by Dana Blankenhorn
Volume III, No. XLVIII
For the Week of December 6, 1999

This Week's Clue: Overhauling First Mover Advantage

This Week's Clue: Overhauling First Mover Advantage

SSP (Shameless Self-Promotion)

Why Big Media Doesn't Get It

How the Boom Ends - The Accountants!

Internet Music Royalties

Opt-Out Stupidity

Clued-in, Clueless

The latest word on dot com excess is that 20% of next month's Super Bowl has been sold to Internet advertisers, many of them new to TV, at prices up to $4 million per minute . At least one of these outfits, Angeltips.Com , is using its start-up capital to buy TV time. You can't get much more Clueless than that, can you?

Easy money is one reason for the trend, but it's not the only one. Industry assumptions also deserve some blame, especially "first mover advantage." You see, Yahoo and Amazon started fast and stayed ahead, so you can do the same. (That's the assumption driving the spending.) It sounds fine if you ignore such cautionary tales as Netscape and PointCast, not to mention Brainplay.Com. 

The fact is success takes execution through time, and success through time requires satisfied customers. We laugh at Buy.Com because their ads suck, and they've had other problems , including a silly business plan crafted by former CEO Scott Blum . But they must be satisfying someone because they're going public with trailing quarterly revenues of $160 million.

Blum launched Buy.Com by buying the flailing site built by Ingram Micro (actually contracted to IBM, for whom it made a handy demo). The fulfillment and operations scaled before the marketing (and a decision to cut prices to the bone). The company is now bringing in experienced hands to take over

There are many other examples of outfits being late to the party, or starting in a poor position before using acquisitions, money, or some other strategy to overhaul the first movers. Homestore.Com didn't get there first, but they made some clever deals and got there with the most. About.Com went nowhere for years (as TheMiningCo), but finally turned itself around .

How can you compete with big money, big deals and big time talent? The answer is customer service. It costs up to $7 to get a customer and $1 to get them to buy again, if you satisfy that customer on the first purchase. You get that customer back by treating them right, by scaling your fulfillment properly, by e-mailing them not just when you send the order but after it should be received (to make sure they're satisfied and provide a feedback loop). Then you use that feedback to improve what you're doing. 

I was wrong on my numbers concerning Amazon.Com last week. They're spending $1 billion all right, but mostly on warehouses and other fulfillment strategies - only $90 million is going into ads. The bottom line won't be seen on the December sales figures, in other words, but in the January, February and March numbers. Those etailers that hold their momentum will win, and the key to winning is repeat business. The key to repeat business is customer service. Amazon is putting the bulk of its money into customer service. That's what makes it powerful. 

All this is especially true in the b2b world. There each customer is crucial, especially in a vertical portal. In fact, as few as a dozen key players may make you or break you. You have to seduce them, you have to make doing business with you worth their while, before you have a chance of success. 

SSP (Shameless Self-Promotion)

I have begun my adventure at Voxcap.Com, discussing how next year's elections might impact the future of the Internet. I had two features in a recent special section of the Chicago Tribune  as well.

I write daily for ClickZ, and appear on TechEdge Radio. I write monthly columns for  NetMarketing, Boardwatch, and  Intellectual Capital. Once every other month I'm in CLEC Magazine. The lead item here is also the Monday e-commerce column of Andover.News. You can still buy my book . Subscription instructions are at the bottom of each issue.

Remember that it's still journalism that keeps the Clues coming. Give me a call at 404-373-7634. (Yes, I do some commercial writing.) Now back to the show...

Takes on The News

Why Big Media Doesn't Get It

I have marveled for years as big media companies flopped and flopped and flopped online. Two of the most hysterical failures are Time Warner Corp. and News Corp., and I wracked my brain in vain for years trying to figure out why they were like this.

