(formerly "A Clue...to Internet Commerce")
by Dana Blankenhorn
Volume II, No. XXV
For the Week of June 22, 1998
This Week's Clue: Accounting For House Ads SSP (Shameless Self-Promotion)
This Week's Clue: Accounting For House Ads
Every magazine, newspaper, and broadcast outlet has what they call "house ads." These usually start as spaces and spots that, for one reason or another, went unsold. But it's easy to squeeze out more, especially in broadcast.
TV has taken a lesson from the Web about the value of screen "real estate," in part, to create more house ads. CNBC features scrolling stock tickers and an updated "bug" of the Dow or S&P price, a label covering the subject or speaker, ads from sponsors of the ticker, and sometimes a "live" button in another corner. The World Cup soccer tournament on ABC keeps a bug in the upper-right with the time of the game, and score, along with a corporate logo that lets the network broadcast a half "without commercial interruption." (Univision runs small ads, including house ads, inside the lower part of the screen during slow points in the game.)
No channel is immune to this. Increasingly the real estate is used to push a network's Web services. NBC has been especially aggressive in publicizing its MSNBC, and that's the key, some observers say, in its acquisition of Snap! (OK, most of it, but operating control) from C|Net .
Major media outlets can use house ads to drive a lot of traffic, but they're missing a big Clue. Namely, house ads cost money. Not real money, but there's an opportunity cost to house ads that many people overlook. If you devote your house ad space to publicizing the Web site, for instance, you're not publicizing other aspects of your business. Traffic driven by house ads also skews your Web balance sheet, making it look much better than it is.
The following exercise thus becomes vital. Assume you're paying for your Web house ads. (Give yourself your best rate, since it's such a heavy buy.) Figure that into the promotional costs of your site in an examination of its profitability, and profit potential. When you fail to do this, you may find yourself sending money down a rat hole.
Access Atlanta represents such a rat hole. The Cox flagship crows about its increasing page views. But Cox has been using all its considerable house ad space within the market on the site's behalf. There are full-page ads in the "Atlanta Journal-Constitution," regular references to it on WSB Radio and television...we're talking here about the dominant outlets in the market. Much of the company's local paid advertising is also devoted to the site - not just billboards but rotating signboards at Atlanta Hawks' games.
From what I've been able to discern, the site's books are fairly marginal - they're getting back in ads the costs of the people who work at the site, or they figure they soon will if present trends hold. But the costs, when house ads are added-in, are enormous. And there is absolutely no guarantee that usage levels will hold if the house ad spigot is turned off.
Let's go back to NBC a moment. Where will the house ads for Snap come from? The TV network already has a heavy rotation of ads on CNBC. Station breaks are taken up with house ads for its relationship to the Wall Street Journal . Televised sports and news shows do heavy promotions for MSNBC . Unless the network reduces support for these channels, or finds new real estate, someone's going to come up short. And at some point, heavy devotion to house ads exhausts viewers and crowds out regular advertisers, without whom the whole exercise is fairly pointless. Heavy rotations of your own Web site ads can also reduce the opportunities your ad salesmen have to offer cross-promotion with advertisers, on behalf of their Web sites.
None of this means it can't all work. It does call for accountants to take careful note of the real costs of their Web sites' promotion, and to call executives' attention to these numbers, and the missed opportunities (in other areas) they represent. At some point, and I would argue that it's at this point, Web site economics have to become grounded in real world economics.
The result of this exercise shouldn't be to eliminate a media company's Web efforts. But in many cases, media Web budgets are bloated based on the desire (or assumption) they're becoming a "portal" (the current fashionable term for it) and the further (false) assumption there are only so many portal spots to go around. Some Web executives are doing a snow job on their top management, using fear (and heavy house ad budgets) to hide their own failings. The exercise suggested here can uncover that scam, and lead to reform. Putting your Web budgeting on a sound basis is painful work, but it's necessary, and the results are usually worth it.
SSP (Shameless Self-Promotion)
Oh boy, more work. Boardwatch Magazine will begin running a column from this reporter in September. I'm looking for details on the technology behind some of the most successful online stores. I'm also looking forward to publication of Kate Maddox' "Web Commerce," from John Wiley & Sons , on which I get a "with" credit. When Amazon gets it, of course we'll have a link.
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And now back to our show...
Advice for a Monopoly Buster
A local executive has been corresponding with me recently. He's interested in taking on the local media monopoly online, and he sent me the following business plan:
First, mine local content creators to create a local search engine. Add some local databases like MoviesIn designed for ease of update, and use that engine for restaurant/band/night club reviews. Next, steal talent from local free weeklies, and create partnerships with the same outfits for your ad avails, maybe in exchange for free Web space. Finally, don't hire any overpaid suits, get rivals into a bidding war for the offering and...retire?
My response to this was that the key isn't content, but commerce. Combine a program like Yahoo's Viaweb with a solid database. Get scalable technology and write a business plan that can turn a profit quickly. That, in turn, will deliver the credibility to get the capital needed for a real challenge to the local media monopoly.
