A Clue...to Internet Commerce
by Dana Blankenhorn
Volume II, No. VIII
For the Week of February 23, 1998
Valentine's Day Cards. Reminder services. "Free" e-mail services. Daily e-mail newsletters. Personal spider programs.
Like the newsletter you're now reading, all these new Internet services are based on the fallacy that bandwidth is free, and anything which gets an ad in your face is valuable. (Where have we heard this one before?). Well, bandwidth isn't free. While it's cheap and plentiful, it can be overwhelmed, and abusive servers of all types pose the same threat to low prices as browsers who leave their dial-up connections on all night.
There is no such thing as a free lunch for a reason. As users learn to tune-out banner ads and technology supporting this desire becomes fine-tuned and widely available, the pressure to create two-way advertising communication, regardless of its merit, will grow. That way leads to trouble. Here's one example, reported recently by ZDNet. Greet Street was building a business sending hundreds of thousands of 20Kb "virtual cards", most of them free. So Hallmark, which dominates the physical card world, responded with free 200 Kb cards. Hallmark figures it will either destroy the enemy or destroy the process. Either it wins the market back, or mail administrators refuse delivery of all e-mail greetings, thereby killing Greet Street's business. Your Clue is this, and it's the big problem of our time. It's a problem for our politics, our economy and our technology base. When there's no risk and no cost for flinging garbage, everyone drowns in it. There's an iceberg dead ahead, and those who reach the lifeboats tomorrow will be those who provide value in what they send today.
P.S. -- When checking this story's links last week, we found that Spamford Wallace's http://www.cyberpromo.com no longer has a DNS address.
Here's an irony. Datamation Online wants me to write a column on electronic commerce, and I'm happy to do it. You can also expect to see me at Internet World in Los Angeles the week of March 9. And, yes, we're still waiting on automated deliveries through Audette Media - we'll let you know on that. Just remember that 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, in Net Marketing magazine and Internet & Electronic Commerce Strategies, or right here, don't wait for the e-mail -- give me a call at 404-373-7634. And now back to our show...
The biggest threat to Web commerce doesn't come from America Online, Microsoft, or the FBI. It comes from the regional Bell Operating Companies. In the last few years all the Bellheads have become Internet Service Providers, and generally they're pretty Clueless about it. They charge more, offer less, and respond to customers with none of the haste of their rivals. Their general strategy is to carpet-bomb consumers with TV ads and bill inserts claiming down is up, bad is good, and that since they're the phone company you should trust them. Meanwhile, they're playing a double game with ISP rivals. A year ago, they were trying to force ISPs to pay tolls for their use of the local loop. It's called a "termination fee," paid for moving a call outside your regular network and terminating it in someone else's. In response, many ISPs began signing-up for local service with alternative carriers like Teleport (soon to be part of ATT) and MFS (already part of MCI). The AXCs (as they're called) then started billing the Bells as their customers had been billed. So, in an about-face worthy of the old Communists, the Bells simply reversed course, refusing to pay for services they'd previously demanded payment for, arguing before state regulators the charges they'd previously insisted upon were unfair. In response the AXCs are dropping the ISPs' business, forcing ISPs to buy local lines from a monopoly provider who's also their chief competitor. As one ISP told the Philadelphia Business Journal, "Though on paper there's not a monopoly, there really is." When they bother to defend themselves, the Bells return to the hoary lie that Internet calls cost a lot to maintain because they last a long time, that they overload the network. (This was set straight when it was first propounded, but who cares?) Having set the rules of the game, they object when the game goes against them. But don't expect logic from a Bellhead. Instead, expect a raw exercise of political power. The Bells own state regulators - through political contributions. The Bells own local media - through their advertising budgets. In their argument before Pennsylvania regulators, Bell Atlantic simply demands that the FCC impose a per-minute fee on all Internet traffic and hand that money to them, else they won't "compete". Despite telecommunications "deregulation" the Bellheads remain the gatekeepers of the nation's communications system. When they lose before regulators, as SBC did in the Texas long distance market, they simply go to court. It's obscene. If they want a guaranteed profit, they should submit to regulation and stay out of unregulated industries. If they're going to compete, then they should accept the risk of losing the game. When I started covering the telephone business 15 years ago real competition was promised in some distant future, with deregulation to follow. Now we've had the deregulation, but no competition. The Bells own most of the wireless market, they maintain their monopolies on local service, and cable competition remains limited to big customers (with lost profits simply billed to small customers who remain with the monopoly). Want ADSL? US West stopped offering the "alarm lines" competitors needed to sell the service. Cable modems? Puh-leeze - the cable head-ends I've dealt with are Bell wannabes. If a satellite operator starts gaining traction, my guess is a Bellhead will simply buy it. A generation ago the answer was to break up Ma Bell, but now we have 5 Baby Bells acting in exactly the same way. You may argue this has nothing to do with electronic commerce - the Bells are simply part of the environment everyone must deal with. Tell me that when their money and political power forces everyone on the Internet to pay a per-minute fee into pockets the Bellheads can then plow into access services, directory services, and any other market they decide to take. And if you think you're having trouble now getting providers to admit to network problems, just wait until the Bellheads decide the data's proprietary.
