We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not a subscriber? Subscribe now for unlimited access to online articles.

Net? Nyet!

E-commerce will not conquer all. On the Web, as in real life, the rich will get richer.

I can’t bear to read another prediction about the Internet altering human consciousness. I can’t listen to another pooh-bah saying electronic commerce, via the Web, means a revolution in business. I can’t tolerate the sight of another entrepreneur enriched by the sale of stock in a company without profits, revenues-or even a product.

I’m tired of hearing how e-commerce will conquer all. How the Internet and the Web will transform existing industries. I can’t take it anymore. It’s time for me to stand up for that silent majority of sensible skeptics that I know is out there. It’s time to say what a lot of people are thinking privately but are too cowed to say in public.

Where is this nonsense coming from? Well, part of it is rooted in the American character. Americans like rooting for the underdog. They like it when champions get toppled.

This story is part of our September/October 1999 Issue
See the rest of the issue

This American ethos is wonderful, but it is also often wrong. If you liked the “Rocky” movie series, I’m sorry to disappoint you, but in real life the underdog usually loses.

My point is simple: The Web, if it triumphs, will largely reinforce existing business elites. E-commerce, regardless of the inroads it will make into traditional retailing and services, will sustain the advantages held by the leading corporations.

I am not saying “Web-World” is entirely a sham (although it’s certainly partly that). I’m saying the Web can serve Wal-Mart and Merrill Lynch as well as Amazon.com or the 100th online peddler of garden tools. And in that contest, the rich will get richer.

I think the Web stampede is heading toward a cliff. When the herd goes over the edge, the financial carnage and psychological shock will be worse than anything wrought by Y2K. While many companies are still scrambling to forge a Web strategy, many more companies should be scrambling to forge a strategy to save themselves from their Web strategy.

What’s driving the coming Web shakeout?

Let’s start with the central premise of the online revolutionaries: the claim that doing business over the Web is cheaper than selling through traditional bricks-and-mortar. Nope. To be sure, the Web does certain things well. Amazon.com’s order processing is terrific. Those little notes in your e-mail telling you the status of your order are helpful and endearing (until you decide to stop opening all e-mail from Amazon). But those books must still arrive the old-fashioned way. That’s expensive and time-consuming and usually offsets the cost savings of buying electronically.

Now, of course, a growing number of people don’t want to visit a bookstore, or even telephone a travel agent or a stockbroker. But this doesn’t mean that stores and sales agents are irrelevant. They aren’t. Consider bookselling again. Borders and Barnes & Noble are everywhere. What does Amazon.com do when bricks-and-mortar people personally deliver books to your home? What happens when the company assigns person to me? An electronic agent is one thing; a human being is (still) something else again.

Take Dell.What made Dell Computer’s revenues rise from nothing in 1984 to $18.2 billion last year? The key to Dell’s success isn’t the Web; it’s that fabulous, cutting-edge, e-commerce gadget: the telephone. Customers phone in orders, setting off a chain reaction among suppliers that culminates in the assembly
of a Dell personal computer. Where’s the Web in this process? Hardly visible. As of late last year, just 5 percent of the company’s daily sales come over the Web. Sure, this percentage will grow. But my point is that Dell will benefit from the Web because it’s a leader already-it won’t become a leader because of the Web.

What’s important for entrepreneurs to realize is that chasing the ideal Web business isn’t the path to success. What they need is a good business in the first place.

But wait, aren’t those “good businesses” under attack by the Web? Aren’t existing industry leaders usually muscled aside by upstarts because the giants are reluctant to destroy their old businesses in favor of the new?

Well, Amazon.com took a big lead in the electronic sale of books. But the big booksellers quickly responded. The story is the same in other industries,where leaders adopt Web-selling techniques even at the price of hurting their traditional sales and service networks. The effect is to blunt the advantage of the upstart and remind us again that the Web is a tool open to all-especially the rich and powerful.

A great example can be found in online music distribution. In Britain, EMI plans to make its entire back catalog of recorded music available via the Web. Customers will download tunes onto recordable CDs in music shops. EMI’s partner in the deal is a small company, musicmaker.com, which sells customized discs over the Web. The problem is these discs must then be mailed to buyers, which takes at least two days. What musicmaker.com needs is stores, so buyers can get the discs instantly. EMI makes an ideal partner.

I’m bearish on businesses built solely on the Web. The coming years will see many of them wrecked. Failed virtual companies and worthless net stocks will mark the end of an era even as well-run real businesses follow the advantages of e-commerce wherever they may lead.

AI and robotics are changing the future of work.  Learn from the humans leading the way at EmTech Next 2019.

Register now
Want more award-winning journalism? Subscribe to Print + All Access Digital.
  • Print + All Access Digital {! insider.prices.print_digital !}*

    {! insider.display.menuOptionsLabel !}

    The best of MIT Technology Review in print and online, plus unlimited access to our online archive, an ad-free web experience, discounts to MIT Technology Review events, and The Download delivered to your email in-box each weekday.

    See details+

    12-month subscription

    Unlimited access to all our daily online news and feature stories

    6 bi-monthly issues of print + digital magazine

    10% discount to MIT Technology Review events

    Access to entire PDF magazine archive dating back to 1899

    Ad-free website experience

    The Download: newsletter delivered daily

You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.