Thomas Friedman: Amazon.you (1999)

It was just a couple of months ago that he was talking about how "easy" it was to design a product in the US, prototype it in Taiwan, manufacture it in China, setup customer service in India, get a graphic designer off of 99designs, blah blah blah. (Come to think of it, he's been saying some variation of that for an entire decade...)

International business is easy! Scaling to Amazon levels is easy! (And yes, less of a challenge in 1999 than today, but still: not "easy"...)

How does this hack keep getting work? Bigger question: how many people have been led astray by this pied piper of the globalized/information age?

But, there have been numerous big Internet companies from the first boom/bust who have been displaced by smaller competitors. In fact, it's probably more common than the alternative.

So, was Friedman wrong? Yeah, about these two companies. But, if you're viewing it as an example, and you take a look at a few dozen other comparably valued tech companies of the same age during the same time period, I'm certain you'll find most of them are mere shadows of their former self or long-since defunct.

1998 - 2001 Book store

2003 Redirect to porn-looking domain name

2005 - 2009 Self-(book)publishing site

2009 Content site or directory of links for dating

2011 Redirect to a MFA site

If the site had been sustainable, it would have to grow into a niche or grow in size, the latter which would become Amazon or the likes anyhow.

But some of this is the fault of the form: NYT op-ed columnists have to spit out something at least mildly discussion-worthy and topical, fitting neatly into 800 words, with an authoritative tone befitting the Gray Lady, like clockwork multiple times a week. So all the columns can't be gems, or even fully-baked.

(We're now spoiled by blogs, which can vary in frequency, length, and tone with the topic matter, and speculate and self-correct via rapid iteration with readers and other correspondents.)

To Friedman's credit, he reported Positively-You's failure – despite the boost of NYT coverage – almost exactly a year later:

http://www.nytimes.com/2000/03/03/opinion/foreign-affairs-sa...

Though, the lessons he draws from the failure are a mixed bag, and mostly boil down to: they couldn't afford advertising once their free media wore off.

Bezos's story resonated among the book-buying public, the investment community, and beyond. At its peak, the story was so compelling that he was Time magazine's 1999 "Person of the Year." Months before Bezos earned that particular accolade, however, Friedman detected a flaw in the story. On February 26. 1999. Friedman's column "Amazon.you," asked: What's so special about selling books over the Internet? He introduced Lyle Bowlin, a professor of small business at the University of Northern Iowa and founder of Positively-you.com, a bookselling Web site. Bowlin, his wife, and his daughter ran Positively-you out of their spare bedroom. This arrangement let Positively-you cut its overhead even further than Amazon—according lo Bowlin, down to about $150 a month—and thus to undercut Amazon's prices. Friedman's conclusion? "For about the cost of one share of Amazon.com, you can be Amazon.com."

Not surprisingly, Friedman's column was good for Bowlin's business. Within ten days, Positively-you's business had grown by a factor of about thirty. Bowlin moved its operations out of the spare bedroom and into the formal dining room. Friedman responded with a follow-up column, "KillingGoliath.com," in which he summarized Positively-you's success in a two-word reply directed at the skeptical readers who'd questioned "Amazon.you." No, not those two words. This was, after all, the op-ed page of the New York Times. Friedman's response was a fully capitalized "YOU'RE WRONG."

That's where Scott Rosenberg entered the story. Rosenberg, the managing editor of Salon.com, was one of the skeptical experts to whom Friedman had directed his reply. In "Amazon vs. the Ants," Rosenberg explained that Friedman had captured only half the logic of the online marketplace. That half, the low cost of getting started, certainly allowed hobbyists like Bowlin to launch commercial ventures. The other half, in Rosenberg's view, was what set Amazon apart from Positively-you. He cited two fatal flaws with Positively-you's business model. The first flaw stemmed from scalability. Positively-you's overhead was lower than Amazon's precisely because it was a smaller operation. As business grew, Bowlin would have to relocate yet again, likely to a warehouse for which he might actually have to pay rent. He would also eventually run out of unpaid family membeis and need to hire employees. These costs would drive his overhead up and narrow if not eliminate any cost advantage that he maintained over Amazon. The second flaw dealt with the challenges and the expense of generating traffic comparable to Amazon's. Rosenberg simply assumed that Bowlin couldn't rely upon the substantial free publicity that he received by appearing in Friedman's columns. Rosenberg's conclusion? "If I were Amazon's Jeff Bezos, I wouldn't be too worried."

Lyle Bowlin and Positively-you then proceeded to fall from public view for about a year. They reappeared March 3, 2000, in columns written by Friedman and by Rosenberg. Friedman's "Saga of an Online Pioneer" told of Bowlin's attempt to leverage his early publicity into a real business. He raised $90,000, took a leave from his teaching position, rented office space, hired employees—and went out of business. Friedman considered Positively-you's failure instructive. He cited a number of lessons that he had learned about e-commerce. The two most significant of them were the difficulty of scaling costs and the challenge of driving traffic to a Web site. Rosenberg's column basically said "I told you so," which, of course, he had.

A random guy has an idea about how to take on the giant corporation. He fails when it turns out that ideas are much less important than execution.

Friedman was right for cheering the guy on and admonishing late 90's ecommerce in general. He just got the details wrong.

The migration of large chunks of commerce onto the web has hidden away a lot of the complexity of doing business, which can (as seen in this example) lead to massive errors of judgement due to ignorance. Nobody would imagine that owning a single bookcase stocked with books is equivalent to the operation of a brick and mortar bookstore. Yet here we see Friedman making the same error in comparing amazon with a one man operation.

In a sense they are comparable, and that's one of the things that makes the web so wonderful, it's possible for very low overhead business to exist on the web, and it's possible for them to look very professional. However, underneath they are as different as a home kitchen and a commercial restaurant line. Just because you can cook doesn't mean you can be a chef or run a restaurant. Just because you can pack, label, and ship boxes doesn't mean you can match the logistical capabilities of a company like Amazon.

Certainly many companies tried. Amazon built itself up quite rapidly with a heavy focus on logistics at scale and product fulfillment. A lot of companies mistakenly believed that you can get away with unorganized chaos and just putting together a bunch of guys with a bunch of boxes in a room and you'd get the same results. Those companies were very wrong, many of them have gone out of business.

Amazon, even going back to 1999, has several unique qualities which put it ahead of its competition, not least of which have been melding a high-tech web store on one end to an equally high-tech logistics and fulfillment process on the back end. If you look at a web business and you can't see what's going on with enough fidelity to tell a home maker's kitchen from a commercial restaurant kitchen then you really ought to avoid commenting on the subject.