A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of August 11, 1997

Volume I, No. XXIV

This Week's Clue: Can't Anyone Here Play This Game?

Three weeks ago I told you to ignore Big Media. Now I'm going to tell you to ignore much of what passes for today's Internet media.

Consider. Wired cancelled two proposed IPOs and can't even figure out where it stands politically, let alone how to stop the subsidies of its online efforts with its print profits. If C/Net hadn't sold its interest in Eonline it would have posted a loss. The CMP IPO reveals that company is subsidizing all its operations with profits from "Computer Reseller News." Meckler makes its money from trade shows, not from its online efforts.

Catching on? All these so-called "Internet market leaders" have missed an important clue, so let's review. C/Net modeled the publishing industry online, figuring digital ink was cheaper than the real thing. (Fortunately, since I called founder Halsey Minor clued-in March 3, they've announced Computer.com, which will sell hardware alongside software sites like shareware.com and download.com. Wired, CMP and Meckler are all subsidizing their online efforts. The fact is, growth isn't the same as profit, and you can't model a new medium on the old ones.

Meanwhile, without much fanfare, a lot of people are making a bundle online. Even start-ups. Even publishing start-ups. Take, for instance, StorkSite. As the name implies, they cover the lucrative new baby market. They've got 26,000 registered users who spend 40 minutes at a time on the site -- 3.2 million page views per month. All the editorial features of the site are interactive -- a personalized log-in page, bulletin boards and chat services, weekly and monthly alerts tied to the age of the child, and "buddy lists," an AOL invention which lets you know when friends are online. None of these features are "shovelware " -- they're interactive -- and the site's gewgaw "store" is just the tip of an iceberg of items the site is now positioned to sell, and draw commissions from.

What clues did the stork bring? Don't model your old business online. Instead, model the business process of your target market online. Instead of spending hours posting print material, spend it creating interaction. Instead of renting eyeballs, create value in the buying process, then capture it. Yes, such an effort risks a break-down in the "wall" between editorial and advertising. But that wall is an artifact of another business -- no one knows where it should stand in this new industry. And failure to experiment is death...or at least, a financial bath. One which publishers are now engaged in.

Think of the Web marketplace as an iceberg. Publicly-traded, consumer-oriented companies are easy to see. Nearly all of today's publishers fall into that category. And what you seem to see is the iceberg melting. But under the waterline, there's not just growth, but profit - a whole new ecosystem. Once a publisher (any publisher) proves a way for capturing value by serving that ecosystem, everything will be obvious to everyone. Until then, take anything any of them write with a chunk of salt.

SSP (Shameless Self-Promotion)

Business is picking up. But we can always do more. Because it's Journalism -- checking the news, calling people, listening carefully, writing on deadline -- which keeps the clues coming, 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.

SSP can also stand for Shameful Self Pity. In my struggle with Word 8 (see "The Crash of '97, Clue #XXIII) I changed my link template. The new template had a mistake -- an "IBM" reference in front of the And now back to our show...

Just Because You're Paranoid...

Thanks to Declan McCullough, Netly News is on the warpath against new efforts to restrict online free speech through mandatory page ratings. He's right. Forcing news sites to be rated restricts all reporters. But who, then, defines what is news? That's the question Joshua Quittner, a colleague at his, put clearly in last week's Time Magazine.

The first thing I was taught in journalism school, 20 years ago, was that this is the one profession with no entrance requirements. A journalist is someone whose boss buys ink by the barrel, we were told. To the "committee" now being formed to hand out the precious "N" rating, that would be amended to "buys bandwidth by the T-3."

But what of those news organizations which don't buy that much bandwidth? What of the Web's alternative papers, small magazines, and newsletters? In theory, a group will be assigned to adjudicate such matters. In fact, no such adjudication can be successful -- it is in fact the licensing of journalists, a clear violation of the First Amendment. Let's see any group try to claim that this newsletter -- delivered solely by e-mail and on the Web through the gracious agreement of some friends of mine -- isn't in the "news" business. Of course it is! And if I can get into the news business for $20/month, so can anyone else.

