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Commentary: NextCard's new offering: What's the difference?

NextCard's "Instant Finance Network" is no different from traditional holiday "installment plan" offerings by many brick-and-mortar retailers and credit card companies.

By offering consumers the ability to make large-ticket Web purchases with installment loans, NextCard, which has consistently reported losses in excess of its total revenues, appears to be making a desperate attempt to capture more consumer business.

See news story:
NextCard to allow financing of big-ticket goods
But NextCard's "Instant Finance Network" is no different from traditional holiday "installment plan" offerings by many brick-and-mortar retailers and credit card companies. NextCard will achieve no competitive differentiation with its new credit offering, and its financial plight illustrates a basic fact of the new economy. Although the Web can give companies a global reach, they need to develop a mix of traditional and electronic channels to reach customers from every available direction rather than relying solely on either traditional or Web strategies alone.

Although NextCard may be a pioneer in offering credit cards on the Web, people who shop on the Web usually have credit cards already. To differentiate itself successfully, NextCard needs to offer something radically different and better than large financial companies such as American Express, which has been very creative in its approach to Internet credit. NextCard is essentially just a Visa card issuer that has found a less expensive way to distribute credit cards.

NextCard's story is yet another illustration of how reality has caught up with dot-coms. Until the great dot-com shakeout began this past spring, explosive e-tail revenue-growth rates had been the mantra of numerous parties. However, as Wall Street analysts began to thoroughly research the Internet phenomenon, they discovered that dot-coms were doing huge business primarily with each other. As the flow of dot-com investment began to slow, dot-coms had less to pass around. Without real customers, many dot-coms began to sputter and collapse.

The result is that, after a few years of fiscal gluttony and excess, the Internet retail space is waking up with a hangover. Achieving sustainable business health will not occur as a consequence of issuing new forecasts or tweaking failed approaches with new news releases. Serious medicine is required--and many dot-coms are not going to survive.

The new economy certainly is a reality, but many of the executives supposedly leading the push into new ways are in fact old-economy opportunists who took the venture and IPO money when it was offered and ran. They spent a bundle on old-economy instruments--like TV advertising--instead of building real new-economy capabilities--like tightly integrating with their customers. As a result, they have failed to leverage the advantages of the new economy.

One thing that is becoming clear is that information about customers, markets and fast-changing market conditions has become the major differentiating factor in new-economy production. The dot-coms have gathered huge amounts of data on their customers. We recently talked to one that has 3.5 terabytes of customer data. But most do not possess the business intelligence capability necessary to continuously create new levels of value for customers, partners and shareholders.

NextCard still has a pool of capital, but, like many surviving dot-coms, it still seems unable to show a clear path toward profitability. These companies will be hunting for solid partners from the old economy with increasing desperation, and they may use their remaining capital to go out with a bang.

The electronic marketplace needs an equivalent to every financial vehicle available to the traditional, brick-and-mortar economy. In that sense, offering the kind of credit that NextCard has just announced makes sense, and e-tailers need this instrument to compete with brick-and-mortar stores. However, it will not provide differentiation--it is merely keeping up with the competition. And it certainly does not replace a need for a solid financial basis for a business.

Companies that are selling products over the Internet--either retail or business-to-business--should look to strong, established financial players such as the major banks, rather than shaky Internet start-ups with losses far in excess of their total revenues, for financial instruments.

Companies need to focus on "transforming while performing." They need to add electronic channels both to serve existing customers better and to find new customers in the worldwide market that the Internet has opened up. Simultaneously, however, they need to maintain their focus on short-term profitability goals and business fundamentals.

META Group analysts Val Sribar, Dale Kutnick, Peter Burris, and William Zachmann contributed to this article.

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