Lessons From The Dotcom Bubble

Posted by Sen Ze on: 2006-10-13 18:36:21

Some years ago, there was a spectacular burst of the dotcom bubble where start-up companies with nothing more than big but unproven ideas were attracting BILLIONS of dollars in venture capital funding to start and grow their business on the Internet.

BILLIONS OF DOLLARS were in turn spent on hiring lots of people, renting huge premises, leasing heavy office and computer equipment in quite a few places around the world. Hundreds of millions of dollars more were spent on heavy advertising in the media to draw the public to their web sites.

Never a day went by when you didnâ€™t hear of â€œthis dot com companyâ€ or â€œthat dot com companyâ€ screaming out to you for your attention for you to avail yourself of their products or services. If you were lucky enough to be caught up in the frenzy, youâ€™ll remember very clearly what that feeling was. Everywhere I looked I saw ads for a dot com. Some were very nice to look at with extremely catchy tag lines.

Unfortunately, most of those companiesâ€™ business models were based mainly on the hype surrounding the Internet, unproven big ideas and the â€œFirst Mover Advantageâ€ - with the ultimate reward for their founders and backers being a listing of their companies on the Stock Exchange.

Multi-millionaires sprung up overnight from Internet ventures that got listed which excited the venture capitalists and entrepreneurs even more, which resulted in even more billions of dollars being pumped into new Internet projects. Because at that time it would appear that the journey to millionairedom was just a few months away, rather than the years it would take the conventional way.

Venture Capitalists were on the prowl to fund a good management team with a big idea that had the Internet involved in some way. Because the Internet was very new then, nobody would know whether those big ideas would bring in the gold. However the game wasnâ€™t to see if they would - the game was to list the dot com companies as quickly as possible at all cost, and get rich from the exercise. Of course, it was only a matter of time before things became clearer to those involved, with very painful consequences.

Hereâ€™s the lesson in this fiasco that went directly into the marketing books of shame.

No proper business model that wasnâ€™t going to be profitable in the long run was ever going to survive any hype generated for it. In other words, if a business cannot make enough money to offset the cost of running itself, no amount of hype or the application of the â€œFirst Mover Advantageâ€ is going to change that fact.

Now the First Mover Advantage is a concept that says that if youâ€™re the first to be seen everywhere offering your product or service on the Internet (even though you may not be the FIRST to do so, only the first to be SEEN to do so), youâ€™ll gain a great business advantage over all your competitors who came onto the scene later, or who were there earlier but only advertised themselves strongly after you came onto the scene.

By being first, youâ€™ll get the most number of customers and youâ€™ll make the most number of sales and youâ€™ll be the preferred choice for your Prospects to do business with, because itâ€™s always easier to remember the first company to offer a certain product or service.

This belief in the First Mover Advantage concept caused hundreds of millions of dollars to be spent on HUGE media campaigns very quickly by Internet companies during the dot com boom. They were advertising everywhere - on the Internet itself, on television, radio, newspapers, bus panel, billboards and just about any spot you can think of that could hold an advertising message. They advertised during prime time in the media (like during the Super Bowl, for example), the time when a single ad could cost millions of dollars.

Most of those companies were wound up in no time, when it became clear that they were burning up more money in operations and advertising cost than they were earning them in pursuit of the â€œFirst Mover Advantageâ€.

The end result?

The only ones who got filthy rich were the Advertising Companies (if they were paid before their clients went bust), and the lucky few who managed to list their companies before the bubble burst on them.

Now you may think that the â€œFirst Mover Advantageâ€ concept isnâ€™t a valid one.

But you would be wrong.

The problem isnâ€™t with this concept, but the fact that their business models werenâ€™t profitable in the first place. Nobody had done their business the way they had on the Internet before - so nobody would know how it would turn out. The hype of untold riches apparently suggested by the hyper-growing Internet became too much of a temptation until all good reasoning and business practices were ignored or glossed over in favor of the â€œFirst Mover Advantageâ€.

But then letâ€™s look at AirAsia.

It was already a profitable company in its FIRST YEAR of operations. This is even more remarkable when you know that the airline that AirAsia took over to be able to operate its business had a $10 million debt before it was acquired!

