desktops would threaten the very openness of the Internet. MSN was viewed as such a powerful player in this arena because many thought that Microsoft could leverage its desktop monopoly to connect people, more or less automatically, to its online property. There, the second round of significant antitrust activity lodged against Microsoft began.

Remember, too, that computer manufacturers were earning revenues from the online service companies. By including the icons of AOL or CompuServe or Prodigy on their desktops, computer manufacturers were making it easy for people to sign up for these services, and the online services were paying the manufacturers "bounties" for including their icons and software on their systems.

As I mentioned in Chapter 5, all sorts of folks in this industry were up in arms about the early and unfair advantages American Airlines had created for itself by programming its SABRE system to favor American Airlines routes over competitor routes. American Airlines was quick to remedy this situation gracefully, to the utter delight and relief of the rest of the airline industry.

The same cannot be said about Microsoft's approach to its MSN network. Microsoft continued to push computer manufacturers to have its icon first, foremost, and forever on as many computer monitors as possible, while insisting on having all other logos hidden from view.

There was a fair amount of litigation and threatened litigation, and some fascinating jockeying for position at this time. Nevertheless, because AOL, CompuServe, and Prodigy were already online, they were well positioned to give Microsoft a run for its money. Although these three companies changed their business models to one of providing Internet services, the great eyeball race with MSN was underway, and this was a race that was going to be undertaken with a vengeance, I might add.

I should point out that the business models being pursued looked a lot like traditional publishing models, only with a different distribution mechanism and faster ramp times. These models are basically subscriptions subsidized with advertising. On the Internet, the process of getting subscriptions happens at a much faster pace, the market is more global, and the physical delivery problems are reduced. On the other hand, the revenue sources are the same as for conventional publishing. This has been an extremely stable business model for more than one hundred years. The model is basically a steady, recurring revenue base (subscriptions) with a more opportunistic upside (advertising).

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