Netmarketing

NetMarketing
available also in Italian

by Giancarlo Livraghi

gian@gandalf.it

No. 45 – May 6, 2000

Editorial: Dot com tantrums

Information virus

Technologies and metaphors
(Neal Stephenson)

Summary

1. Editorial: Dot com tantrums

I must admit I was wrong. And I am quite disappointed. Over time, a change of perspective will probably prevail. But it’s happening much more slowly than I expected (or hoped) a few months ago.

There were clear symptoms of new thinking. Books, articles, discussions, high-level meetings – pointing to the fact that most companies don’t really understand what they can do with the internet; and that there is much more to the new economy than some hasty rush on the stock exchange. But that wisdom isn’t showing up a the working level. Most companies are still trying to force the net to fit into their traditional thinking, or trying to attract attention with some cosmetic tricks, or simply copying what everyone else is doing without even bothering to check if it made any sense in the first place.

Most “traditional”companies still have no idea of how they can really use the internet. But what’s even more surprising is the lack of depth in the strategies and behaviors of the new wave – the “internet companies”.

That isn’t happening only in relatively “underdeveloped” countries such as Italy. American “dot coms” don’t seem to be setting a good example for the rest of the world. Forrester Research has been producing, over the years, some of the most optimistic projections on the growth of e-business. It’s interesting to find that from that source we are getting some pretty harsh criticism.

At the end of April George F. Colony, chairman of Forrester, published an article with a pretty strong title: Hollow.com. He explains that many “new economy” companies need to be exposed as what they are: empty, full of air, shallow. Here are some of his comments.

I recently did a series of interviews with CEOs about the next 10 years and how the Internet would change their business. Most of the interviews were with Global 2,500 CEOs – people like Harvey Golub at American Express. But 20% of my conversations were with the leaders of Dot Coms.Yes, the traditional CEOs were scared by the internet and were scrambling to catch up. But that wasn’t what grabbed me. The biggest revelation was the low quality of the Dot Com CEOs when compared with the traditionalists.

What was missing? Many of the Dot Com CEOs lacked depth, experience, and common business sense. Their commitment was short-term – three years on the average. They talked about their highly fluid work force – a constantly changing cast of characters, washing in on the promise of more stock options and an IPO and then washing out, post-offering, in search of another pre-IPO company. The business thinking of these CEOs centered on simplistic and clichéd mental models: “Be like Amazon!” “Advertise, advertise, advertise!” “It’s a land grab!” “We don’t want to be profitable too fast.” “B2B is the place to be.” There was a fanatical focus on valuation – getting public and liquid – while value – what the customer eventually gets – was a back-seat discussion. In many ways, these companies felt hollow, lacking some of the fundamental ingredients of long-term success. Four dynamics drive this mentality. The first is history. Capitalists and entrepreneurs look backward at companies like Microsoft, Sun, or Cisco and perceive that first-mover status creates a tornado, in the words of Geoffrey Moore, that steals the air from competitors and locks up a market. The lesson: Go fast or die. The second dynamic driving this trend is jealousy. Entrepreneurs see undeserving people getting rich fast, and they want their piece of the pie. The third dynamic is the flavor of current capital. Public markets are gullible and ready to buy equity in half-baked, or even quarter-baked, "companies." Venture capitalists appreciate the window for quick-flipping and encourage entrepreneurs to think in the short term (check out a great article in Fast Company, to get a full taste of this trend). The fourth reason is greed. The thinking goes, “Hey, why get rich slowly with a lot of work when I can get rich quickly with not much work?”

These factors are creating hollow companies, which have limited experience, wisdom, commitment, long-term view, allegiance to the customer, or sense of construction. These companies are not built to withstand competition, they’re not built to deliver sustained value, and they’re not built to last. The idiocy of the Hollow.Coms was embarrassingly revealed during this year’s Super Bowl. By the third quarter the advertisements for Dot Coms had become the running joke of the game. With the exception of a few good ads, most were a phenomenal waste of money. They failed to identify the company or critical information like the benefits and features being offered.So what’s going to happen? Some fantastic companies will be built that end up dominating the Internet economy. But let me emphasize the word built. It’s going to take years; blood, sweat, and tears; developed wisdom; and enlightened business decisions to construct the truly stellar Internet companies. The Hollow.Coms will get trashed – along with a sinful amount of venture and day trader capital.

Pretty tough... but Gerorge Colony is right. And his prose makes me feel at home. That’s the same feeling I have when meeting with companies, large and small, on this side of the ocean.

There is equally sound (and critical) thinking in the article by Jim Collins, Built to Flip, quoted by George Colony. It’s quite long and worth reading in full; but just to get the feeling – here is how it starts.

