S+B: You might look on this as the flip side of the eternally evolving business model — it's the lack of a business model, the unwillingness to grapple strategically with a new idea.
WALKER: It's not that Amazon isn't trying to incorporate radical thinking of a sort. It's simply that they're not starting with the thinking. They're starting with the result and reengineering what they can, and then if there's thinking there, so much the better. If you talked to [Amazon.com CEO] Jeff Bezos, he would tell you that that's correct. He would say — and I've talked to him at length about this — his theory is, "I'm going to delight the customer, and have a lot of them before anybody else. Everything else will sort of take care of itself." That's Nordstrom on the Net. He basically says, "If I constantly over-deliver on customer expectations, and horizontally expand as fast as I can so that I can maximize my customer base, I get a network effect with my customers" — he doesn't call it that, but that's what it is — "and the delight becomes my value-added advantage in the Net world where price can't be a value-added advantage."
S+B: Sounds like a theory to me.
WALKER: I believe all those theories are wrong, every last one of them.
S+B: In what way?
WALKER: There's a battle taking place over commerce in the New Economy, especially consumer commerce, which pits convenience as a central theory against savings. There are only four ways to create value in the New Economy, and they're really simple: information, entertainment, convenience, and savings. Every business in an electronic network takes those four elements and blends them in some proportion. But information and entertainment don't provide for good business models. So the real battle taking place has to do with the balance between convenience and savings.
S+B: Can you elaborate?
WALKER: Inasmuch as you base your business on information, there's almost no business there, because information gets reduced to a very low, almost commodity, level. There's very little edge; if information is your product you can't control its redistribution on a network.
S+B: That was a central, early argument made by Esther Dyson.
WALKER: Right. What about entertainment? Tough. Entertainment per unit time is very expensive to create; you'd better have at least $50,000 per minute for programming if you're going up against network television. If you can't compete against television and movies, it's very hard to entertain in our society. Worse, there are so many entertainment choices right now that consumers are not willing to pay that much more for your allegedly better entertainment. Meanwhile, there's a bandwidth issue — an extraordinary problem at this stage of the game. So you've got problems if you're going into the Internet entertainment business.
Convenience turns out to be the first of the major drivers that actually can be ported to the Web. Shop in your slippers, infinite inventory, bank at home, trade stocks at home — those things are really conveniences. Doing them on the Net doesn't add that much quality to the experience. They're primarily improvements in kind. They're not revolutions.
S+B: But why have these "convenience" businesses, as you define them, gained so much prominence, in the media and on Wall Street?
WALKER: Convenience happens to be perfectly aligned with the early adopters, the "rich white boys on the Net," as well as journalists, who are not necessarily affluent, but are time-poor, and are also early adopters. Journalists and other early adopters are very likely to buy books; very likely to have software shipped to them; very likely to buy toys on the Internet; and very likely to trade stocks at E-Trade. So the outsize apparent impact of convenience has created what we call a "7-Eleven effect." The 7-Eleven effect says, "I don't know why everyone doesn't shop at 7-Eleven — it's so convenient!" For most of the country, the answer is: "Because the prices are too damn high!" But if you're a 7-Eleven customer, a supermarket doesn't make sense to you, a warehouse club makes even less, and an outlet mall is alien. Why would anybody drive 50 miles to save $6 on a sweater? That question makes no sense to anyone who shops at a 7-Eleven.