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Marketing in the Internet - as seen from Italy

by Giancarlo Livraghi

No. 10 - October 16, 1997
1. Editorial: Databases and Privacy
2. Projections to confuse us
3. Curves for thinking
4. Slow Europe
5. A few problems for the Microsoft empire
6. Lead generation works for Toyota
red buttonSummary

1. Editorial: Databases and Privacy
A few days ago I met the Marketing Director of a large multinational company. For obvious reasons, I can't name names; but it's a huge multi-brand corporation, operating in many different fields and quite famous for it's marketing expertise. I seized the opportunity to freshen up on a point that I hadn't checked for a while. I asked him if his (very well informed) organization knew that in any part of the world, and in any field, there was any real development of data-based marketing. With no hesitation, he answered no.

Data-based marketing has been discussed very seriously for at least twenty years. Ten years ago there were effective, operational models, connecting different data-bases to offer customers precisely what they want and exactly when they want it; as well as techniques to create "controlled territories" in which every component of a marketing mix could be tested in practice before facing the risk (and cost) of a roll-out or an extensive test market.

Special consultancies were established, specializing in these techniques. Some practical experiments were carried out. A few years later, those companies or divisions were closed.

It would be quite complicated to explain why these well-planned and carefully developed techniques were, and are, so scarcely applied. The fact is that isn't easy; and it takes more time, patience and dedication than most companies can afford. It also takes long-term planning, which is not very popular when short-term strategies prevail.

This can be easily confirmed by anyone's daily experience: just look at how many offers we get, by snailmail or e-mail, that don't match our needs and don't speak our language.

There is a lot of data trafficking on the net. It has become almost impossible to visit a site (commercial or not) without being bombarded with cookies and other snooping devices. There are organizations dedicated to the grabbing of personal data, by all possible means (including "traps" disguised as "link exchanges"), which they sell to marketers. As they continue to do so, there must be buyers for their dubious merchandise; even though (as far as we can see) hardly anyone knows how to use the data effectively.

The myopic greed of data merchants is dangerous. They sell not-so-valuable information to companies that, in most cases, don't know how to use it. This is quite convenient for those data-merchants that make money in the process, but it doesn't seem to provide any useful tools for marketers.

There are two big risks. The first is an increase of spamming, that can alienate people from the net and cause a heavy backlash. The second, and even worse, is a mounting reaction against the violation of privacy.

In their interesting book, Net Gain, John Hagel and Arthur Armstrong say:

"Trading" of member profiles could significantly undermine the relationship between the community organizer and its members and, as a result, jeopardize the community's ability to develop advertising and transaction revenue streams that over time would dwarf the economic value of trading in member profiles.

And also:

Community organizers must be sure to capture, organize and use this information in such a way that maximizes its economic value without violating the privacy concerns of members.... For example, the community organizer can serve as a helpful filter for members, ensuring that only advertisements or commercial messages truly relevant to the member will reach that member.

Obviously we are not discussing here the big media fuss about the privacy of movie stars or other "very important people". Nor the clumsy and poorly applied legislation that in some countries (such as mine) does much more to feed obnoxious bureaucracy that to protect anyone's privacy.

This is much more serious. If data trading doesn't find a limit, sooner or later the backlash will be heavy. They may be legislation or government intervention, which may undermine net freedom - or, at least, choke net marketing with red tape. And there could be an increasing discomfort for net users, who could barricade themselves in closed communities - or simply walk away. The greedy data merchants could be maiming the goose before it can lay any golden eggs.

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2. "Projections" to confuse us
I don't want to waste too many more words on the "numbers hype" that surrounds the net. Even major media are beginning to report some doubts. For instance a leading Italian newsmagazine, L'Espresso, on October 9 commented that data on internet growth show «optimism that is not shared by experts

I don't agree that funny numbers are "optimism"; nor that a more considerate view is "pessimism". The net is not a homogeneous system; it's a mixture of different behaviors and trends, that can change quite unpredictably. Ups-and-downs are to be expected in this environment and should not be seen as surprising or "disappointing".

This is not just a matter of number-crunching. A careful, realistic analysis can lead to practical criteria (as I am trying to do in these pages) for the successful development of individual activities and the seizing of opportunities which are not related to the general growth of the internet.

