What will it take to survive the Web's evolution?

In "Digital Darwinism," Evan Schwarz predicts which online business models will prove the fittest.

By Janelle Brown
July 20, 1999 8:00PM (UTC)
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The Web is clearly still in its formative stages. That's why you can choose from an overwhelming number of nearly indistinguishable mega-portals, music stores, drugstores and bookshops online. In this early period of the Internet, there is still sufficient space and time for hordes of people to simultaneously develop the same ideas.

But it doesn't take much contemplation to realize that this overabundance can't last forever, that competition will arise and only the best Web businesses will make it; many will merge or die, leaving but a few to truly flourish in the long term. It's only a half-step further to compare this inevitable fallout process to a well-known theory of evolution.

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Still, Evan Schwartz, author of "Webonomics," dedicated an entire book to the concept. In his latest tome, "Digital Darwinism: 7 Breakthrough Business Strategies for Surviving in the Cutthroat Web Economy," Schwartz admits: "This radical notion ... is no longer especially new or original. But the exciting development is that it is finally being put into action across many different species of enterprises."

"Digital Darwinism" is essentially an intuitive extended metaphor, arguing that only the most differentiated and appropriately evolved Web sites will survive this stage of "primordial ooze" online. To ensure that readers of his book have a chance to rise to "fittest" stature, Schwartz has appended an "executive survival guide" of strategies to each chapter.

Schwartz's latest book follows the same template as "Webonomics," with its series of essential principles for survival online. But whereas his previous work was a relatively rudimentary guide to the "rules" of the new economy (move fast, think global, offer deep information and interactivity), "Digital Darwinism" goes further, explaining why certain business models are more worthy than others -- some preferred examples are affiliate programs and dynamic pricing models. In "Webonomics," Schwartz described Peapod's grocery delivery service as his example of an online convenience service; in "Digital Darwinism," he dissects Peapod's business model and explains why it's not really a "problem-solver." The online grocery service is more expensive than buying at the store and not truly convenient, given the three hours shoppers have to stick around waiting for delivery, Schwartz argues.

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But isn't this whole notion of studying the Web's evolution rather premature? Darwin had thousands of years of change to study when he attempted to explain why, for example, finches with short beaks endured; Schwartz, on the other hand, has only a few years of digital commerce to go on. And Schwartz is not simply examining change -- he is using it to suggest the strategies that should be adopted by those who want to survive continued evolution. While the book is full of insights that might be useful to entrepreneurs, it seems a bit dangerous to predict today what quirkily innovative new business models might work long term.

After all, it's a long leap from theory to practical application. It's one thing to determine why Web businesses are developing affiliate marketing programs (getting partners to sell your products for you), but it's another to predict that affiliate marketing will be one of the adaptations that survives evolution.

But Schwartz has a snappy style and his dissection and comparison of business models that do and don't make sense -- REI vs. CompUSA, ETrade vs. Merrill Lynch -- are sapient and entertaining, even if what he writes about is sometimes obvious. His tips -- like selling excess inventory through an online auction service so that customers don't know you are undercutting your regular prices -- could serve as a practical handbook for executives who hope to learn how to differentiate and grow.

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Schwartz posits his book as a warning against stock market overexuberance, writing that "rational businesses are the ones that are valued based on their earnings and the growth of their earnings. Irrational businesses are the ones valued, or vastly overvalued, based on nothing so tangible as revenue or profits but rather on their sheer potential, the story that they tell. Often, this potential is greatly misunderstood, exaggerated, or subject to extreme wishful thinking."

He's right, of course. But he himself falls into the same trap. Schwartz's book might be more interesting if he spent more time explaining the irrationality of some business models -- poking holes in the advertising-based community model of the GeoCities and theglobe.coms of the Net, for instance -- instead of trying to predict which models will be winners in the online survival game. And while Schwartz does point out some interesting companies with intriguing ideas -- such as a company that uses the Web to sell made-to-order bicycles, or REI's use of in-store Web kiosks to order merchandise that isn't in stock -- there's no guarantee that his examples of "fit" business models are those that will endure.

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Take Priceline, the online travel booking service that lets users state the price they are willing to pay for airline tickets and hotel rooms. Schwartz awards the firm plaudits for "treading an unconventional, even forbidden path" with its "buyer-driven commerce" concept -- a concept that Priceline has patented. What Schwartz doesn't mention is that Priceline had $112 million in losses in 1998, compared to $35 million in revenue, and that the company completes only 7 percent of all the bids it receives. Then, there's the fact that Priceline is selling many of these tickets at a loss; the company is also paying a hefty $38.9 million in warrants to airlines just for the rights to be able to sell their tickets. Despite Priceline's performance in the stock market, it is hemorrhaging cash and its business model has been harshly criticized.

Schwartz also has a weakness for futuristic technologies, and flogs the same concepts that he did in "Webonomics" -- many of which didn't work in 1997 and still aren't working in 1999. He encourages entrepreneurs to put their money into smart card systems (which, thus far, have been thoroughly unsuccessful in the United States) and wireless computing (such as Motorola's Piano system, which requires that computers be so close to the Web server -- like 10 feet -- as to be impractical). Recommending that fledgling online entrepreneurs adopt these fallible and expensive technologies might well lead to their demise, not their survival. It is far too early to predict which models will win in the long run, let alone endorse them as business solutions for Web entrepreneurs.

Even as all these Web business ideas play themselves out, we are experiencing a supersaturation of business-technology media; there are rackfuls of magazines, pages of Web-based news services and newspapers across the country that are increasingly offering Web industry case studies on a daily basis. Because of this, many of the profiles that Schwartz provides here feel stale: How many times can one person read an explanation of eBay's customer feedback program? How often must we hear about the Junglee shopping bot? How much praise can the Amazon.com affiliate program really justify?

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Schwartz must know that a print book about Web business is going to be hopelessly out-of-date by the time it hits the shelves; this must be why he tries to provide a value-added "theme" that might offer more insight into the meaning of online success. But even if his premise is practical on a meta level, theories are very hard to apply to a medium that is morphing on a daily basis. This is something he alludes to in the final pages of his book, basically adding a caveat to all the ideas he just finished advocating. "The principle of survival of the fittest doesn't mean that anything that survives is necessarily fit. One can prosper for a time even as extinction lies just ahead."


Janelle Brown

Janelle Brown is a contributing writer for Salon.

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