This Week's Clue: The eBusiness of Politics
SSP (Shameless Self-Promotion)
Every Niche Isn't Equal
Taxing the Internet
The Federated CSP
The Cost of Coming Late to the Party
We may be spending too much on our political campaigns, selling offices to the highest bidder and drowning out the popular will in a hail of TV advertising. But it's also true that the problem with the business of politics, and the ebusiness of politics, is there's no money in it.
That's what I'm learning in studying politically oriented Web sites. The audience is smaller than you'd expect. While there is political news in every paper, a political Web site needs readers who are devoted to the subject, and who are willing to interact with one another. While many of us are interested, few of us are obsessed.
Beyond the problem of a small audience, there's just not much for a political Web site to sell. A campaign needs computers and software, true, but those needs aren't special. With total campaign budgets of "only" $5-30 million, the majority of which must go into 30-second spots, there's just not much money sitting around for specialists. Even if you could get a commission on every technology tool bought by every politician or political action committee, it still wouldn't amount to a billion dollars. That's not enough to interest venture capitalists in a b2b Web site.
The truth is that in politics, everything is subsidized. Writers are either living off other income or depending on a client - a PAC - for whom they speak. There's abundant passion, but you can't live on it. It's one big Comdex food frenzy - the eaters think they're getting a deal, that they are big deals, while those who pay the bills know they're just adding a tip to their marketing budgets.
Most of the money that keeps Washington D.C. growing gets dragged in (kicking and screaming) from taxpayers, and gets spent after the parade of politicians has passed. The campaigns (both during and between election seasons) are a financial sideshow. All the corruption the city is notorious for is a form of gratuity, and the recipients are all supposed to be "amateurs," because their money comes from somewhere else.
So how do you make an e-business out of politics? Let me count the ways:
*Bring the parade to the people. Political expertise can be retailed to members of unions, corporations and interest groups if you bring it to bear on local issues. If you outsource the tools for generating debate, managing debate, and settling debates (through ballots, consensus and negotiation), you can use affiliate marketing to bring it to the towns and cities where such skills are needed. You can also use syndication to bring these sites the initial content they'll need to be complete from day one.
*Campaign management is expensive. The costs of collecting and analyzing information make it a local business, except in statewide races. The Web can nationalize all races, bringing the hands-on genius of a Ralph Reed (or James Carville) to state legislature and city council races. Ralph, make yourself a Web consultant.
*Build Global, Act Local. A union or interest group that wants to influence a local race can bring their Web expertise down to that level. Put a few good people on the ground, set the volunteers up on a network, and organize things down to the block. Win a few races that way and everyone will be doing it.
These are just a few ideas. Remember that politics is part advertising, part public relations, but all organization. It was made for the Web.
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Every Niche Isn't Equal
Every market niche, it seems, is now getting a "portal," where entrepreneurs claim to bring everything together for buyers and sellers alike. Most of these portals are spending far too much money trying to think up clever names and dealing with how they'll present their offerings. Not enough of them are spending the time to understand their markets, get to know the players, and designing a process that will save buyers and sellers money.
Here's an example - eCampus . Pretty graphics, millions of dollars invested, big names (headed by former Kentucky governor Wallace Wilkinson) but has anyone seriously talked to the nation's colleges and shown how a Web affiliation can save money and improve sourcing? Wilkinson's business model seems to be that he's got a bookstore, he knows how e-commerce works, so it's got to work, right? As Ed McMahon may have said (a decade ago, to Carson's Carnak character) "you are WRONG, mint julep breath." What makes a campus store a powerful monopoly is the official sanction of the college, and integration with the needs of professors, which comes in months before classes start. What you do is give colleges a cut of the take, and a business model that saves students money. The rest is just flash.
The key to b2b success is simple. Customize your system for the real needs of the players (which you learn about by talking directly to them), and make sure gatekeepers get most of the savings.
Taxing the Internet
The Gilmore Commission , charged with handling the difficult question of sales tax and the Internet, finally convened last week.
