Wave Issue 9037 4/07/99 Article 6-01

***Nettrends: The great Internet price war
(March 16)

There is a new trend emerging in e-commerce. It is the zero
margin trend. The champion of this pricing structure is Buy.com,
which promises to sell a range of items from compact discs to
televisions at the lowest price available, even if it means
foregoing any profit on the sale.

The company, which says it can make up for any losses by selling
ads on its Web site, plans to expand into big-ticket items like
cars, where even bigger savings are possible for consumers. Its
strategy has been described as "selling a dollar for 85 cents."

Buy.com is being taken seriously, and even inspiring copycat
services. MBA students are studying them and wealthy investors
are advancing them millions of dollars to secure a stake in what
they seem to believe will be sustainable ventures.

So widespread has this ultra-low pricing become that the "Zero
Margin" Business Model was the topic of discussion at a recent
gathering of 125 Silicon Valley entrepreneurs and venture
capitalists. Asked whether they thought the Internet economies
meant "free is forever," 70 percent of those in attendance voted
yes.

There is little or no profit margin in Buy.com's products, only
on the ad space it sells. By bringing eager consumers to its
site, the company figures it will be able to entice advertisers.

Of course, this is all theory. For the time being, Buy.com is
operating largely with the help of Softbank Holdings, the
Japanese investment group that late last year poured $40 million
into the company.

The investment drew notice not just for its size, but the source.
Softbank has a track record for picking winning Internet
ventures, and has backed several online powerhouses, including
Yahoo! and the broker E*Trade.

But can an online retailer really give away products and still
make money? The answer is that the Internet has changed things
but not that much, yet. There is not an unlimited supply of ad
dollars to make the price slashers profitable, and it also seems
that the old brick-and-mortar stores still have the clout to
fight back. Much as many Internet merchants would like to write
their obituaries, old-fashioned stores still move the vast
majority of merchandise.

www.buy.com