by Dana Blankenhorn
Volume V, No. XXVII
For the Week of July 9, 2001

This Week's Clue: Putting Profit Into Community

This Week's Clue: Putting Profit Into Community 

SSP (Shameless Self Promotion)

SP (Shameless Promotion)

Fun with Microsoft

National Enforcement on International Acts

Why Gas Prices are Falling

Clued-in, Clueless

The continued collapse of the Internet ad market (it's fallen and it can't get up) has many site managers assuming the worst. They figure they won't get the money they need from commerce, so they either take it from users or they go under.

This is a false choice because it's not about you, it's about them. Only when you understand what you are to your users can you see where you fit into the market and set a strategy for the post-boom age.

Content sites have a lot of potential revenue streams. They advocate and organize a market or lifestyle. Once they focus on those needs they can create "membership services" that encourage registration and justify better ad rates. They can also offer advertisers add-on services like surveys of that membership, and they can create valuable up-sells for both sides (buyers and sellers) in their defined market.

Commerce sites just need to run their stores better. They need to learn from their off-line experience. They need to scale their fulfillment and back-office properly, and most of them need to niche much more carefully. Right now only the biggest and smallest stores are profitable - once the middle market gets its act together things will be fine.

It's the community sites that have the biggest problem. E-mail newsletters, e-list digests and sites featuring forums have come to depend on advertising and that has disappeared. Putting up tollbooths for what was formerly given away won't work.

The first key, as with the content sites, is to register users so site managers can tell advertisers the branding impact of their ads. Advertisers want to know how many of their buyers you'll reach, how much of their market you'll reach, and how much of that reach is unduplicated. 

Print publishers build these registration databases as a matter of course. Content and community sites need to build them as well. But those who have won't share, and the cost to most small content or community sites of building the database is prohibitive.

What's needed is a consortium, like the one three big ad agencies recently started to push adXML. The advertising consortium is building tools that will be licensed back to the industry, so they can eliminate paper in handling advertising contracts. The consortium I'm talking about would build a shared registration database of content and community site members. The sites could enter data free, pull their own data free and buy reports from the shared system. Reports could also be sold to advertisers. 

The consortium would also be charged with creating a database of 'zines, digests and other "community" services and of advertising that site. This was the promise of Topica before IDG bought a controlling interest in it. At that time Topica's Liszt, which was designed to provide that free listing service to all e-mail list publishers, was closed down. It wasn't in IDG's interest to let people know of "competitive" lists, so the listing services were shuttered. (That's not bad, that's business.) Since then communities have been without a voice, a search service or a central town hall. The consortium would create one. 

The question is who would put up the initial capital for such an operation? You can forget anyone who's currently big in the online or publishing markets. There's a conflict of interest for them and it's not in their best interest to create something that helps competitors. (Microsoft and AOL are definitely out as well.) But here's an outfit moving into Internet services with a database  and here's a database services outfit that still needs an Internet play. There are other candidates  as well.

There's a second problem community sites face. That is, what exactly are they? We know that content sites are publishers and commerce sites are stores. Community sites are trade groups. They could be aimed at industries, professions or at like-minded groups (http://www.aarp.com), but their business aim is the same. You identify what needs the members have in common and meet those needs to sustain the group. 

This is difficult to do - it's a job for professionals and not hobbyists. But it's a necessary exercise now that the easy money is gone. Community site leaders must either turn their hobbies into a profession or go back to being members under someone who will. 

SSP (Shameless Self-Promotion)

Yeah that was me on your radio June 28, giving takes on the Microsoft appeal and Washington "Astroturf." I hope it was entertaining because that was the idea. It's not my day job.

"Living on the Internet: How to Make Money, Live Right, and Fight For the 21st Century" is tentatively due for release around Labor Day. I'm still writing it, but it looks good. I call it the "first book of the 21st century" because it is designed to feature hyperlinks in all formats - PDF, eBook, and print. (How about if we call it an I-Book for short?) Drop me a note to get on the mailing list for more information on this book. You can join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive.Com. You can also read me at ClickZ , B2B, at Boardwatch, ISP Executive Sitepoint  and the new (paid) version of WorkZ. More deals are being sought. Remember that it's journalism that keeps the Clues coming...

Shameless Promotion

You have a little list, but how do you make the most of it? You turn it into a database, you query the database, you audit the results and you deliver market research to yourself and to others.

