Webonomics stories.

I Find Karma (adam@cs.caltech.edu)
Fri, 6 Feb 1998 04:53:09 -0800

If anyone wants their personal description in the FoRK FaQ changed, I'm
only about 1800 emails behind presently so I can probably get to it
quicker now than I will be once I start studying for my candidacy in
earnest. The current copy of the faq lives at


It also has a link to FoRK's recommended reading list. Thanks to Joe
Barrera and Dan Kohn mostly (though I ordered two books from Amazon
myself), the FoRK slush fund has made $55 so far! I'll get around to
putting in Wayne and Rohit's recent recommendations soon, but I think
the rest of


is up to date. Buy more books! When I bought Webonomics, the
#24-selling book at amazon.com in 1997:


I raved about it on FoRK:


And after he did some egosurfing and discovered my FoRKpost, author Evan
Schwartz added me to his Webonomics mailing list. The latest newsletter
is below; I wonder if the FoRK-archive site would rank in the lowest 1%
or the highest 8% ....

> Here is the breakdown so far of the percentage of test takers to
> receive each rating, along with what each rating means: One star (A
> WASTE OF BITS): 1%; Two stars (FAIR): 15%; Three stars (GOOD): 43%; Four
> stars (VERY GOOD): 33%; Five stars (OUTSTANDING): 8%. Please visit and
> take the test, http://www.webonomics.com/diag.html

------------------------ 8< forwarded stuf 8< ------------------------

Subject: WEBONOMICS STORIES Newsletter Winter'98

A Quarterly Newsletter by Evan I. Schwartz
Winter 1998 Edition

*****The Many Meanings of WEBONOMICS
*****Digital Cash No Longer Doomed. It's Virtually Dead!
*****Despite Brutal Price War, E*Trade Posts Rich Profits
*****Yahoo! Not Just for Directory Anymore
*****Amazon.com Still Way Ahead of BarnesandNoble.com
*****The Lesson from Egghead's Egg-on-Face
*****WEBONOMICS Self-Diagnostic: Most Popular Feature on New Site
*****WEBONOMICS Five-Star Site of the Month
*****Attend the CYBERPOSIUM at Harvard Business School


*****The Many Meanings of WEBONOMICS

I happen to have a neighbor from Mexico City, and when I told her the
title of my book, she laughed hysterically. Then, I received a copy of
the new Spanish translation of the book (published by Deusto in Spain),
and noticed that the title had been completely changed. Finally, my
neighbor pointed out to me that the W and H sounds in Spanish are
interchangeable, as are the B and V sounds. Saying "Webo" is like saying
"huevos," which of course is the Spanish word for eggs. But the slang
meaning of huevos refers to very impressive male genitalia. So
WEBONOMICS, in Spanish, translates into "the study of big balls."

*****Digital Cash No Longer Just Doomed. It's Virtually Dead!

I try to refrain from making predictions, except when they are too easy
to resist. One such prophecy from the book is that so-called digital
cash and the related technology of micropayments will fail to catch on
(See Chapter 6). The sad story of First Virtual Holdings Inc.
illustrates this failure perfectly. Founded in 1994 in the thick of the
outrageously silly credit card-over-the-Internet scare, the San Diego
startup encouraged consumers to open a special account and obtain a
unique passcode, which would enable a secure debit on each time they
made a Net purchase. Only 200,000 people signed up, far less than it
expected, and the company lost a whopping $30 million in venture capital
and public financing before it finally discontinued these digital
payment products in December. Meanwhile, its closest competitor,
CyberCash Inc., is also a financial basket case, losing $21 million in
the first three quarters of 1997 on revenue of $2.4 million. For all the
fun details, please see my story in The Industry Standard, a great new
Internet newsweekly from IDG. (Sign up for your free copy at

***** Despite Brutal Price War, E*Trade Posts Rich Profits

How does E*Trade do it? Within the past few years, dozens of deep
discount stock trading sites have appeared, offering self-service along
the lines of principle #5. This has led to a brutal price war and the
beginning of an exodus of customers away from traditional brokers. It
used to cost $100 to $500 in commissions to buy, say, 1,000 shares of
Intel. E*Trade (http://www.etrade.com) offers a flat $14.95 commission,
while rival Ameritrade has even undercut that, at $8. The secret is not
just low prices but the array of value-added research tools. E*Trade is
now adding 800 new customers per business day, for a current total of
325,000. But the amazing thing is that E*Trade's net profit margins are
a rather juicy and steady 10% of sales. It goes to show how the
self-service model can lead to both higher customer satisfaction and
lower costs. For other "digital middlemen" strategies, see my story in
BusinessWeek's Enterprise edition:

*****Yahoo! Not Just for Directory Anymore

It's a great illustration of principle #7, that brand names matter more
than ever. Yahoo! began as a Web-wide directory service, moving quickly
to establish a famous brand image. And it became profitable -- just
barely, at a few pennies a share -- selling advertising. But its current
business strategy is much bigger than selling ads, and it demonstrates
the reason why Yahoo! was the hottest stock on any exchange in 1997.
Almost every week now, the Silicon Valley company announces another
e-commerce partnership. It's already receiving sponsorship revenue from
sellers of videos, electronic greeting cards, books, want ads,
downloadable software, cars, travel, computers, investment services. The
scarcest commodity on the Web is human attention. Yahoo! receives more
of this commodity than almost anyone else. And it is aggressively
parlaying this stockpile of attention into lucrative slices of just
about every profitable business niche there is on the Web. More than
just a directory, Yahoo! is now an e-shopping guide, a personalized news
service, and a virtual community.