Recently I did an in-depth study of online grocery deliveries. I found an interesting market battle is developing between companies that deliver the necessary delivery infrastructure and take the profits, against software companies that let the grocers handle that. Who'll win? I've said for some time there's opportunity for someone who can regularize deliveries of everything busy families need delivered, and Streamline is working on a model for just-that, based on a rented lock-box on subscribers' porches and regular delivery routes to cut costs. I still insist mini-warehouse companies like Shugard, which already pick-up and deliver storage boxes, should have a play here. An Andersen Consulting study, sponsored by the industry, claims online groceries will be an $85 billion business in 10 years, a 1,000-fold increase from last year's $65 million. But that's just a guess; it assumes current problems will be solved. Here's the biggest - consumers want shopping, not just deliveries. We demand bargains. While surveys showed they were willing to pay for convenience, demand rose sharply when delivery charges were eliminated. So your Clue is this -- it's products like IDS' List Builder combined with an efficient shopping and delivery service, which will win my loyalty. I think they'll also win the market.
Recently I was involved in an I-Sales discussion on the Better Business Bureau. After hearing critics call the old organization a glorified extortion racket, I tracked down Russ Bodoff, general manager of BBB Online, to get his side of the story. Bodoff said BBBOnline was launched last April 30 and features a search engine for businesses carrying the BBB seal. "If a company meets a series of standards on their Web sites consumers can pick up a report" online, he explains. "The local Better Business Bureaus are where the information on companies comes from. We maintain databases, but they come from locals." The whole process of joining BBBOnline can get complicated, Bodoff admits. You first send an e-mail to Bodoff's site, then he'll forward it back to one of 135 affiliates, with a total of 1,000 salespeople -- the BBB gets all its income from membership fees. Once you're approved locally, the BBBOnline staff will visit your site, "making sure you're at that address and correctly representing yourself. We also have members commit to an arbitration process" when the site has a dispute with a consumer. "When a consumer is not satisfied they should be able to get third party arbitration at no cost to the consumer," he explains. "In a decentralized system not every BBB will have the same level of expertise" to evaluate online businesses, Bodoff admits. "We've built a team here that has a high level of expertise looking at commercial applications. We don't approve all of them. It can be approved locally but not nationally. In 12% of cases we recommend changes in advertising - they've often made mistakes without knowing it. They make exaggerated claims. And those that don't" make changes "don't make it into the program." BBBOnline has a half dozen competitors, like The Public Eye, NetCheck, and the Web Assurance Bureau. "You have to make your own judgement on their infrastructure and how they sign up businesses. A lot of people think there's money to be made in this." BBBOnline's 820-member roll includes heavy-hitters like Proctor & Gamble, Lands End and JC Penney. "Most local BBBs didn't start engaging in selling this until the last quarter of 1997," he adds. "We expect to have 3-4,000 members by the end of the year." Compare that to the total of 250,000 regular BBB members, however, and you can see Bodoff has a long way to go.
The final approval of XML recently by the World Wide Web Consortium has set in motion what might be the final chapter in the "browser wars," giving Microsoft its best chance of extending its monopoly and Netscape its last chance to thwart that move. Because XML supports structured documents and database-like tags, it provides great new capabilities - especially for corporate networks - which will motivate upgrades from the Version 3.0 browsers now dominating the market. It's a fact that Microsoft's programmers have moved faster than Sun's in implementing these capabilities, as well as things like dynamic HTML. They've also tied it all well with the operating system, a move fewer-and-fewer big customers care to resist. Unless someone gives Netscape the technical lift it needs to stay competitive, and soon, Bill Gates will not only have his pie, he'll eat everyone else's.
Clued-in are The Chicago Tribune and Detroit News, which have begun a process computer industry sites have been chary of - real-world reviews of censorware programs. The reviews aren't rigorous (although well-written), and they're more about the issue than the reality, but if the online media want to keep their control of the beat they better get their rears in gear. What's blocked (and not) by which program, specifically? Without these tools, calls by demagogues to force this down schools' and libraries throats can't be resisted. Clueless is the Congressional "Internet Caucus", which believes "education" on the reality of the Internet will drive out demagoguery. Here's a Clue - when Strom Thurmond joins your club, it's time to either lead, follow, or get out of the way. The caucus has a choice - they can either take some stands, risking a split in the ranks, or they can become irrelevant to the coming debate.
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 mailto:Dana.Blankenhorn@ att.net. We're on the Web at http://www.tbass.com/clue and http://www.ppn.org/clue.