There has been an increase in PC sales in the UK as more and more of us join the online world. We seem to be spending more time online, spending more money and discovering new ways of using the net for fun and games.
Yet despite these healthy signs of a growing internet community, investors seem to have lost their appetite for net startups. They appear to have arrived at the conclusion that internet investments are only safe for large companies which can take a long-term view (like banks, building societies or retailers). This should mean that, temporarily at least, you will not see many innovative new websites, as the entrepreneurial guys and girls with good ideas will not be able to raise money for their implementation any time soon. Net entrepreneurs were expected to lie low and wait for the market to turn before raising new finance.
Strangely enough, though, that does not seem to be the case. On both sides of the Atlantic innovation is thriving, with more lateral thinking going on now than over the last two years, when the height of creativity was to think up a new category to sell online and launch yet another catfood.com site.
The most interesting development is clearly Napster, with its facility to share music files amongst the community of Napsterians. Napster provides the software, while the users at home provide the music. Started on a shoestring, with practically no advertising budget, Napster has grown to nine million users in just a few months. Its recent copyright troubles notwithstanding, Napster has shown that what we want from the net is the ability to connect to each other, not necessarily to Virgin Records or HMV, thank you very much.
Napster falls into something that I call the c2c category (consumer-to-consumer). This type of business (yes, it is still a business), in which someone provides a key tool for the customers to use amongst themselves and just gives it away simply taking a small toll in the form of sponsorship, seems to work fantastically well. It doesn't need any advertising or marketing budget, as all the marketing is by word of mouth (therefore cheap and affordable to any startup).
I remember when Hotmail launched in the States, with an ad budget of under $50,000 (an amount you would spend on only one TV ad today). It grew to 11 million users in 15 months, relying solely on the fact that it was a tool that consumers were keen to share among friends and family, in the process doing all Hotmail's distribution and marketing legwork.
Again, it was a pure c2c application, where the small toll was an ad banner on the top, annoying but not beyond our acceptance.
Hotmail also brought home the fact that more than 90 per cent of time online is spent on e-mail, and only a small amount of time is spent visiting websites, shopping or downloading software. Of course, we do all these things, but not all day, every day - perhaps when we feel in need of some retail therapy while our MP3 files downloads. By contrast, some of us check our e-mails as much as 20 times per day, if not more, and all day and all night long, we communicate, communicate and communicate. So however you slice it, our online behaviour is in the overwhelmingly related to communication with other people, which happens to be c2c at its purest.
Other c2c business models are communications tools like ICQ (chat for those cognitively challenged people who couldn't hack IRC), an easy-to-use tool that again has spread via word of mouth with an ad budget of a couple of Israeli shekels. Many happy hours are wasted on ICQ or similar products which have a small advertising toll included, but basically are free for people to use with their family and mates.
Recent months have seen the arrival in the United States (and slowly here in the UK) of the grand-daughter of Hotmail, which is free internet access with e-mail included, but also with the nice gift of having your net phone calls paid for by someone else. Since that is a more appealing offer than just free web-based e-mail, many of the totally free access providers have grown even faster than Hotmail, making one of them the second biggest internet service provider in the US after AOL, in a quarter of the time it took AOL to build its audience. Again it was word-of-mouth marketing that did the job, and not a gigantic advertising budget.
Getting your time online paid for by somebody else is just too good to pass up, and I expect a massive growth of this format in the UK over the next few months, supporting my theory that the c2c business model is due to take over the internet industry.
It proves that lateral thinking and an understanding of what we really want to do online pays better than selling us pet food via a 56K modem. So my bet for the rest of the year would be that the entrepreneurs will embrace the concept of c2c and seek to develop tools for the consumer as communicator. The marketing of those tools can be accomplished via word of mouth and therefore will not require raising millions of pounds for silly TV ad campaigns.
Those who understand c2c will be the big winners, getting our mindshare, building the brands for the future, bringing fun and truly useful applications to all of us.
This medium has only just begun. The consumers (or communicators of today) are waiting for cool c2c tools to come their way. Entrepreneurs should leave the b2c and b2b concepts to the big corporations with their big ad budgets, and focus on innovating in an area that does not require millions for ad campaigns. That way the net will continue to be cool and a source of enjoyment (and employment) for many years to come.