Digital Darwinism: 7 Breakthrough Business Strategies for Surviving in the Cultural Web Economy

Overview

Using entertaining, in-depth case studies of companies that have used surprising strategies to win customer loyalty and turn a profit, Schwartz explores why Web-based businesses succeed or fail and shows why more traditional businesses need to evolve along with the Web - or risk going the way of the dinosaurs. Drawing lessons from well-known consumer ventures such as Priceline and E Trade, as well as business-to-business start-ups such as Instill and Band-X, Schwartz defines the...
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Overview

Using entertaining, in-depth case studies of companies that have used surprising strategies to win customer loyalty and turn a profit, Schwartz explores why Web-based businesses succeed or fail and shows why more traditional businesses need to evolve along with the Web - or risk going the way of the dinosaurs. Drawing lessons from well-known consumer ventures such as Priceline and E Trade, as well as business-to-business start-ups such as Instill and Band-X, Schwartz defines the pressing issues for all companies.
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Editorial Reviews

From The Critics
Anton Chekhov suggested that when writers finish a story, they should tear off the first and last pages. Readers, he believed, shouldn't have to slog through the gimmicks the writer used to get into and out of the story. Had Evan Schwartz followed Chekhov's advice, he might have spared his readers a misinterpretation of Darwin that makes his otherwise sound book feel like a gimmick.

In the opening paragraph of Digital Darwinism, Schwartz erroneously attributes to Darwin the ideas that organisms must "learn with whom to cooperate and with whom to compete" and must "develop new skills and traits or perish." The problem with the first assertion is that the traits on which Darwin focused are inherited, not learned.

As for the second, sharks have developed no new skills in 400 million years. Nor have they needed any. They evolved a good way to eat, and since then have had the field pretty much to themselves. No other fish has tried to copy the shark in order to put out a more efficient version.

In the business world, of course, copying others can be essential. One could argue that Bill Gates has made it his life's work.

Fortunately for the reader, Schwartz confines his Darwinian musings almost entirely to the introduction and epilogue. It's also fortunate that he knows much more about the Internet than he does about natural selection.

He illustrates an examination of dynamic pricing, for example, with well-chosen anecdotes about Band-X, a market for data-network capacity; Priceline.com, which offers customers a way to pick up leftover airline seats; and eBay, the now-legendary auction site that began as a way to help the owner's girlfriend trade Pez dispensers.

Schwartz has spoken with the right people, and his clear prose navigates well the complex conditions of the Web. As he details the concepts to which the Web has given new life – affiliate marketing, bundling, customization – Schwartz shows what's necessary to take a business to the top.

He also shows how hard it will be to keep it there. More than any other quality, he emphasizes constant vigilance. Baseball great Satchell Paige told those who sought to duplicate his longevity, "Don't look back – someone might be gaining on you." Schwartz' message is colder: On the Web, someone is always gaining on you. Watch them, or die.

Code Breaking: A History and Explanation by Rudolf Kippenhahn (Overlook Press, $28)
Adetailed, if disjointed, series of code-breaking escapades, ranging from the work of such famous cryptographers as Julius Caesar, Thomas Jefferson and Edgar Allen Poe to the modern era of computer- mediated encryption.

Smart Business: How Knowledge Communities Can Revolutionize Your Company by Dr. Jim Botkin (Free Press, $26)
If knowledge is power, knowledge withheld is power, too. Smart Business explores the source of a company's knowledge base, and finds it at every level in the chain of command.

Civic Space/Cyberspace: The American Public Library in the Information Age by Redmond Kathleen Molz and Phyllis Dain (MIT Press, $30)
American libraries get more than a billion "hits" a year from a public that, as this book explains, increasingly needs "organizers and navigators, consultants and guides to the new information age."

Business 2.0
...[H]e carefully avoids irrational exuberance, distinguishing between those overvalued companies whose value is based on an often misunderstood and exaggerated potential, and those valued rationally — the old-fashioned way — by the size and growth of their earnings.
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Product Details

  • ISBN-13: 9780767903332
  • Publisher: Random House, Incorporated
  • Publication date: 6/8/1999
  • Edition description: 1st ed
  • Edition number: 1
  • Pages: 227
  • Product dimensions: 6.49 (w) x 9.54 (h) x 0.90 (d)

