by Dana Blankenhorn
Volume III, No. VI
For the Week of February 8, 1999

This Week's Clue: Specialty Catalogs

This Week's Clue: Specialty Catalogs 

SSP (Shameless Self-Promotion)

Doing the Math 

The Future of Stock Trading 

Cisco's View of the Future 

Cyber War Update 

Clued-in, Clueless

Last week's "New Yorker" magazine had Monica Lewinsky (as Mona Lisa) on the cover, but inside it was filled with mourning over the bankruptcy filing of J. Peterman, a catalog merchant thoroughly lampooned by the TV show "Seinfeld." Peterman's contribution to our culture wasn't in selling hats, sweaters and bags - it was attitude. Its catalogs were printed on heavy stock, and were filled with breathless prose redolent of Rudyard Kipling, Cole Porter, with a bit of Hunter S. Thompson thrown in. 

After reading all this, I asked myself why it was that Peterman failed to make the transition to the Internet. It seemed this was the perfect Internet business. This led me to some Clues. 

First, the Internet pages of this kind of catalog must make extensive use of multimedia. They need sound, short movies, and Java-jive so the goods actually move around. They also need to be read to you. (Get the guy who played Peterman on "Seinfeld" to read them - he's doing Xerox ads as God right now.) The expense can't be any worse than that heavy paper they were using. 

Second, this kind of Internet business cries for interactivity. Buyers of this stuff were a true community of interest. So this site would require discussion groups on every aspect of the lifestyle sold by the catalog, not just the goods themselves. (Hire moderators from The Well, or hire the Well itself, for its brand name, to moderate the discussions. Which reminds me -- why hasn't high-quality moderation been branded yet?) 

Third, of course, this kind of Internet store needs e-mail. The launch of a new line should be an event, the intense multimedia content demanding at least a 56 Kbps modem, better yet a personal T-1. So collect the e-mail addresses (and other registration data) from buyers and surfers alike, then send those who want them short notes (with links) when a new page (or pages) arrives online.

By the way, we're not talking here about some over-hyped Web fashion show, like the one "Victoria's Secret" pulled-off last week. That had no commerce link at all. It mainly sold sizzle to people who don't buy the steak (most lingerie buyers are women). I frankly suspect it was designed to hype the stock of parent Intimate Brands. (I have no evidence of this - it's just my suspicious nature.) The Clue I got from this mess is that you should scale your marketing to your site, and get your money out through sales, not just publicity. That's the best play for the long-term.

All of this leads to my fourth Clue, a new Clue. That Clue is exclusivity. As an extra benefit, subscribers to your mailing list should be able to access new pages before they're posted to the public, behind a password-protected firewall. When everyone can go anywhere instantly, a closed door can be very sexy...don't you think?

Think of the buzz! Think of the sales! The Web is too crowded with mass merchants and mass merchant wannabes. We need some boutiques at the virtual mall. Now that we've scaled, it's time to build some.

SSP (Shameless Self-Promotion)

The work done at A-Clue.com becomes the basis for a host of real columns in real publications which real editors pay me real money for. In addition to EcommerceTimes , for which I write a daily "viewpoint," there are monthly columns for NetMarketing, Datamation, Boardwatch and Intellectual Capital. The last is a fine Web site whose strategy is guided by former presidential candidate Pierre duPont. I also write occasionally for Advertising Age . Buy my book here .

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And now back to our show...

Doing the Math

Last month, I wrote a story for Intellectual Capital  in which I urged Washington policymakers to do some math before they pass more laws regarding the Internet. With great effort, we can fight child pornographers, even when they use e-mail, I wrote, simply because there are so few of them. When we try to fight products or ideas with a wider following, the number of casual offenders overwhelms us and any enforcement becomes arbitrary, deflating support for law generally.

The same need to do some math holds when we consider the finances or technology of the Internet. Here are some examples.

Broadband sounds great, but if you do the calculations of a hydrologist, you'll quickly see if just doesn't work. Imagine how much more water you'd need to supply, and how big the pipes of your water system would have to be, if everyone had a fire hydrant in their home. Do the math. Now imagine that people are all using those hydrants, and they're left in the "on" position. Some points become obvious. You've got to find a way to regulate that flow at the home or the system will always be drained. Your supply pipes have to get much wider to have a hope of maintaining flow. And if everyone on the block tries to fill the bathtub at the same time, no one will get anything.

The same is true, to a limited extent, with data. The innards of Internet networks must be upgraded, if 1.5 Mbps to the home (as opposed to a few offices of the elect) is to be meaningful. We're going to have to do a lot more caching (won't advertisers hate that), and everyone on the street will not be able to turn their cable modems into a video stream at once. We haven't even talked about the cost of upgrading networks for cable modems or mass deployment of ADSL. Doesn't the intensity of our interest in AT&T's cable moves look silly yet?

Here's another example, the "shakeout" among Web search sites and search engines. Infospace , Goto.Com, AskJeeves, Centraal and even DogPile are growing merrily along while investors, and reporters, claim Lycos and Altavista's days are numbered because "there's only room for one (two) (three) winner(s)." Doesn't anyone know what happens to the numbers on the edges of a Bell Curve when you change the curve's scale, making the top 1000 instead of, say 10? A rising tide does indeed float all boats.

