A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of July 7, 1997

Volume I, No. XIX

This Week's Clue: Where the Money Went

Millions have been invested in Internet Commerce solutions. So why are we so broke?

Internet Service Providers are still losing money on every sale, but trying to make it up on volume. Most Internet software companies are reaching the end of their venture capital rope. Web sites aren't making money, except (perhaps) some which are selling goods, but that's just finding another route to existing markets, not creating new ones.

Turns out the folks making the most money are "execution shops," which convince ad agencies and brand names they must protect their investments by delivering knockout, graphic, interactive experiences on tight deadlines. They're essentially system integrators, combining hardware, software, networking and communications to deliver what clients are convinced they want.

One of the biggest is IBM's operation in Marietta, Georgia, which I toured recently. They have over 100 graphic artists, film producers, Web programmers, and writers, along with all the Macs, Windows-based PCs, T-3s, and even DVD encoders you could ever want. They've got a $1 million film post-production house, a state-of-the-art audio mixing studio, and lots of big contracts with the likes of the PGA and K-Mart . They do good work.

Trouble is, their customers are taking a bath. As with CD-ROMs, investors in high-end Web sites aren't seeing returns on their investments. Why? Because while the amount of money we have to spend, as consumers and businesses, may increase arithmetically, the money needed to gain our attention multiplies. Every level of complexity raises the bar for users -- they demand more and better experiences, which cost more and more money. I distinctly remember, three years ago, reading how CD-ROM development costs had risen to the point where only the best titles could hope to get a return at then-current price points (which have since declined). The same's true (in spades) on the Web.

The big problem isn't the execution of these high-end sites. It's the amount of new information they deliver (little) and the amount of interaction they permit (less). This medium is not Moses getting the tablets on the mountain. It's everyone back at camp arguing about what's on the tablets and what it means. (Which is why George Will, for one, doesn't like it.)

What's the solution? If you want to make money and do "cool" stuff," develop high-end Web sites for top clients. You might extend your run by integrating databases and EDI on those companies' Intranets, where business models are real and the technology offers real savings. Or keep your investment, and expectations, relatively modest. Deliver deep value to a small audience, retain the loyalty of that audience, then extract the value.

SSP (Shameless Self-Promotion)

Business is picking up. Check out the next issue of DOSV, Softbank's Japanese computer magazine, or the next issue of Internet & Electronic Commerce Strategies, to cite two examples. And AccessAtlanta is finally running my "Internet Insider" column.

That's good for you.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.

True Lies (A Major Rant)

Don't believe everything you read. Especially when the mainstream press gets to talking about Internet Commerce.

Instead of hiring clued-in reporters with experience, most papers have taken control of the beat by moving folks in from other beats. Competing for space and placement, their bureaucratic impulse is often to misinterpret reality so they can sell a story to an editor. Truth is usually a casualty.

Which brings me to Bruce Haring of USA Today and his coverage of two Web disputes that recently hit courthouses. His stories claim, with no real justification (except some people who know nothing told him so) that the "tradition of hyperlinking" is "threatened" by these cases, and "some" (as opposed to anyone with a brain) consider links "part of Web culture".

His "story" consists of misrepresenting two cases -- Ticketmaster vs. Microsoft and the recently-settled case of TotalNews against a group of "big media" companies. In the first case, Microsoft had been negotiating with Ticketmaster for links to its database, from its Sidewalk sites. Negotiations broke down on the subject of price, and Ticketmaster began lining-up other partners. Microsoft put the database calls in anyway, and Ticketmaster sued.

This case is not about linking, Bruce. It's about database calls, and whether Microsoft's talks with Ticketmaster implied a value for those calls to Ticketmaster's database (not its Web server, its *database*) that Microsoft then took for free. Ticketmaster, at the time controlled by Microsoft co-founder Paul Allen, was sold to Barry Diller's Home Shopping Network as the conflict escalated. Ticketmaster says it doesn't object to sites linking to its front door, but that database calls, to ticket windows for specific events, represent values Microsoft acknowledged and therefore should pay for.

