Startup Opportunities: Second Order Effects Of The Internet

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Startup Opportunities: Second Order Effects Of The Internet

 


Brian posted a recent article to Small Business 2.0 titled “Four Ways the Internet Is Transforming Small Business”.    (The SB2 site is a partner site to this one and I co-author articles there as well).

The article posits that small businesses are benefited disproportionately by the Internet – primarily because the Internet makes markets more “efficient” and helps small businesses connect to their potential customers.  Basically it’s a “the Internet levels the playing field” argument.  I agree with this.  In fact, one of the most interesting things about the Internet is that some of the greatest success stories have all been a variation of this “make markets more efficient” model.
  1. eBay makes the market for niche physical goods more efficient.
  2. Amazon makes the market for books (and now other things) more efficient.  As a result, even “low volume” specialty books can still be found.
  3. Google (with their AdSense product) makes a market for niche market content (like blogs)


Of course, this is reasonably obvious.  Companies that figure out how to really use the Internet to make businesses possible that otherwise wouldn’t be are pretty interesting.  Lots of businesses (and startups) fall into this category.

However, I think there is a second-order opportunity as well.  That opportunity is helping other businesses leverage the benefits of the Internet.  Particularly when they don’t have the resources to do so themselves.  There are hundreds of individual “micro verticals” that are currently failing to harness the benefit that the Internet can bring them.  Often, these verticals are too small to get a lot of attention, but they are often just perfect for a startup to get a foot-hold and make some money.  Of course, these startup ideas are not as glamorous and sexy as the broad, horizontal ideas.  But the upside is that there’s usually much less competition.  

Not all startups need to pursue “changing the world” strategies and raise a bunch of capital to do so.  Going after the smaller opportunities and helping others realize their potential can often be just as gratifying (and has much less risk).  If you’re looking for new startup ideas, a good place to start is to figure out what kinds of niche businesses the Internet might help, and building a product/service that helps them capture that advantage.  If you have some domain expertise in a specific vertical, you already have an advantage.  

For every YouTube and Facebook, there are hundreds of other viable startup businesses that can be built to meet the needs of a small subset of the market.  Unfortunately, these niche-market startups don’t get written about a whole lot.  And maybe that’s all for the better.  If I were one of these startup entrepreneurs, I’d rather be building products that solve problems (and making profits) than being profiled on TechCrunch.

Posted by admin_onstartups.com admin_onstartups.com on Mon, Oct 02, 2006

COMMENTS

Good article. You don't even need a to create a "startup" to take advantage of this fact. If you have the background, you can act as a consultant for these small businesses and make good money. I am doing this to pay the bills while brainstorming formal startup opportunities.

posted on Monday, October 02, 2006 at 4:02 PM by Nathan


Great post... I'd love to hear more on your thoughts about finding/exploring possible micro-verticals. I have to confess to feeling as if I'm in a bit of a rut... I often identify a vertical and dive in only to second guess my idea for fear its either too ambitious or filled with too many competitors.

I have always focused on niche verticals but wish I had some better way to research the idea and see if it is viable short of Google searches and some phone calls. I've gone out to talk to people, however; I've never found a niche where someone shouts "eureka!" when I explain the idea. Again, these aren't sexy applications as you describe... just modern takes on what are sometimes very legacy, complacent products.

The proverbial first step has been very hard for me. Its not a lack of desire as much as a fear of failure. I know I need to get over that, however; having some confidence that I am heading in the right direction would help.

posted on Monday, October 02, 2006 at 4:14 PM by Kris


AWESOMELY GREAT post Dharmesh. Also, the post by Brian to which you refer is well worth reading.

You write (in part) "However, I think there is a second-order opportunity as well. That opportunity is helping other businesses leverage the benefits of the Internet. Particularly when they don’t have the resources to do so themselves. There are hundreds of individual “micro verticals” that are currently failing to harness the benefit that the Internet can bring them. Often, these verticals are too small to get a lot of attention, but they are often just perfect for a startup to get a foot-hold and make some money. Of course, these startup ideas are not as glamorous and sexy as the broad, horizontal ideas. But the upside is that there’s usually much less competition.

Not all startups need to pursue “changing the world” strategies and raise a bunch of capital to do so. Going after the smaller opportunities and helping others realize their potential can often be just as gratifying (and has much less risk). If you’re looking for new startup ideas, a good place to start is to figure out what kinds of niche businesses the Internet might help, and building a product/service that helps them capture that advantage. If you have some domain expertise in a specific vertical, you already have an advantage."

This is so right-on! I'm going to post about this and the Business 2.0 article on my blog tomorrow morning because... This is a message that just has to get out to those extraordinary young men and women in the technology world who want to accomplish something great.

posted on Monday, October 02, 2006 at 6:50 PM by Sheamus


The real genius of eBay is the network effect (the more buyers, the more value for sellers and vice versa). Some companies try to achieve this artificially with proprietary standards (iTunes, Skype, Playstation..) but they remain vulnerable to a well funded competitor (Zune?, Xbox...). I don't know any other business that has this network effect built-in as intrinsically as eBay.

posted on Tuesday, October 03, 2006 at 10:25 AM by Jeff


Don't make the mistake of thinking secondary markets are necessarily small. If you think about it the public auditing industry is a secondary market. The purpose is to add stabiity and reduce risk for traders in public stocks. Or how about the IT research industry? Definitely secondary to the technologies it covers. So, PricewaterhouseCoopers with 50,000+ employees is bigger than Facebook. And Gartner with a billion in revenue is bigger than any Web 2.0 company.

Hmmm.... Research 2.0 good idea. :-)

R Stiennon (Founder IT-Harvest)

posted on Tuesday, October 03, 2006 at 3:08 PM by


View: <a>http://videosuspects.com/index.php?page=thirdpartyevaluation<a> 
 
 
 
Extreme upside market potential with legs.

posted on Monday, June 01, 2009 at 7:50 PM by Edward M. Burns Sr


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