Business-to-consumer retail Websites were going to be really big. Consumers were going to be dazzled by the combination of lower prices and the ability to purchase products from anywhere. The Web was supposed to be the best retail environment the world had ever seen.

This imagined future success created an astonishingly optimistic investment climate, where people believed that any amount of money spent on growth was bound to pay off later. You could build a $5 million Website, buy a Super Bowl ad for $70,000 per second, sell your wares at cost, give away shipping, and rest assured the markets would support you all the way.

The end of this ideal was crushing, as every advantage of B-to-C turned out to have a deflationary downside. Customers lured to your site by low prices could just as easily by lured away by lower prices elsewhere. And the lack of geographic segmentation meant that everyone else could reach your potential customers as easily as you could.

Like a scientist who invents a universal solvent and then has nowhere to keep it, online retail businesses couldn’t find a way to contain the deflationary currents they unleashed, ultimately diminishing their own bottom lines.

B-to-C: Not so bad after all

The interpreters of all things Internet began to tell us that ecommerce was much more than silly old B-to-C. The real action was going to be in B-to-B-to-C or B-to-G or B-to-B exchanges or even E-to-E, the newly minted “exchange-to-exchange” sectors.

So we have the newly received wisdom. B-to-C is a bad business to be in, and only ecommerce companies that operate far, far from the consumer will prosper.

This, of course, is nonsense. Selling to consumers cannot, by definition, be bad business. Individual companies can fail, but B-to-C as a sector cannot.

Money comes from consumers. If you sell screws to Seagate Technology, which sells hard disks to Dell Computer, which sells Web servers to Amazon.com, everybody in that chain is getting paid because Amazon sells books to consumers. Everything in B-to-B markets–steel, software, whatever–is being sold somewhere down the line to a company that sells to consumers.

When the market began punishing B-to-C stocks, it became attractive to see the consumer as the disposable endpoint of all this great B-to-B activity, but that is exactly backward. The B-to-B market is playing with the consumers’ money, and without those revenues flowing upstream in a daisy chain of accounts receivable and accounts payable, everything else dries up.

The fundamental problem to date with B-to-C is that it pursued an inflationary path to a deflationary ideal. The original assessment was correct: the Web is the best retail environment the world has ever seen, because it is deflationary. However, this means businesses with trendy loft headquarters, high burn rates, and $2 million Super Bowl ads are precisely the wrong companies to be building efficient businesses that lower both consumer prices and internal costs.

The future of B-to-C used to look like boo.com–uncontrolled spending by founders who thought that the stock market would support them no matter how much cash they burned pursuing growth.

I’ve seen the future…

Now the future looks like Wal-Mart, a company that enjoys global sales rivaled by only Exxon Mobil and General Motors.

Wal-Mart recently challenged standard operating procedure by pulling its Website down for a few weeks for renovation. While not everyone understood the brilliance of this move–fuckedcompany.com tut-tutted that “No pure-ecommerce company would ever do that” –anyone who has ever had the misfortune to retool a Website while leaving it open for business knows that it can cost millions more than simply taking the old site down first.

The religion of 24/7 uptime, however, forbids these kinds of cost savings.

Wal-Mart’s managers took the site down anyway, in the same way they’d close a store for remodeling, because they know that the easiest way to make a dollar is to avoid spending one, and because they don’t care how people do it in Silicon Valley. Running a B-to-C organization for the long haul means saving money wherever you can. Indeed, making a commitment to steadily lowering costs as well as prices is the only way to make B-to-C (or B-to-B or E-to-E, for that matter) work.

Despite all of the obstacles, the B-to-C sector is going to be huge. But it won’t be dominated by companies trying to spend their way to savings.

It’s too early to know if the Wal-Mart of the Web will be the same Wal-Mart we know. But it isn’t too early to know that the businesses that succeed in the B-to-C sector will invest in holding down costs and forcing their suppliers to do the same, rather than those that invest in high-priced staffs and expensive ad campaigns.

The deflationary pressures the Web unleashes can be put to good use, but only by companies that embrace cost control for themselves, not just for their customers.