A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of July 14, 1997

Volume I, No. XX

This Week's Clue: Microsoft's Place Is In The Box

Microsoft sells software.

Having swept the field in its chosen niche of PC software, Microsoft is on the Web to build a new market for upgrades. It's the "upgrade cycle" that keeps Microsoft (and Intel) thriving. The Web overtly threatens that. So all those moves into seemingly-unrelated businesses, like TV broadcasting, cable, newspapering, online services and film production are defensive. There's no threat here to other industries -- Microsoft has to find new reasons for all of us to buy its new stuff, or the game's over.

So you can't look at "businesses" like MSN, Expedia, Microsoft Investor, Sidewalk, MSNBC, or the most-recent, MSFDC, pushing online banking, in any conventional way. Microsoft will pour large amounts of money into these businesses, and crow about their success in bringing in money. But they won't tell you whether they're making a profit at any of these businesses, and evidence increasingly shows they're not.

Let me put this simply -- they're demos. They're designed to draw audiences and push other people into using Microsoft tools and technologies. Who cares if MSNBC loses a few million if it pushes every TV and cablecaster into building a multi-million dollar Web site with Windows and ActiveX? Does it matter whether Microsoft Investor turns a profit, if all its users are pushed (hard) into standardizing on Internet Explorer?

So it's a big mistake to draw lessons from Microsoft's outside interests. Microsoft has had plenty of failures (Bob, Windows for Pens, etc.), and outside its natural businesss -- operating systems and office suites -- its successes (Microsoft for the Home) have come at a high cost, in time and money.

When looking at Microsoft on the Web, then, everything comes down to the key question of Bill Gates' life -- control. Control of the market, its direction, and its key tools. Gates understood this game from the beginning, focused on it intently, and proved one committed entrepreneur will beat a herd of suits every time. Now he's in the position IBM was in the 1960s, and two years ago the Web must have looked to him the way the IBM 360 looked to Thomas Watson Jr. He must feel he's bet the company and won again. Maybe he has. But that has nothing to do with whether any of his Web content efforts succeed or fail. It has to do with whether we buy Pentium II machines with Memphis, whether we buy Office '98, '99 and 2000.

In a world without antitrust concerns, Microsoft would be buying outfits like SAP of Germany and Computer Associates, moving what had been mainframe applications into Windows NT. Failing that, this may its best play -- take small stakes in a variety of industries, demonstrate its solutions, and push everyone else to buy its tools. Time will tell whether this succeeds, but given Microsoft's $150 billion market capitalization, time for now is on the side of Gigadollar Bill.

So let's repeat your clue here. The rules don't apply to Microsoft's content initiatives. They're DEMOS.

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.

One more thing. If you're going to Internet World in Chicago next week, look for me. I'll be wearing a suit, a fedora, and a beard, the world's only Irish Catholic Hasidim.

Exclusives, or Studies in Salesmanship

When I was at Interactive Age two years ago, we had a great salesman, who made me profitable all by himself. (This was in the days before ad networks and performance guarantees.) He could spin a story around my (and my employers') credibility that had media buyers paying more than what wound up on our rate card for access to my stuff.

AOL has a great team of salesmen, too, which leads me to these "exclusive" deals it's signed with Amazon.Com and others. Note that AOL gets its money up-front. All it's guaranteeing is it won't run the same scam for some time with, say, Barnes & Noble . Fear of his competitors made even clued-in Jeff Bezos of Amazon pony-up $20 million -- one reporter accused him of breaking his own rules against "buying real estate." (And when the salesman represents 53% of U.S. households' online activity, as a recent report suggests, you shrug and pay -- that's bidness.)

These days I cover salesmen the way Mike Lupica covers baseball, as a fan. My guess is the fellas who sold this "proposition" to Amazon offered no performance guarantees, no buy-rates, no click-through assurances. They just pointed to their 8-million name list of newbies and asked for the order.

It's a great scheme, but in the long run that's all it is. Online ads can be finely measured. People don't stay newbies long. Many of those 8 million names on the AOL list (like mine) use the service once in a blue moon, and many of the rest -- like my relatives -- only use things like e-mail or chat. There's a myth, first spread by Prodigy in the late 80s and spared by AOL today, that newbies don't grow-up. They do, quickly. So AOL's marketing types better find a new game, soon, or the show's over.

Netscape's Paul Evans actually has a lot more to sell -- Communicator bookmarks, Netcaster premium channels, event-driven marketing off the top of his home page. What he lacks is the brazen "show me the money" drive of the AOL folks. He's not a good con man. Good for him.

A Note On Business Models

Many business models which sound right aren't. Selling a joke for a penny, as First Virtual and Clickshare were designed to do, is one. Selling journalism for big bucks, like Jim Seymour's IdeaMarket has tried to do, is another. Selling the right to start conferences, as Howard Rheingold tried to do with Electric Minds, looks like another.

The difference between those ideas which work and those which don't comes down to some simple questions. Would you buy this proposition, consistently, for years? How simple is it to replicate what you do? Who, specifically, is your customer, what is he doing now, and how will you save him (or her) time and money off that alternative?

These are the kinds of things which should be thought-through in a business plan, but in the rush to get going, or in the fever of the dream, they're often glossed-over. But capitalism is like that -- some fail. Think of it as evolution in action.

Clued-in, Clueless

Clued-in this week is Richard Hoy of Tenagra Corp. in Houston, who runs the Online Advertising List. The list is a fine collection of voices. Some are clued-in, some are clueless, others are just cantankerous, and your opinions on who is who may be different from mine. But if you're going to do business online, you need to hear more than one voice. You need a network of voices, and here's a good one. Roy also does a weekly round-up of Web business news called Ad Bytes which always finds interesting stuff. Well worth the time.

Clueless this week is AT&T Worldnet. They made a big thing last year about putting together business Web sites, failing because their costs were too-high and they couldn't get customers' money-out. So they made up a fictitious "RubberEyes.Com" selling rubber sunglasses, and when people clicked to respond to the ad, they got a pitch for those failed Web-hosting services. There are plenty of success stories out there -- some sites hosted by ATT. Rather than doing their homework, the company's ad agency made something up. Cluelessness personified. (AT&T also sent me a press release recently bragging about being at the top of Keynote's list for backbone speed when the article claimed those who were at the top were marketing failures.)

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