A Clue..to Internet Commerce

by Dana Blankenhorn

For the Week of March 31, 1997

Volume 1, No. V

This Week's Clue: Disintermediation

Boardwatch Magazine is where those Sprint guys, upset their mothers can now get on the net, like to hang-out. But it also has John Dvorak, and this month he has a clue.

He writes about his Easydiet.com site, which sells a weight-loss pill called chitosan. Big deal. Except that chitosan, like many products, is sold via multi-level marketing. Salesmen live on commissions from other salesmen they recruit. When his supplier cut him off, Dvorak switched to another for his "Web vending machine" and writes "controlling the channels of distribution are over forever thanks to the Web."

Disintermediation -- the process of getting rid of the middle-man -- is happening in all markets. It's behind last week's turmoil at NetGuide, my old stomping-grounds, where a new editor will cut the editorial budget. All computer magazine publishers are threatened by advertisers moving to the Web, where they haven't a clue how to make money. Companies whose loyal readers are in "the channel" -- like CMP's -- are most directly-threatened. But everyone's hurting: the betting here's Softbank will be broken-up this year and the most-profitable pieces picked up by Time-Warner, News Corp., and some others.

What's this mean for you? Opportunity. Sell direct, pass on the savings, and you can deliver huge value, even to a small number of customers, at low cost, then grow from there. Remember, you can model the entire marketing process -- draw an audience, advertise, offer credible and biased information, take the money, provide customer service -- on the Web. That's more than a clue...it's a business plan.

Shameless Self-Promotion (SSP)

The editor of A Clue...to Internet Commerce is a freelance journalist looking for assignments from top publishers, but also capable of handling consulting or commercial writing -- ask about those rates via e-mail. In addition to columns for local publishers, I've also recently finished work for AdAge's NetMarketing supplement and Business Marketing magazines. And now back to our program...

Schwab vs. E*Trade

The first big TV ad battle over Web sites is now taking place between E*Trade, which has gone public and based its business plan on Web-based trading, and Charles Schwab & Co., which, while basically a conventional discount broker taking most orders by phone, has done some online trading for a decade.

E*Trade has taken the big risk of a major network buy, part of CBS' coverage of the NCAA mens' basketball tournament . The brand-awareness campaign focuses on the benefits of Web-based trading, with an E*Trade logo offered in scoring summaries. The idea is to stake a leadership claim early-on, then grow with the market.

The profits from Web-based stock trading are huge -- orders are far less-expensive to execute by PC than by phone. This is the next stage beyond a $29 per trade price war --on a large block that's under a penny per share. It works because the broker gets use of your money, profiting from payments with floor brokers for placing the order, and building a relationship through which other investments can be offered.

Schwab has taken a more-conventional approach, concentrating its fire on national cable stations CNBC and CNNfn , buttressed by ads on the PointCast screen-saver and mentions of the site in other collateral. What's news is how the TV ads take-off after E*Trade, with Schwab himself claiming anyone can put an "e" in front of their name, but what counts is size and experience. Other Web-based sites making cable buys this quarter include J.B. Oxford and Quick & Reilly. One leader in the field, Ameritrade, which has four different Web trading sites (like Ceres and Aufhauser ), has actually made one of the smaller TV buys.

Your clue? You can get in as much trouble striking early as late. The costs of nework advertising are a big threat to E*Trade. Combine it with the negative turn the market's taking on Internet stocks and the danger becomes obvious. Unless E*Trade's advertising itself for-sale, the game's Schwab's to lose. And they're not clueless.

There Is A Cure For Spam

Speak about junk e-mail, or "spam," on some news groups and you get flamed. Some insist they have a "right" to intrude on other people. Legally, they may be right.

But people also have a right to resist. New versions of Z-Mail Pro, Eudora and Netscape's Communicator all support filtering -- sorting e-mail based on rules users create. (The first rule, of course, is don't send me junk.) Some Internet service providers have begun doing this at the server level, so junk doesn't get through to their users. A clue for spammers -- the market's more moral than you think.

But Yes, You Can Still Send E-Mail

ReplyNet Inc., which offers the AutoResponse e-mail bot, is trying a 10 cents per request plan to lure small businesses. The bot delivers an e-mail to those who ask for information on a Web site, and it's geared to big sites which have trouble doing this manually. It's not spam, it's information prospects have asked for, and it can build a mailing list. But the standard fee for the service is just $59/month, so this might be a last-gasp strategy for ReplyNet.

So Let's Try An Experiment

After listening to many too-many arguments over advertising via e-mail, A Clue will settle the question with an experiment.

Over the next few weeks you'll see a sponsorship banner on this newsletter from NetCreations. In exchange for this consideration, we'll be doing an e-mail to one of their targeted lists, offering A Clue at $49/year, with a 30-day money-back guarantee. We'll calculate the results and report them back to you. Of course, results vary with the offer, and the list it's sent to. But the only way to prove a point is to test it, and better I get flamed than you do, right?

Clued-In, Clueless

Clued-in this week is Steve Auditorre and the gang at Zona Research , a market research outfit being bought by Intelliquest. Analysts are supposed to be clued-in, but Zona also uses the technology effectively, e-mailing daily "Quinellas" and "Flash Notes" on big stories. You don't have to buy their argument that the world is dominated by "info-keiretsu" -- massive alliances like those which dominate Japan's economy, Microsoft vs. Anybody But Microsoft (ABM). But Zona writes visually, as in this view of the Internet World Acquarium: "Both the whale and the school of minnows can get to the same place in the industry's waters. But the school of minnows, as a group of discrete entities, has an advantage because the sum of its parts is more agile and can more readily turn on the spot. The whale must maneuver its entire body around to refocus."

Clueless this week is CMP Media , my beloved former employer. Besides their channel problems, they suffer from a history of over-promising on the Web, selling ads on their Techweb site which didn't draw promised traffic, running the NetGuide Live site from 3,000 miles away, badly, and generally trying to model the Web on the business they know -- publishing. CMP, you're a wonderful company with marvelous people, so we'll give you a clue. David Strom. Best of all, he's already working for you . Give this guy some power, then go and sin no more.

A Clue...to Internet Commerce is a weekly publication of @Have Modem, Will Travel. It's sent free to a qualified e-mail list. Like Netscape Navigator, it carries a list price -- $49 per year. Subscribers can receive either a .txt file or an .htm file. The .htm version features links which become active when online with a browser, or an e-mail package like Netscape 3.0. (Let us know which you prefer.) To take your name off the list, simply write REMOVE as the subject, or content, of a message replying to this post. To request your free copy, write us at Dana Blankenhorn@worldnet.att.net. We're on the Web at www.tbass.com/clue and www.ppn.org/clue .

A Clue...to Internet Commerce -- Copyright @Have Modem, Will Travel and Dana Blankenhorn, 1997