|CORRECTION: What Microsoft Bought||This
Week's Clue: Y'AOL Come Back Now, Y'Here?
Last week's piece on Excite's strategy, and a new order from Intellectual Capital has me thinking about the reality, and fiction, behind portal-mania.
A portal is best defined as the main site you go to when you start a Web session. Membership is psychological, and it's expressed as a habit. While A-Clue.Com is my default home page, Yahoo is my portal - it's where I go first when conducting a search. But in my case, Yahoo is just a way to go somewhere else. The goal of each "portal" is to build real membership, a truly dependent relationship, with "sticky" services like free e-mail, free chat, free Web pages, free communities, and free news feeds. These memberships can then be leveraged with advertising, sponsorships, and e-commerce services.
The goal, in other words, is to become AOL, which is no longer an ISP (MCI handles that chore), but a company whose business model is that of a national newspaper. Subscription fees pay only for access and the marketing costs of maintaining circulation. Profit must come from advertising (banners, sponsorships, and "anchor tenant" status) and, increasingly, from acting as an e-commerce "back-office." AOL's goal, one I've urged on newspapers many times, is to organize the retail market, connecting buyers and sellers by using the editorial strengths it aggregates.
So how should we evaluate the portals? The best way is to try and take them apart, and turn their e-mail accounts, hourly access totals, and free Web pages into "virtual memberships," whose numbers can be stacked against AOL's 14 million or so. But the nature of financial reporting, and the desires by the portals to keep things ambiguous, frustrates this. Lycos, for instance, considers its page counts, ad rates, and Hotwired circulation figures to be proprietary.
But if the portals aren't giving the public, or analysts, the information they need to measure their business success, how do they keep the stocks flying? As Forbes noted back in September, the answer is scarcity. Only a small fraction of shares are in the public market. Most shares are held by venture capitalists, directors, or employees holding stock options. When supply is constricted but demand is juiced by media reports (and you have a mass market of investors buying online), an artificial scarcity is created, and prices go up. (This is what the Hunts were trying to do with the silver market 20 years ago.) Anyone who bets on the side of economic reality, say by selling Yahoo short, quickly gets hammered. (Daniel Drew said it best 130 years ago - "he who sells what isn't his'n, must buy it back or go to pris'n.") Marketing success also leads to apologists, like Andy Kessler's "I-Quant" model, through which the TheStreet.Com columnist claims that subtracting marketing costs from cash flow creates a measure of efficiency that explains the ridiculous stock prices. (Dutch tulip growers had similar models 300 years ago, Andy.)
The reality is the easy work of building Internet membership is over. After 20 years, half of America's homes still don't have a PC, and "floods" of first-time buyers still change that fact only marginally each year. AOL's 13.5 million is a big number, and it's half the consumer Internet access market, but its growth is slowing, and even 30 million represents just one-quarter of U.S. households. The fact is Internet use still requires a considerable amount of reading and writing. That doesn't mean Internet use won't become universal - it will just take longer than anyone now expects to become universal.
So portal-mania is built on a foundation of sand. The first shovel-full
holds that leadership in this market is permanent, and that's never been
true in any market. The second shovel-full holds that awesome growth is
easy, even guaranteed. The third shovel-full says the only way these stocks
can go is up, and buying the dips will always work. The fourth shovel-full
is that the international future will be like America's past. This is all
quicksand we're shoveling, guys. So here's a Clue you can take to the bank
before you go under. The surest long-term portal isn't on the Web at all
- it's your e-mail client.
In last week's top story, I slipped in an error on Microsoft's 1998
Web purchases, writing that Yoyodyne
was among them. In fact, it was Yahoo that bought Yoyodyne. I also may
have slipped up in identifying Link
Exchange , which Microsoft bought a month ago, as e-mail based. I knew
they are a Web ad network, not an e-mail network, but their extensive use
of e-mail in managing the business (they're aggregating 400,000 sites)
caused me to make my flip comment. I offer special thanks to Glenn
Fleishman for pointing these things out.
