By Charles Assisi

There's this ambitious man with an insane idea. He’s built a crazy website, Buy.com, and put a virtual robot on it with a single-point agenda. Tracks prices on other sites that sell whatever he sells, then gets back and undercuts those prices. It’s not e-commerce. It’s k-commerce " Kamikaze commerce" and it defies any business sense.

It works like this. Visitors are promised prices lower than that of any other retailer in the business. If that means selling at below cost with a negative gross margin, so be it. The CEO of Buy.com calls it optometry economics. It means that in the end, what matters are the `eyeballs'. De-jargonised, the quantum of people that visit a website. The more , the better the company’s chances of squeezing some kind of revenues out of them. It may be either in the form of advertising from companies attracted by the audiences or on the back of margins that accrue when a transaction is conducted on-line.

Either which ways, it is a volumes game and the plan cannot work till there are numbers.

What makes the plan bizzare is that all of the products on sale are loss-leaders. Equally perplexing is the fact that Buy.com has a single source purchasing strategy. All of its computer related peripherals come from Ingram Micro. Conventional wisdom dictates multiple sources of product supply. Else, the danger of a supply chain disruption is very real.

The arrangement with Ingram has left physical world retailers upset because Ingram offers the best prices to Buy.com. Ingram, however, asserts that Buy.com receives low prices because it buys in volume and because its electronic efficiencies make doing business with the company inexpensive.

The trump card: Technology. Most on-line retailers are aware of the kind of robots Buy.com has deployed. They, in turn, have their own software which deny these robots access. Buy.coms’ robot, however, till date, has managed to remain invisible.

The markets don’t mind
While the markets haven’t had an opportunity to value Buy.com, there are models which have been clocking losses and have been rewarded in ample measure by a market gambling on future revenue streams.

Consider this. Geocities was in the business of offering free web pages. Immensely popular with surfers, it clocked revenues of $18 million, took in $19 million as losses, managed to maintain a market cap of $3 billion and was taken over by Yahoo for $5 billion.

Dig a little deeper and it gets a lot more confusing. Take the three largest pure Net play companies " AOL, Yahoo and Amazon, for instance. AOL has a P/E of 400 and Yahoo commands 1,500x. Amazon’s P/E is infinite because the company is still to get into the black.

Analysts justify these valuations on the back of arguments like lifetime value of a customer. Pretty much the same argument Buy.com uses to justify its insanity.

It is precisely these models and valuations that drive home a point. That in the Internet economy, products do not compete anymore, business models and tighter supply chains do.

It translates into ruthless pricing and cut-throat margins. Because on the Internet, micro-economic models of perfect competition work perfectly, explains Deutsche Bank Research chief economist , Daniel Yardini in a recent paper on Internet economy. In the idealised model, there are no barriers to entry, no protection from failure for unprofitable firms, and everyone (consumers and producers) have easy and free access to all information. What this means for organisations and industries is extreme change. Not the insane kind of change which Buy.com promises, but more sane and compelling ones that have succeeded.

How personal computer (PC) makers are restructuring in the US, offering crucial insights.

Demolish fondly held beliefs
eMachines caters to a market that looks for sub-$600 PCs. By end ’99, Cambridge Technology Partners (CPT), a management consultancy firm, projects the firm will have shipped 1.7 million units to earn $1.1 billion in revenues. That means, it will have overtaken the others and will be in second place for marketshare just behind IBM.

What makes it astounding is the fact that if eMachines actually pulls it off, it will be on the back of only 20 employees. CPT says, "eMachines does not invent the technology, does not assemble the product, and does not distribute it to customers. What eMachines does is efficiently acquire customers."

It is the outcome of a lesson the PC industry learnt before the others did. While Compaq worked at component standardisation, Dell pioneered rapid configuration and customization, while vendors like eMachine built a network of partners to leverage their collective skills and assets into a seamless value chain.

In the conventional sense, the model built by eMachine is that of a fully integrated manufacturer. In the virtual world, however, such integration is made possible by collaboration between various entities, each fully equipped in their areas of competence. More importantly, they are rewarded for the levels of competence they achieve.

Therefore, while eMachine rakes in the profit for expending its energies into acquiring customers and building a brand, Tech Data and Solectron who assemble the machines are rewarded for their low-cost assembly skills. These two don’t supply just to eMachines, but to a whole lot of other companies whose explicit focus is on marketing. To that extent, Tech and Solectron minimize their risks by achieving economies of scale without having to tinker around with other functions where they lack skills.

The model while theoretically possible in the pre-Internet world, would not have been economically feasible. Primarily because the Internet provides an extremely low cost network built on a common protocol that drastically drives down the cost of transaction and coordination.

Translated, it means eMachines achieved in six months what took Compaq three years without a dime spent on R&D, production or distribution related assets.

Competition out, Co-opetition in
Co-opetition is attributed to Novell founder Ray Noorda. He used the term to describe a partnership in which companies temporarily or permanently cooperate in some areas while remaining competitors in others.

Take the case of Sun Microsystems, IBM, Netscape, Oracle and Novell. Together, they’ve spent millions of dollars in research trying to perfect and promote Java which was originally introduced by Sun in 1995. Currently, Java is used to animate web pages. Eventually though, research is leading to Java being used to write any kind of computer program.

In the long run therefore, it made sense for all of them to pool in their resources. Never mind the fact that even as they cooperate, they compete. Sun, for instance, with IBM in software, hardware and networking services and with Intel in microprocessors. That hasn’t stopped IBM from deploying 2,400 software developers in 24 countries working to improve Java more than Sun.

IBM expects the money it is investing to come back when it starts selling Java-based software and consulting services to customers aggressively. Sun, on the other hand, is convinced that growth of Java applications will fuel demand for its servers, Oracle database programs and Netscape browsers.

But there’s a danger in such alliances. It creates the monopolies of unparalleled power. Microsoft and Intel are a case in point. Faster chips from Intel complement each new launch of more powerful software from Microsoft. A perfectly symbiotic relationship has worked well for all these years.

However, there are critics of such models who argue that it is the outcome of weakness and that it will not be able to withstand strain. There are indications that the Intel-Microsoft alliance is under pressure and may waver. Enough fodder for critics. Whatever the case may be, in the foreseeable future such models will be in vogue and more of these alliances can be expected. Perhaps, the outcome of compulsions more than anything else.

Where the danger lies
Mega corporations are watching these changes unfold. And they are trying their damnedest best to incorporate these changes into their work ethic. Like Proctor & Gamble (P&G) did when it launched a woman’s beauty site called Reflect.com " an entirely new brand available online. Women can order lipstick and foundation manufactured to their specifications.

Fortune had this to say about the venture: Coming from a culture so rigid that clothing stores in Cincinnati used to automatically steer P&G employees directly to the rack of navy-blue suits, it’s an impressive undertaking.

The attempt was made because P&G reckoned selling its other more famous brands like Tide or Head & Shoulders on-line would attract a backlash from traditional retailers. Hence, Reflect.com which would not retail in the physical world.

But running in the Internet world was a different ball game and issues like channel conflict kept plaguing the founders. Till there was only one option left. Severe all ties between both companies to the extent that employees with Reflect.com were not allowed the option of getting back to P&G. Reflect had to stand on its own and slug it out.

A hard lesson had been learnt. Let go.