I finally figured it out. The problem is that their decisions are made in boardrooms, and don't percolate up as they do at Web companies. How else can you explain the stupidity of Time Warner's Entertaindom . (The accent here should be on the last syllable, as in dumb.) How else do you explain the sheer greed of News Corp., which uses Javascript to dump incoming links to the home page (from which they usually can't find where they're going). Plus, their Fox studio is still repeating Viacom's three-year old mistake of killing, rather than supporting, its fan sites .

My Clue came in the New York Post's story on the latest Time Warner moves . The piece, like all Post copy, is a breathless drone of executives in boardrooms stabbing one another in the back, as though customers, suppliers, and line personnel meant nothing, and the only thing that mattered was who would get the credit later. The fact is that on the Web customers mean everything, and there's always plenty of credit to go around later. That's why so many Web companies have open office plans, no dress codes and flat organization charts.

The only way for boardrooms to succeed online is to buy, sell and trade Web outfits wholesale and hope they have more winners than losers. That's what News Corp. is now trying to do with WebMD-Healtheon. While the guess here is Murdoch will get skunked again, I've been wrong before.

Of course, there's one other option, although most media companies would never go for it. You can simply admit defeat, as the Washington Post Co. did recently in packing off its Web content to MSNBC .

How the Boom Ends - The Accountants!

There's a dirty little secret in the tech business. The accounting is screwier than a Robin Williams monologue.

In most businesses stock has a set value. If you print more stock the value of each share goes down. In technology, however, value goes up as you print more stock, because everyone who gets some becomes a tout. Profits are grossly overstated because wages are nominally low but bulked-up with stock options - more free money.

Now as long as everyone plays along, valuing tomorrow ahead of any reality, everything is hunky-dory. But what happens when the market turns south? The accountants pile on (along with the class action lawyers) and even the winners get driven under. Once I had a Web site, made it run, made it race against time. Once I had a Web site, now it's done, brother can you spare a dime?

You've been warned.

Internet Music Royalties

You may not know this, but radio stations regularly pay royalties to ASCAP and BMI. So do all commercial users of music, even Muzak.

So negotiations are now underway to extend this model to the Web, and they're at an impasse, according to the New York Times . Reportedly the copyright holders are demanding 15% of revenues, sites are offering 1-2%.

Share of gross is the wrong approach. It's not the approach taken in the radio business. There you have a sliding scale based on the size of the audience, based on market size and the antenna's power. But at the end of the day, that formula is simply a construct for measuring the size of an audience. That's the basis of a workable formula - what we have now is nonsense on both sides.

Opt-Out Stupidity

America Online's latest piece of stupidity, demanding that users renew their opting-out of its e-mailings, has drawn its rightful share of criticism . What's being lost in the clamor is the opportunity this affords all those in e-mail marketing to get something right for a change.

There's a big difference between acceptance and eagerness. There's also a difference between reading a piece of e-mail and responding positively. It's the difference between a pitch and a sale. And it's a difference that, in their eagerness to pitch, most e-mailers are missing.

In the paper mail world, this difference is acknowledged, because it can take $1 or more to mail each letter. Lists aren't just bought and sold, they're checked by the sellers and maintained by the buyers. In the paper world, permission must be constantly renewed, even on lists of buyers, or the response rate falls below profitability.

There are many ways to age and renew opt-in permission. You age permission by measuring the response rate -- the more e-mails you send without a response the older (and less valuable) the address. You can renew permission by simply asking for it, you can offer an incentive for it, or you can have a special "contest" for existing list members. The aim is not just to renew, but upgrade the permission, turning it into attention and then a regular buying relationship - like a book club.

So take a Clue from America Online's stupidity. Don't just avoid the opt-out model - review and renew your opt-in permissions. It's the best way to turn acceptance into sales.

Clued-in, Clueless

Clued-in is the Simon Property Group, a shopping mall operator developing its own Internet strategy . (The company actually launched the strategy early this year with a branding campaign in its malls.) There are also lots of malls working with Web start-ups .

Clueless is the St. Louis Galleria Mall , which tried to ban Web advertising.

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