A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of June 16, 1997

Volume 1, No. XVI

This Week's Clue: Selling Information

Recently a savvy reader addressing me as "Clueless" wrote to say that Web commerce is all "single-visit," that it's goods, not information, moving from the virtual shelves, so the key must be to create "impulse" buys by any means necessary. (Like spam, perhaps?)

It's true that publishers aren't doing well online right now, that stores selling low-cost goods like CD-ROMs and books are doing best, that those using online stock-buying services are more impulsive than those who buy by phone, and that all efforts to sell jokes or news stories on a pay-per-read basis are doomed.

But our friend is missing a key clue. All purchases include information. Buy a Coke and it's all about information, your faith that the Coke you drink now will be the same, friendly fizzy-water you've always had, no matter where in the world you buy it. You don't buy the data explicitly. Its value is implicit in the brand. You didn't buy Virgin Cola at half the price for a reason.

All brands represent an implicit information transaction. Mass marketers buy ads and give-away the information which makes you buy the Coke. Stores (and Web sites) are able to capture the transfer in the price of the goods. It's easy money.

A considered purchase, like the laptop I'm in the process of buying, requires more information. Brands are meaningful, but so are many of the values publishers deliver, like unbiased comparisons of features and performance in the real world, testimonials from credible sources, and news of what's happening to components and component pricing. The fact that sites like Gateway and Dell capture the financial benefits of all this on their Web sites speaks only to the cluelessness of most publishers. Publishers see a strict separation between church (editorial) and state (ad sales). They haven't learned how to track the information-gathering process through the sale. Because they don't understand their business model, they miss most of the value their creating.

How do you sell information on the Web? Not just with editorial, and not just through advertising. Not just by subscription, and not just by the hour (like the peep show we discussed last week). The key clues are community and tracking. Serve the information needs of a virtual community, even a relatively small one, then provide deep links (with more value) to biased information at the appropriately-credible time, and track that transaction. That's what cookies (and coupons) are for -- not for building profiles of people, but for tracking value so it can be shared appropriately.

SSP (Shameless Self-Promotion)

Business is picking up. I recently drew my first assignments from Ziff-Davis, and I've got some newsletter article-work coming up. More on both later.

Because it's journalism -- checking the news, calling people, listening carefully, writing on deadline -- which keeps us hot, although I also handle consulting and commercial writing (ask about those rates via e-mail). If you're looking for excellent work -- like that found in my column at Atlanta Computer Currents or my regular work for Net Marketing magazine, don't wait for the e-mail -- give me a call at 404-373-7634.

Ideas For Amazon

Watching established niches develop gives us lots of clues on what to do once the first blush of success wears-off. Thus we return to Amazon.Com vs. Barnes & Noble.

The first clue -- you won't kill the big boy, just wound him. Barnes & Noble will learn from Amazon, and its own failures. It will fire managers willy-nilly, but it will, over time, learn. It's depending on its deep pockets and willingness to adapt.

The second clue. The gorilla has enemies. Every local or niche book shop in the country is threatened by the rise of B&N's "superstores." Most need Web sites. Most lack fulfillment capabilities. Partner with these operators, handling fulfillment as with Web site "associates" who now get 15% on their sales. (Find a business model here that works for both sides, not just Amazon.) Link to sites in specific areas (geographic and topical), for specific events. This grows Amazon's content about books exponentially.

Third, realize whom you can't control. The publishers -- all of them -- must dance to B&N's tune. B&N can't keep them from selling to Amazon -- that would be an anti-trust violation -- but it can make the terms tough. Scott Adams' publisher put "Dilbert" on the B&N launch party, so the support you can get from writers is limited. Depend, instead, on readers.

Next, keep margins alive. Even though your costs are lower, you won't be able to beat B&N on price. They're perfectly willing to lose money you can't afford to lose, in order to take share. Instead, offer specials. Lower prices selectively. That means buying astutely, rather than just on-order. Put capital in the hands of buyers, and you'll get a return on it.

Finally, get overseas fast. Affiliate with major publishers, distributors, or booksellers in markets like Japan, China, Brazil, Germany. Offer Amazon.Com technology, expertise and links, protection against B&N's own international expansion efforts. This greatly expands the catalog, and sourcing, at low cost.