Meet the Author

Evan I. Schwartz writes for Business 2.0, the New York Times, and Wired magazine and is a former editor at Business Week. His first book, Webonomics, was a finalist for the Booz-Allen Global Business Book Award. Both Webonomics and Digital Darwinism were finalists for the Computer Press Award. A featured speaker at numerous major corporations and conferences, he lives in Brookline, Massachusetts.
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Read an Excerpt

Introduction: Frenetic Evolution

We will now discuss, in little more detail, the struggle for existence.
—Charles Darwin, The Origin of Species


When Charles Darwin presented his theory of evolution in 1859, he described a world in which only the fittest survive, a world in which species must constantly adapt to their changing environment or face extinction, a world in which organisms must continue to grow in a profitable direction and develop new skills and traits or perish, a world in which life-forms must look around and learn with whom to cooperate and with whom to compete, a world in which the surrounding conditions for life can, suddenly and drastically, improve or take a turn for the worse. Darwin even wrote that we are all "bound together in a complex web of relations."

This lexicon applies unmistakably to the digital business landscape now flourishing and mutating across the World Wide Web. "Many more individuals of each species are born than can possibly survive," Darwin wrote. "Consequently, there is a frequently recurring struggle for existence, and it follows that any being, if it varies however slightly in any manner profitable to itself under the complex conditions of life, will have a better chance of surviving, and thus be naturally selected." And just as Darwin observed that competition for food and resources leads to principles of natural evolution, we can see that brutal market forces in the increasingly cutthroat Web economy lead to new strategies for economic survival.

Indeed, the Web is in the throes of an especially frenetic evolution. As an environment that can sustain economic life, the Web has givenbirth to entirely new species of start-ups and enterprises that could not have existed previously. These new economic organisms are, in turn, forcing older corporate species to evolve in new ways, producing new business models and characteristics necessary for their own survival.

Still, evolution takes time to manifest itself in a significant way. In the natural world, often it takes thousands of years for major or even slight changes to become apparent. The Web may be a universe of digital information in which companies can change their appearance and switch their survival plans in a matter of weeks, but evolution writ large still requires a more significant time frame to produce outcomes, results, effects, and lessons learned the hard way.

We are already moving beyond the commercial Web's era as a marshland for single-cell organisms. Corporate creatures founded on one simple, untested idea—selling a certain product or service online, for instance—have been happily splashing about in the early Web's primordial soup, perhaps not realizing that they are really just simmering themselves before drowning or becoming somebody else's lunch. At the same time, their rivals are clawing their way to prosperity, developing higher forms of intelligence, and inventing breakthrough business tactics especially suited to their swiftly shifting surroundings.

What will the Web economy look like as evolution escalates and we witness real conflicts, surprises, new developmental stages, and turning points?

Will it be uncertain? Absolutely.

Unpredictable? Most assuredly.

Unusual? Rather so.

Unruly? Quite often.

Unsustainable? It has been thus far.

Uncluttered? Far from it.

Undramatic? No chance.

Unsafe? Bloody awful.

Unrewarding? Not if you listen closely.


In the Beginning

In various forms, the Internet has existed since the late 1960s. But the emergence of the World Wide Web transformed the Internet's stark environment of drab databases into a fertile, living-color infosphere inhabited by vast numbers of consumers and companies. While the Web was conceived in 1989 as a scientific data-sharing tool, the commercial browser software that appeared beginning in 1993 provided the first inkling that far more could be accomplished here. And as a serious field of endeavor, Web commerce came into being in 1995, the year Netscape's stock went public in a bit bang, if you will, that ignited interest and sparked new forms of economic life around the world.

Since then, the Web has evolved with mind-numbing quickness, achieving mass acceptance faster than any other technology in modern history. It has made its way into the homes of one-third of the U.S. population and ended up in the hands of 100 million users worldwide in a shorter span of time than even personal computers managed to accomplish the same feat. It has infiltrated people's daily lives faster than the telephone or the fax machine, faster than radio or television, faster than the automobile, even faster than electricity itself.

At first the Web was an unformed mass of frivolous expression, free publications, corporate brochures, and piles of pornography. People treated it as if they were early cave dwellers witnessing fire for the first time. They were simply afraid of it—afraid to send their credit card numbers over it, afraid to trust any information on it, afraid that their privacy would be obliterated, afraid to let their kids near it. As a result, virtually all of the original predictions and forecasts for actually doing business on this untested terrain were, in retrospect, quite humble.