But the "number craze" continues, in spite of the fact that it's useless - or can be dangerous if it leads to the wrong strategies. The question is, why? It's pretty obvious that the number-mongers are often people who have something to sell. But it's not as simple as that.

For many years now the most careful students of science and society (including management and marketing) know that we are in a state of turbulence, complexity, non-linear development; that this can be a very positive evolution if we understand it; and that we need deep changes in our way of thinking to operate in this environment. The problem is that adjusting to the world of the "unpredictable" is taxing, and makes us uncomfortable. So we try to hang on to linear thinking, to believe in "projections" that are unlikely to come true but give us a delusion of comfortable predictability.

I think this is an important subject and I shall try to look into it, as briefly as possible, in the next few paragraphs.

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3. "Curves" for thinking
If any readers are mathematicians, biologists, or scholars in business management, they will find this simplistic. Please forgive me. I am not trying to get into the scientific complexities of turbulence and chaos, but just to explain, as simply as possible, the problems that face us in business and in everyday life.

Let me start with a very simple example.

If my objective is to go from A to B, my mind projects that as a straight line:

In real life, there are no straight lines. Between A and B there are obstacles, interferences, bends. Even if my task is as simple as going to a nearby coffee shop for a drink, the route will be something like this:

In a simple action, that takes only a few minutes, I am unlikely to forget where I am going. But the pattern becomes quite different when a much more complex task is performed by an organization, involving several people over time and in a changing environment.

(Even the route to the coffee-shop is tri-dimensional, because it's likely that I must use stairs or an elevator; in an organization it is, obviously, multi-dimensional... so the flat curves that follow are necessarily and grossly over-simplified).

It becomes possible (in fact, quite likely) that some parts of the organization lose track of where they were supposed to be going...

...and the entire system loses focus on its objective, with the additional complication that some parts of the organization think they are going to C, D, E or F and work at cross-purposes with each other. This is a serious mess in any case; but we should note that while the people going to C or F are getting closer to B (even if laterally) those heading for D and E are heading in the opposite direction and would need a cumbersome (and expensive) U-turn to find their way to B.

It isn't difficult, when looking at the performance of an organization, to notice this sort of thing happening.

In a stable environment, with a predictable and controllable evolution, there is (in theory) an easy solution: everyone has a compass. That is to say, knowledge and responsibility are shared; there is a widespread (and frequently reinforced) notion that the objective is B; the process is constantly checked so that the (unavoidable) deviations are corrected as soon as possible. The system then works more or less like this:

But in a complex and turbulent environment the process could evolve quite differently. The situation is changing and unpredictable. We may realize tat B is no longer our objective. For instance, we notice that two "spontaneous" deviations, C and D, are converging; and we should try to understand why. We may discover a new situation, like this:

Our understanding of "complexity" has led us to the discovery of a new objective, N - and we must re-orient our energies in that direction; but without pruning the branches that are exploring other, unpredicted, possibilities. We notice that some of the branches are heading for areas close to our "old" objective B, some are twisting toward N, but others are extending off in unknown directions. The pattern seems to lack "logic" but is structurally simpler than any real system resulting from a "linear" model. "Complexity" is not intrinsically more complicated than apparently "rational" systems; it leads to shorter routes and faster communication. The problem is that we are not trained to understand it.

This looks much more like the growth of a plant than the behavior of a machine. The study of complex systems leads often to biological analogies. The implications can be quite subtle and complicated, but if we simply "feel" that the analogy is meaningful... intuition can help us to understand how to move in the word of complexity, where "non linear" thinking works better.

This concerns the entire evolution of society and economy. But it's even more important in the case of networked communities, that evolve like living beings and "biomes".

Mario's Scenarios - the net is losing momentum

An interesting application of "non linear" thinking is in the work of a German analyst, Mario Hilgemeier. In his studies of "complexity", he has developed what he calls Mario's Scenarios and drawn a few projections - which of course take the shape of the classic "S" curve of biology, as discussed in the third issue of this newsletter. Some of his scenarios concern wide subjects, such as the growth of world population; two are about the internet.