The TotalNews case wasn't about links, either. It was about frames. TotalNews was sending people to news stories while keeping its ads on those users' screens. That was its entire business plan, and media companies -- who still haven't a clue about how to profit online -- rightfully saw a threat. The result was a "linking license" -- a legal fig-leaf created for the occasion -- and TotalNews' agreement to protect the media sites' ad placements.

Both cases involve important issues, but neither was about the right to link. Some people, especially on small sites, do ask permission for links from some big sites. It's called being nice. But you cannot prevent someone from giving out a Web address -- the difference between USA Today and USA Today (http://www.usatoday.com) is minimal. If you use Netscape 3.0, or other new e-mailers, in fact, both of the previous references deliver the same link, in the same way.

Now there is a way to prevent links -- charge for access to your server. The Wall Street Journal does that, and has a right to its cluelessness. It won lots of subscribers to its server, many of whom then dropped their newspaper subscriptions. It also became invisible to the rest of the Internet, a rumor rather than a participant in the Web's discussions.

Harvey quotes a Mitchell Kamarck, a Los Angeles lawyer "specializing in Internet issues," as saying site creators may be reluctant to have any links without a contractual arrangement, and major sites will want to have control as to where they will link. How can I say this in a family newsletter -- EXPLETIVE NOT DELETED! Are you going to say I can't point you to a publicly-available address in a publicly-accessible network? Kamarck's fishing for clients who are as clueless as Bruce Haring. Don't be one of them.

One more thing, Mr. Haring. Before you call someone an expert again, check your facts. Kamarck's got no home page, doesn't appear in a Yahoo or HotBot search, and can't even be found on Four11. Your story was this "expert's" first appearance in USA Today, according to your own site's search software.

Proof The Downturn Will Last Longer Than You Think

Click here and read carefully. Your problems in getting bandwidth will not be cured with ISDN, ADSL or even cable modems. The backbones are sick, as Keynote Systems and Boardwatch Magazine have proven. The most popular systems like IBM and PSI, are slowest, while clueless CompuServe rates best. And the biggest problem is connections between backbones, so switching your access to a fast backbone won't solve all your problems. If the Clinton-Gore team really wants to do something for the Internet, they can facillitate a mending of relations among ISPs.

Close, But No Spam Cure

Some weeks ago we suggested that the "spam" onslaught can be cured once sending e-mail through a fake address (so the recipient can't reply angrily) is defined as fraud under the law. Recently, Manhattan State Supreme Court Judge Diane Lebedeff got halfway there, stating that state fraud laws are valid on the Internet and forcing Kevin Jay Lipsitz to halt his magazine subscription frauds, going by such names as Krazy Kevin's Magazine Club, Magazine Club Inquiry Center and Tempting Tear-Outs. The other piece of the puzzle remains -- defining false return addresses as frauds under the same law, or preferably under federal law.

Clued-in, Clueless

Clued-in this week is DoubleClick and its head, Kevin O'Connor, whose DoubleClick web ad network (seemingly alone in the field) keeps innovating, rather than cranking out the same old-same old. O'Connor gives advertisers his analysis tools, he's gone international with local partners, he's well-capitalized, and now his DoubleClick Direct plan will sell banners based on real results (like sales), rather than page views. What others have turned into a rip-off, O'Connor has turned into a valid value proposition. Nice job.

Clueless are our friends at the New Century Network, who launched a great search service of member newspapers without nailing-down agreement from all the papers, and without having any valid business model! The searches have value -- look up your own name for proof -- although they're handled in a conventional way. The rest of the site has minimal value, unless you like re-reading what's available on lots of other sites. Newsworks could have been used as a base search engine to sell .PDF files of actual news clips -- very valuable to lawyers and out-of-town relatives. Now you've guaranteed failure, ticked-off your partners, and thus given the partners' news editors reason to write stories in a few months about the "death of the Web." Thanks for nothing.

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