But looking back, its evolution seemed to progress in a logical order. Fear naturally gave way to experimentation. High-tech early adopters began downloading software and researching new computer and networking gear. They began placing real orders for PCs and Internet traffic-routing hardware that soon added up to millions of dollars per day in revenue for some companies. Physical software stores closed up shop and reopened their doors on the Web, while other computer makers scrambled to alter their business models to sell online. In the $500-billion computer and software industry, buying through traditional channels may soon become the exception.

Successful experimentation soon led to confidence. Frequent travelers attempted to book their airline flights on the Web's numerous new online reservation systems. They entered their credit card numbers and reliably received their tickets. The airlines then began encouraging online booking as a cost-saving move, providing frequent flier points as special incentives. Within several short years, about 5 percent of the massive $126 billion in domestically booked travel reservations were being sold online. And that percentage is expected to be as high as 25 percent just a few years into the new millennium.

Confidence inspired trust. What first captured the public's imagination was online sales of books and CDs. Literature and music are in many ways the repositories of culture itself, so when people began shopping for these items on the Web, the digital commerce landscape began to radiate a shiny new aura. With online sales of books and music already surpassing $1 billion annually, those industries have begun to restructure themselves for the day when an even more significant share of their business would be transacted this way.

Trust led to faith. The public began taking seriously the product and pricing information presented on the Web. And so it became a primary research forum for big-ticket purchases—from cars, to homes, to corporate procurement—transactions that often ended up being completed offline. A new breed of online auto-buying services already drives more than $12 billion in new car sales, and they're causing the $1-trillion global auto industry to begin changing the way its products are marketed and delivered to consumers.

Faith led to mass acceptance. When you consider that the Web has already become a popular new tool for finding a job, for performing banking and personal finance tasks, for getting global and local news and information, and for dozens of other everyday chores, you can begin to see how shortsighted the early skeptics were. At the dawn of the Web economy, few would have predicted that members of 20 percent of all U.S. households would be shopping the Net by the end of the century and that a $250-billion online consumer marketplace could loom on the immediate horizon.

The emergence of new entrepreneurial life-forms has attracted the attention of the corporate giants. The world's biggest companies are now gazing toward a future in which much if not most of their purchasing, invoicing, document exchange, and logistics will be transferred from stand-alone computer networks connected by people, paper, and phone calls to a seamless Web that spans the globe and connects more than a billion computing devices. Industries as diverse as commercial real estate, electronics, office supplies, and food services have begun to settle the new terrain by constructing sophisticated business-to-business applications.

As a result, online business-to-business spending is expected to explode, becoming the centerpiece of a mind-boggling multitrillion-dollar Web economy. As even technologically lagging industries such as healthcare, education, and legal services begin to do more and more business over the Web, the opportunities have become too big for anyone to ignore. Add it all up and electronic commerce has already surpassed 2 percent of the gross domestic product in the United States. Within a few years that figure is expected to soar past 10 percent and account for 20 percent or more of the total economic activity in many of the world's top industrial nations.

But even as life on the Web flourishes on the surface, danger lurks beneath. With the raw fear largely gone, with the primitive experimentation mostly left behind, with the original novelty of Internet shopping and e-commerce wearing off, with the technology no longer appearing so futuristic, the digital business environment has taken on an air of indispensability, of inevitability.

Here is where the most intense struggle for existence begins. When just about everybody is convinced that just about anybody can sell just about anything via the Web, when success in the Web economy becomes a foregone conclusion, when confidence leads to overconfidence and then to sheer euphoria, we naturally progress to the next stage of emotion: one of pure greed and naked ambition.

Such passions are hardly foreign to Darwinian evolution or the world of business—in fact, they make the marketplace function quite well. But as Darwin himself forewarned, don't be surprised when some of today's most dominant creatures are rendered helpless in the face of rapid, unforeseen change. "So profound is our ignorance, and so high our presumption," the British naturalist wrote, "that we marvel when we hear of the extinction of an organic being. . . .[But] every being must suffer destruction during some period of its life."


From the Trade Paperback edition.