One is about the worldwide hostcount. Mario Hilgemeier comments that «the hype is over, people have a more realistic view of the Internet medium»; but even in more soundly based studies such as his own «the forecasted numbers were always a little higher than the actual numbers». His analysis indicates that «we have passed the point of fastest growth in June 1997, and will reach the level-off already in 2002 with an end value of about 38 million hosts.» The number will roughly double between now and the level-off point, with an average increase of 13 percent a year (not so long ago, it was generally assumed that the growth rate would be 15 percent a month...)

A similar projection for Europe indicates that the point of fastest growth would be October, 1997 (as we shall see, it was earlier) leveling off, around 2002, at about 11 million hosts (with a yearly average of 15 percent, a bit higher than the rest of the world).

Dr. Hilgemeier, a student of complexity, is not offering these as "prophecies", but just as trends; as he says, error margins of the forecast could only be guessed. Also (as I pointed out several times) the net is not a single event but the combination of several trends. In any case, these projections are much more coherent and believable than most others, because they reflect three considerations:

  • The pattern is not linear.
  • Fast growth is inevitably followed by slower development.
  • At this time, it's losing momentum.

But there is no reason to believe that this pattern won't change. There can be new developments, generating new trends. It's quite likely that the internet as we know it today is only one of many possible tools for the "network society". There can be unexpected lateral jumps in technology, offering further opportunities for change; but, once again... I believe that the driving force will be the "biological" evolution of human behavior.

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4. Slow Europe
It's been just over a month since we discussed the situation in Europe; but I think we should take another look at it, because new RIPE data confirm a relevant trend. Only next year, when we shall have the next set of worldwide data, we shall know if internet growth in Europe is becoming slower than in the rest of the world, as some observers think. But in the meantime we can take a look at hostcount progression since 1991. I apologize for the mass of numbers, but to get a feel of the trend it's enough to glance al the last column (percentages).

Number of internet
hosts in Europe
% growth
1991 March 44,506 15,276 52.3

June 63,267 18,761 42.1

September 92,834 29,567 46.7

December 135,000 42,166 45.4
1992 March 167,939 32,939 24.4

June 196,758 28,819 17.2

September 232,522 35,764 18.2

December 284,374 51,852 22.3
1993 March 355,140 70,766 24.9

June 404,930 49,790 14.0

September 469,356 64,424 15.9

December 553,357 84,001 17.9
1994 March 655,164 101,807 18.4

June 760,385 105,221 16.1

September 888,398 128,013 16.8

December 1,029,270 140,872 15.9
1995 March 1,326,078 296,703 28.8

June 1,550,520 224,988 16.9

September 1,830,389 280,386 18.1

December 2,206,360 369,027 20.2
1996 March 2,483,689 277,454 12.6

June 2,910,043 426.210 17.1

September 3,290,100 364,473 12.5

December 3,674,257 378,507 11.5
1997 March 4,213,308 535.128 14.6

June 4,738,080 524,503 12.4

September 5,122,510 380,210 8.0

Growth percentage of internet hosts in Europe - 1991-1997
Host internet per 1000 abitanti

Europe and Mediterranean - June-September 1997
28 countries with over 10,000 internet hosts - of 52 in the RIPE area (Réseaux IP Européens)

June 30 September % growth
in the quarter
United Kingdom 887,231 944,237 6.4
Germany 903,870 934,453 3.4
Finland 366,275 429,295 17.4
Netherlands 342,845 365,237 6.5
France 304,028 331,946 9.0
Sweden 289,759 328,288 13.3
Italy 242,575 260,006 7.2
Norway 210,094 221,762 5.6
Spain 169,534 178,655 5.4
Switzerland 147,064 167,322 13.8
Denmark 133,979 145,919 8.9
Russia 112,827 130,616 15.8
Austria 92,797 94,445 1.8
Belgium 88,756 94,735 6.7
Polond 73,845 80,433 8.9
Israel 61,227 73,402 19.9
Czech Republic 49,611 54,702 10.3
Hungary 41,750 43,943 5.3
Portugal 34,686 38,120 9.9
Ireland 33,020 35,249 6.8
Greece 20,578 24,559 19.3
Turkey 24,596 22,476 (- 8.6)
Slovenia 17,036 18,212 6.9
Iceland 13,864 15,430 11.3
Estonia 11,985 13,201 10.1
Romania 6,898 11,874 72.1
Slovakia 11,013 11,466 4.1
Ukraine 10,275 11,195 8.9
Total RIPE area 4,738,080 5,122,510 8.1

We see relatively slow growth in some large countries (especially Germany). It's interesting to note considerable growth in countries that already had high density, such as Sweden, Switzerland and especially Finland.