«I developed our business model on the idea of creating an enduring, great company – just as you taught us to do at Stanford – and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, “We’re not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.” »

A former student was reporting to me on her recent experiences with the Silicon Valley investment community. As an MBA student at Stanford, she had taken my course on building enduring, great companies. She had come up with a superb concept that involved doing just that. But when she took the idea to Silicon Valley, she quickly got the message: Built to Last is out. Built to Flip is in.

And here are two short paragraphs at the end.

If the new economy is to regain its soul, we need to ask ourselves some tough questions: Are we committed to doing our work with unadulterated excellence, no matter how arduous the task or how long the road? Is our work likely to make a contribution that we can be proud of? Does our work provide us with a sense of purpose and meaning that goes beyond just making money?

If we cannot answer yes to those questions, then we’re failing, no matter how much money we make. But if we can answer yes, then we’re likely not only to attain financial success but also to gain that rarest of all achievements: a life that works.

Copycats in my country, as in the rest of the world, think that the best they can do is to imitate the hollow coms (or, even worse, produce clumsy second-hand imitations of their local imitators). They should, instead, learn from their mistakes and try to do better. Of course it isn’t easy, but it can be done. There is a big traffic jam on the way to nowhere; while less visible, but quite effective, paths to real success are pleasantly unspoiled by the madding crowd.

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2.The information virus

We read more about hoaxes than about real viruses. But even when they are real the exaggeration is enormous and the quality of the reporting is very poor. People are led to think that it’s almost impossible to be on the net and not get infected by some terribly destructive disease.

The I love you virus, making big headlines at this time, isn’t a hoax. It’s a real “worm” that can spread copies of itself quite effectively – if it creeps into systems that don’t have adequate defenses. But it’s not even remotely as dangerous as is being reported by media worldwide

The experts say it’s a fairly simple piece of software and the real question is how could it spread so fast (though not as widely and wickedly as reported by media). The answer is that there are too many people around that don’t take even basic precautions, too many system managers that don’t do what they should, and too many people and companies using Microsoft Outlook – a pretty bad piece of software even regardless of the fact that it is particularly prone to viruses hidden in e-mail attachments.

The key points are quite simple.

It’s silly to open attachments without checking them, unless we no exactly what they are and who is sending them. But most “computer literacy” programs include a ridiculous amount of unnecessary technicalities and no simple instructions on how to stay away from trouble.
It’s rather naive to open an attachment to a message called “I love you“ without checking what it is – unless it’s from someone we love and we know what us being sent. It doesn’t necessarily hide a virus, but it could be any sort of spamming, maybe ad for a sex shop...
Apparently outlook opens attachments automatically. That’s a very bad idea, regardless of viruses. There would be fewer viruses around (and fewer poorly organized e-mail messages) if people simply didn’t use outlook – or a least deactivated some of it’s most inconvenient devices.
Infected messages are re-distributed when mail is sent automatically to pre-set addresses without checking. That’s a bad idea in any case, and leads to all sorts of mistakes. If people checked their mail before sending it, the quality of correspondence online would improve considerably.

If virus reports were used to spread some proper education instead of sensational alarms, they could be quite useful in improving behavior and performance. But that isn’t what most of the mainstream media are doing.

One of the variants of this particular worm (potentially more mischievous) is called Mother’s Day. But how can anyone fall into the trap of an imaginary diamond costing 326 dollars? This sound a bit like the Spanish swindle that was reported five months ago.

Of course anyone can be hit by a virus, no matter how careful we are. But the news about I love you and its variations was grossly exaggerated. The safety and pleasantness of the net are not improved by these ridiculous horror stories. The biggest infection is poorly managed information.

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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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4. Technologies and metaphors
(Neal Stephenson)

I was lucky when I picked up a small book, from a pile of things I want to read, to take with me on a short flight. I really enjoyed Neal Stephenson’s In the beginning was the command line.

book

It’s short (150 pages), amusing, clear and inspiring. Worth reading even by people who don’t care about information technology. There is an intriguing history of how things evolved from punch-cards to the operating systems and “graphic interfaces” of today; a clear and witty description of the advantages and disadvantages of different systems; etcetera. (It’s no surprise that Neal Stephenson is on the side of opensource – and he explains clearly why).

But there is more. Even when we aren’t involved with information technology, we are living in a world of metaphors. There are all sorts of metaphorical “interfaces” between us an reality. Often they explain things more effectively than we could experience in person. We can use a movie, a television report or Disneyland to learn about places that we can’t visit, events in which we can’t take part. Often a camera (or the trained eye of a good reporter) can see better tan we would if we were there. That’s ok as long as we understand how the “interfaces” work and we don’t confuse the artificial constructions (or even eyewitness reports) with the “real” world. But is that always the best way of learning and understanding? When and why should we trust the metaphors? When, why and how should we get past the interfaces and use the “command line” – a basic tool, a direct contact? At the end of the book, the author gives us no easy answer. He leaves us wondering and doubting... and that, I think, is a very good and useful lesson.