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You do not have to lose money

By Scott Bradner

Just when the telcom end-of-world experience is seeming to be ratcheting up to yet another level of pain comes word that this Internet thing is not the guaranteed way to lose money that most people thought. It is actually possible for something other than eBay and pornography to make money on the Internet.

A common request in business classes over the past few years has been "show me the business case for the Internet where someone makes a profit with an Internet-based service." Once people came up with pornography and eBay they quickly ran out of examples. There are lots of examples where companies have been saving gobs of money by using the Internet for customer interaction. Cisco is the most often cited example, having saved billions of dollars by moving to web-based sales and support. Another example of this type of savings is the US government -- it costs fractions of a cent to deliver a tax form via the Net vs. multiple dollars to deliver the same form via postal mail. But the examples of businesses actually selling something over the net and making money were few indeed. The images of the pets.com sock puppet and many other ex Super Bowl advertisers (and ex existing companies) predominate.

But now comes the news that profits are becoming more common. Business Week reports that 52 of the about 200 public Internet companies that made it through the Internet bust are currently profitable and 15 to 20 more may become so next year. (Business Week carefully says these companies are profitable "under standard accounting rules," whatever that evasion means.) Even Yahoo just reported that it made $21 million on revenues of $226 million in the last quarter. The four companies that made Business Week's InfoTech 100 list in the June 24th article made a total of almost $100 million in the 1st quarter of 2002. The companies on the list were pure service companies including eBay, two travel sites and a search engine.

In the grand scheme of things that may not be that much money compared to the $6 billion that Microsoft made last year but its also a far cry from the billions of dollars lost over the past few years. And the trend is in the right direction. As Business Week points out, this type of service company can support a significant increase in sales without a big increase in costs because their infrastructures are already in place.

Maybe it was always the case that even in the Internet well executed good ideas will succeed and that fact was just hidden in the burst of high profile boutique concepts like pets.com. (pistachio-nuts.com anyone?) But it is ironic that logic should wait until the free fall in the stock market to win out.

disclaimer: The problem with logic at Harvard is that there is not just one set, but the above observation is my own in any case.