In terms of journalism the facts are these. The Web brings us back to the mid 19th century, when few journalists made a living and New York had dozens of papers for every ethnic group and political interest. Costs and the mass market eventually drove most of those papers out of business. (Costs on the Web are declining. ) This is a fight which authority, including journalistic authority, cannot win. McCullough's right to have his Oliver Stone hat-on when he approaches these questions. The rest of us should be smart enough to know that Stone doesn't produce history.

Dressing Up Failure

Visa failed to dominate the back-office of e-commerce with its Visa Interactive initiative. Turns out folks are happy with present payment mechanisms, and just need someone to enable them. So Visa has found a sucker, Yahoo. Because Yahoo has Wall Street credibility (undeserved), it could pay 466,000 shares of stock (worth nearly $23 million, believe it or not) and develop a "Visa Shopping Guide by Yahoo!" -- essentially an electronic mall. (The real upside for Visa is a Yahoo-branded Visa card.)

Zona Research likes the deal because AOL has made some money with its Web mall, and a brand like Yahoo has a chance of doing the same. At the very least, its mall could prove a concept, and get folks comfortable with buying online, they figure. Unfortunately, given the history of e-malls (IBM, MCI, et. al), we're more likely to be looking at another expensive failure. Wall Street, as usual, prefers mass and marketing to sales and profits -- they'll learn.

Real Limits

While crowing about their new RealNetwork, MCI and Progressive Networks revealed more about the real limits of the Internet as a broadcast medium than intended.

NBA Coach Jack Ramsey talked at some length about the former weakness of his employer's radio signal in Miami, where he does Heat games. But Rob Glaser of Progressive Networks admitted the new network will only scale to 50,000 simultaneous users for now, and MCI's Vint Cerf allowed they'll be careful about meeting a goal of 200,000. (That's for audio -- numbers for passable video would have to be lower.) For Dr. Jack, that's an OK local number, but this is a worldwide operation -- in that regard the "rating" is invisible, even at peak capacity. For the NBA, this is an excuse to take-back Internet broadcast rights, price them to market and collect some revenue.

The keys to the deal, in fact, are corporate meetings and MCI's competition in the backbone market, especially from IBM (no, I meant that one) and AT&T. Fortune 500 companies can now open-up their annual meetings to analysts worldwide, and MCI has another arrow in its quiver to use against worldwide Internet networks like IBM, and BT rivals like AT&T. The goal is to offer a big portfolio of scalable services -- across all telecommunications product lines -- which will give the worldwide Fortune 500 no choice but Concert, the name given the BT-MCI marriage.

But does the RealNetwork make the Internet a broadcast medium? Of course not. It's now a narrowcasting medium, taking local radio nationwide and, in time, giving small broadcast producers the same opportunities small newsletter producers get from the Internet today. Your clue -- don't believe the hype. Read the small print.

Clued-in, Clueless

Clued-in this week is Federal Trade Commissioner Christine Varney. Every Administration brings at least some smarties to town, and Varney, now 41, should be considered the first bright spark in the Gore Administration. She knows fraud can happen in newsgroups, through bogus endorsements, understands the truth about junk e-mail -- and knows the real privacy issues. It's unfortunate her FTC colleagues don't always follow her lead, preferring the easy political kill to difficult policy-building, but maybe this award will help a little.

Clueless is anyone who doubts that Microsoft Corp. acts like a classic monopolist. (The only question is whether they have a monopolist's market power, and some still disagree with that.) Features which users want are absorbed into the operating system, bought outright or stolen and given-away. Cross-platform technologies are left unsupported, except through features which tie them to Windows. Any potential rival is bought-off and tied-in. Once Microsoft takes its stock-market fall, watch for clued-in bureaucrats like Ms. Varney to swoop-in. Arrogance only pays in the short-run.

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