Smart cookies: all that glitters - The gold rush of 1849 drew many to California in search of fortune What can it teach us about today's race towards e-commerce?

Smart cookies: all that glitters - The gold rush of 1849 drew many to California in search of fortune What can it teach us about today's race towards e-commerce? - Remind me - what happened in California in 1849?

by ANDREW WILEMAN
Last Updated: 31 Aug 2010

Remind me - what happened in California in 1849?

Gold was discovered near the Sacramento River in 1848. In 1849, 80,000 prospectors arrived in the Bay Area. Their number peaked at 250,000 in 1853 when gold ran out and the region settled into a long depression.

Gold worth dollars 2 billion was extracted. A few early lone prospectors struck it rich, while 99% just scraped a living in horrible conditions. Shopkeepers and brothel owners prospered, and pick and shovel manufacturers made serious money. Big mining companies moved in with capital, equipment and professional methods - and got most of the gold.

Who are today's equivalents of shovel producers and shopkeepers?

Businesses providing the infrastructure of the internet and e-commerce.

They include the network hardware, software and telecoms backbone - including Cisco, Lucent or MCI WorldCom; server, network and database managers such as Exodus and Oracle; and web and e-commerce software tools such as Inktomi, Macromedia and InterShop. Then there are customer interaction tools such as Kana or Talisma in e-contact management, or Broadvision in personalisation; commercial services such as DoubleClick for advertising; or Q-Pass for micropayments. Also web site and e-business consulting and outsourcing such as iXL, Scient or USWeb. The list could go on to include recruiters, lawyers, venture capital fund managers ...

These are the businesses making real, hard cash out of the internet - and the ones with market capitalisations (at least for the larger players such as Cisco) to rival Microsoft and Intel. Their customers - the .com (dotcom) wannabees and their clicks-and-mortar competitors - are paying full prices for best-of-breed solutions and speed to market, urged on by investors awash with web-seeking dollars.

And the mining companies? Who are their counterparts?

The established clicks-and-mortar businesses, of course - beginning to focus seriously on e-business, and starting to leverage their expertise, scale and brands into the new channel.

Lou Gerstner, the chief executive of IBM, said in the summer that the new .com start-ups were like 'fireflies before the storm' - the imminent storm being the full power of Global 1,000 firms when they gear up for e-business.

Until recently, Rupert Murdoch was dismissing the internet - now he's making it his investment priority. Ford and GM recently announced the wholesale transfer of their dollars 300-dollars 400 billion supply chains on to the web.

Certainly some .coms are in a stronger position than the lone gold prospectors were. Several, like Amazon and e-Bay, now have multi-billion-dollar market values, higher than their clicks-and-mortar counterparts. They are in the minority, however. As the Economist commented on the Ford/GM announcement, this is now 'e-business for grown-ups'.

Who are today's equivalent of the miserable lone prospectors?

I'm afraid it has to be many of the new .coms and most net business plan peddlers.

Like panning for gold, barriers to entry are becoming non-existent. You can get a business up and running in three to six months and contract out almost all business development and operations to the infrastructure providers. Funding is still very available (but getting tougher - there are now so many business plans out there). And like the lone prospectors, working for a .com you have to put up with appalling living conditions: 18-hour days in front of a screen, Coke-and-pizza diets, and 'fun' water pistol office shoot-outs.

Barriers to entry are low, but barriers to success are high. The marketing spend needed to break through the cacophony of net choice is soaring.

Products are being given away below cost (eg. buy.com or Priceline.com) to build a customer base, while advertising rates for all but the highest traffic web pages are collapsing.

Won't some .com start-ups find that giant nugget?

For early players with an innovative concept, solid funding and strong execution, there is still real opportunity - in the UK, lastminute.com is in this category. And there is a difference between B2C (business-to-consumer) and B2B (business-to-business) dot.coms: B2B concepts (such as Chemdex) are harder to get going and so are more defensible.

But, in the US, new B2C .com stocks are now trading on average below their IPO (initial public offering) price, while infrastructure provider stocks are double or treble. Selling the picks and shovels is a better bet right now than digging for gold.

Andrew Wileman is a strategy and organisation consultant; e-mail: wilemanae@aol.com.

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