Has Internet Disrupted You?

It's the commonest slogan in management and marketing circles: Listen to your customers. The customer is king. To make it an enterprise has to understand the needs, desires and preferences of the target audience and change its products accordingly.

But listening to the customers can be hazardous, too. Take the Internet breakthrough and the thousands of products and services it offers. If the Internet entrepreneurs arising in the last decade had listened to the "needs" of their customers, they'd never get into the business. As Henry Ford put it, "If I had asked my customers what they wanted, they'd have asked for a faster horse."

Before launching TheMarker, we surveyed the market and conducted focus groups. None portended well for a real-time Internet-based economics and business news provider.

Our potential client base told us there was no need for our service. No logic. "I like my morning paper," they said and didn't project themselves accessing Internet in the middle of the working day to read business news or analyses. Give us faster horses, they said.

We didn't listen to them. We launched out website mainly spurred by enthusiasn with the thought of revolutionizing the Israeli press scene. Marrying Internet with real-time business news seemed obvious.

We know what happened. Internet has become the main source of information, news and analysis in Israel, and around the world in general.

Ignoring the light

It was not easy. From 2000 to 2004 usage spread rapidly but advertisers didn't bite. Ad income rose slowly. Millions of people spent hours a day online but ad budgets continued to flow to TV and the printed press.

One reason usage and ad income didn't grow at the same pace was the bubble bursting, which gave companies the feeling that real business can't be done online. Users rapidly adopted Internet, but the business world didn't see how to migrate their business models.

Google shows the way

The real change apparently came roughly when Google went public. On August 19, 2004, the young Internet company published its financial statement, showing it could make money on Internet, and how. For the year 2003 it reported $1.5 billion in revenues and profit of $110 million. For 2006 it expects to report $6.5 billion in revenues, and $2.5 billion in profit.

The Google IPO showed the world that big money could be made on Internet. And mainly, how the Internet can change the way business is done.

The advertising methods that Google introduced, first contextual (connected to the words the surfer was searching for) and later a method regarding the price of advertising, changed the online advertising world. It may wind up changing the whole advertising world.

Google's IPO ignited the whole Internet sector. Shares in dot.coms that survived the crash began to rebound. More and more advertisers began showing up. Google?s success legitimized Internet in general and online campaigns in particular.

That was when Big Business, mainly media, advertising and communications companies - but not only them - began rethinking Internet: threat, or opportunity.

When they came back to the Internet battlefield, they discovered that almost all the big, profitable companies on the world wide web were "pure play" companies - that had been born on Internet, live on Internet and derive all their income from Internet.

Yahoo!, Google and eBay are pure-play companies founded by kids. They have hardly any physical presence outside the virtual world.

The dilemma and the solution

It is no coincidence. Prof. Clayton M. Christensen has published numerous breakthrough articles and two books in the last decade: Innovator's Dilemma, Innovator's Solution. He describes how established Big Business contended over the decades with so-called disruptive innovations. And Internet may be the most disruptive innovation in the last century. It attacks established business models and changes the rules of business in almost every sector in the world. In some cases, like the printed press, Internet is a technology that threatens to destroy the business model of almost all the companies.

Prof. Christensen goes on to describe the mistakes that the companies keep making when faced with disruptive innovations. Instead of locating new markets and opportunities, they ignore the changes in their markets. They argue that the new market isn't interesting, or lacks critical mass, or that margins are too low, or the client base isn't attractive. Yet when the market does reach critical mass and profits increase, these companies discover it's too late to jump onto the bandwagon.

Even when the big businesses noticed the Internet threat/opportunity and devoted resources and management time to it, they usually failed. Instead of adopting the new rules of the game and exploiting the new markets, they tended to try to duplicate their usual method of business on Internet.

In many cases, the attempt proved destructive. They not only poured huge sums into their Internet operations, but they achieved very small shares of the market compared with the pure play Internet companies. And, they cannibalized their own business. Instead of increasing their market share, their Internet businesses ate into the existing one.

Now that is changing, and fast. Internet is no longer a gimmick, it's a real problem for big businessmen the world wide, and entrepreneurs are constantly on the prowl for new ideas.

It has all become so hot that in recent months, there's a smell of a bubble in the virtual air again. The young, restless and brainy are running amok, setting up websites and scrabbling for money to finance their businesses. Big companies are increasing their Internet budgets.

Ignore the fluctuations, the rising and falling of the Internet star. The trend is clear: each year Internet disrupts and redefines more and more sectors and businesses. It creates new threats and new opportunities. If you don't see how it affects your business, your job, your pension and your life, start thinking hard. You are probably missing something.