Everyone knows why all those dot-coms crashed and burned: They had a bunch of crazy ideas that would never work. Bzzzzt! Wrong answer. The truth is, they weren't crazy enough. Now that the downturn has scraped the veneer of cool off every e-business from Yahoo! Inc. (YHOO) to Amazon.com Inc. (AMZN), it's apparent that they are all too normal, borrowing old business models that worked on television and in the mall. To succeed on the Net we need twisted, cockamamie notions that just might have a chance in this nutty new world.
Three years ago, almost everyone thought eBay Inc. (EBAY) was a crazy idea: How many people really want to buy cars and boom boxes, let alone used cribs and diet pills, from someone they've never met, halfway across the country? The skeptics even included future Chief Executive Margaret C. Whitman, whose friends doubted her sanity when she took the job in early 1998. Now, eBay hosts a profitable $5 billion worth of transactions annually, more than any other dot-com. Its execs and backers recognized that the seemingly kooky idea worked perfectly on the Net, where people could form a uniquely self-sustaining global marketplace.
By contrast, most dot-coms have clung to products and services companies offer in the physical world, often without adding enough value. Maybe it's a little easier to order groceries from Webvan Group Inc. than drive to a supermarket, but not so much so that Webvan can charge enough to make a profit. Yahoo does a great job of aggregating information, but its business model so far has been selling ads to the masses--hardly an innovative idea.
The problem now is that few investors want to hear any crazy talk. Maybe you can't blame them. The line between imagination and lunacy was mighty thin in the last couple of years. So now, venture capitalists, who are supposed to take risks, are shying away from funding any e-commerce company that looks the least bit risky. "The very creative ideas are not getting funded right now," admits Warren J. Packard, a managing director with the venture-capital firm Draper Fisher Jurvetson.
Fortunately, some entrepreneurs haven't checked out of the asylum yet. Take Karl Jacob, CEO of the online-advice service Keen.com Inc. After a short stint as an entrepreneur-in-residence at Silicon Valley VC firm Benchmark Capital--where he admits he didn't believe in eBay at first--Jacob started Keen. His aim was to get people to log on to the Web to locate experts on everything from astrological readings to computer repairs--and then pay to consult with them over the phone. Weird as it sounds, it's working so far: Sales at the privately-held company have jumped from almost zero a year ago to more than $5 million in the first quarter. Says Jacob: "You can't create lasting companies and great value by following everybody else."
Or listen to E-Loan Inc. (EELN) CEO Chris Larsen, who talks about person-to-person lending over the Web. The online loan broker may eventually help people invest in real estate loans in their neighborhood or in trusted members of their Kiwanis Club, bypassing middlemen in between. Sound crazy? Maybe, but it's what local savings and loans did before they got greedy and stupid. And the Web can create much broader communities, matching investors with loans of appropriate risk and return.
Even Amazon, while rightly cutting costs in hopes of earning an operating profit by yearend, still hasn't stopped innovating. It keeps releasing new features, such as an honor-payment system so customers can volunteer a few bucks to keep other sites they like in business. A lot of folks think it's nonsense, but Amazon gets a cut--and a chance to make its Web payment service a standard that could bring in big bucks in the future.
I don't know if any of those ideas ultimately will fly. But with a disruptive new technology such as the Net, intuition--backed by intestinal fortitude--often wins out over safe bets. "There's a lot of opportunity for more creative ideas on the Internet," says John Hagel III, author of Net Worth and Net Gain. Entrepreneurs and investors just need to find that backbone under the shirts they lost. By Robert D. Hof