As with Netscape and Web software, it's unlikely a second independent winner of great size will emerge in Web bookselling, so Amazon has a unique opportunity. But being the "Netscape of Web bookselling" isn't a bad position, even if that it means you're number-two and have to try harder.

Planet Direct...to Nowhere

We talked last week with Hans Hawrycz, CEO of Planet Direct, which this week is rolling-out its Web "personalization" service through Internet Service Providers.

Small ISPs face big competition (AT&T, Sprint, MSN), they're being blackmailed (UUNet ) into paying for peering services, and they are desperate for new sources of income. But desperate enough to sell-out their customers? Hawrycz insists he's not asking the 71 ISPs, with 650,000 customers, signed-up so far to "lock-out" the defaults on browsers they distribute, forcing users to PlanetDirect, but he's giving them plenty of incentive to do so -- a cut of his ad revenue ($2-3 per subscriber each month). He also insists his site, which personalizes content and chat services, provides plenty of free value to subscribers. "We can do fine" with 150,000, he adds, and almost one-fourth of the 30,000 users with 10 ISPs who were offered his service in the last few weeks have taken it. (But for how long?)

"The shift of the Internet is to convenience-based users," he insists, who see the Net as a means, not an end, and want "a trusted third party to bring them the best of the Web." This is the kind of talk which has already killed Magellan, NetGuide Live, and others. The key word here is *trusted*, and Internet users are notoriously distrustful. (Those who aren't on the Net are even more distrustful.) PlanetDirect's service is based, in part, on "ad robot" technology from Black Sun Interactive of San Francisco which will "listen-in" on chat-room conversations and pop-up with commercials when you type something its software defines as inviting a specific pitch. (Trust this?) PlanetDirect's parent, CMG Information, has already failed to deliver an ad-based free e-mail service called Freemark -- rivals like Juno and HotMail have made that business model work.

Conclusion. The idea that Web users need "training wheels" is sound. So do my kids. But kids in time remove their training wheels, and so do Web users. Cybercash said a few months ago it was feeling the "cash burn." Wait until Planet Direct feels the user base churn.

Mass (Market) Hysteria

The problem mass marketers have on the Internet is they can't find the volumes they need to justify the expense. That's what CUC International found when it tried to take its database-driven shopping "clubs" online. Once you get big enough, the only upside is having stuff to sell, which is why they're merging with HFS International, owners of brand names like Avis Rent-A-Car and Days Inns.

All of which brings them to AOL , with a 5-year, $50 million deal (the price of a single Major League baseball all-star) to put CUC shoppers' clubs on the commercial onliner. CUC uses its clubs to build profiles of individual shoppers and valuable data for marketers on how their pitches and products are doing. AOL's real aim is to do the same thing online, combining mass market size with direct market intrusiveness. Since CUC couldn't find the volumes it needed with its own Web sites, while AOL is already profiling (and re-selling) data on its individual members', this looks like a match made in marketing heaven. If CUC can teach AOL how to avoid the "privacy potholes" it insists on stepping into, this is clued-in. Chances are, however, that CUC doesn't have a clue about how bad AOL's churn is, or how most of their blather is spin, not data. They'll learn.

Clued-in, Clueless

Clued-in is WebWeek and especially its editor, Robert Hertzberg. I worked for Bob briefly at "Interactive Age," and he's an intense, driven man who can get the most from a young staff and a small budget. You'll find this call in conflict with what follows, but gold nuggets do exist in unpromising slurry. Through sheer persistance he's outlasted Interactive Age, stared-down Interactive Week and become the de-facto flagship publication of his company. He's managed to go from monthly to weekly publication in two years without blowing his budget and without losing his touch. It's about time someone gave this man a hand....and a fat raise.

Clueless this week is MecklerMedia, which spent an estimated $100,000 for its new URL, failed to deliver its daily news promises, and ran a major feature on Jim Manzi (http://www.industry.net) a few weeks after his Nets Inc. went Chapter 11. Let's see -- they spend big bucks on something they don't need, fail to deliver something they do need, and can't unclog their B.S. detectors long-enough to see through someone we condemned as Clueless months ago. (Oh, they've just launched a Web ad network, about two years too late.) There are clued-in people working at Mecklermedia (see above), just not enough of them. Note to Alan Meckler -- you need a strong bench to win consistently at the highest level.

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