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Table of Contents

Introduction: Frenetic Evolution 3
1 Build a Brand That Stands for Solving Problems 21
2 Allow Your Prices to Fluctuate Freely with Supply and Demand 44
3 Let Affiliate Partners Do Your Marketing for You 71
4 Create Valuable Bundles of Information and Services 93
5 Sell Custom-Made Products Online, Then Manufacture Them 117
6 Add New Value to Transactions Between Buyers and Sellers 137
7 Integrate Digital Commerce with Absolutely Everything 159
Epilogue: The Great Sorting 185
Acknowledgments 195
App A Directory of Business Models 199
Notes 207
Index 217
Read More Show Less

Introduction

Frenetic Evolution

We will now discuss, in little more detail, the struggle for existence.
--Charles Darwin, The Origin of Species


When Charles Darwin presented his theory of evolution in 1859, he described a world in which only the fittest survive, a world in which species must constantly adapt to their changing environment or face extinction, a world in which organisms must continue to grow in a profitable direction and develop new skills and traits or perish, a world in which life-forms must look around and learn with whom to cooperate and with whom to compete, a world in which the surrounding conditions for life can, suddenly and drastically, improve or take a turn for the worse. Darwin even wrote that we are all "bound together in a complex web of relations."

This lexicon applies unmistakably to the digital business landscape now flourishing and mutating across the World Wide Web. "Many more individuals of each species are born than can possibly survive," Darwin wrote. "Consequently, there is a frequently recurring struggle for existence, and it follows that any being, if it varies however slightly in any manner profitable to itself under the complex conditions of life, will have a better chance of surviving, and thus be naturally selected." And just as Darwin observed that competition for food and resources leads to principles of natural evolution, we can see that brutal market forces in the increasingly cutthroat Web economy lead to new strategies for economic survival.

Indeed, the Web is in the throes of an especially frenetic evolution. As an environment that can sustain economic life, the Web has given birth to entirely new species of start-ups and enterprises that could not have existed previously. These new economic organisms are, in turn, forcing older corporate species to evolve in new ways, producing new business models and characteristics necessary for their own survival.

Still, evolution takes time to manifest itself in a significant way. In the natural world, often it takes thousands of years for major or even slight changes to become apparent. The Web may be a universe of digital information in which companies can change their appearance and switch their survival plans in a matter of weeks, but evolution writ large still requires a more significant time frame to produce outcomes, results, effects, and lessons learned the hard way.

We are already moving beyond the commercial Web's era as a marshland for single-cell organisms. Corporate creatures founded on one simple, untested idea--selling a certain product or service online, for instance--have been happily splashing about in the early Web's primordial soup, perhaps not realizing that they are really just simmering themselves before drowning or becoming somebody else's lunch. At the same time, their rivals are clawing their way to prosperity, developing higher forms of intelligence, and inventing breakthrough business tactics especially suited to their swiftly shifting surroundings.

What will the Web economy look like as evolution escalates and we witness real conflicts, surprises, new developmental stages, and turning points?

Will it be uncertain? Absolutely.

Unpredictable? Most assuredly.

Unusual? Rather so.

Unruly? Quite often.

Unsustainable? It has been thus far.

Uncluttered? Far from it.

Undramatic? No chance.

Unsafe? Bloody awful.

Unrewarding? Not if you listen closely.


In the Beginning

In various forms, the Internet has existed since the late 1960s. But the emergence of the World Wide Web transformed the Internet's stark environment of drab databases into a fertile, living-color infosphere inhabited by vast numbers of consumers and companies. While the Web was conceived in 1989 as a scientific data-sharing tool, the commercial browser software that appeared beginning in 1993 provided the first inkling that far more could be accomplished here. And as a serious field of endeavor, Web commerce came into being in 1995, the year Netscape's stock went public in a bit bang, if you will, that ignited interest and sparked new forms of economic life around the world.

Since then, the Web has evolved with mind-numbing quickness, achieving mass acceptance faster than any other technology in modern history. It has made its way into the homes of one-third of the U.S. population and ended up in the hands of 100 million users worldwide in a shorter span of time than even personal computers managed to accomplish the same feat. It has infiltrated people's daily lives faster than the telephone or the fax machine, faster than radio or television, faster than the automobile, even faster than electricity itself.

At first the Web was an unformed mass of frivolous expression, free publications, corporate brochures, and piles of pornography. People treated it as if they were early cave dwellers witnessing fire for the first time. They were simply afraid of it--afraid to send their credit card numbers over it, afraid to trust any information on it, afraid that their privacy would be obliterated, afraid to let their kids near it. As a result, virtually all of the original predictions and forecasts for actually doing business on this untested terrain were, in retrospect, quite humble.

