timone NetMarketing
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Marketing in the internet – as seen from Italy

No. 44 – April 14, 2000



loghino.gif (1071 byte) 1. Editorial: Deflating the bubble

In Italy, as elsewhere, there is bewilderment and concern in the media and in business circles. Has a tornado hit the stock market and business in general? Not really. There have been drops in Nasdaq stock prices and some fluctuations also in traditional stock trading. There are similar ups-and-downs in stock markets around the world. Those adjustments were to be expected. The bubble hasn’t exploded, but a bit of hot air had been let out of balloons that were flying too high. And of course there are speculative waves that exploit the ups-and-downs. It’s happened before, especially at times when the stock exchange was experimenting with new types of business. And it will happen again. Many “new economy” stocks are overpriced; many startups have failed and more will stumble before real long-term winners can be identified.

Some fluctuations are hard to understand. For instance there were heavy sales of Microsoft shares when the decision of judge Thomas Penfield Jackson was announced on April 6. The matter is very complex, the investigation had been going on for years and there will be no practical effects for another year or more. It will take a long time before the problem of the Microsoft monopoly comes near to a (much overdue) solution. Nothing happened on April 6 that could have any impact on the company’s profits for months and years to come. It this just an emotional reaction to the news? Maybe. But it would be very surprising if some large operators hadn’t caught the opportunity for a quick and easy gain. As is happening in many other cases.

Nobody (including financial analysts) has a clear idea of what will happen in coming months. Will there be more haphazard fluctuations or will the market gradually settle to more realistic stock prices and a more considerate choice of investment? That’s likely to happen – eventually. But nobody knows when and how.

If that’s a problem in the United States, where there are strong leaders in technology and the general public has many years of experience in the stock market, it’s even more difficult in countries like Italy where most companies don’t know how to cope with the new environment and many people shifted their savings from government bonds to stocks only a short while ago. Several people made some good earnings in a fast-growing market, but there was a general delusion that uninterrupted growth would go on forever. Of course there has never been, and there never will be, any market that works like a rigged slot machine. But that’s what many people were led to think and that’s why now there is so much disappointment.

So far the bitter medicine of stock disappointments hasn’t worked. The media are continuing to feed the myth that the “new economy” is built on short-term gains, playing with venture capital or the stock market. Many companies have failed to meet their objective, several have gone out of business altogether, lots of new ventures have been canceled or are being inadequately supported. There are may more failures than are reported in the media. But that isn’t (so far) leading to any deep reconsideration of objectives, to more considerate mid-term (if not long-term) planning. A few companies have learnt the lesson and are building for the future, but of course they are seldom those that have the most publicity.

A few clear voices are being heard, here and there; but they are still isolated in the overwhelming reports of a miracle success one day, a catastrophe the next. Antonio Fazio isn’t an ethics philosopher. He is the chairman of the Bank of Italy and his mind is on business and money. In an intervieo on February 26 he explained quite clearly that there is a big opportunity for Italian companies (especially the “small and medium enterprises” that are the strongest part of our economy) and that there is an opportunity for growth that could equal the “Italian miracle” of the Fifties. But that will happen only if they concentrate on the real stuff: products, services, quality, innovation, competitive edge. He pointed to the fact that people should learn to be more selective in investing their savings and companies should be building on sound ground, not just chasing quick money.

Of course everyone agrees – in theory. But we shall need more cold showers before these words of wisdom are really understood – and practiced. No matter who makes a “quick kill” (or dies a quick death) today, the real future of the new economy, everywhere in the world, is with the people who know how to make money the old fashioned way – by making sound investments and working hard for lasting quality.

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loghino.gif (1071 byte) 2. A new book

A new book, in Italian, was published in April: La coltivazione dell’internet. Its about ways of using the internet effectively for business, but also includes a broader vision of how the net works and what it can do for people. Part of it content is already covered in English in this newsletter and other articles in this site. Over time, essential parts of the book will be translated or summarized online.


There is a short online presentation in English and a more extensive one in Italian.

The concept of “cultivation” of the internet was explained briefly in an article published in October 1999.


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loghino.gif (1071 byte) 3. Not much advertising online

New reports published in February-March don’t change the picture as we had seen it at the end of last year. The expenditure on online advertising in 1999 was around 40 billion lire (20 million dollars) and it’s expected to grow to 150 billion ($ 75 million) in year 2000. That’s considerable growth but a very small percentage of advertising investments: 0.3 percent in 1999, less than 1 percent this year. And of course (as in the US end elsewhere) over half of that money is circulating within the online environment – the companies buying advertising are the same that are selling it.

Investments in traditional media by companies selling internet services in Italy were the equivalent of 70 million dollars in 1999 (and that does not include the much larger amounts spent by telephone companies, especially on mobile phones, including some data transmission services). This year they will probably grow to over $ 200 million. Internet businesses are spending much more on traditional media tan anyone is paying for online advertising.

Much more money is being spent on online advertising in a few other countries, but results are disappointing. On March 31 the San Francisco Chronicle reported that, according to a study by Nielsen Netratings, banner click-through rates had decreased from 2.5 percent in the mid-nineties to 0.36 percent. In spite of the problems, online media spending increased 86 percent in 1999, while general advertising was up 10 percent. The amount is large: 1.9 billion dollars. But it’s only 2.1 percent of total advertising. The largest spender was Microsoft (36.2 million dollars) followed by IBM (27.1), General Motors (21.4) and First USA (14.6).

20.6 percent of the advertising investment in the United States was in television (18 billion dollars). 20,2 percent (17.6 billion) in newspapers. The largest spender in 1999 was General Motors (2,9 billion); followed by Procter & Gamble (1.7), Daimler-Chrysler (1.5), Philip Morris (1.3), Ford (1.2) and Time Warner (0.9).

A few years ago, some people were saying that advertising on the internet would replace traditional media. So far, it’ hasn’t happened; and for the visible future things are going the other way. In Italy there is strong growth of mainstream media advertising. It’s expected to grow to over 4 billion dollars in television in 2001; 3 billion in the press, 500 million in radio, 400 million in outdoor. The most optimistic projections for online advertising on local sites can’t lead to more than 100 million dollars. That’s a lot of money – but a very small slice of the pie, and not enough to meet the expectations of thousands of web sites competing for advertising revenue.

Over time, advertising online will grow and mature. As it is now, it’s often clumsy and ineffective; and tiny compared to traditional media. Business online, of course, is not a small challenge and opportunity; and it’s not for some vaguely defined future. It’s here and now. But online advertising is a very small part of what a company can do on the internet and, in most cases, it isn’t the most important or productive.


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loghino.gif (1071 byte) 4. A community of giants

When we discuss online communities, we generally think of relatively small groups of people. Or alliances of small companies. Or an aggregation of resources sharing knowledge around an individual company. But did we expect communities of giants?

In March 2000 it was announced that General Motors, Ford and Daimler-Chrysler were joining forces online. And that the system could be shared by other large carmakers around the world.

The system., of course, is concerned mostly with purchasing, supplies, technologies and logistics. But sooner or later it will also involve sales. That got the car dealers worried, and a few weeks later it was announced that dealerships in the United States were planning to join forces online.

Time will tell how these developments will change the car business. But it’s interesting to know that the concept of “online community” isn’t only for people or small businesses. It’s also for very large corporations. One more proof of the fact that we are in the very early stages of the new economy. Many of the past ventures and partnerships are falling apart, or aborting, or dying in their infancy. But there will be new enterprises, new conflicts and new alliances – and many will be quite unexpected.


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