Permission is just the first step. An audit is the second step. Building interactive relationships with every name in your database is the greatest business asset you can have.

You can take the first step toward making your little list truly valuable with help from my friends at Whitehat Interactive - click here to begin that journey.

Takes on the News

Fun with Microsoft

I had an hour of fun with Jim Bohannon  and one of his Washington lobbyist friends last week.

The topic was the Microsoft appeal, a subject that saddens and sickens me. It saddens me that there's no end to it. It goes back to trial, there will be a settlement, then there will be arguments that Microsoft is violating the settlement and more billable hours for lawyers. It sickens me that Microsoft is being treated as though it won, and acting as though it won.

On the show I was also upset about the way big monopolists pay people to turn words like "monopoly" into completely different concepts, like competition. The so-called "Americans for Competitive Technology" is just a front for Microsoft , cable monopolists , and the proposition that Internet privacy is another term for nothing left to lose . It's an Orwellian game they play up there, and while it's nice to see an ex-journalist can master the game it's a game for tools and ideologues - if you take it seriously it will crush you. So I had fun instead.

National Enforcement on International Acts

It has become clear in the last few weeks that national governments plan to ignore the international nature of the Internet and seek to legislate what their nationals can do online as though borders were real. The real fight will come over ratification of the Hague Convention that would require enforcement of local laws in foreign courts. (For example, the new Hague Convention would force Yahoo to remove all references to Nazis from its U.S. site, in deference to innocent French and German browsers.)

Two examples of the trend will suffice. Australia decided not to ban Internet gambling, but (in a last minute "compromise") it did ban its own nationals from using such sites and it did prohibit its own sites from taking the action of people in nations that ban the practice (like the U.S.). The restrictions on Australian sites will stand, but only until the sites move to Fiji or some other locale. The enforcement mechanism is to prevent online casinos from collecting on debts against Australian nationals who violate the bans. But the casinos get their money up-front. You pay before you play, and the money is in the casino's hands, in another jurisdiction. How they expect to get it out of that other jurisdiction, if Internet gambling is legal there, is beyond me.

Germany, meanwhile, imposed a tax on CD-RW drives , designed to go into a fund for paying artists. In theory this is a sound idea. In fact it won't work at all. Germans will simply buy their PCs in Belgium or the Netherlands. More important, they'll download to their hard disks, then to a portable MP3 player, bypassing the CD drive.

Again, the Hague convention could create an enforcement mechanism here, which is why everyone on the Internet needs to oppose it. The Hague Convention would subject all Internet users to the standards of the least free among us in every area.

Why Gas Prices are Falling

My apologies in advance for again addressing a non-Web topic here. But stability (which the Internet economy demands) is best served by a switch from hydrocarbon-based energy (gas and oil) to hydrogen-based energy (liquid hydrogen used for fuel cells). Managing that transition is in our interests, and we face a government that doesn't want that transition to happen.

Thus, energy prices are falling in the U.S., and for three reasons.

First, supply and demand are balanced on a knife-edge - there's limited storage capacity - so when demand falls just a little prices fall a lot.

Second, the U.S. economy has entered into a deflationary spiral. If growth fails to pick up six months from now (after 5 rate cuts and a tax rebate) this will be obvious to all - too late to do much about it.

Third, and perhaps most important, the U.S. hydrocarbon industry is strangling competition in its crib. Cities that seek power alternatives , or researchers harnessing new sources will find in six months that they can't raise capital, because investors can't be certain of getting their investment out.

Until there's a floor price for energy, one high enough to guarantee a profit for well-run alternative energy sources, the switch from hydrocarbon to hydrogen-based energy sources can't begin. Which is fine for the current U.S. (gas and oil) administration. It's not fine for stability, the air we breathe, or the Internet economy.

Clued-in, Clueless

Clued-in is AdCracker, a cute little brainstorming tool found by Larry Chase. If you ever wanted to get inside the heads of advertising "creatives" this is a must-see site.

Clueless is Dick Armey's war against sales taxes on Internet purchases . When all that's left are ideological warriors it's time to seek a settlement . The problem is no one has come up with a tax regime that doesn't add both huge administrative burdens and a whole new set of commercial gatekeepers to the problems of the small Internet merchant. (Another word for problem, of course, is opportunity -- hint, hint.)

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