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7.2 Fishing for Eyeballs

When the Internet took off, I used to joke with my fellow IBM executives about how this new phenomenon reminded me of the story about the blind man and the elephant. In those early days, wherever consumers first touched the Internet, like wherever the blind man first touched the elephant, that initial point of contact formed the basis for how they thought the entire Internet looked and operated. There was virtually no understanding on the part of consumers regarding how enormous and powerful the Internet actually was or would become. More important, it seemed that most executives, from whatever industry, now viewed the Internet through the eyes of their recent consumer experience. They also blindly adopted portions of the business models pioneered by online service providers.

When I joined HP, I noticed that my new colleagues also suffered from the blind man and the elephant syndrome. Most HP executives had lots of impressive experience, but just not with the full scope and potential of the Internet. Therefore, their understanding of the Internet was often based on their experiences with the Internet as consumers only. Therefore, to a whole lot of IBM and HP executives, the whole Internet spelled out "e-y-e-b-a-l-l r-a-c-e."

According to the eyeball-race theory, the new dot.coms could grow their businesses in ways that paralleled the adoption curves of the telephone, broadcast TV, and cable TV. Advertisers considered that 30 to 35 million subscribers would represent critical mass, and, after the Internet reached this level, it would automatically become a viable advertising media.

The Internet hit that milestone around 1996. This achievement then fueled the hope that, all of a sudden, advertisers would start dumping massive advertising dollars into various Web sites. Online service providers, on the other hand, continued to build their businesses with the proven newspaper model: subscriptions subsidized by advertising.

Then Yahoo came along with a very interesting value proposition. Even at this early stage of the public Internet, there was an enormous amount of content out on the Internet. Yahoo theorized that it could build a very successful business by hosting a site on which all of these millions of pages of Web content could be accessed in a clear, simple, and rapid fashion. Revenue was generated primarily through advertising without recurring subscription revenue. This added further fuel to the great eyeball race, and the race for content. Dreams of dollar signs were consuming everyone, everywhere.

A whole new generation of businesses centered on content packaging, and search engines sprang up, mostly fueled by advertising revenue. Because start-up costs and times for online businesses are dramatically less than for physical businesses, in no time at all, this segment of the market became overserved. All you ever heard about during this period was "dot.com this and dot.com that," and, before you knew it, the Internet was besieged by unorganized content that was increasing exponentially.

That's when Yahoo! came to the rescue with a tremendous new business model designed to unscramble the tangled Web we had woven. Yahoo! didn't own its connectivity function, nor was it getting subscriptions, but it did get lots of "hits." However, Yahoo! was racking up very impressive advertising revenues, and, all of a sudden, it was one of the darlings of the dot.com era.

The technology behind Yahoo! was pretty simple. The underlying genius behind its business strategy was to make the Internet usable for the average person. At one stage, Yahoo! had hundreds of librarians cataloging the Internet. Their work formed the basis for the search engine that Yahoo! was building, an engine that would tame the Internet and make it useable for average human beings.

For early users, particularly in 1995 through 1997, their first pit stop on the Internet would likely be the Yahoo! site. A whole lot of eyeballs were falling into the lap of Yahoo!, and Microsoft watched, studied, and salivated.

Not to be outdone by Yahoo!, the Microsoft team had a plan up its sleeve. Its vision was that every time anyone in the world would turn on a computer, the first thing that would appear on the screen would be the Microsoft logo or the MSN logo. In either case, consumers would come face to face with Microsoft each time they tapped the ON button on their computers.

Netscape also wanted to be part of this eyeball race, so it began shipping its browser with a very handy entry button into the Web. All of a sudden, Netscape had a truckload of eyeballs, too.

However, for a long time, Netscape couldn't quite figure out how to leverage those eyeballs. This made Netscape a prime takeover target for AOL, whose traditional walled-garden strategy could be greatly enhanced by the acquisition of Netscape's millions of pure Internet users. Again, the prospect of dollar signs enticingly flashed before the eyes of AOL's executives.

Therefore, here we had AOL, Netscape, MSN, Yahoo!, and CompuServe, and the gold rush for advertising dollars was on. Yahoo! became profitable very quickly. With only a modest investment up front, Yahoo! was able turn a profit without having to do all of the value-added packaging that AOL had to do.

There was a perception in the marketplace that the entry barriers for doing business on the Internet were much lower than those in traditional business environments. However, Microsoft spent billions of dollars building MSN, and AOL spent billions building its business. Conversely, with very little upfront investment, Yahoo! came on the scene, and, right out of the chute, it was making money hand over fist.

During this time, there was also a great Internet real estate land rush. The theory of this model was that the opening of the Internet frontier was like the opening of the American West, where people rushed to file homestead claims. In the case of the Internet, the homestead claims were "captured retail mindshare" in particular product categories. There was a rush to file for Internet addresses like "toys.com," "furniture.com," "groceries.com," and so on. The logic went that, because Amazon.com had captured so much mindshare so quickly, that there would only be room in the market for one or two big companies and that the early movers would dominate their respective marketspaces. Of course, now we have Borders.com, Dalton.com, and so forth.

The problem on the Internet is that the communications channel is open to all comers for very modest investments. If the business has a good basic operations model, taking it to the Internet is a relatively fast and uncomplicated effort, as evidenced by the new "click and mortar" sites. If the only thing a company has is a dot.com address, building a real business behind it can be quite a challenge.

For companies fortunate enough to have their value propositions perpetuated in the industry, continuously enhancing those value propositions has been an ongoing challenge. Yahoo! has skillfully met this challenge with such moves as acquiring hotjobs.com. The more narrowly based providers have had a hard time holding onto their subscribers, and thus their advertising revenue.

As investors continued to fish for eyeballs, several entrepreneurs ventured into the niche categories of bidding wars and spot markets. Priceline.com, eBay, and other similar sites appeared with such voracity that the whole wired world began looking like an auction. The problems many of these sites encountered were that "no-bargain" bargains are easier to sniff out, and unreliable delivery or deliverers undermine the value of the exchanges.

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