Chapter 2: The World's Grubbiest Club: Internet Entrepreneurs

"The guy with the Web site." That's how my friends introduce me at parties. I guess that says something about what a rich, multifaceted, textured personality I've developed by spending 17 out of my 35 years at MIT. Yeah. Anyway, the response from my new acquaintances is invariably the same: "How are you going to make money off your Web site?"

If they'd been told Id spent $15 on a copy of The Forsyte Saga, they wouldn't ask how I intended to make money off that. If they knew Id splurged for a $5,000 Viking stove, they wouldn't ask if I was going to start charging my brunch guests $5 each. If I told them I dropped $27,000 on a Toyota minivan, they wouldn't ask if I was going to charge my dog $ 10 for every trip.

Web publishing can cost less than any of these things; why does everyone assume that it has to make money? I did not set up my site to make money. I set up my, site so that my friend Michael at Stanford could see the slides I took while driving from Boston to Alaska and back. It turns out that my site has not made money. Yet I do not consider my site a failure. My friend Michael at Stanford can look at my slides anytime he wants to by typing http://photo. net/samantha/.

I'm not saying that this should be everyone's goal. After all, you might not know my friend Michael at Stanford. Or, if you do know him, you might not like him. But keep in mind that if you are destined to lose money on your site, it is much less humiliating when you can say that making money wasn't the idea.

For those who've forgotten that greed is one of the sevendeadly sins, I've written this chapter about how to make money on the Internet.

First, let's ask why we think that there is money to be made off the Internet. Karl Taylor Compton, former president of MIT, said it best in 1938: "In recent times, modern science has developed to give mankind, for the first time in the history of the human race, a way of securing a more abundant life which does not simply consist in taking away from someone else."

I believe that computers will secure a more abundant life for the human race. Mine would not have been a controversial statement in 1960, when IBM was just beginning to saturate corporate America with mainframes. It was obvious to everyone in 1960 that computers were going to usher in a new Age of Leisure. In 1998, my statement seems absurd. Computers have been around for 50 years now without having done much for the average person. In fact, it is a commonplace among economists that computers have reduced the productivity of American business.

Computers by themselves are a liability. Getting information into and out of them is so expensive that using paper and file cabinets is probably less trouble. Sure, in 1998 we don't see too many people manually writing payroll checks or calculating artillery shell trajectories. But most people get through most parts of their day without relying on a computer. Why don't I think that this lifestyle will be possible in another 50 years? Because of the network.

THE STEAM ENGINE AND THE RAILROAD

James Watt's 1765 steam engine didn't change your life unless you were pumping water out of coal mines. A steam-powered factory could have produced enough goods to supply an entire nation, but since there was no way to distribute that output, there wasn't much point in building such a factory. With the railroad came the ability to serve a national market with one factory. Factories grew enormous and pulled people out of the countryside to work inside the Satanic Mills. It was the mounting of the steam engine on rails and the spreading of railroads across nations that transformed society, not the steam engine, per se. The computer is the steam engine of our times; the network is the railroad.

With a ubiquitous network, all of the information that you consume will arrive in a machine-readable form. If the information is structured appropriately, as with standards like Electronic Document Interchange (EDI), it will arrive in a form that is immediately applicable to your internal databases without human intervention. Your computer will truly be able to handle routine transactions on your behalf.

When the network infrastructure is powerful enough for most houses to enjoy video-rate bandwidth, the computer will be able to support your collaboration with other people. If you had TV-quality video and audio links to your collaborators and a shared workspace, you wouldn't have to commute to work or fly around from city to city so much. Though I don't like to predict the demise of a 3,000-year-old trend toward urbanization, it indeed seems possible that collaboration tools might enable some people to move out to the country yet still keep their urban jobs.

The Internet will change society. Some people will get rich off that change. I guess you might as well be one of them. Probably your safest bet is to figure out where all those telecommuters are going to end up living and open a little mall there with a McDonalds, MicroCenter, and Trader Joe's. If you're a nerd, then you'll probably make the most money building intranet sites that sit inside corporate firewalls and let workers collaborate in new ways. However, since there is such a popular obsession with making money from public Web sites, let's start by considering how to turn hits into revenue.

FOUR WAYS TO MAKE MONEY FROM YOUR PUBLIC SITE

The previous chapter divided all Web sites into either magazine-like Web Publishing or Web-based Services. That is a useful division for thinking about whether off-the-shelf technology is going to be helpful to build a site, but when estimating the profit potential of a consumer-oriented Web site, I think one needs a separate set of four categories. If you are starting a new site for the purpose of making money, it is worth considering which categories your planned Web operations fall into and how hard it is to make money in those categories.

Here are the categories (see Figures 2-1 through 2-4):

1 Sites that provide traditional information. This is the type of site that requires the least imagination but also the most capital investment. Find bodies of information that consumers in the 1980s bought offline and sell them online. This includes movies/videos/television, newspapers, magazines, weather reports, and stock market information. Revenue comes from...