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Let's get rich from the Internet!: Cringely's seven secrets of highly successful Internet businesspeople

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Tired of working for bozos? Be your own bozo! Start a business on the World Wide Web. There are a million ways to do it wrong and only a few thousand ways to do it right, so here's Bob Cringely's primer for getting rich on the Net. Remember, your mileage may vary.

Rule #1: Don't expect to get rich from the Internet by responding to unsolicited e-mail messages with subject lines like "Make $6,000 per week!!" In fact, ignore any unsolicited e-mail messages that contain exclamation points in the subject line.

The reason for this rule is quite simple: People who send such messages don't really want to help you get rich. They want you to help THEM get rich by paying for their stupid little report or set of insider tips. This information is inevitably: a) worthless, or b) available for free somewhere else. If this scheme is so great, why are these jokers offering to let you and me in for $29.95 when they could have the whole business to themselves and make millions? Because there are no millions, that's why!

To make an honest buck on the Net, sell something other than dreams.

Rule #2 : The smart money is in selling networking software and hardware and, of course, pornography. While this primer goes way past Rule #2, it was Bob Kahn who pointed out to me that probably 90 percent of the profits made so far on the Net have come from these categories. And since Bob Kahn is the father of TCP/IP, he has been observing these trends as long as anyone.

As the Net grows and the class of consumers expands to include my Mom and yours, there will be opportunities to sell lots more than just modems and smut. But for now, modems and smut look like pretty good business.

Rule #3: Whatever you sell over the Net, you'd better be the first or second bozo to sell it if you expect your business to be a big success. The trend is quite clear that the first or second player in each niche becomes dominant. It's just as often the second and the first, since pioneers get to make all the mistakes. And every once in awhile, there is a big company that moves in later with a lot of money and takes over, but this doesn't usually work. Barnes & Noble is now fighting head-to-head with amazon.com, so forget about trying to start a national Internet bookselling business, at least until one of those players kills the other, and even then you'd better have a LOT of money to succeed.

Early market entry is key, so try selling something nobody else has yet. Avocados?

Rule #4: Sell something that comes in a zillion varieties -- more than any store could possibly stock. This is one of the several secrets behind the success of amazon.com. A virtual bookstore can offer every book in the world. A Web catalog can afford to be larger than any printed catalog. And with the help of publishers and distributors, this type of business requires that very little inventory actually be held onhand.

I should point out here that amazon.com isn't always as great as they say. Last week I tried to buy from them a copy of a book I wrote 20 years ago that's long out of print. They didn't have it and could only promise to try and find it. Powell's Technical Bookstore in Portland, however, had a copy on hand and sent it straight out. Powell's just might be the world's largest real bookstore, but I ordered through their Web site.

Interestingly, Rule #4 applies to more than just small ticket items like books and CDs. It also covers any product that comes in bewildering variety, like life insurance policies. The point here is to avoid selling commodities -- anything that's normally sold by the ton. It's okay to sell wheat futures over the Net, but not wheat, itself.

Rule #5: Sell something unique. This rule in many ways is the opposite of rule #4, which shows there is room for more than one approach. Remember Rule #4 was about offering a zillion products to one customer, while Rule #5 is about offering one product to a zillion customers. Just make sure you are the only one offering that product and that you have enough production available for the whole world, because that's who you'll be serving. Rule #5 can turn a roadstand business into a multinational overnight. Crafts, heirloom tomatoes, slightly-used MiG fighters, and any book or CD written or recorded by you are good product possibilities.

Rule #6: To make the really big bucks, the best things of all to sell are electrons. This means selling something that can be delivered over the wire, itself -- products that don't need to have a physical form. This eliminates inventory, shipping, billing, returns, ddeadbeats, and customers having to wait for their stuff. Software, music, videos, and electronic books are easy to imagine products for this type of distribution. But electrons can also be used to represent an obligation between buyer and seller. What is a loan, a stock trade, or an insurance policy if not an obligation?

Rule #7: If you are going to sell obligations, go for high volume and low cost. This is a simple matter of leveraging the strengths of the Internet, using computers to do the heavy lifting. Go for a national or international customer base, and do it in your bathrobe (there is no advantage to "place" on the Net, so a bathrobe, which is cheaper than a suit, is better than a suit. A back bedroom, which is cheaper than a Park Avenue office, is better than a Park Avenue office.

The kind of businesses that are best for applying Rule #7 are those that have traditionally had a lot of hand-holding and bureaucracy. Papershuffling is much more efficient if the paper is electronic and the shuffler is a database, rather than a person. There are whole industries that are incredibly inefficient, overstaffed with folks drinking coffee who think they have a regional monopoly. Well that time is past.

One example of a great Rule #7 business is E-Loan, an online mortgage brokerage that's based in Palo Alto, California. E-Loan is run in shorts and jeans by Chris Larsen and Janina Pawlowski, who use Web servers and noncommissioned clerks to replace traditional loan agents. By selecting loans without the assistance of an agent, the borrower can save over 80 percent of the transaction costs associated with obtaining a home loan. That's the beauty of automation: E-Loan doesn't incur the cost of an agent, so that cost can be given back to the borrower in the form of a cheaper loan!

E-Loan allows borrowers to access wholesale lending sources directly, providing customized mortgage quotes, side-by-side product comparisons, loan recommendations, and all of the services typically performed by a seasoned agent. E-Loan's RateWatch and Loan Monitoring services automatically check the market on a daily basis, and e-mail the borrower only when product selections are available.

These E-Loan people are sharks. They are lean and mean and have the advantages both of early entry into the market and a great company name. How can a local mortgage banker -- or even a mortgage broker -- compete? They can't. Right now the only thing holding back E-Loan is the hassle of getting permission to operate in states beyond California.

Businesses like E-Loan are the future of commerce on the Net. They leverage the strengths of the Net while avoiding most of its weaknesses. Of course, this particular outfit can still crash and burn, but the trend is clear. That dim and comfortable banker on Main Street is going to have to start taking shorter lunches.

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