New Markets Business Model
In September 1999 my e-buesiness strategy class was asked to review the top 50 web-sites in theUnitedStates ranked by unique visitors and break them into distinct business model categories, we thenindividually took a category to define in depth. The New Markets category came out of a group ofcompaniesthat could not fit elsewhere. Since that time the term Market Makers has become popular. Below is mytakeon the key characteristics of this model as viewed at that time:
By capitalizing on new ways of using the Internet, companies in this model primarily concentrate onbuilding brand loyalty and capturing market share. Companies either give away their product or provideaservice for a very low fee until they are established. In the future these companies will developrevenuestreams through advertising, retail sales, and/or partnerships.
I looked at the four largest (as defined by unique visitors for the first six-months of 1999)companiescurrently expanding New Markets through innovative means of increasing use of the Internet. Three ofthesecompanies currently have no revenue stream. I have gone ahead and identified sources of potentialfuturerevenue for these companies. The fourth, eBay, is the only one of the companies in this area to gopublic.
In some ways, eBay does not belong in this business model. The explosion of copy-cat businessessuggeststhat the Online Auction site is a Business Model unto its own. But, in some ways, all of the businessesinthis arena deserve their own category. However, I still believe that in this infantile stage of theInternet the commonalties of these companies in terms of strategy outweigh the differences. Whatdistinguishes these players is their focus on market space over revenue, and that they are the first tomarket with their idea. As eBay and the others expand and change their business strategy to focus onrevenue growth over market share they'll be categorized differently. But for now, this is the NewMarketsBusiness Model:
I SEEK YOU TO DO MY MARKETING FOR ME
ICQ or "I seek you" is the successor to Mirabilis Ltd. Mirabilis was founded in July 1996whenfour young Israeli avid-computer users established a new Internet company. ICQ was the first company tooffer instant communication and chat technology that informs you when family and friends are online andenables them to exchange messages in real time. Furthermore, ICQ technology also lets users play gamesandexchange files and URLs.
With over 40 million registered users it is no wonder that AOL purchased this little company for $287million on June 5, 1998. The surprising part is that the company has yet to earn a penny of revenue.Amazing what being first to market with a popular communication tool can be worth! But, of course, ICQhasdone a few other things than just be in the right place at the right time with the right product. Herearesome of the critical factors of their success (both past and present):
- Free software downloads (although this may soon end)
- First to market (with many other competitors trying to catch-up).
- Viral Marketing (it is in the interest of each user to recruit more users)
- No Industry IM Standard – (both a threat and weakness)
- Built brand loyalty through a comprehensive community for users.
- ICQ software dashboard stays on screen-continuously visible.
- High international reach. - 60% of users outside USA.
- Technical and user-friendly superiority.
ICQ was bought by it's largest competitor, AOL, making the market largely theirs' to lose. Yahoo hasdeveloped its own service, as has Microsoft. Some smaller companies with different business models-notablyAbbott Systems who are trying to charge $29 for its software, billing it as "without ads." As theleader in an expanding market, it is upon ICQ/AOL to develop the means of generating revenue
SITTING ON A MOUNTAINOFGREEN
Blue Mountain Arts was founded in 1971 in Boulder, CO by a hippie couple named Steven and Susan PolisShultz as a poster and paper greeting card company. The couple built a loyal following by sticking totheirfounding principles of Love, Discovery, Idealism and Commitment. In 1994 their college aged son Jaredhadstarted an ISP in Chicago and asked his dad to become one of his first clients and put Blue MountainArtsonline. Steven agreed and had bluemountain.com up and running in 1995. The model was and continues tobe,free online customizable greeting cards. Since then Jared has taken over as Executive Director of BlueMountain Arts, while Steven focuses on the artwork and Susan writes the poetry.
The business model for Blue Mountain Arts remains to be developed. It was never intended to be a biginternet business, it's all been a more of a fun hobby for the family. Jared, however, sees thingsdifferently, and is in the process of defining a strategy for the future including naming a "well-knownexecutive to the CEO post".
They have constant interest from venture capitalists, acquirers and partners, but they remain aprivatelyheld 100 employee company. It isn't the Hoovers estimate of $60M in annual revenues that are attractingcourtiers. It is, yet again, the marketshare. They are consistently in the top 20 sites online byuniquevisitors with a record 12.6M in February of 1999. And astonishingly, they spend no money on advertisingorpromotion. What are their critical factors of success? Here are a few ideas:
- Free email greeting cards - 2500 different cards available
- First to market
- "Birth Site of Viral Marketing" - Visitors send and receive cards at the site. Each visit is anopportunity to send another card…
- Build brand loyalty by sticking to principles and avoiding mass-commercialization
- No ads on the site - yet
Being first to market clearly has significance, but some very aggressive competitors have indeedenteredthe market. Blue Mountain will have to act carefully should they seek to earn revenue from their siteatsome point. Some of their competition includes: Amazon.com - new to market, Americangreetings.com(partnering with AOL - $12M Revenue, $100M Agreement with AOL), eCards.com, eGreetings (expected IPOsoon),Hallmark.com, MSN (new to market).
Driving Forces
- Hippie '60's counter-culture, anti-consumerism philosophy
- "Unobtrusive, benevolent hypercommerce, smiley-faced capitalism at its finest"
- Minimize advertising. Target ad/partner links being developed, e.g., sending a get well card mighthavea link to WebMD.com
Possible Themes that may be prevalent with all new market models
- Network spawns more users: A web based proprietary network a la fax machine creates a hugeuserbase. As mentioned above this is certainly true for ICQ and even E-Bay. One user needs more E-Bay userstoconduct transactions and as such the users themselves encourage more and people to enter the Network.Alsoas mentioned above this could create a certain vulnerability to Standard setting or competition withyour"unique service". I think I should mention both.
- First to Market: By being the first significant players in the market these "NewMarket" companies create a user base that new entrants find hard to emulate. This seems to be thecasetoo for non "New Market" companies. Amazon for example is probably so far ahead because of itshead start. This creates strong brand recognition.
- Innovation: The New Market companies all seem to offer something that has never been offeredbefore. Not just convenience (such as Amazon shopping), but completely new concepts such as on linebiddingand real time messaging. People are interested and this creates a certain fascination almost like wordofmouth marketing.
This is by no means a conclusive list of Internet companies exercising this model. Newcompaniesfrom Silicon Valley to Silicon Alley, and a bunch of garages in-between, are developing new internetproducts every day. Knowing that the free search engine of yesterday is the multi-billion-dollar portaloftoday, many people are jumping in headfirst. I expect that companies working in the following areaswillrise in number of unique visitors to make the top fifty count soon:
- MP3 - Online Music Transfer
- Financial Services
- Online Personal Planners, etc…
- Wireless PDAs