(formerly "A Clue...to Internet Commerce")
by Dana Blankenhorn
Volume II, No. XLVI
For the Week of November 16, 1998

This Week's Clue: What if Spam Paid? 

SSP (Shameless Self-Promotion)  

Online Branding 

An Online Branding Case Study 

Looking Ahead To An Excite-ing Christmas 

Clued-in, Clueless

This Week's Clue: What if Spam Paid?  

Here's a question for you. What would have happened to the Internet if spam had been a worthwhile business proposition? Obviously, history would have evolved very differently. 

Well, this isn't a theoretical question anymore. The fact is that commercial e-mail - solicited, requested, commercial messages subscribed to by readers - has become the Internet's hottest growth industry. Only a few thousand of the truly elite (currently) read A-Clue.Com. But the fact is, as I'm learning in stories for future issues of Boardwatch  and NetMarketing, huge rich (HTML) e-mail files are becoming a profit center for major publishers, search engines and new companies of all sorts. 

The problem is, as with spam, that e-mail doesn't pay its way on the Internet. Take my own example. I have a $20/month access account, the lovely people at Multimedia Marketing Group  send A-Clue.Com to you without charge to me, and their largesse, frankly, doesn't cost them much. (Revnet  charges just $50/month for comparable services.) MMG has lots of profitable lists with tens of thousands of users, some growing at 4% or more per week, MMG president John Audette wrote recently. As I saw in Oregon, his company is growing like topsy, and he's producing media campaigns featuring e-mail for some of America's smartest companies. 

John Audette is no more a spammer than I am, and everything he does follows high ethical guidelines. (He keeps Mark Welch  around, in part, to make sure of that.) And not everything in an e-mail campaign involves his sending out mass e-mailings. Sponsorships for e-mails are a big business, too. Jesse Berst's Anchordesk  list at ZDNet, for instance, has 1.7 million daily readers, I was told recently, and it's becoming a great advertising vehicle, even though half are still taking the .txt version, and even at a modest $15 CPM. That's below the cost of many banners, but the results for advertisers are often better, I was told. Anchordesk is just one of several successful e-mails that ZDNet publishes, and competitors like IDG, with TipWorld, and CMP, with CMPNet, are also finding the business extremely profitable. 

How profitable is it? Let's do the math. A $15 CPM on a daily circulation of 1.7 million comes to $127,500 per week, or $6.63 million per year. What do we see on the cost side of the ledger? No more than the editorial expense of a basic Web page. Jesse makes a good living, I'm sure, he has some able assistants, but how much of $6.63 million does that eat per year? (Especially since the salaries are also shared by Web sites and magazines?) Delivery of mail to such a massive list means scaling e-mail servers appropriately and buying lots of bandwidth, but I'll bet that's still no $500,000 per year. And that's the total "printing" cost not just for Jesse's list, but for all the lists ZDNet delivers. (The selling costs of ads are also shared with other Web sites and magazines.) 

You see where I'm going here? Compelling content has found a way to make a compelling amount of money, but what happens to the Internet when "push" comes to shove? Many major Internet successes of 1998 have involved pushing millions of e-mails across the Net - Yoyodyne, HotMail, LinkExchange - and those are just the ones Microsoft's bought! 

What makes this business so gorgeous, as I've said, is the cost side of the ledger. On the Internet, you only pay for the maximum bandwidth you might use. There's no meter on your traffic as there is on electricity, natural gas, or a printed newsletter. Even when companies succeed in charging a "metered" rate  for bandwidth, it's still a bargain. Bulk buyers of bandwidth actually prefer to be metered, because it saves them money. In places where consumer Internet access (as opposed to bandwidth) is metered, as in most of the world, users prefer doing all their business via e-mail. Downloading a mailbox may take just a few minutes per day, while surfing keeps that "60 Minutes" stopwatch going on in your head... 

These questions are hitting the fire right now before the Federal Communications Commission , which is considering (once again) whether to define Internet access as long distance service or local service. If it's long distance, consumer access might have to be metered, in order to funnel billions of dollars of "access fees" into the pockets of Bell-heads , supposedly to pay for universal telephone service but actually to act as a huge cookie jar for all kinds of do-gooders. What would the impact of that be? The guess here is it will actually accelerate the move away from the Web and toward e-mail. 

Do you see where I'm going here? I'm not certain myself. Both the stories I mentioned at the outset are in process. It just seems to me that business, like nature, abhors a vacuum. A profitable niche is soon crowded, just as any "sure thing" investing technique breaks down once everyone uses it. Over the next year, everyone and his Aunt Sally is going to be pushing terrabytes of sponsored e-mails across the Net, and it seems to me the practical effect of that will be the same as with the spam flood. But in this case, they'll be money floating around with which to develop solutions to the business problem sponsored e-mail creates. It's time to consider what those solutions might be. 