Growth in Italy and Spain is below average; in France it's only slightly higher - which seems to indicate that so far the government has not been very effective in its stated intent to correct the French peculiarity, i.e. shift networked communication from the old minitel to the internet.

Development is uneven in Eastern Europe. Russia is growing, as predicted; but while Romania "leaps" some relatively strong countries are slower (such as Hungary, alongside its neighbor Austria). In the East Mediterranean Greece is recovering and overtaking its rival Turkey - that after a fast growth now shows a decrease (such ups-and-downs are not surprising in a new and "turbulent" environment).

As is "traditional" in this newsletter, let's take a look at per-capita density.

Host Internet hosts per 1000 inhabitants
20 countries (of 52 in the RIPE area) with more than 10,000 internet hosts and density over 4

The green slice of the bars is the change in a quarter (June 30 to September 30). As usual, there are marked differences and variations. Finland holds, indeed increases, its worldwide leadership, with remarkable density - an internet host per 12 inhabitants.

Because of new data, as well as Dr. Hilgemeier's scenarios, I thought it would be better to re-discuss Europe now - and leave for future issues. the analysis of other parts of the world.

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5. A few problems for the Microsoft empire
I must admit that I am not very fond of Microsoft. It's not very agreeable to be dominated and constricted by anyone's "hegemony", especially when that forces us to live with the bugs and tantrums of cumbersome, expensive and not-so-good software.

Anyone supplying 80 percent of the personal computer operating systems and trying for more (as well as attempting to gain a dominant position in the net, and unfortunately succeeding) can not expect universal sympathy. However I don't think we can blame on any one company the fatware disease, which (in spite of growing criticism) seems to remain the ruling force in this unhealthy market.

Worries about the monopoly are no longer just whispers in the net. They are beginning to make headlines in the "big media". But I don't think that's enough. Even if the market became more open and competitive (and that's quite difficult) I don't think that would be enough to break the vicious circle. There is growing concern about fatware and the frantic overloading of hard discs, cd-roms and bandwidth; but it will take much more energy to break though the engrained (and foolishly applauded) habit of mistaking useless bells-and-whistles for true innovation.

I don't think our problems will be solved by the Microsoft-Netscape squabble over browsers (with both contenders loading their overweight products with more devices and tricks than anyone can possibly need), nor by the brawl between Microsoft and Sun over Java, which is beginning to sound like the "cola wars" of the Seventies and Eighties (but soft drink makers understand markets and consumers much better than any software or hardware producer). But maybe something new is beginning to happen.

The news is that on November 13 and 14 at the Omni Shoreham Hotel in Washington there will be a conference on Appraising Microsoft and Its Global Strategies organized by Ralph Nader, the famous lawyer, that some love and some hate, but is bound to get a fair amount of media attention and raise a stir in "high" political and economic circles in the United States - and maybe worldwide. Participants include Scott McNealy, CEO of Sun, Roberta Katz, general counsel of Netscape, Christine Varney, formerly a commissionary of the Federal Trade Commission, and other quite relevant people. Nader invited Bill Gates and vice-president Al Gore, but they seem to be turning down his offer.

A problem, that has been discussed in the net for years, is beginning to surface where the big media radars can't miss it. It's hard to predict the results; but the charm is broken. A few dark clouds are appearing on the horizon of the smooth waters navigated by the Invencible Armada.

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6. "Lead generation" works for Toyota
An example of effective lead generation was reported by Business Week on October 6. With a banner campaign, Toyota invited potential customers in the United States to visit its website and fill in an online questionnaire. In twelve months (from June 1996 to May 1997) 152,000 people responded. Toyota reports that 7,392 of those people bought one of its cars.

According to Jon Bucci, interactive communication manager of Toyota US, a 4.7 "conversion rate" is better than what the carmaker used to obtain with other "lead generation" tools, including a free-of-charge phone number.

An interesting side of the story is that in this operation Toyota didn't buy addresses or "profiles" from data traders, or violate anyone's privacy, but offered information and gained voluntary cooperation from its potential customers.

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