The low-cost carrier model isnâ€™t a â€œnew and unprovenâ€ model. It was already working very well in Europe in the form of RyanAir and EasyJet - and the founders of AirAsia saw a huge virgin opportunity in Asia for the same type of airline to operate in since neither of them were in Asia (they still arenâ€™t) due to barriers for their expansion to this region.

Thus AirAsia took a proven model from elsewhere for the travel industry thatâ€™s virtually the same everywhere in terms of needs and applied it to a different GEOGRAPHICAL market, making certain adjustments where necessary. Armed with a proven business model that emphasizes cost savings both in what it offers its Customers and in its operations, it then set out to create the First Mover Advantage as best it can with its very simple and effective tagline that says, â€œNow Everyone Can Flyâ€œ.

I saw AirAsiaâ€™s billboards at certain strategic locations (like bus stops) when I was in Macau and Hong Kong recently (and yes, I flew AirAsia to Macau and then took a Hovercraft to Hong Kong). It advertises its low fares regularly in the media (mainly newspapers). Its CEO gives interviews to the media and other special events regularly to tell AirAsiaâ€™s remarkable success story and growth and the media lap them all up since its story is a sexy and successful one.

It has become Malaysiaâ€™s pride side by side with the countryâ€™s other world-class airline, MAS (Malaysia Airlines). It also moved quickly to gain a foothold in its neighbouring countries by creating partnerships with them in the form of Thai AirAsia and Indonesia AirAsia. It is now flying into parts of China.

But what about its competitors? It has Singaporeâ€™s Tiger Airways, Australiaâ€™s Jetstar Asia (owned by Qantas), Thailandâ€™s Nok Air and 1-2-Go, and Phillipinesâ€™ Cebu Pacific, Indiaâ€™s numerous players called Kingfisher, SpiceJet, IndiGo, Air India Express, Air Deccan, Premier Air, Air One, Air Dravida and Jagson Airlines, Hong Kongâ€™s Oasis Hong Kong Airlines, Macauâ€™s Viva Macau and many more for company.

The huge Asian market certainly has room for more than one player in the low-cost carrier business. While AirAsia has done very well so far, the First Mover Advantage is clearly its main business strategy which led to crucial partnerships with other countries. The key to the First Mover Advantage isnâ€™t to be the first, but to be SEEN to be the first - and in this aspect we can safely assume that not all the above airlines â€œgetâ€ it the way AirAsia does.

Here are the key lessons to be learned:

1. Do a proven business model in a DIFFERENT location that have your Prospects, but with few or no competition. You can discover proven business models done in the Internet World with my Mini-Encyclopedia found at http://www.internetbizmodels.com/index4.htm

However since youâ€™re on the Internet, you really have only one location, so youâ€™ll use those proven business models for your own â€œnicheâ€ instead. An Internet Business Model that works for one niche (say the â€œfitnessâ€ niche) will work for another (say the â€œromanceâ€ or â€œdog loversâ€ niche).

2. Create First Mover Advantage

It can be done without paying for advertising if you know how to use free publicity techniques to have your business seen all over the world in various media outlets. AirAsiaâ€™s founders made full use of the media by giving interviews that tell a lot more about how they operate. They get full coverage worth millions of dollars, which costs them nothing except their time in giving the interviews. You can do the same thing too, as I have done for myself in the past on many occasions - even appearing on CNN News!

There are of course many other factors other than â€œFirst Mover Advantageâ€ in the success story of AirAsia so far despite intense competition now, but Iâ€™ll leave that for another day.

Copyright Â© Sen Ze Do you know why a lawyer would give up his career to be an internet entrepreneur? To find out, go to http://www.internetbizmodels.com

Sen Ze has published a number of books and manuals on E-Commerce, notably his signature manual, "Sen Zeâ€™s Mini-Encyclopedia Of Low-Cost, High-Profit Internet Business Models". He now runs multiple low-cost, high-profit Internet Businesses of his own even as he travels regionally to present his Internet Business and Internet Marketing Talks to thousands of attendees.

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