Is the new economy really new ?

When you read newspapers, listen to the radio or watch TV, the Internet and all new technologies seem to be a great revolution in the social and economic life in the world. Young companies which use new technologies to make profit are called start-ups. Do they change economic methods and business rules ?

On the one hand, the new economy has changed the way to give information, service and to sell products.
The Internet speeds up everything. With very few means, a start-up can create a web-site fast. A few days later, it receives millions dollars from capital-risker. On the web, you can read the last news or order an album in five minutes. With the on-line brokers, you can sell or buy shares on line.
The Internet allows companies to compare prices of all retailers of the world easily. So an American company can prefer to buy to a Japanese retailer instead of an American retailer to cut its costs. Thus, Volkswagen hopes to save $100 par car.
On-line supermarkets (Amazon.com, Buy.com...) avoid the crowd and the queues of the real supermarkets. On their web-sites, the customer makes his selection of products. Then, he pays, either on line by credit card, or on the delivery. All products can be bought via Internet : travels, computers, toys, foods, CDs, books...

On the other hand, the new economy has not changed the way to earn money.
Most start-ups like Yahoo!, Nomade.fr or Altavista apply an old economic method. Companies pay a start-up to put advertising banners on its web-site. The more people visit its web-site, the more companies give money to it. So the most income of this sort of start-up comes from advertising. This economic principle has been applied for more than forty years by radio stations and TV channels.
To attract web surfer on its web-site, a start-up needs to be well-known. To do this, start-ups apply the traditional companies method once more. They let people know their web-site as a brand. They diffuse advertising on other web-sites, on radio stations and even on TV channels. The aim is to be as well-known as possible.
In economic terms, on-line supermarkets work like real supermarkets. They buy products from retailer and sell them at a higher price. These stat-ups have taken again the idea of the mail-order : their web-sites look like catalogues where the customer may select items.

Currently, more and more firms of the traditional economy make their own sites.
It seems that they have better results than start-ups. They have lower marketing costs (52% against 90%) and better fidelity rates (26% against 17%). These firms use their fame with the aim of attracting people. To find their web-site, you have just to take their name and to add ".com". For example, FNAC, a French seller of cultural goods, created its web-site called "fnac.com". The purpose of the FNAC is to compete the American start-up Amazon, which opened his French site "amazon.fr".
Moreover, these traditional firms have a greater experience than the young start-ups. They are used to serving their customers from the start to the end. Some start-ups register sells but forget to manage their stocks. For example, the firm EToys, which sell toys on the web, was overflowed by the great number of orders before Christmas 1999. So, they were not able to deliver all toys for the 25th of december. Traditionnal firms know such problem and can face up to it more easily.

The Internet is a new type of media used by the start-ups to give services and sell products. The web is easy, fast and useful. So the start-ups make web-sites to compete traditional companies. However, the economic methods and business rules in the new economy are the same as in the traditional one. As a result, traditional firms have their own web-site to compete start-ups. Which firms will win the "virtual" economic war ? Old ones or new ones ? Wait and see...

Author : Julien L.
Last update : June 2005