FOOL ON THE HILL
An Investment OpinionBy
The Internet Has Arrived Yi-Hsin Chang (TMF Puck)
October 18, 1999
Take a look around you -- the Internet has arrived. Before you scoff and dismiss this column for stating the super-obvious and for insulting your intelligence, think back to a year ago. Yes, there were commercials on television for such big-name Internet players as Yahoo!, America Online, and Amazon, not to mention online discount traders such as E*Trade, Ameritrade, and Suretrade. But these were all established Internet companies, most of which were already publicly traded and oft-talked-about on the news and around the office water cooler.
Today, we've got tons of Internet businesses advertising on TV, on billboards, on the radio -- pretty much anytime, anywhere. And these are by and large Internet start-ups that have yet to "prove" their business models. The online landscape is more competitive than ever, and it seems that just about any dot-com business -- no matter how stupid -- is able to obtain enough funding to inundate the masses with its "message."
In the span of 30 minutes the other night (since I started business school this past August, I've found virtually no time to watch TV), I caught quite a few commercials for Internet businesses. Some were quite good and effectively communicated the message -- and an attractive business model -- within 30 seconds, while others left me puzzled even after watching the same commercial several times.
One commercial I liked was for wine.com. Besides snagging a descriptive and self-explanatory URL, wine.com created a commercial that captured the essence of its business. The ad shows a bewildered woman looking for a bottle of wine in a wine shop with floor-to-ceiling shelves full of wine. She picks up one bottle only to have some pretentious jerk snicker at her, presumably at her poor choice of wine. The ad then tells us that wine.com is a place where you can go to buy and learn about wine in a comfortable and unintimidating setting. While wine.com was founded in 1994 (with its website launch in January 1995), it remains privately held and has yet to file to go public.
The ad for Pets.com wins my award for creativity (it's my husband's personal favorite) and features a goofy but endearing hand-puppet dog that tells us to shop at Pets.com because "pets can't drive." The funniest part of the commercial, for those who haven't seen it, is when the hand-puppet dog visits some house, and we see the puppeteer use the hand puppet to knock on the front door. Pets.com claims to be the "online category leader for pet products, information and services" and is also a private company.
A new website I learned about from TV is Adatom.com. My first reaction was that this wasn't a great URL. It's a little hard to remember -- I mean, I only caught it because I was making a conscious effort to commit the URL to memory to write this column. The commercial was OK. I got that Adatom.com was some sort of shopping site, but I wasn't clear on its product line and differentiation. Judging from the website, Adatom.com carries a wide range of products -- "anything and everything in the comfort of your home." I figure I might window shop at the site, though it's hard to say whether I'd actually buy something there.
One site I found quite stupid was iwon.com. The commercial claimed that the site was "just like Excite or Yahoo!" except you can win money. It appeals to the very worst in people (i.e., senseless greed) by offering daily, monthly, and annual cash prizes. There's a $10,000 daily prize, a $1 million monthly prize, and a $10 million annual prize. It's "free" to enter as long as you don't mind registering with the site, accepting cookies, and clicking on certain links on the site in order to collect sweepstake entries. The more you click, the more entries you collect (up to 100 per day).
Someone has to win, right? Never mind that as the site grows in popularity, your chance of winning actually diminishes. This is almost as bad as the lottery! By the way, the prizes seem far less appealing when you realize that the $10 million grand prize and the $1 million monthly prize are paid out in annual installments over 25 years. And, of course, the prizes are also subject to tax. Oh, yeah, and the small print also informs us that the contest runs through March 2000, making this a six-month contest rather than a yearlong affair as the prizes suggest.
Interestingly, iwon.com was created in conjunction with CBS Corp. and "selected venture capital firms," with the guaranteed cash giveaway as the site's centerpiece. But despite the deep pockets, I question the feasibility of iwon's business model. Basically, the company plans to give away $17.82 million in its first six months. That's a pretty high breakeven point. What's more, iwon.com will be forced to continue its giveaways, as users who are attracted by the lottery aren't likely to come back to the site if they no longer have the chance to win some dough.
Well, enough of my rantings. I will periodically assess other new Internet businesses in this column. Feel free to post your thoughts on these and other Internet companies on the Fool on the Hill message board.