A couple of years ago, lots of experts believed that Amazon.com Inc. (AMZN), Yahoo! Inc. (YHOO), and other online pioneers had no sustainable edge. Anyone, they said, could start a Web site and steal their business. Indeed, thousands of sites tried. And nearly all of them failed. Not only did many smaller dot-coms bite the dust but most traditional behemoths, from Disney (DIS) and AT&T (T) to Barnes & Noble (BKS) and
Federated Department Stores (FD), have yet to approach the reach of the online giants--let alone topple them. My guess: They never will. The online winners today are the winners, period.
A few numbers tell the story. Two years ago, 11 companies commanded 50% of people's time spent online. Last year, according to researcher Jupiter Media Metrix, that 50% was controlled by just four online properties--America Online (AOL), Yahoo, Microsoft (MSFT), and Napster (as of last spring, anyway). Even more dramatic, the number of companies attracting 60% of online time fell from 110 to 14.
Likewise, the largest e-commerce companies, such as Amazon and eBay Inc. (EBAY), continue to grow faster than the overall market. While industrywide consumer e-commerce sales rose 13% in the fourth quarter, according to the Commerce Dept., Amazon's revenues rose 15%, and eBay's rose 64%. In January, those two reached 28% and 22% of the active Web population of 117 million people, followed by Yahoo Shopping at 21%. No other site even reached 9%. Says Lisa Strand, chief analyst for e-commerce at Nielsen//NetRatings: "The biggest sites continue to get bigger."
The World Wide Web may be scarcely a decade old, but its frontier era is over. Think about it: If you've been online for a few years, do you surf as much as you used to? Probably not. You've found a few favorite sites, and you keep going back. For instance, MyYahoo, a personalized Yahoo service used by 86 million people, gives me access to dozens of news sources I've specified, making it less necessary for me to surf around.
And when it comes to buying stuff, staying put has gotten much easier, too, especially as portals keep adding more traditional retailers as tenants. Even Amazon, which claims Toys `R' Us (TOY), Target (TGT), and Circuit City (CC) as online partners, is as much a mall as a store now, and eBay is an outlet for the likes of Disney and Home Depot (HD). "You're going to have a few huge players, and it's going to be tough for anyone else to survive," says Richard W. Blunck, CEO of Kmart Corp.'s (KM) online unit, BlueLight.com, which doesn't make Nielsen's list of the top 25 Web properties. Blunck hopes exclusive brands such as Martha Stewart will draw shoppers, but it's hard to imagine it catching up to the online leaders now.
That's why traditional media and retail companies must play ball with the pioneers--forge broad deals to offer branded content or products on those sites--or they'll get stuck in the Internet boonies. While maintaining its own limited Web site, for instance, Target leaves the heavy lifting--attracting customers and taking care of logistics--to Amazon, which runs a Target store on its site. It's not a bad idea for now, when e-commerce is still a small slice of overall sales. But I wonder what will be the eventual fate of companies forced to house their brands under the roof of a potential rival.
It's possible that a traditional giant such as, say, Wal-Mart Stores (WMT) or Walt Disney. will finally get it right online--though Amazon and Yahoo will undoubtedly be bigger and stronger by then. Technological shifts or financial or legal missteps also could unseat a current winner, as Napster discovered in nasty fashion. And certainly, this isn't the end of any new outposts on the Web: Thousands of new sites will thrive by offering niche products or more personal service. It's just that modest sites now won't ever get big. Too bad, but it's too late. By Robert D. Hof