Startup Opportunities: Second Order Effects Of The Internet

Written By: October 2, 2006

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.

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