But looking back, its evolution seemed to progress in a logical order. Fear naturally gave way to experimentation. High-tech early adopters began downloading software and researching new computer and networking gear. They began placing real orders for PCs and Internet traffic-routing hardware that soon added up to millions of dollars per day in revenue for some companies. Physical software stores closed up shop and reopened their doors on the Web, while other computer makers scrambled to alter their business models to sell online. In the $500-billion computer and software industry, buying through traditional channels may soon become the exception.

Successful experimentation soon led to confidence. Frequent travelers attempted to book their airline flights on the Web's numerous new online reservation systems. They entered their credit card numbers and reliably received their tickets. The airlines then began encouraging online booking as a cost-saving move, providing frequent flier points as special incentives. Within several short years, about 5 percent of the massive $126 billion in domestically booked travel reservations were being sold online. And that percentage is expected to be as high as 25 percent just a few years into the new millennium.

Confidence inspired trust. What first captured the public's imagination was online sales of books and CDs. Literature and music are in many ways the repositories of culture itself, so when people began shopping for these items on the Web, the digital commerce landscape began to radiate a shiny new aura. With online sales of books and music already surpassing $1 billion annually, those industries have begun to restructure themselves for the day when an even more significant share of their business would be transacted this way.

Trust led to faith. The public began taking seriously the product and pricing information presented on the Web. And so it became a primary research forum for big-ticket purchases--from cars, to homes, to corporate procurement--transactions that often ended up being completed offline. A new breed of online auto-buying services already drives more than $12 billion in new car sales, and they're causing the $1-trillion global auto industry to begin changing the way its products are marketed and delivered to consumers.

Faith led to mass acceptance. When you consider that the Web has already become a popular new tool for finding a job, for performing banking and personal finance tasks, for getting global and local news and information, and for dozens of other everyday chores, you can begin to see how shortsighted the early skeptics were. At the dawn of the Web economy, few would have predicted that members of 20 percent of all U.S. households would be shopping the Net by the end of the century and that a $250-billion online consumer marketplace could loom on the immediate horizon.

The emergence of new entrepreneurial life-forms has attracted the attention of the corporate giants. The world's biggest companies are now gazing toward a future in which much if not most of their purchasing, invoicing, document exchange, and logistics will be transferred from stand-alone computer networks connected by people, paper, and phone calls to a seamless Web that spans the globe and connects more than a billion computing devices. Industries as diverse as commercial real estate, electronics, office supplies, and food services have begun to settle the new terrain by constructing sophisticated business-to-business applications.

As a result, online business-to-business spending is expected to explode, becoming the centerpiece of a mind-boggling multitrillion-dollar Web economy. As even technologically lagging industries such as healthcare, education, and legal services begin to do more and more business over the Web, the opportunities have become too big for anyone to ignore. Add it all up and electronic commerce has already surpassed 2 percent of the gross domestic product in the United States. Within a few years that figure is expected to soar past 10 percent and account for 20 percent or more of the total economic activity in many of the world's top industrial nations.

But even as life on the Web flourishes on the surface, danger lurks beneath. With the raw fear largely gone, with the primitive experimentation mostly left behind, with the original novelty of Internet shopping and e-commerce wearing off, with the technology no longer appearing so futuristic, the digital business environment has taken on an air of indispensability, of inevitability.

Here is where the most intense struggle for existence begins. When just about everybody is convinced that just about anybody can sell just about anything via the Web, when success in the Web economy becomes a foregone conclusion, when confidence leads to overconfidence and then to sheer euphoria, we naturally progress to the next stage of emotion: one of pure greed and naked ambition.

Such passions are hardly foreign to Darwinian evolution or the world of business--in fact, they make the marketplace function quite well. But as Darwin himself forewarned, don't be surprised when some of today's most dominant creatures are rendered helpless in the face of rapid, unforeseen change. "So profound is our ignorance, and so high our presumption," the British naturalist wrote, "that we marvel when we hear of the extinction of an organic being. . . .[But] every being must suffer destruction during some period of its life."
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Sort by: Showing all of 2 Customer Reviews
  • Anonymous

    Posted April 22, 2000

    Cogent, Brilliant

    If you're looking for a cogent, brilliant, well written guide to where the Internet is, how it got there and where it is going, you need to read this book. I have read it twice.

    Was this review helpful? Yes  No   Report this review
  • Anonymous

    Posted January 10, 2000

    Insightful Read

    I've wrote two college papers using this book as the main source cited. The author gives 7 strategies; the first one was worth the price of the book.

    Was this review helpful? Yes  No   Report this review
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