Lessons from the dotcom bubble
A few years ago, there was a spectacular bursting of the dot-com bubble, where startups with nothing but great but unproven ideas attracted BILLIONS of dollars in venture capital funding to start and grow their internet business.
In turn, BILLIONS OF DOLLARS were spent on hiring many 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 media advertising to drive the public to their websites.
Never a day went by that you didn’t hear of “this dot com company” or “that dot com company” clamoring for your attention to take advantage of their products or services. If you were lucky enough to get caught up in the frenzy, you will remember very clearly what that feeling was. Everywhere I looked, I saw ads for a dot com. Some were very easy on the eyes with extremely catchy slogans.
Unfortunately, most of those companies’ business models were based primarily on the hype surrounding the Internet, untested big ideas, and “First Mover Advantage,” with the ultimate reward for their founders and backers being a stock price from their companies on the Stock Exchange.
Billionaires sprang up overnight from internet companies going public, further exciting venture capitalists and entrepreneurs, resulting in more billions of dollars being pumped into new internet projects. Because at that moment it seemed that the journey to the millionaire was only a few months away, instead of the years that it would take in the conventional way.
Venture capitalists were on the prowl to fund a good management team with a big idea that involved the internet in some way. Because the Internet was so new then, no one would know if those great ideas would bring the gold. However, the game was not about seeing if they would do it: the game was about listing the dot-com companies as fast as possible at all costs and getting rich from the exercise. Of course, it was only a matter of time before things became clear for those involved, with very painful consequences.
Here’s the lesson from this fiasco that went straight into the marketing books of shame.
No proper business model that was not going to be profitable in the long run was going to survive the hype generated by it. In other words, if a company can’t make enough money to offset the cost of running it, no amount of hype or application of “First Mover Advantage” will change that fact.
Now, first mover advantage is a concept that says that if you are the first to be seen everywhere offering your product or service on the internet (even if you are not the FIRST to do it, just the first to be SEEN to do it for therefore), you will gain a huge business advantage over all your competitors who came on the scene later, or were there before but only advertised heavily after you came on the scene.
By being first, you will get the most customers and make the most sales and be the preferred choice for your Prospects to do business with, because it is 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 very quickly on HUGE media campaigns by internet companies during the dot com boom. They were advertising everywhere: on the Internet, on TV, radio, newspapers, the bus panel, billboards, and just about anywhere you can think of that might contain an advertising message. They advertised during prime media time (like during the Super Bowl, for example), the time when a single ad could cost millions of dollars.
Most of those companies went out of business in short order, when it became clear that they were spending more money on operations and advertising costs than they were earning in pursuit of the “First Engine Advantage.”
Did the ending work?
The only ones who got filthy rich were the advertising companies (if they got paid before their clients went bankrupt), and the lucky few who managed to get their companies listed before the bubble burst.
Now you may think that the concept of “First Mover Advantage” is invalid.
But you would be wrong.
The problem is not with this concept, but with the fact that their business models were not profitable in the first place. No one had done their business the way they had on the Internet before, so no one would know how it would turn out. The hype of untold riches seemingly suggested by the hypergrowth of the Internet became too great a temptation until all good reasoning and business practices were ignored or bypassed in favor of “First Mover Advantage.”
But then let’s take a look at AirAsia.
It was already a profitable company in its FIRST YEAR of operations. This is even more remarkable when it is known that the airline AirAsia took over in order to run its business was $10 million in debt before it was acquired!
The low-cost airline model is not a “new and unproven” model. It was already doing very well in Europe in the form of RyanAir and EasyJet, and the founders of AirAsia saw a big, untapped opportunity in Asia for the same type of airline to operate, since none of them were in Asia (they aren’t yet). ) due to barriers to its expansion to this region.
Therefore, AirAsia took a proven model from elsewhere in the travel industry that is pretty much the same everywhere in terms of needs and applied it to a different GEOGRAPHICAL market, making adjustments where necessary. Armed with a proven business model that emphasizes cost savings both in what you offer to your Clients and in your operations, you then set out to create First Mover Advantage as best you could with your very simple and effective tagline that reads : “Now Everyone Can Fly”.
I saw AirAsia billboards in certain strategic places (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). He regularly advertises his low rate in the media (mainly newspapers). Their CEO regularly gives media interviews and other special events to tell AirAsia’s remarkable story of success and growth and they are hailed by the media because their story is sexy and successful.
It has become the pride of Malaysia along with the country’s other world-class airline, MAS (Malaysia Airlines). It also moved quickly to gain a foothold in its neighboring countries by creating partnerships with them in the form of Thai AirAsia and Indonesia AirAsia. It is now flying to parts of China.
But what about your competitors? It has Tiger Airways from Singapore, Jetstar Asia from Australia (owned by Qantas), Nok Air and 1-2-Go from Thailand, and Cebu Pacific from the Philippines, numerous players from India called Kingfisher, SpiceJet, IndiGo, Air India Express, Air Deccan, Premier Air, Air One, Air Dravida and Jagson Airlines, Oasis Hong Kong Airlines from Hong Kong, Viva Macau from Macau and many more for company.
The huge Asian market certainly has room for more than one player in the low-cost airline business. While AirAsia has done very well so far, first mover advantage is clearly its main business strategy that led to crucial partnerships with other countries. The key to first mover advantage is not being first, but being SEEN first, and in this regard we can safely assume that not all of the above airlines “get it” the way AirAsia does.
Here are the key lessons to learn:
1. Make a proven business model in a DIFFERENT location that has your Prospects, but little to no competition. You can discover proven business models made on the Internet World with my Mini-Encyclopedia found at [http://www.internetbizmodels.com/index4.htm]
However, since you’re on the internet, you really only have one location, so you’ll be using those proven business models for your own “niche.” An internet business model that works for one niche (eg the “fitness” niche) will work for another (eg the “romance” or “dog lover” niche).
2. Create first-mover advantage
It can be done without paying for advertising if you know how to use free advertising techniques so that your business is seen all over the world in various media. AirAsia’s founders took full advantage of the media by giving interviews that tell much more about how they operate. They get millions of dollars worth of comprehensive coverage, which costs them nothing except the time they spend giving the interviews. You too can do the same, as I have done many times in the past, including being featured on CNN News!
Of course, there are many other factors besides “First Engine Advantage” in AirAsia’s success story so far despite the current intense competition, but I’ll leave that for another day.
Copyright © Sen Ze
Do you know why a lawyer would leave his career to be an Internet entrepreneur? To find out, go to http://www.internetbizmodels.com