(McLean, VA -- October 21, 1998) Which industries win because of the Internet, and which
lose? Bill Whyman answered that question for October's Coffee & DoughNets audience
using inside analysis from the recent "Net Impact" report, which he conducted
for Legg Mason Wood Walker's Precursor Group (http://www.leggmason.com).
industries will remain unaffected by the Internet, said Whyman, and wealth will be both
created and destroyed in the process. But we're still in the beginning stages of this
development, and much depends on evolving regulatory climate and maturing economic models.
"The impact is universal, but it's not uniform and it's not simultaneous,"
explained Whyman, an Internet Strategist at the Precursor Group, which advises
institutional investors about major developments in regulation, technology and competitive
conditions. The group studies the technology and communications sectors as well as other
industries that are substantially affected by the Internet.
Vertical industries from software to real estate will change dramatically, largely
because of the Internet's "Five Cs." These new rules of business alter the
competitive landscape and redefine business processes at all stages of business
development. There are abundant opportunities for netpreneurs who can capitalize these
Clearly, all industries won't be affected in the same way or at the same time. There
are major differences of the Net’s impact even within a single sector. For
example, take retailing. Software vendor Egghead closed all of its 110 retail outlets in
favor of selling over the Net, yet Saks Fifth Avenue doesn't even have a Web site to
promote its specialty apparel. Why the difference in strategies? Software is easily
digitized and customers are comfortable buying over the Net. With clothing, however, the
shopping experience is critically important.
So, how do the industry effects break down? Whyman said to look for near term (less
than one year), mostly positive impact in the Software, Telecom and Retail sectors. During
the midterm (1-2 years), expect a mostly positive impact in Banking/Financial Services,
Content and Manufacturing, with some significant negative impact on some companies. Over
the longer term (2-3 years), Whyman sees positive impact for Smart Consumer Devices, but
mostly negative impact in the Energy; Real Estate Brokerage, Transport and Metals sectors.
Of course, these are broad, industry-wide perspectives. Even within industries that may
be boosted by the Net, some companies will flounder, and vice versa. "If you're a
high-cost steel mill, the Internet is your worst nightmare," said Whyman. "It
just pushes you down the value chain and makes you even more of a commodity." Steel
service centers, on the other hand, will use the Internet to lower cost and provide
So, how can you begin to gauge the promise of your Net business opportunity? Look to
sectors that are helped by the Five Cs, and look specifically for three things. "Any
time you have high asset intensity, high customer switching costs and conflict between
existing channels and Internet distribution, this is going to retard the pace of Internet
change and it's going to favor the big incumbents," said Whyman. The less these
issues are a factor, the more conditions favor new entrants.
We also must remember that cyberspace is still very immature, and that much of the
effects will only appear as the economic and regulatory climates evolve, said Whyman, who
was formerly a business strategy consultant with McKinsey & Co. and Director for
International Economics at the White House National Economics Council.
Despite conventional wisdom that the Internet is free space, Whyman said that the
Internet is already highly regulated and more regulation is likely on the way. How that
regulation comes out will define which economic models are ultimately viable. Take
taxation for example. Net-based retailers have a three-year tax advantage over
brick-and-mortar retailing. The five to 10 percent sales tax customers pay at ToysRUs, but
not at eBay, is a substantial advantage, he said.
The evolving regulatory climate is just one of the reasons why the underlying economics
of the Internet today are fundamentally unsound. Another is that low flat-rate pricing
makes many services almost free. "If the price of a good is free, demand goes almost
out to infinity. People use the bandwidth of the Internet inefficiently, and you have
limited differentiation and inadequate quantity."
And despite regulatory and economic uncertainty, Whyman thinks that the government
wants the Internet to succeed. His own estimates calculate governmental support for the
Net at about $10-$15 billion a year. That creates a powerful "tailwind" of
positive energy behind netpreneurs.
What advice does he have for Net based start-ups? "When I talk to investors, I
actually think they're getting a little more realistic about Internet business
models," he said. "They will insist that you have a very clear defensible and
sustainable business model, and that you can very clearly and in compelling terms tell
them how you are leveraging the Internet to provide new products and services in a cost
efficient way that your competitors can't."
An edited transcript of the event is available at: http://netpreneur.org/events/doughnets/whyman