Don’t believe that the Internet is a magic solution to any business problem. It is much like any normal marketplace, but with a lower barrier to entry and potential global reach. If you look at your laptop computer, plugged into the World Wide Web, and feel electrified by the possibilities represented by that connection with so many other people, then we both have something in com-mon. I feel it too.
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Even though the Internet is a miracle of technology that has revolutionized communication and commerce, know that it is still governed by the same laws of economics that have controlled business since the earliest days of man. Re-member the dot-com bubble and what were called new economy companies?
This time saw the emergence of a large number of companies that thought that they could ignore many of the traditional laws of economics, get aboard the Internet, and ride it to wealth on the power of pure enthusiasm and limitless financing. The dream didn’t last. People woke up as soon as their financing started to run dry and they realized that investors would want to see real in-come in order to be convinced to invest more. “No inin-come” meant “no busi-ness,” and Icarus fell to Earth with a big thump.
Traditional business (pre-Internet) was bound by distance. Limiting? Yes. But it was also empowering. Let me paint a picture of circumstance for you to visual-ize about the Internet. For our example, let’s consider something traditional and cast our minds back to about the year 1750. How about looking at the business model of a cooper? (A cooper was a person who made barrels for storing materials such as gunpowder, liquids, and foods.) To survive in his local marketplace in 1750, our cooper must:
• Offer a service or product that people value. People need barrels.
• Have enough potential transactions in his local market to survive. This means a population of people within trading distance, who produce food or store liquids in such quan-tity that they regularly need barrels. A barrel might last anywhere between one and five years, so our cooper has to take that into account when looking for repeat
customers.
• Build and maintain a good reputation. If you were known to be a cooper that once used outhouse planks to make barrels, folks might not want to buy from you.
• Find the right balance between demand and supply. For ex-ample, 40 coopers in a 40-barrel-per-year market won’t work.
• Be able to source materials for making barrels. That means iron for the metal rings, wood for the barrel planks, and wood for making fires to dry the planks and heat the metal if necessary. If any of these materials are completely un-available (e.g., in Antarctica), the cooper would be in the barrel-importing business, not the barrel-making business.
Because it’s 1750 in this thought experiment, the cooper doesn’t have access to global markets. He cannot (easily) sell his product to Paris, London, and New York at the same time. He is pre-Internet, pre-airplane, and pre–steam power. This is local in the most profound sense of that word.
I said that a local market is empowering a moment ago, did I not? I say that be-cause of these two factors:
• Information is simple and available.
• Consumer options are limited.
Table 3-1 describes some of the chief differences between doing business on a local scale and a global one.
Table 3-1. Core Differences Between Local and Global Markets
Local Global Information is simple. In a
primi-tive local market, you can know a significant proportion of what there is to know about the market forces at work.
Information is complex. In a global market, infor-mation about competition and market forces is very complex, and often hidden. Competitors and market pressures can arise from anywhere at any-time without warning.
Options are limited. If you are the only barrel maker or a member of a small population of coopers, then people need to come to you for their barrel needs.
Options are unlimited. For the customer that is willing to use FedEx or UPS to obtain goods, dis-tance is not an issue. Providers from Croatia to Cleveland are going head-to-head with one another.
Relationships are strong. You meet every single customer face to face.
You are not a brand—you are a person.
Relationships are weak. You almost never meet a customer face to face. Until you build powerful brand recognition (like Apple or Amazon), you are merely a product description and a price point.
Local Global Marketing is unnecessary. In a
pri-mitive local market, marketing as we know it is unnecessary. You offer a service in a town. People who need the service in the town come to you.
Marketing is mandatory. In a market with global reach, you can reach everybody but are known by nobody at all (at least in the beginning). It’s a di-abolical trade-off.
Sales volume is not volatile. You sell as much as the local community demands—no more, no less. There is relatively predictable demand over time.
Sales volume is highly volatile. Your sales volume is directly tied to the effectiveness of your brand positioning and marketing.
The lure of the Internet is seductive indeed: “If I can reach the whole planet and everybody wants my product, then I can make a lot of money!”
For the sake of making my point, I will repeat the first sentence: Your sales volume is directly tied to the effectiveness of your brand positioning and marketing.
Profit is more certain. The price that customers are willing to pay for your goods or services is likely to be at a fair equilibrium with the cost to produce your goods or services.
Profit is much less certain. The price that custom-ers are willing to pay for your goods or services can vary widely from profitable to impossibly cheap. You often compete against the cheapest provider anywhere in the world.
Maximum profit is limited. The best-case scenario for revenue and profit in a local market is limited.
Maximum profit is very high. The best-case sce-nario for revenue and profit in a global market is many times higher than in a local market.
Looking at this comparison, we begin to see that marketing is a response of busi-ness to weak relationships, distance, and customers having multiple options for a product or service.
Takeaway: Limited distance restricts your reach, but it also means that you only have to compete with the locals. The Internet gives you access to a global audience, but also competitive exposure to any Joe with the same idea you have—worldwide.