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Why Web convergence shouldn't limit choice

As big businesses on and off the Web gobble each other up faster and faster, consumers understandably worry about decreasing choice and increasing prices.

But that's not what they'll find - at least online - says Mark Layton, an expert in the technology business.

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Even as more traditional physical stores swallow up agile cybercompanies, the Internet's low hurdles to starting new businesses will provide many new competitors.

"People are going to have more choice and more selection than they have ever had," says Mr. Layton, president of Daisytek International, and its subsidiary Pfsweb, which provides order processing, delivery, and back-office services to small Internet start-ups.

"The low price of entry keeps monopolies honest," says Miles Spencer, founder and co-host of Money Hunt, a public-television program that links entrepreneurs with venture capital.

"To the extent that consumers are not fulfilled, someone else will come along and take advantage of the low barriers to entry and offer consumers what they want," says Layton.

By 2003, he estimates, 25 percent of sales will happen electronically.

The number of new Internet start-ups created every day far exceeds the number bought out, says Stan Feldman, a professor in the finance department at Bentley College in Waltham, Mass.

Still, the pace of dot-com mergers is accelerating: They're up 166 percent over last year to more than 1,214 through Dec. 8, according to Thomson Financial Securities Data in Newark, N.J.

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That adds up to almost $64.5 billion so far this year, nearly three times last year's pace.

Increasingly, the trend is toward old-fashioned bricks-and-mortar businesses getting together with their agile online counterparts.

"A lot of the bricks-and-mortar guys sat on the sidelines learning" during the beginning of the Internet boom, says Harry Tforzheimer, who runs the Mountain View, Calif., office of Edelman Public Relations Worldwide.

Now they're picking the winners and buying them. Columbia House snapped up popular online music retailer CDNow Inc.; Excite@Home, a division of AT&T, acquired iMall, another online retailer; and classified ad giant acquired used-car upstart AutoConnect.

Sometimes, with the huge stock prices of companies like America Online or Yahoo!, mergers happens the other way around.

Online computer retailer Onsale Inc. merged with bricks-and-mortar software dealer Inc. Money-losing Internet auto broker Auto Web acquired Automotive Information Systems, a 20-year-old company that sells competitive information to automakers.

And these are just a few examples.

In any case, Mr. Tforzheimer expects mergers to increase and a shakeout to rock the Internet industry in the next year. "The first shakeout is there won't be a created every two minutes. Why do you need hundreds of search sites when people [only use] 15 to 20?" he says.

"Companies that don't acquire will be acquired," says Larraine Segil, a nationally known consultant and author of the 1996 book "Intelligent Business Alliances" (Times Business).

What's driving the mergers is fear, says Layton. For traditional physical businesses, it's fear that they can never catch up to the innovation the cybercompanies generate. "So they buy a ticket on the e-commerce train."

Meanwhile "the e-commerce guys are saying 'When have we ever been able to lose money at this level and yet raise money at this level? We'd better get out while we can,' " he says.

But record numbers of mergers may actually benefit consumers in the form of better customer service. "Consumers are looking for total experience that's better than regular commerce in every way," says Layton.

The big problem for consumers on the Internet has been with support after they buy, for example, Mr. Spencer says. Sometimes products don't arrive at all, aren't right, or are damaged, and customer service at small start-ups, at best, is often inadequately staffed to address such complaints.

As traditional stores gobble up fast, nimble Internet retailers, consumers may benefit from better customer service, and more reliable delivery.

These so-called "clicks-and-mortar" businesses will increasingly connect consumers directly with suppliers, cutting out middlemen says Ms. Segil.

Today Internet businesses can accomplish in six months what companies used to do in two years. So any company looking to buy them may be getting two years worth of accomplishments from a six-month-old dot-com.

For the time being, consumers can still find almost everything under the sun online. Given the present intense level of competition on the Web, many goods are sold at rock-bottom prices.

The question is: Will the increasing number of takeovers of Internet start-ups take away from the unique character of the Web?

(c) Copyright 1999. The Christian Science Publishing Society

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