New Economy will not die alongside dot.bombs

The growing number of corpses does not mean the New Economy has died with them, argues Rob Corder. The New Economy is defined by something else entirely.

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By  Rob Corder Published  January 4, 2001

When pundits first started talking about the ‘New Economy,’ it was described as a phenomenon where startups ruled the world, trampling century old multinationals underfoot.

Those same pundits don’t see it that way now. They still talk about a New Economy, but a clear definition of the difference between old and new does not seem to have emerged.

So let me try to clear up the confusion.

The gardener at my villa is on a nice little earner. In the morning, like many other private gardeners in the UAE, he works for the Municipality. In the afternoon, he tends to my lawn.

But there’s more. My gardener is such a good gardener, I recommended him to two friends and he now does their houses too.

And it doesn’t end there. His viral marketing strategy has been so successful that he has picked up several other clients in the central Sharjah area. So many, in fact, that he has had to develop a network of other [Municipality] gardeners to cope with his workload. These gardeners are paid directly by their customers, but my gardener gets a cut from all of them.

Nice work if you can get it.

Now, I’m not going to suggest that my gardener is going to be the next Jeff Bezos, but his startup venture has doubled in size over the past few months and he’s making a tidy profit by using an industry standard network (word of mouth) to expand an empire.

The question now is, can my gardener’s empire survive or is it, like last year’s graveyard of corpses, going to crumble just as it looks set to take over the world?

The answer lies in the same economic principles that have guided the world of business for centuries: does he deliver a service that people are prepared to pay for?

It’s a question that the 210 Internet companies that went belly-up in 2000 (according to research) just didn’t seem to ask themselves. Certainly the venture capitalists that lost $1.5 billion that they invested into these dot.bombs didn’t come up with the right answers.

My guess is that my gardener’s empire will gradually fall apart. As his network stretches further from its hub, his control over the business at the fringes is almost zero. Quality drops, customers get unhappy, reputations get tarnished and business evaporates.

You see, it is the quality of products, people and service that separate winners from losers in the world of business and that applies in both the old economy and the new. If you have a brilliant people, products and services, the Internet allows you to touch millions of customers with those qualities and an irresistible empire like can be created in months. But if your people, products and service stink on the Internet, you are exposed to thousands of competitors that will kill you in days.

So, while the same economic pressures that affect my gardener and a startup are fundamentally the same, the speed at which they come to bear are very different.

It is this speed, and perhaps nothing else, that marks the difference between the old economy and the new. Everything else, the technology, the Internet, the venture capital, the IPOs are just contributing elements fuelling that speed.

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