This Week's Clue: Oursourcing
SSP (Shameless Self-Promotion)
The Santa Clue
Harry and the (Mouse) Suits
One of the most continuous, and continuously growing, trends in Internet Commerce is outsourcing.
Web hosting, e-mail service , transaction processing and customer service are just some of the more obvious things you can outsource. In all these areas outsourcing makes sense, because sharing a technology expense gives everyone better service at lower costs.
More recently, Commerce Service Providers (ISPs) have begun outsourcing such things as procurement , warehousing and order fulfillment . In these cases the argument is less obvious but no less compelling. You share capital with other sellers in order to create a more efficient channel. You let others do things you don't do well.
The latest outsourcing trend is to share, not technology or capital, but human beings. Instead of just using the services of an ad agency to create and buy ads , companies are now hiring agencies to execute their campaigns . This is especially effective where the concepts - like e-mail or affiliate marketing, aren't obvious , and where you have to keep up not just with the state of the art, but the state of ethics.
I wrote some weeks ago about the lack of an economic model for managing forums and other message traffic. Advertising can work but when you need an intensive effort just to get traffic started, or where the volume of traffic might overwhelm you, or where the ethics might overwhelm those inside your company, I thought you were flat out of luck. (The comment related to the continuing court case over AOL's use of volunteer moderators - I charged those efforts simply lacked a valid economic rationale.)
Well thanks to a good PR agent, and an assignment for a Chicago paper, I was put in touch with an outfit that is making moderation work on its bottom line. It's a company formerly called Extranet Solutions, but now known as Participate.Com . The company hires a lot of journalists from my old school . What really excites me about their work is they can generate traffic (for small clients like Ace Hardware) create events (for larger clients like TalkCity) or manage great gobs of traffic (for clients like TheStreet.Com).
For large sites Participate.Com (no relation to Participate, the 1980s-era conferencing software house) uses technology to leverage the time of their employees. But it's in how they're developing expertise among their people that I find the greatest excitement. The fact is building an online community is not easy. Sometimes it takes some cajoling, sometimes it takes some psychology, and sometimes it takes some censorship to keep the discussion growing and going. If you need to build a community, or direct an existing community, and you find yourself without the in-house expertise for the job, you now have a solution.
If you want to be an outsourcer, there are plenty of ways to play. You can specialize in one element of a solution, you can try to do it all, or you can specialize in providing two related elements. The last is what Responsys.Com does with its "Responsys Interact," combining campaign management and e-mail delivery to create "permission marketing" campaigns for client Web sites.
President Anand Jagannathan told me he gets names from customer and registration lists, then charges his clients from $2-10,000 per month for e-mail campaigns, hosting either at Exodus or the customer's site. Responsys wrote its own Java-based server (works with commercial e-mail servers like Microsoft's) and includes an embedded "call to action" in its e-mails that is easily tracked. He also has a client services group to help develop campaigns. "We use Web forms to send attached forms or linked forms. We also have a rules capability which, based on responses that come in, a variety of things can take place - someone might be notified, a follow-on campaign can be sent."
There are two great Clues I get from all this. First, sharing human expertise creates great opportunities for Internet outsourcing. Through outsourcers, such people can find their true economic value. Second, anything you can't do well can be outsourced, which is important for the Fortunate 500 who may produce good stuff at low cost but have sometimes had trouble finding markets. One final Clue for investors - be very careful in reading the books of big companies that claim big Internet sales. A growing top-line could just mean big money for the outsourcers.
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The Santa Clue
There has been a ton of press lately about the toy business. Much of it has focused on a new site, launching today, from ToysRUs, the erstwhile king of the industry, against eToys. I've weighed-in on this as well, pointing out that if you let kids build their own registries of desires - for birthdays and Christmas - in the name of their favorite toys or TV characters, you can build big business and real loyalty. (eToys has a registry but it's aimed at parents.)
The real excitement (among reporters) involves rumors Amazon.Com is going into the toy business (it's been selling some gifts, including toys, for some time), and the speculation involves which retailer will take the top prize once the smoke clears. (To make things even more exciting, the "shake-out" appears to have already begun .) Your Clue to the coming battle is none of the stores will be the big winner. To find out who's most likely to win this war, click here .
