Entrepreneurs and the Web

Tom Munnecke

One of the most common questions I hear about the world wide web is, "How do I make money on the web?" For some, this may be a false question, such as "When did you stop beating your wife?" Do they make money off their fax machine, or do they need it because everyone else does? Similarly, these people may need access to the web simply because everyone else does.

For others with an entrepreneurial spirit, however, the web presents an unparalleled opportunity to be in the right place at the right time. The traditional concept of an entrepreneur is one who assumes the risks and rewards of creating value by delivering goods and services.

The economy on the web, however, is considerably different. The very definition of goods and services has changed, as has the notion of "creating value."

In the non-web economy, a seller provides a physical good or service, such as a pet rock, a car, or washing a window. On the web, however, the product may be information, detached from any manifestation.

This has radical, far reaching implications. Markets we know are based on the of supply and demand of goods and services. There is an underlying assumption of scarcity in the equation, however. There is a limited supply of goods and services, which is moderated by demand. Manufacturers will not create an arbitrary number of automobiles, with the hope of selling them. Rather, they will moderate their production to meet demand.

Barriers to entry for a given market will protect existing sellers, via patents, cost of entry, market share, consumer brands, and the like. Companies which enter a market presume a limited number of generally predictable competitors. They can also assume a certain predictability, time lag, and cyclical behavior of change in their market.

The economics of the web are drastically different. What is the meaning of a supply and demand curve when supply is essentially infinite and there is not scarcity, but rather overload? Every consumer is potentially a manufacturer of information. Barriers to entry are extremely low. The explosive growth of the web and the Internet defies most attempts to apply predictive planning. Those who like to think in terms of 5 year plans might better seek careers as archeologists rather than try to cope with the dynamics of the web.

The web will eventually affect companies which are not currently active on it. The entire middle layer between consumers and sellers may be affected. The print media in particular may be affected if the cost of newsprint continues its spiral upward. Rupert Murdoch recent appearance in Helsinki, Finland "begging for newsprint" is but one example of this.

The most startling aspect of the web is its accelerating rate of change. New players enter on a daily basis. The basic underlying technology seems to change on a monthly basis. New users are swelling the size of the total readership at a reported 1% per day, despite the complexities of connecting to the web. As more of the big players in the on-line market build simple access to the web, this number will increase even more rapidly.

In October 1994, the first beta version of the Netscape viewer was announced. By April 1995, Netscape had about a 70% market share. The books about the web which were entering the bookstores at that time did not even mention the product. Netscape Communications promises to be one of the outstanding entrepreneur stars of the web. At least for the moment.

The number of magazines on a magazine rack is intimidating to most readers. They subscribe to one or another of them, and trust the publication to deliver their information, typically for a year at a time. In an era of information overload, consumer attention is a commodity.

On the web, however, people can branch from one page to another with the click of a mouse. A new search engine or agent may appear that completely changes the information landscape. The laws of supply and demand will adapt to an ever-changing dance of seller presence and consumer discovery. Entrepreneurs of the web will have to have the agility of a ballet dancer.

Copyright 1995 by Tom Munnecke who is assistant vice president at Science Applications International Corporation in La Jolla, Ca. He can be reached at tom_munnecke@cpqm.saic.com . This document may be freely distributed for non-commercial use, as long as this notice is attached.
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