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.
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And now back to our show...
The stock profits created by the Internet bubble have created a new class of Clueless investors who think they know a lot more than they do.
Forget online casinos. The real action lies in fast-growing Internet stock sites. The new trend is to give "investors" just enough information to make them feel they know something, which in fact they don't. Data includes news feeds, stock charts, and, of course, "expertise", all of which works great when the market's rising. (Throwing darts works OK when the market's rising.) Powerful forces have propelled the market higher - falling deficits, low inflation, and baby boom demographics among them. (You can now add Federal Reserve intervention.) I don't know how far it can go, I do know it's not forever.
Stock-kiting schemes that used to require penny stocks and boiler rooms can now be engineered with a press release and appearance on CNBC . All a failing company like Tel-Save has to do is say the magic word "Internet" and the stock goes up - for a time. If there's no "there" there, it goes back down quickly, but meanwhile someone's making out like a bandit, and when the music stops those "winners" can expect to get visited by the SEC police.
There are other ways to do this "dirty bird" dance. Remember Wit Capital and Direct IPO ? Back in 1995, their idea was to lure capital to early-stage companies so individuals could win profits formerly captured by venture capitalists . When the word "Internet" became magic and even dicey propositions became IPO heroes - what was left? What was left was Rule 504, a 1992 SEC ruling which let small companies issue small offerings without the expensive scrutiny markets like NASDAQ require. All crooks needed was a Web site to kite the stock, maybe an e-mail list heavy with suckers, and a few postings to a shared "tip line" . Buy some banners on sites used by investors, and there is no way sites trying to launch secondary markets in such issues can ferret out all the ferrets.
The Industry Standard's done a good feature on this, but it's the tip of the iceberg. There's a major new trend in "day trading" rooms , where the naïve can get "all the tools used by professional investors" and fritter away their life savings like so many slot players. For every new Internet millionaire, I predict there are hundreds of people who've gone in over their head. The 90s' Gordon Gecko hasn't been identified yet, but if you've got the money, I'll write you a screenplay.
After two months, Amazon.com has elbowed its way to the top of a crowded market among online CD sellers, spurring a merger between CDNow and N2K, the entrance of new mega-stores and, perhaps, a shake-out involving K-Tel. In the last week, Amazon dipped a toe into general merchandise, offering seasonal items like Barbie dolls.
I hear your questions. Why is Amazon still so successful, and what does that mean for the rest of e-commerce? Here are the answers. They're successful because they're good at what they do, and they'll remain successful as long as they handle fulfillment efficiently. (That gets harder and harder as they get bigger and bigger.) What this means for others is less than meets the eye. Amazon is not the only online bookseller, nor will it be. Amazon is not the only online music store, nor will it be. Amazon may or may not become a general merchant. When (or if) it does, it will face a host of new competitors , companies that have been building both online and offline for years or generations . Here's a safe prediction - Amazon won't drive everyone out of that market, either.
What Amazon's doing, however, is raising barriers to entry in the areas it serves well. If you're selling books or music, buyers now expect brand, quick page loads, and personalization. These requirements are rapidly moving into other areas of e-commerce , and the time a new player has to make good is being compressed . But (and this is an important but) the leaders don't play in all niches , and many niches will always be too small to interest mass merchants. Finally, you can grow from a niche, if you're successful in that niche. Wal-Mart, remember, was once just a single store in Arkansas.
Clued-in is John Audette's latest launch, Adventive . John has a unique ability to state truth simply without being simplistic, without being cute, and without talking down to anyone. It's what has made his company a business success. Simple communication is a very key Clue indeed...
Clueless is Hotwired . The content has become me-too (Elvis has definitely left the building) since its acquisition by Lycos. The last straw was moving to "multi-page" stories, in order to sell two or three ads with the same content. I'm tired of it - ignore it and it will certainly go away. There's also a key Clue here. Just because you're on the Internet doesn't mean you're not prone to a publisher's idiocies.