SSP (Shameless Self-Promotion) 

You can still order "Web Commerce: Building a Digital Business,"  by Kate Maddox with yours truly (but with on the cover) through Barnes & Noble. It's on sale at $20.95, (down from a cover price of $29.95, and down from Amazon's price of $27.95) part of the Wiley/Upside series. You can also read a review of the book, from Dr. Ralph Wilson, by clicking here

A-Clue.Com has also been picked up by Andover News  as its Monday e-commerce column. Thanks to you, A-Clue.Com now goes to well over 1,000 Clued-in subscribers each week. Thanks to Multimedia Marketing Group  a UnityMail  customer, it's also an in-line HTML file (no more messy Web codes). Besides producing A-Clue.Com, I contribute regularly to such publications as Net Marketing , Boardwatch, Datamation , and Advertising Age . Your magazine can join the list - send me an e-mail and let's start the ball rolling. 

You can subscribe (or cancel your subscription) to A-Clue.Com through an e-mail to a-clue@list.mmgco.com or (if you prefer the .txt version) a-clue_textonly@list.mmgco.com. Just put the magic word "subscribe" (or join, if you prefer) in the body or header. If you don't get service, feel free to drop me a note at dana.blankenhorn@att.net. And we want your feedback  as well, always. We're still looking for an advertiser to defray our higher costs. 

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,speaking assignments, and commercial writing (ask about those rates via email). If you're looking for excellent work, give me a call at 404-373-7634. 

And now back to our show... 

Online Branding  

There was heated debate recently on the Online Ads list over the issue of online branding. It started when a user submitted that such branding is impossible. This was followed by the predictable response - Yahoo! 

Now the critics have a point. Branding doesn't happen solely through Web banners. But a far more basic point has to be made. Branding doesn't happen solely through advertising, period. Advertising, in fact, creates only an opportunity. The message of the brand must be fulfilled in order for the brand to build. 

The best story here, again, is that of The Coca-Cola Co. When Robert Woodruff took over the company, in the mid-1920s, he faced a revolt among bottlers, who were upset over the price they were paying for syrup. The question seemed to be who would profit from Coca-Cola's branding efforts? Woodruff turned that question around. "What can we do together," he asked, in order to make sure every Coca-Cola tastes the same as every other Coca-Cola anywhere in the world? The result was massive investment in water purification and quality control aimed at fulfilling the brand's promise. Once that was done, a single unified message, and worldwide distribution following American troops, built the business. 

Autobytel.Com  has made big promises in its brand, and spent heavily to get its message out. But as customers found better pricing at lots than on the site, they've sought alternatives . Saturn  has plunged through this hole to take back its direct sales channel, and its message works because most of the work needed to fulfill the brand's promise was done before the Web was spun. 

Thus, your key Clue regarding branding is this. Be careful what you promise - people will demand it. 

An Online Branding Case Study  

The previous story relates directly to what's happening now in terms of consumer ISP access. AT&T and Cable & Wireless  have both launched large-scale branding campaigns aimed at cutting into MCI Worldcom's huge lead in this area. 

AT&T's biggest move has been to co-brand its Worldnet service with every portal it could find, at a discount price. It's followed this up with its own advertising campaign, which tries for a humorous touch. (It comes off like Dr. Laura Schlessinger doing stand-up comedy, but never mind.) C&W, which bought MCI's Internet business in the Worldcom merger, is going directly at the consumer, which is a more expensive proposition. Both companies offer a $14.95/month price, but AT&T's offer comes with strings attached - a limit of 150 hours/month. 

Now, remember the first paragraph? Where, I hear you ask, does MCI Worldcom get its huge lead from? The answer, in a word, is AOL. When AOL bought CompuServe, it actually shed its network to Worldcom. While AOL has mentioned in some ads that it "invested billions in its network," that is in fact not precisely true. (It's Worldcom that gets the bulk of that $24.95 monthly fee from AOL users, and I seem to remember it's a three-year contract, so stay tuned.) 

Fortunately, AOL has turned the corner on its most recent campaign, for AOL 4.0, and for the first time it seems to have gotten the branding message right. What it's selling now is easy-to-use software and a "family" experience, heavy on shopping and major brands. These are promises it should be able to fulfill, if it can just control its dirty talkers and stem the spam flood. Chat is still there, but the money comes from renting screen real estate for millions per year to individual companies in major industries, and the upside comes in AOL taking over the fulfillment and back office operations for those brands over time. 

