A Clue...to Internet Commerce

by Dana Blankenhorn

For the Week of December 29, 1997

Volume I, No. XLIII

This Week's Clue: Get Real

In 1997 Web sites finally moved beyond brochureware and became real business centers. We all know the biggest successes were business-to-business sites where buyers were already net-centric. The consumer space saw dominant merchants pulling out the big guns against new Web competitors , guaranteeing a long war of attrition between low Web costs and deep physical pockets. Every viable Net-niche faced its own version of this problem, as minnows jumped-in to eat the sharks' lunch.

Publishing saw the collapse of the ad-only business model. The costs of newsgathering, measured against the prices of banner ads and the ability of merchants to draw their own customers, spelled downsizing and re-organization. It also saw publishers begin to consider the risks, and rewards, of deep links for impulse purchases, and deliberate links to company stores for larger purchases.

In the ISP space, Bob Metcalfe ate his words too soon. It wasn't exactly a crash, more like a slow grinding-down. Bandwidth-intensive services could get no traction as spammers stole the backbones. Some ISPs took a Clue from us and counter-attacked, using arguments we made against those who'd route junk through others' e-mail boxes. Others simply closed their servers off from mail transit. But there are lots of other ways to steal bandwidth, and when everyone "rushes to the rail" to deal with the news , everyone gets hit. Thus the rise of Virtual Private Networks , which will continue to grab business market share from consumer ISPs until backbone capacity is dramatically increased .

In the tools area, trends which became evident in 1996 became obvious in 1997. It's hard to turn a dollar. If you don't win fast someone else eats your lunch. Even if you're selling something relatively esoteric, , like an online sales clerk, you can lose fast . If you say something stupid , the echoes last a long time.

Who won? Those with deep pockets who were willing to give-away the new niches using monopoly profits. But that game will end . As the year ended, those who'd made it through were thankful for work , while those with deep pockets were scooping-up bargains.

From here, there were no surprises. Stay tuned for a look inside our crystal ball for 1998...

SSP (Shameless Self-Promotion)

Here's the deal. We're going semi-pro for 1998. John Audette will host the e-mail editions of A Clue, and we hope you'll join the discussion and help us build a digest of Clues we can share. (The Web version stays with Sean Cafferky and Tommy Bass.) This will, of course, take time - our present estimate for the hand-over is February 1. To pay for all this, we'll add a weekly, tracked ad . I figure on calling it shameless promotion, running along this SSP we've always done. The theory is you first provide service - real newspapers don't put ads above the fold.

Still, 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, as found in Atlanta Computer Currents , on Access Atlanta or Net Marketing magazine and Internet & Electronic Commerce Strategies don't wait for the e-mail -- give me a call at 404-373-7634.

And now back to our show...

1998: Reality Bites

There are some exciting new chapters ahead for many Internet start-ups - 11 and 7 . Not all the victims will be the obvious ones - the loan and equity windows are closing, the deep pockets are quickly emptying. There's bound to be darkness before the dawn.

We hit the bottom only when bottom-fishing buyers get nervous. This will mean a shake-out among online brokers - it will be instructive to watch who survives there. Once that bottom is reached, however, the natural economics of the Web will re-assert themselves. It does cost less to buy and sell here, and if you have value you'll find routes to the market. In other words, the cream will rise.

Who's going to be part of the cream, and who'll get skimmed? Those with a real game will be winners. Those who return to their knitting in time will bring us all benefits - those backbone problems will fade. Those who really have game will find real opportunity. Those with a firm hands on their costs will do best, by surviving.

In 1998 we're going to start breaking-down those elements that go into all buying decisions, industry by industry . "Knowledge boutiques" will learn how to sell stuff, by learning the process by which people buy stuff, while clued-in stores will find these boutiques and nourish them.

In all this panic and resurrection, they'll be lots of lawsuits . They'll be lots of new law made, much of it completely Clueless, and it will be hard to tell friend from foe. There's a lot that's not in this crystal ball. We'll keep looking for Clues, and let you know when we find them.

Politics: Earnest Money, Real Disappointment

Washington will remember 1998 as the year when the Internet money hit town. Copyright holders demand protection, while Internet users demand liberty. Those who once made a modest industry organizing the unorganized will be trading in their running shoes for wingtips . What does this mean?

Here are the Clues I've gotten from a quarter-century following our politicians, mainly from a healthy distance. Washington will soak up as much money as you give, but the quality of the resulting decisions (from your standpoint) will never rise. Bill Gates could plow his whole fortune into buying Washington and never reach the barrel's bottom, because every political action leads to an equal and opposite reaction.

When Washington disappoints, the word from experts will remain the same - more money. That's what passes for conventional wisdom in Washington, and it is Clueless (albeit profitable). What makes power in Washington are numbers, big numbers of people who'll follow you wherever you say. The Internet has numbers, but no leadership, and no platform. It also lacks the real crisis that would drive-out ambiguity.

Consider this real-life example. Gigadollar Bill wants the anti-trust people off his case. The usual cure is to support conservatives who find government a nuisance. One of the most powerful conservatives in Washington is Senator Orrin Hatch of Utah, chairman of the Judiciary Committee. But Novell's based in Utah, so Orrin hates ol' Gigadollar. He tells the Clinton Justice Department to "sic 'em." Absent a crisis, principal beats principle every time.

How could we break-through? Launch an Internet Politics Web site, aimed at crafting an Internet platform. Get ad networks to donate otherwise-unsold banners for the write-offs. Scale that site to handle conversations, explanations, and surveys. Build a platform by consensus, then collect donations to support candidates who'll support the platform. An "Internet Party" will, in an Internet crisis, get real action. In ordinary times, it will take much less money to manage and mobilize than other types of organizations. It will take time, effort, and commitment from millions of ordinary users to build such a party, and it will be enormously frustrating. Don't expect big results in this election cycle, although maybe we can tip a state away from a complete idiot with a big budget. Nothing else will work.

Boner of the Year Award

In Texas last week, an in-law gave me a story that goes beyond Clueless. See what you think of it.

This relative was looking for Internet service, and saw ads for GTE offering good service at a fair price. She bought-in, but quickly found her mailbox flooded with spam. She created new mailboxes for the kids, and they, too, were flooded with spam. Worse, this spam was targeted, and local.

It seems another unit of the same company was signing-up local merchants for an online directory, and telling them they could now reach all their customers. So the merchants sent their ads to every local mailbox the company's other unit had set-up. My relative eventually cancelled the family's account and came to distrust the Internet.

If I didn't know better I'd say this was all malicious, a conspiracy. Can you imagine anything stupider than encouraging spamming on the theory it's local? The result didn't just turn-off people to the ISP, but to the Internet in general. My new-bie relatives didn't know of the obvious solution, and wouldn't trust it if offered. They're part of the majority of Americans I call "America Offline," and their voices will be heard in the 1998 elections.

Clued-in, Clueless

Clued-in is Newsbytes , which sold at the right time, and to the right partner . You've got to know when to fold them, know when to walk away. That's how you live to fight, and win, another day.

Clueless is Business Week , which recently decided to withdraw from the Web and start charging for subscriptions to its Web content "because the WSJ has done so well with it." Forget whether BW and the WSJ are identical (they're not), and forget whether Money Magazine is making money at this (it's not). Remember that BW is also going to continue to offer its stuff free over America Online. The fact is, these people don't have a business model other than the one they use on their magazine, and we have a word for that. What about Slate's move to the same paid-subscription business model? They're no longer worth the bandwidth of an insult...

A Clue...to Internet Commerce is a weekly publication of @Have Modem, Will Travel. It's sent free to a qualified e-mail list. 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.