Sometimes this Cluelessness emerges from a refusal to question assumptions. Sometimes it comes from seeing the future of this medium, which for the most part still has low barriers to entry, with older media, which required licenses or expensive printing plants to enter. When you consider that both access and fulfillment are simple to outsource, and there's a difference between a barrier to market leadership (in a $100 billion market) and one to entry, it really has to leave you scratching your head.

Even in PC manufacturing, there's no sign of a mass shakeout. It's true that Dell has whumped such challengers as Packard Bell, AST Research, and Sharp, but Gateway and Micron are still here, as are a host of new, smaller competitors like iDot.Com and StupidPC, and (zounds!) distributors like Insight and Outpost.Com.

Until the supply of money freezes, this market is an ice cream sundae. The more scoops you add the higher it rises, but the further it spreads, and thus the sides of the sundae also rise. There's plenty of ice cream for everyone.

The Future of Stock Trading

Salon Magazine published my feature on day trading last week and while some of the Clues I picked up along the way weren't relevant to the final story, they deserve some mention.

First, and perhaps more important, the NYSE trading floor is doomed. It must respond to the success of NASDAQ, driven by day traders, in keeping outfits like Microsoft, Cisco and Dell in the fold, despite their huge capitalization. The only way to do that is to truly open the market. While that won't end the need for specialists (who keep stocks "liquid" by buying when others are selling and vice versa) it's obviously something that should no longer be closed-off from Internet-based traders.

Second, the benefits of what's called "Level II" trading, which lets traders directly bid in the market rather than waiting for brokers to do it for them (and pocket a 50 cent/share "tip") will have to filter onto systems like Schwab.Com and Ameritrade.Com. It will be done quickly, or they'll look as outmoded in a few years as Merrill Lynch does now.

Third, "the action" on NASDAQ is going to only get wilder, even after a correction or collapse of the current boom. Day trading can be done on the Internet, meaning it can be done from anywhere.

Cisco's View of the Future

Tom Galvin of Cisco's  PR operation sent us a report on CEO John Chambers' Comnet keynote in Washington last week. It made for some interesting reading.

What grabbed the media was Chambers' prediction that phone companies will give away voice service to sell higher-speed data services. But that's not news. I heard good voice quality nearly a decade ago on a 9,600 bps connection, and all of the world's voice networks are becoming data networks. (We haven't even mentioned Internet telephony.) What's behind the curve are the world's governments, which have been milking the voice network for taxes practically since before Alexander Graham Bell got his first hearing aid. So this Chambers prediction will take more time than he thinks to become a reality.

Chambers' best point, which was buried at the bottom of the story, was that the Internet will become the focus for international political controversy in the next century, because it widens the gap between rich and poor. Chambers' call for better education misses the point. Much of the developing world is already chafing under Western-style capitalism, and the Internet accelerates what is seen as capitalism's negative impact. Unless the West gets truly Clued-in to the depth of this anger, and does something about it, there will be an explosion. For more, see the next story.

Cyber War Update

Judging from Lycos' Wired service , the first true cyber-war has begun. The combatants are Ireland and Indonesia.

At issue is the .tp domain, given to the island of East Timor, an island between Indonesia and Australia which Indonesia has occupied for 25 years, but which is has yet to completely subdue. The domain is hosted by Connect-Ireland. Its founder told Wired he lodged a formal complaint against attacks which have been continuous for nine months. Indonesia formally denied any involvement.

The key Clue here is this kind of thing will happen more and more often in the future. Undoubtedly U.S. corporate and ISP servers will be targeted, as the nation's enemies (real and imagined) gain in technical sophistication, and the West becomes more dependent on Internet technology.

There are several steps that must be taken now. First, an international police agency such as Interpol - with credibility no U.S. agency can claim - needs to make the case. (After all, these might be Irish Protestants or apolitical hackers.) When the case is established, real diplomatic efforts must be brought to bear, either through the United Nations, the Internet Society, or some other agency, to mediate the cyber-dispute. (This might be retaliation for attacks said to be launched in 1997 by East Timor sympathizers , in which case you can expect things to escalate.) Ultimately, there must be some sanction for nations that engage in this kind of warfare, such as a formal cut-off of their servers from the Net.

In a (yes) related story, U.S. and European negotiators continue to struggle over unified privacy rules that might govern what data servers can collect on consumers and how they can use that data . Since all negotiations in the diplomatic world wind up being related to one another, it's likely a settlement here depends upon the continuing struggle over banana imports (yes, banana imports) . The "rules of engagement" for dealing with other extra-territorial threats to network integrity must follow successful completion of the privacy talks, which as I've noted have slipped on a banana peel.

Welcome to the 21st century...

Clued-in, Clueless

Clued-in is Christies , the auction house, which refused to go along with rival Sothebys' demand that its sources give it exclusive access to their collections before it puts any of them up for bids online.

Clueless is Kim Williams of Burleson, Texas who helped her 8-year old daughter spam the neighborhood to sell 100 boxes of Girl Scout cookies. My daughter Robin is selling them, too, but Girl Scouting is about ethics, and wrong is wrong.

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