Thursday
How to Make Money on the Net
How to Make Money on the Net
The second Internet boom is quietly taking shape -- and this one looks like it's going to last. Here's how six innovative businesses learned from the past and have begun to make the Web work for them.
When Wells Fargo (WFC) was a startup, broadband meant 5 mph. That was the average speed of the Wells Fargo stagecoaches that carried bullion and financial documents between the boomtown of San Francisco and cities to the east. The system had its problems -- bandwidth was limited by the need to replace the horses every 12 miles, and then as now, online security was an issue. (Hackers today, bad guys with six-shooters back then.) But the stagecoach beat shipping by sea, which took upwards of six months. Mail delivery from St. Louis to San Francisco in less than four weeks? That was revolutionary technology.
But once the railroad appeared, Wells Fargo realized that it wasn't really in the stagecoach business, after all. Its value lay in conveying money and information to its commercial clients by the best available means. A similar realization dawned when the Internet era began. "What the stagecoach did was connect people in the fastest, most convenient way that existed at the time," CEO Richard M. Kovacevich says. "The stagecoach goes 5 miles per hour; the Internet goes 30,000 miles per second. But in many other ways, it is not that different a connector."
It took three years of bear market, nearly 1,000 dotcom bankruptcies, and trillions of dollars in vaporized capital, but the essence of Kovacevich's metaphor is now common wisdom. Doing business on the Web does not make you an "Internet company," whatever that is. You are what your customers need you to be -- a bank or a retailer or a service outfit or a marketer -- and the Internet is merely your tool. No successful online enterprise subscribes any longer to the delusion that the Web somehow lifts commerce to a new plane. "It's still Business 101," says Donna L. Hoffman, a professor of marketing at Vanderbilt University's business school and a student of e-commerce since 1994. "You have to ask, 'Who are my customers, what do they value, and how do I give it to them?'".
The second Internet boom is quietly taking shape -- and this one looks like it's going to last. Here's how six innovative businesses learned from the past and have begun to make the Web work for them.
When Wells Fargo (WFC) was a startup, broadband meant 5 mph. That was the average speed of the Wells Fargo stagecoaches that carried bullion and financial documents between the boomtown of San Francisco and cities to the east. The system had its problems -- bandwidth was limited by the need to replace the horses every 12 miles, and then as now, online security was an issue. (Hackers today, bad guys with six-shooters back then.) But the stagecoach beat shipping by sea, which took upwards of six months. Mail delivery from St. Louis to San Francisco in less than four weeks? That was revolutionary technology.
But once the railroad appeared, Wells Fargo realized that it wasn't really in the stagecoach business, after all. Its value lay in conveying money and information to its commercial clients by the best available means. A similar realization dawned when the Internet era began. "What the stagecoach did was connect people in the fastest, most convenient way that existed at the time," CEO Richard M. Kovacevich says. "The stagecoach goes 5 miles per hour; the Internet goes 30,000 miles per second. But in many other ways, it is not that different a connector."
It took three years of bear market, nearly 1,000 dotcom bankruptcies, and trillions of dollars in vaporized capital, but the essence of Kovacevich's metaphor is now common wisdom. Doing business on the Web does not make you an "Internet company," whatever that is. You are what your customers need you to be -- a bank or a retailer or a service outfit or a marketer -- and the Internet is merely your tool. No successful online enterprise subscribes any longer to the delusion that the Web somehow lifts commerce to a new plane. "It's still Business 101," says Donna L. Hoffman, a professor of marketing at Vanderbilt University's business school and a student of e-commerce since 1994. "You have to ask, 'Who are my customers, what do they value, and how do I give it to them?'".
How to Get Big Bucks for a Great Idea
These days you don't usually see funding going to 10 guys with nothing to show but a PowerPoint display. Startups nail their first round of institutional funding only after proving that they can deliver customers and revenue. That's prudent behavior on the part of venture capitalists. But a true early-stage venture -- one with no paying customers, just a technology or a service that will one day bring in boatloads of cash -- is rarely the recipient of their largesse.
It's partly a response to the excesses of the bubble and, more recently, an attempt to salvage some kind of return for their limited partners. That's why you've seen so much money flooding into late-stage deals during the past year; think Mforma, Vocera, and Vonage. But it's a new era. VCs have new money, a new seven-year clock on their funds, and an imperative from limited partners to deliver extraordinary returns. Early-stage investments are the way for them to do it, and you're starting to see the results.
Take Enuclia, which recently closed a Series A round for $5.3 million led by Sevin Rosen Funds and BA Venture Partners. The company, based in Beaverton, Ore., is designing programmable chips for digital televisions. Enuclia is tight-lipped about exactly what it's doing, but the former Pixelworks pros at the startup have designed a chip that allows television manufacturers like Philips, Sharp, and Sony (SNE) to both lower their cost of production and improve picture quality. Higher-end manufacturers are in desperate need of something to differentiate their TVs and justify higher prices. No-name Taiwanese and Chinese manufacturers have gotten too good at cranking out cheap televisions that rival the picture quality of the name brands. As a result, companies like Sony have been forced to lower their prices or face ever-shrinking sales. Enuclia's chips potentially get them a way off that money-losing slippery slope.
It's partly a response to the excesses of the bubble and, more recently, an attempt to salvage some kind of return for their limited partners. That's why you've seen so much money flooding into late-stage deals during the past year; think Mforma, Vocera, and Vonage. But it's a new era. VCs have new money, a new seven-year clock on their funds, and an imperative from limited partners to deliver extraordinary returns. Early-stage investments are the way for them to do it, and you're starting to see the results.
Take Enuclia, which recently closed a Series A round for $5.3 million led by Sevin Rosen Funds and BA Venture Partners. The company, based in Beaverton, Ore., is designing programmable chips for digital televisions. Enuclia is tight-lipped about exactly what it's doing, but the former Pixelworks pros at the startup have designed a chip that allows television manufacturers like Philips, Sharp, and Sony (SNE) to both lower their cost of production and improve picture quality. Higher-end manufacturers are in desperate need of something to differentiate their TVs and justify higher prices. No-name Taiwanese and Chinese manufacturers have gotten too good at cranking out cheap televisions that rival the picture quality of the name brands. As a result, companies like Sony have been forced to lower their prices or face ever-shrinking sales. Enuclia's chips potentially get them a way off that money-losing slippery slope.
Wednesday
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