(Transfered from Blogger / Typepad)
If there’s a sure fire sign that the bubble is building again, it’s the resurfacing of .com-era economics projections.These economic ‘models’ work something like this:
Let’s assume there are 1bn internet users world wide. Let’s say 0.005% of those people might be interested in my new $10 train spotting kit. Therefore, using nothing more than my pocket calculator, I can prove that my train spotting kit
website is worth $50m. That’s a profit of $25m. Mum, I’m a millionaire.
There’s three rather major flaws with this reasoning unfortunately, although none of these have had much of an impact on slowing down the use of the formula.
- Cost of sale. While selling online is cheaper than building a store or a distribution network, it is not free and neither is marketing. It costs as much money to build a brand online as it does to build it offline
- Captive market. The web makes connection with your buyer easy, but it does the same with the billion other products competing for your audiences $10. The web provides the framework for perfect competition. If you’re making a super-normal profit other train-spotting kit manufacturers will come in and compete with you.
- The internet is task based. While people might occassionally be distracted by online advertising, they are typically busy doing other things, not considering the train-spotters kit.
So the reality of the sum is easy. 1 bn x 0 = 0.
Leading product 