The problem they face is real and growing. There are 3,000 jurisdictions in the U.S., each with its own sales tax rate. The Supreme Court says states can't tax out-of-state sales until Congress gives the OK, and Internet industry lobbyists have (so far) been powerful enough to keep that from happening.
The solution is amazingly simple. In a word, tax reform. Instead of imposing the administrative nightmare of sales taxes on Internet businesses, find a way to get rid of this most regressive-of-all-taxes. Find another way to pay for schools and cops. Like what? Europe imposes Value Added Taxes (VAT) on all sellers of goods and services, which while just as regressive as sales taxes are imposed not at the store, but at the location where the value is created. If states find a way to parcel out this money they'd also create school funding equity, something everyone knows is necessary but no one is willing to deal with. Don't like that? How about income taxes or corporate taxes, again imposed at the state level and distributed based on population.
If the Internet industries picked up the tax reform Clue they'd have a marvelous opportunity to move the nation in a progressive direction, and something they could box the Gilmore Commission's recommendations about the ears with, whatever they are. Don't bet on that happening, however. My guess is the commission will try to tax e-commerce, creating a new tax avoidance industry that will make the income tax preparation business pale in comparison.
The Federated CSP
I've praised Federated's purchase of Fingerhut before, but it has become evident that the strategy is to build the world's largest Commerce Service Provider, an outfit with the scale to handle the massive movement to e-commerce everyone's predicting.
The strategy took shape last week as Fingerhut signed Wal-Mart as an early customer . While many analysts are screaming this means Wal-Mart will dominate the Net (and its new IBM software has to be better than that Microsoft garbage they were using) this deal is much bigger for Federated. The job of Internet-based product distribution is truly massive, a sea change for U.S. business, and a lot of that work has to be done over the next five years. With this deal Federated puts itself on the front lines of that effort, alongside such competitors as Federal Express, Amazon.Com and UPS. Don't let the LA Times' fools fool you - there's tough competition ahead. And in a world where every order is unique, the early foot here will go to smaller stores, not mega-stores.
The Cost of Coming Late to the Party
Early Internet leaders drew big valuations because, if you keep delivering on your promises, you can keep your lead. The most-heavily trafficked-sites' leads on the laggards keep expanding , and if traffic is all you care about you can actually make a case that the Internet is shaking out to a few super-sites.
The assumption is false, but it is true that when you're late into a market and the market grows it will cost you even more to get a piece of it. That's the situation now facing CNBC.Com, which relaunched last week, and Time Inc. . By stalling action with business plans and organization charts, these two companies have lost much of a market that should have been theirs.
CNBC, of course, has a chance at success, if only because its on-air operation is so beloved of day traders and other shut-in executives. The early version, however, doesn't offer much more depth than the cable network, and if style continues to rule over substance they're in for a rude awakening. Depth is how you win the Web financial wars. Time, whose magazines have depth, hasn't even gotten started on its financial super-site - the blood in the executive suite has yet to be cleaned from the floor. The head of the company's only real entrant in this race was cut-off in a coup, which he convinced the press was just his idea of seeking The Final Frontier. (These are the voyages of the Star Ship Free Enterprise ...)
It's the media's failures that have given start-ups, flakes, and vendors their lead in the market for online financial information. The betting here is that will continue, not because the older sites are so good, but because the Old Media insists on remaining so Clueless.
Clued-in is AOL Search , if the onliner can give non-customers access to the data called up by its searches. It debuts this fall - we'll watch and report.
Clueless is Business Week's Geoffrey Smith , who listened to too many local bankers before penning a story on "why online-only bankers won't make money." Price sells, Geoff, and Internet-based banks can give better rates (on insured deposits) than competitors. Here's the math -- move just 1% of the nation's savings to Web-only institutions and you have instant billionaires. If 90% of bank customers "need" a teller, who cares? (As to combining a little brick with a lot of technology, how hard would it be for Charles Schwab to get a bank charter?)
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