Is Your Internet Company a Producer or a Leech?

(57 comments)

Today you can hardly throw a rock without hitting an Internet start-up.  Is this a good thing or not?

Remember the late 1990s?  Anything that involved the Internet suddenly had an insane valuation, and rationalism was thrown out the window.  "Hey, let's give away dog food on the internet! We'll make millions!"  Fortunately, in the early 2000s reality started to set in and expectations were reset.

Today it is somewhat of a mixed bag.  There is real value provided by the Internet, but I am concerned that some startups are merely cashing in on hype, while adding more abstraction between producers and consumers.

An economically optimal Internet company will directly help producers be more efficient at their production. Is a Big Data service providing more insight about where to focus resources?  Is a SaaS (Software as a Service) offering enabling its workers to spend time more optimally?

A leech will find new ways to advertise or shop.  We've all seen them, and probably used them.  The local deals sites.  The penny auctions.  If something sounds too good to be true, if of course is.  Local deals sites have garnered a huge amount of hype and many users.  They do save their users money, so that is no surprise.  However, the businesses get only a small fraction of the procedes, and an even tinier fraction of the actual value of the good or service.  This is all in the hopes that customers will come back and pay full price.  And most of them won't.  So those operating the local deals sites make quite a lot of money for relatively little value add to the economy as a whole.  Penny auctions appear to offer iPads for $50 or some such sillyness, but they get 60 cents every time someone bids to increase the price 1 cent.  No wonder they can afford to do that!  Complete gimmickery.  Most of their customers will end up holding the bag.

There are a number of Internet companies which add value to Information Technology departments, but some are relatively shallow build-outs on top of free open source software.

If you're adding real value, keep up the good work.  If not, please re-think what you're doing, so we can all have a shorter workweek!

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