Let's summarize. First, get the technology right. Get the business plan right -- you get paid based on results, and share savings with customers. Next, start with under-served Web industries that have a ready market, like local take-out. Admit that good salespeople will cost you a bundle. Once you've got a profitable niche, and a model that will work in other niches, get yourself a money man and the big infusion of capital you need to win.
But Has It Been Done?
Now, speaking of all that, what are the chances you're going to be blown out-of-the-water by the "new" City Guide sites like New York Today , which debuted last week? If you're not familiar with it, this is a joint venture between Zip2 and The New York Times, combining the former's technology with the latter's content. The new site is heavy on "personalization" - register, put in your preferences, and get a custom home page. They're also offering you the ability to form virtual "clubs" through the site, personal pages where content of common interest can be shared.
It's a big step forward, but there's still a long way to go. Between the "see it, read it, buy it" driving major deals between large content sites and online "superstores" and the considered real world of real purchases lie some of the personalization and community you'll find here. But only some of it. New York Today is, IMHO, very top-heavy (it's a bandwidth hog) and pushy (demands for registration before real service) - there's plenty of room in every market to compete with it.
In fact, that's at the heart of a great misconception driving many Web investments nowadays, the attitude that "only" two or three players can co-exist, on the Web, in a specific niche. First, what do you mean by "specific?" Second, what do you mean by "compete?" The low costs of the Web mean anyone can compete - you don't need high-end technology to create a one-to-one relationship. The nature of the Web lets you slice-and-dice niches to your heart's content - it actually works against any concept of "one size fits all." Amazon.Com has leadership today, but there's still plenty of room for small booksellers. The assumption there isn't is, well, Clueless.
One Small Step For SET
GlobeSet has announced a server-based "wallet" based on the Secure Electronic Transactions (SET) protocol, including personal encryption codes for "Digital Identification."
The idea is that by putting wallets on bank's servers, the issue of giving everyone a Digital ID can be got-round - you only need download a 50 Kilobyte file to start shopping. GlobeSet has participated in the SET trials between NationsBank and Wal-Mart , and the money comes from Bankers Trust and Compaq , among others.
Some reporters have called this the best thing since sliced cheese. It's not. Until merchants can be certain that their customer, and their customer's payment processor, supports a payment protocol, it can't become part of their real world. I continue to maintain SET is 2001: A Web Odyssey. But do watch this space.
Accountability vs. Credibility
One issue shared this week by the Web and Washington is the continuing confusion between accountability and credibility. Accountability as in, who do I sue, who do I blame, who takes the fall, and credibility as in whom should be believed?
Confusion reigned in Washington, of course, over this whole Monica Starr Chamber crap. The latest twist is a re-examination of Starr's media leaks on the matter, and Matt Drudge's place in the initial media frenzy. Drudge has become a media darling specifically because he's not credible, he doesn't check his facts, and so Big Media can use him to discredit the Internet media - they can hold him accountable (and by extension the rest of us) because he lacks credibility.
In cyberspace, meanwhile, we've taken the next steps. Someone with a Yahoo account smeared Tim Dirks and while David Plotnikoff of the San Jose Mercury News wants Dirks to sue, Dirks just shrugs and soldiers on. Dirks, it seems, has the Clue right. An anonymous smear lacks credibility - the author probably doesn't have anything worth suing over and a search for accountability would just make a lawyer rich. All these anonymous e-mail account providers may, however, have to suck-up to some accountability one day, but that - not the fine work of Mr. Dirks or the smarminess of his hit-and-run critic - is the real issue here. Are we crystal?
A Third On-Demand Publisher
We've reported on Trafford Publishing and Lightning Print, now comes Kaleidoscope Software's toExcel , which says it can enable a profit on books that sell just 40-50 copies. The process takes a few days, they'll be selling directly on the Web site, and they claim the results look just like traditional paperback titles. All this makes the site worth a look - let us know what you think.
Clued-in (since the mid-70s, but the Web site just launched) is Jerry Pournelle. Don't judge a book by its cover. (The graphics and backgrounds are more homespun than professional.) Instead, read and open yourself up to the mind behind the machine. Pournelle (yes, that Pournelle) is the Hemingway of the user community - gruff, irascible, swaggering, - yet everything he writes takes you on a trip and teaches you something. (Call it the Old Man and the PC.) Few writers do that today -- we should treasure those we have left.
Clueless is Michael Wolff, now of the "Industry Standard" , proof that if you fool enough people long enough, you become a sage. His latest riff (he's got a column now, do you believe it?) is a pitch for Bruce Judson's "Grow Your Profits," a twice-monthly e-mail that costs money, yet isn't half as good as Larry Chase's free "Web Digest for Marketers." Reporters deliver columns with analysis, while Wolff, like failed players in other fields, just delivers spin. Your Clue here is you can't make money with spin - you need insight for that.
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