In the book Digital Darwinism, Schwartz identifies the fundamental characteristic of businesses in the new economy: they must continuously change and adapt. The author develops an analogy that transcends many aspects of the web, from web acceptance to the valuation of Internet companies. He describes the new economy in terms of Darwinian evolution.
Many of us have personally witnessed the evolution of web acceptance. As described in his book (pp 6-8), first people treated the Web “as if they were early cave dwellers witnessing fire for the first time”. People were afraid to send credit card numbers or trust submitting their personal information. Then, “fear naturally gave way to experimentation” and then to confidence. Confidence inspired trust that led to substantial revenues for some online retailers. Trust led to faith when people began using the Web as their primary research tool before making big-ticket purchases. Finally, mass acceptance was achieved with 20% of all U.S. households shopping online by the end of the century.
Similarly, evolution is witnessed through the natural checks and balances that affect the valuation Internet companies. “By ignoring normal investment metrics, such as price-to-earnings ratios, investors have allowed these companies to proliferate like species of jungle animals without any natural predators. Lighten any check, and the number will almost instantaneously increase to any amount” (pg. 12). Schwartz likens the food supply for Web businesses as investment dollars, the predators as competition, and the climate as consumers and technology. All of these forces work to find a balance in Internet company valuations, and we are merely in a period of rapid change as equilibrium is sought.
After making the case for evolution on the Web, Schwartz describes ways to survive. Key among the topics he covers is differentiation. He describes the need for constant innovation (pg 17), and the idea that Web companies must solve a problem, not just deliver a product (pp 26-27). As a result, brand building is different than the traditional one-way communication used by Coke and Tide (pg 34) because the brands on the Web must be interactive and must provide value by solving a consumer problem, such as saving them time.
Other keys to survival include dynamic pricing, affiliate partners, and information/service bundling. Dynamic pricing helps move slow inventory and increases utilization of products and services. Affiliate partners usher in the “word-of-mouse” era, where Jupiter Communications claims that “affiliate networks will soon drive the majority of online consumer transactions” (pg 82). Bundling of information and services has the power to lock in consumers. He points out that price may hook a consumer, but bundling makes them stick (pg 143).
While reading this book, I was developing the business plan for 2SeeMe.com, a business I founded in the Darden Progressive Incubator. The author pointed me towards providing a bundle of services with my Internet camera product. Not only will customers purchase a 2SeeMe camera and get webspace, but 2SeeMe will also provide the ability for customers to customize their webspace and establish a web presence. They will have access to archived images, email, and a personalized URL address. The other concept which rang true was the application of affiliate partners to market 2SeeMe. Affiliations with Webcam portals, individual webpages using webcams, and customer webpages will enable marketing with a global reach to compliment my salesforce. Additionally, the author highlighted my task to constantly innovate, adapting to the technological horizon and changing customer environment. As a result, the 2SeeMe business plan is merely a snapshot of an evolving landscape.