*****Amazon.com Still Way Ahead of BarnesandNoble.com

At the end of the year, bookselling giant Barnes & Noble made a bold
forecast: that it would sell more than $100 million worth of books
online in 1998. Amazon.com, of course, had just come off a year in which
it reported revenue of $148 million, close to half of it in the fourth
quarter alone. Not only is Amazon at least a year or two ahead in terms
of sales, but it keeps introducing new value-added shopping services
that enhance the online book buying experience. You can now see a
personalized recommendation list that changes every day, suggesting
titles that correlate to titles that you have purchased in the past. And
a new feature called "1-click" allows repeat customers to order a title
by pressing the mouse button once, without having to fill out forms with
their card number. So the ever-popular question about when Barnes &
Noble will crush Amazon still remains: not anytime soon.

*****The Lesson from Egghead's Egg-on-Face

Despite the fact that software has always been one of the most natural
and successful products sold online, the Egghead Discount Software chain
didn't get around to launching a Website of its own until last
September. Recently came the news that the company would immediately
shut down all 80 of its physical stores, change its name to Egghead.com
and operate as a Web-only company. The fact that this radical change
happened all at once is proof of how swiftly things are moving in the
Web economy. To really wipe the egg from its face, Egghead will have to
fully take advantage of the simplest and straightforward of the
principles -- #9: Agility rules. But for now, the company is looking
like Humpty Dumpty.

*****The WEBONOMICS Self-Diagnostic: New Feature At New Website

As many of you know, Webonomics.com has an all-new design, thanks to our
friends at Web Zeit in New York (http://www.webzeit.com). The most
popular part of the new site is the Self-Diagnostic, an 18-question,
interactive test that instantly applies all the wisdom in WEBONOMICS to
your Web site. After answering all 18 of the yes/no questions, you see a
one- to five-star rating flashed on the screen. In most cases, you will
also receive a follow-up email, suggesting strategies for improving your
site. Here is the breakdown so far of the percentage of test takers to
receive each rating, along with what each rating means: One star (A
WASTE OF BITS): 1%; Two stars (FAIR): 15%; Three stars (GOOD): 43%; Four
stars (VERY GOOD): 33%; Five stars (OUTSTANDING): 8%. Please visit and
take the test, http://www.webonomics.com/diag.html

*****WEBONOMICS Website of the Month

As you can see, the above results fall pretty much into the classic bell
curve pattern, with very few sites receiving the coveted five-star
rating and even fewer receiving "waste of bits" status, the equivalent
of exile in Internet hell. An interesting site that recently received a
five-star rating is one called HomeLink (http://www.homelink.org). The
site is a brilliant service for people who would like to live in another
part of the world for a while and swap homes with a far-away family. As
you might guess, this requires an incredible amount of information,
participation and trust. The site is translated into about eight
languages and offers a high level of service for people who pay to
subscribe. The design is nothing special. But WEBONOMICS is not about
design; it's about delivering valuable content and services worthy of
people's time and attention. HomeLink takes advantage of nearly all nine
principles of Webonomics, thus becoming the WEBONOMICS Website of the

*****Attend the CYBERPOSIUM at Harvard Business School

An upcoming event at the Harvard Business School should be worth a trip
to Boston in the middle of winter. It's call the "CYBERPOSIUM 1998: The
Net Effect" and it's billed as "an innovative conference designed to
bring together today's top industry leaders and cutting edge academic
research." The conference takes place on February 20-21. I will be
speaking on a panel discussion called "Net Thinking and the New Economy"
on the 21st. For more info and online registration, see
http://www.cyberposium.org. Even if you cannot make the conference,
please join in the online discussion at the site.

A THANK YOU: WEBONOMICS ended up as the #24 overall bestselling book on
Amazon.com for the year 1997. So thanks to everyone who has helped
spread the word. With that in mind, feel free to forward this copy of
WEBONOMICS STORIES to interested colleagues.

Copyright 1998 by Evan I. Schwartz



Even *I* haven't used economic, hypermedia, theory, and hazardous waste
in a single sentence yet...
-- Rohit Khare

[Editor's note: only one Web page besides this one contains those four
words AND the word "xent"... the unfathomable several-megabyte file of
nothing but URLs at


that some guy constructed for a Web filtering project two years ago