While the movie, music, and book businesses feature a ton of different products, where the benefits of a recommendation engine (like that of Amazon) can become obvious, that's just not true in the toy business. Toys are driven by kids' desires, which come from the media (Star Wars), advertising (Barbie) or peers (Duncan Yo-Yos) that change with every new generation (kid generations last maybe three years). Who controls this small number of winning products? That's right, class, it's the manufacturers. Toys R Us can't stick it to Mattel by no longer stocking Barbie, or Star Wars, once manufacturers go direct. Barbie's Slutty Cousin just won't do, but computer stores can switch from Compaq to eMachines. Toy stores must stock what sells, and while their leverage (placement, price) may have been high in the real world, all the chips are on the toy maker's side of the table when the game moves to the Web.
Your Clue here is obvious. When it comes to Christmas, don't bet against the elves.
Most people who click on an ad don't buy. Most people who enter your shopping cart software don't buy the first time they use the form. Many people who fill out the forms make mistakes, and many of those who do buy later want to take the decision back. How a Web site deals with all these forms of buyer remorse can make the difference between its being a flash-in-the-pan and a long-running success story.
What brings this up are some recent attempts to buy online. The kids needed some gifts and this office needed some new hardware . In the first instance, it took a series of phone calls to get the order straight, due to mistakes made in completing the form and the fact that the site didn't mention that it was ditching the bad orders. In the second case, it took an in-store visit to place an order that should have gone to the Web, but the on-site configurator just couldn't get the job done.
In both these cases, the purchases were finally made, and we're hoping everyone lives happily ever after. The point is, that doesn't always happen, which can lead to big expenses by site managers trying to track down dropped orders, and angry customers (or non-customers) trashing the site (and its products). Your Clue is to make configurators and shopping carts more obvious, and if you're an etailer don't blindly rely on your ISP to have the right software.
Harry and the (Mouse) Suits
The Wall Street Journal's reporting on the latest machinations of Disney deserve a special prize for Cluelessness. While reporter Kara Swisher's attention was focused on what Jake Winebaum might do next, she completely failed to notice the door hitting his butt on the way out. (Since the Journal charges all readers, you'll just have to read the background here .
The man behind Michael Eisner's Web efforts now is unquestionably ex-CNNer Harry Motro, and that's the real news here. While you can argue that Harry's Go Network effort is still losing money, there are lots of ways to read a balance sheet. If you look carefully at Disney's sales of merchandise and tour packages online, in fact, comparing the amortized cost of the channel to what Disney had been paying previously, you'll quickly start smiling like Goofy. With Go Network now the #5 Web property (behind AOL, Microsoft, Yahoo and Lycos - note that it's ahead of Excite) you've got plenty of walk-by traffic to lure to the stores, and plenty of ad avails (portals almost never sell-out) with which to tempt them with bargains. (Test market special prices, try out cel and baseball memorabilia auctions, etc. etc.)
Sales and the cost of sales are the real bottom line. The phony bottom line involves the question of Internet valuations, and Eisner can manipulate this with minimal risk by buying-back Infoseek (whose stock has been going nowhere), then issuing "tracking stock" combining all those Starwave assets they have yet to capitalize on. Since it's a tracking stock, it can be pulled-back when the boom is over, and if Mary Meeker's right (eventually she has to be wrong) that the "Internet correction is overdone" the result will be Free Money Jeffrey Katzenberg can't touch. Michael Eisner is probably the most overpaid executive in U.S. business, but Harry Motro's the most under-rated. It balances out.
Clued-in is iCopyright , a start-up in Renton, Washington launching this fall as an online "copyright clearinghouse" for republishing rights. They'll need some industry insiders and they'll need to demonstrate real savings, but it could be a real boon to copyright holders and those looking to reprint folks' stuff.
Clued-in (and Clueless in one story) is LifeMinders , a deceptively simple concept company where 1 million people are already registered to get e-mailed reminders of important dates and activities. The Clueless part lies in the Washington Post failing to include a link to the site in their story. Had the URL been non-obvious - life-minders instead of lifeminders, for instance - readers would have been really (and rightly) angry.
Clueless are Malaysian ministers who claimed sites critical of the regime are funded by foreign "elements," and reporters who don't understand the statement is an effort to intimidate domestic political opponents. (Indonesia's free election, held the week after the Malaysian statements, should have been a Clue as wide as Jimmy Carter's smile...)
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