A couple of weeks ago, New York Times op-ed columnist Thomas Friedman made the case against high valuations for Net stocks in an article headlined "Amazon.you." Tuesday, Friedman returned with a second broadside that may be the most amusingly off-base piece of Net commentary since the days when the Times warned us that the Internet was a hive of "nuts."
Friedman is normally a thoughtful observer of events in the Middle East and around the world. What happened?
"Amazon.you" offered an argument that, while not especially novel, had a certain anecdotal power: To all those investors who have paid a fortune for their shares in Amazon.com, Friedman offered the cautionary example of Lyle Bowlin, a guy in Cedar Falls, Iowa, who is running his own online bookstore out of a spare bedroom -- and underselling Amazon. "For about the cost of one share of Amazon.com, you can be Amazon.com," Friedman exclaimed. Big Net businesses are in trouble, he suggested, and any day now, little-guy start-ups will begin to swarm over their bloated carcasses: "Just think for a moment about how many Lyle Bowlins there already are out there ... to eat away at the profit margins of whatever Internet retailer you can imagine."
Friedman had figured out about one half of the logic of the online marketplace -- and partial knowledge is a dangerous thing. I wouldn't argue with Friedman's dour view of the inflated valuations of Internet stocks. Certainly, if the Net is even half as efficient a marketplace as its biggest boosters maintain, it will keep driving profit margins down. The "barriers to entry" are minimal; start-up costs are low; anyone can start an online shop. No one should expect massive profits in such a market.
But that doesn't mean anyone can be an Amazon.com, for two simple reasons. The first reason is what engineers like to call scalability: Lyle Bowlin can keep operating his store on a shoestring as a hobby only as long as it remains a low-volume operation. If he starts growing, he can't handle all the orders himself in his spare time anymore. He has to start hiring people. He needs to spend more than $30 a month for his Internet access, or customers can't get through to his site. He needs to build new back-end systems to support the increased load on his servers. At that point, either his meager profits evaporate or his prices go up -- to Amazon's level. Start-up costs on the Net may be low, but the cost of doing business balloons as the business's size grows.
The second reason is the killer, though. Amazon.com is such a success online not so much because its prices are low but because it has marketed itself smartly and built a loyal customer following over the past four years. That market profile -- the traffic on Amazon's site and the name-recognition the company has achieved -- is what investors, rightly or wrongly, are placing their bets on when they buy Amazon stock at sky-high prices.
It is not easy to build Amazon-scale traffic on the Web today -- hell, it's no small feat to build any traffic at all. Your options are: 1) cross-linking and word of mouth, online and off, which is effective but slow and unpredictable and not likely to help anyone reach Amazonian proportions; 2) advertising, which can also be effective but which costs a fortune and immediately eats into those low start-up costs (Amazon itself launched in 1995 with a blitz of small-type ads at the bottom of the New York Times front page, wishing happy birthday to famous authors "from the world's biggest bookstore"); or 3) press coverage.
Well, Lyle Bowlin obviously hit the jackpot on No. 3 when Thomas Friedman decided to write about him.
Friedman's follow-up column, "KillingGoliath.com," trumpets the amazing impact the first article had on Bowlin's business, without ever grappling with the question of Friedman's own responsibility for that success. Once the column appeared, Bowlin clocked more than 142,000 "hits" (however he may be counting them) in less than a day, received more than 1,400 e-mails and watched his orders leap from $2,000 a month to $2,000 a day. Bowlin, Friedman says, is now poised to become "even more competitive with Amazon.com."
Well, yes. What fledgling Web business wouldn't kill to have an entire column on the New York Times op-ed page written about it? Friedman tries to interpret Bowlin's success as, somehow, a sign of the power of the Net -- "You think the Internet is overrated? It's underrated." But in fact everything that's happened to Bowlin simply underscores how dependent Web businesses still are on coverage in other media.
A couple of lines in Friedman's piece suggest he may feel that it was the publication of his own column on the New York Times Web site, rather than in the newspaper, that gave Bowlin a boost. But since both print articles have mentioned Bowlin's Web address, it seems impossible to separate the influence of the two media. The point is not whether Friedman's words appeared online or on paper; it is that coverage in the New York Times remains a hugely valuable prize in the Internet age.
There's nothing inherently wrong with that -- when we launched Salon, a story in the Times business section certainly helped us gather our first readers. But there's something positively weird about Friedman's inability to acknowledge his own role in Bowlin's story.
A kind of Heisenberg uncertainty principle applies whenever a media giant covers some small Web site: A big publication can't spotlight a site without affecting it, changing it. Bowlin's newfound success doesn't tell us anything about whether online businesses like Amazon.com are doomed or not; all it tells us is that Friedman's story fed a lot of traffic to Bowlin's site.
Now, if every single competitor to Amazon.com and other established Web businesses could line up their very own New York Times column to boost site traffic, then maybe Friedman's thesis would have some credibility. But ask the next person who does what Bowlin has done -- and the next one after that -- how easy it is to compete with Amazon without a Thomas Friedman circulating their URL in a national newspaper. The scarce commodity online is attention -- and Friedman's analysis of the Net market isn't going to make much sense until it takes that into account.
To understand what's happening in the Net business today, you have to study the complex media ecology that has emerged in the interplay between the Web itself and all the pre-existing media -- TV, print, books, movies, billboards, mail-order catalogs and anything else that can snag your attention. The Web is a powerful new catalyst in this informational soup, but it doesn't single-handedly suspend every rule of the marketplace. Like so many of the more extreme Net utopians and anti-Net doomsayers, Friedman keeps making the mistake of assuming that the Internet is something so fundamentally new and strange that it transforms the universe -- when it is really simply a new communications medium that, like any other, carries its own set of unique traits, risks and opportunities.
Friedman takes some pleasure in championing how the Net has allowed little-guy Lyle Bowlin to take on Amazon.com -- just as it has allowed sometime little-guy Matt Drudge to compete with the New York Times (and, for that matter, it once allowed former little-guy Amazon.com to compete with superstore booksellers like Barnes & Noble and Borders). But just as old-fashioned media coverage made Drudge's business, Friedman's own coverage seems to be making Bowlin's. That's fine -- but there's only so much coverage to go around. If I were Amazon's Jeff Bezos, I wouldn't be too worried.