I've said it before and I'll say it again, because I'm an AT&T customer, but AT&T's consumer Internet service stinks. Many nodes still lack 56 Kbps modems, and my own connections start at 28.8 Kbps only one session in 10. (The most common starting speed is 24 Kbps, and I often see 19.2 Kbps or even 14.4 Kbps.) It seems obvious that AT&T has still not gotten the key branding Clue that performance must match the promise. My Clue for CWIX is to take advantage of this fact, and not make the same mistake. 

One other Clue for CWIX came from David Strom , in his Web Informant #129. That is, subsidize the purchase of a low-end PC. Strom notes IBM is launching a $600 Aptiva this week and some passengers on New Zealand Airlines are getting free Palm Pilots with trans-Pacific flights. Writes Strom, "I have a radical notion: how about giving away a free PC for every two-year service contract when you sign up with an Internet Service Provider?" Many PC vendors currently bundle Internet access with their main lines, but if CWIX bought these Aptivas in bulk, they could easily give them away with multi-year service agreements. It's already being done by The Dish Network satellite TV system, and with most cellular phones. It may be an idea whose time has come. 

Looking Ahead To An Excite-ing Christmas  

After visiting a suburban mall last weekend (getting smothered and covered by the traffic) it's become obvious to me this will be a big Christmas. There's an assumption abroad that online retailers will be the big winners, based on a Harris survey, sponsored by Dell, claiming 70% of PC users on the Web said they enjoyed shopping online, against just 36% who called a trip to the mall fun. (It must be noted, however, that Harris said Guy Millner would be Georgia's next governor, and Jesse Ventura would run third in Minnesota.) 

Even the nation's department stores seem certain this is their .Com year , and some have gotten fairly innovative . Jupiter Communications has stepped up to predict shoppers will spend $2.3 billion online in the next month, up from $1.1 billion last year, and their Nicole Vanderbilt suggests stores offer discounts to turn online "self buyers" into "gift buyers," with things like gift registries. (That's a good idea - how about frequent-buying programs, too?) 

Which leads us to Excite. The AOL wannabe is now offering its own online "wallet," called Excite Express Order, which would be used for holiday purchases at its online mall and supported by a major buy from MasterCard of print and broadcast ads. Like AOL, Excite says it "pre-screens all participating merchants" (as Jeff Gordon said in a motor oil ad, "then we take the big check"), and the one-page form inputs delivery locations and credit card data at a single click on participating sites. As we said in our "branding" stories earlier, the success of this effort depends heavily on Excite's ability to deliver on its promises. Getting someone else to do the advertising and taking the hit on customer service snafus won't work. The guess here is Excite will learn that lesson the hard way. 

This version of the AOL strategy might be best called a "Tom Sawyer" strategy. You not only get others to paint the fence, you get them to pay for the privilege, and you expect them to take responsibility if Aunt Polly doesn't like the result. (Or call it the "Music Man" strategy. "When the man dances certainly boys, what else, the piper pays him.") That's also the case with Excite's Schwab-Intuit deal, which will now run its "Money and Investing Channel." Again, Excite is assuming it is users' sole gatekeeper, and thinks it can profit from "controlling" people on behalf of others. Time will tell whether this works (the stock's up 20% in just the last few weeks), but that answer won't come until someone (a customer, a reporter, a government official, a kid) cries foul over something.. 

Clued-in, Clueless 

Clued-in is Office Depot . They hired Dilbert as their spokesman, they signed with Trilogy  to offer large customers online discounts, and now they've upgraded their Web site. . Speak softly but carry a big schtick. 

Clueless is Andrew J. Fingerhut of On-Line Empire, LLC in New York, producer of Collegepride . This site claims to be an online alumni club for everyone, but demands registration data before delivering any service, even before selling users a t-shirt. This is a bit like putting greeting cards under a glass case. You should solicit data slowly, as people become comfortable, and only after they've gotten useful service from you. 

A-Clue.Com (formerly A Clue...to Internet Commerce) is a free weekly email publication. Subscribers can receive either a .txt file or .htm file. The .htm version features links that become active from inside a browser. To take your name off the list, simply write REMOVE as the subject, or content, of a message replying to any issue. To request your free copy, write us at mailto:Dana.Blankenhorn@ att.net. To subscribe you can also write to a-clue@list.mmgco.com with the word "subscribe" in the subject. (Address your notes on the .txt version to a-clue_textonly@list.mmgco.com. You can unsubscribe with a note to the same addresses and the word "unsubscribe" in the subject.. We're on the Web at http://www.a-clue.com and http://www.ppn.org/clue.