24 Internet Business Strategies

Identity

Product & Company Information

3

In the past there had been a fairly crisp distinction between information internal to a company and external information. The Net provides the possibility for greater access to information which has created to opportunity to blur the internal-external distinction. This helps build New Relationships between customers and suppliers. The customers can be let in on more of the inner workings of the company. FedEx was one of the first companies to let their customers in on internal information: their package tracking database. It's available over the Net for anyone with an airbill number to access. Recently more manufacturing companies are revealing the status of orders being filled through the Net. This is especially beneficial for companies selling products with long lead times.

4

Customer support information is essential in many industries but can often be costly. Texas Instruments found the volume of calls to their semiconductor product information center rising at a rate of 24% annually before the Web. The Web site provides many of the answers to customers' most common questions. Since it was put online, the number of downloads of technical documents has risen exponentially while the number of calls to the product information center has fallen at an annual rate of 24%.

5

One of the benefits of a Web site is that it can hold all the company's product information on new products and new releases of existing products. But as corporate Web sites grow into thousands of pages, the new material can get lost. One commonly finds a What's New section in large Web sites specifically for this purpose. But for large corporations, even the What's New section can get so large as to get unwieldy. At Texas Instruments we implemented a customized What's New section called TI&ME that improves this situation in two ways. First, the visitor can specify which products interest him so news about only those will appear on his What's New page. Second, he can elect that new material in his areas of interest be emailed to him on a weekly basis. With email notification, one need not visit the site to see if there is anything new and interesting...the message comes to him.

Combining email with a Web site takes advantage of the New Economics of the Net. One must pay to connect to the Internet, but once connected, email messages as well as Web page accesses are free. TI sends out tens of thousands of customized email messages about What's New on their Web site every Saturday night at no incremental cost.

6

While customers may be the most obvious audience for a corporate Web site, there are many others. One set of visitors commonly served by Web sites are investors. Annual reports, quarterly reports, news releases and other information of interest to the investor can be made available on demand from anywhere through the Web. Not only is this investment information made available at any time from any place and in a more up to date form, but it is provided at a cost savings to the company. It typically costs about $6 to locate and mail a document, whether it's a spec sheet or an annual report. If these documents can be viewed across the Net for free, one can derive cost avoidance savings from the number of page accesses through the Web site.

Subscriptions

8

Many newspapers and magazines have attempted to build online subscription services. Most have failed. It requires an information product well recognized for quality to cut through the noise of free Net sources. One such product may be The Wall Street Journal. It will be interesting to see how this, one of the most widely read publications, will fare as a subscription service on the Net.

Sales

10

Mail order businesses have a natural affinity to the Web. Not only is it possible to take orders at lower cost than over the phone, but interactive Web sites can assist customers in understanding and specifying complex purchases. Dell Computer, for example, sells semi-custom computers through mail order. Their Web site allows customers to specify their computer purchase by selecting from a range of options for each of several system components. Conducting a moderately complex sell such as this over the Net is a natural. One can imagine more complex systems backed up by configuration checking systems that ensure that all shipped components are in fact compatible with one another.

11

CDNow does not sell a complex product (audio CDs) but one about which many customers are interested in a lot of auxiliary information: What are all the CDs available from a given artist? Which is the example of her best work? Who influenced this artist? Who was influenced by her? What others are similar? One might find answers to questions like these from a knowledgeable salesperson in a physical store, but in my experience. more often one cannot. CDNow offers a vast array of CDs and videos, but does so without carrying inventory. All orders are forwarded to manufacturers or distributors and drop shipped to customers.

12

Amazon.com Books bills themselves as the Earth's Biggest Bookstore. And one can order everything that's in print as well as a million titles out of print. But more impressive than that from an Internet strategy point of view is how Amazon is capitalizing on the New Relationships facilitated by the Net. They encourage anyone to leave a review of any book they've read and offer to interview any author for inclusion in their Web site. And why not? The storage space for a little text is virtually free and it gets customers involved in improving the online store.

13

Another good idea from Amazon: Customers can sign up to receive email notification when new books they want to read come available. They can set up searches for books by a combination of author, title, date or keywords. Whenever a new book comes along that matches the profile, Amazon's software fires off an email to the customer.

This does a good job of taking advantage of the unique benefits of the Net. Searches for sought after books can be conducted at off hours, can be emailed at no expense to Amazon and the whole thing can run automatically costing Amazon next to nothing. A good service for the customers, an easy way to generate new sales for Amazon.

14

One more good strategy from Amazon Books: Build Your Own Bookstore. Let's say you've built a Web site that specializes in everything about food processors. And you'd like to recommend a few books about food processors and cooking as a service to your site visitors. Amazon will help you set up a specialized bookstore, process the orders, deliver the books and send you a referral fee of about 8%. This concept helps you build New Relationships with your site visitors (you're not just recommending books, you're making them available) and it builds on the New Economics of the Net (creating and running these micro-bookstores is done automatically).

15

Id Software produced the best selling computer game of all time: Doom. Its an adventure game where players move through a graphical 3D space killing everything they see. But what's most interesting for our purposes is the Internet strategy they used. Id capitalized on the New Economics of the Net. Doom was developed in three levels: Level One, Level Two and Level Three. Level One is a fully functional game that they put on a server freely available to anyone who cared to download it. And hundreds of thousands did. Id called their strategy "drug dealer marketing." The idea was, once a potential customer had tried Level One, he'd be hooked and have to have Level Two and Level Three. And it worked...making Doom the best selling computer game of all time. What did it cost Id? An Internet connection capable of downloading a file the size of Level One can be had for less than $50/month. The downloads themselves are free. Id understood the New Economics of the Net and made a killing.

16

When one visits a Web site, it is typically an individual activity...you and the pages. This in spite of the fact that there may be thousands of other people visiting those pages at the same time. ONSALE builds on the potential for New Relationships among Web site visitors through its online auctions. ONSALE offers items for auction (mostly computer-related) which site visitors can then bid on, see others' bids and bid again. The auctions are automated through Web scripts keeping operations costs very low.

17

Salami.com (New York Italian Food Specialties) is a small sausage shop that set up a Web site to augment their store business. They were surprised to find that their first order came from Japan! But why not? The Net brings the Dissolution of Distance. Venturing out on the Net immediately puts the site into a global marketplace.

18

After I gave a lecture on Web strategies to a graduate business school class one of the students said he was from one of the republics from the former Soviet Union. He wanted to return home and sell products through his Web site but was concerned about the poor state of Net reliability in his area...his site would likely be unreliable. The answer is simple: on the Net, distance doesn't mean anything. The Net has brought the Dissolution of Distance. Just because his company is located in one country doesn't mean his Web site needs to be located there. His Web site could be located literally anywhere else in the world. He could choose a location that would give the best service to his site visitors in spite of the fact that the site may be physically located thousands of miles away.

Advertising

20

Many sites are being created like The Spot in order to create an advertising venue. GolfWeb includes "Everything Golf", and with 35,000 pages, I hope that's everything golf! Ad space typically sells for 3-4 cents per impression (a page accessed on which the ad appears). Some advertisers prefer to pay by "click through" rates: the number of times site visitors click on the ads to link to more detailed pages on the product.

21

A few years ago I coined Tennant's First Law of the Internet which states: Anything good becomes useless. But I'm pleased to report that the First Law is no longer valid. It used to be the case that good services like the Lycos search engine soon became popular. The better the service, the more people would use it and the more bogged down the servers would get...eventually, good services became unusable. In those days Net services were provided by some enthusiast or good Samaritan. But when demand increased there was no incentive for the enthusiast to spend more on a bigger server with increased capacity. Then along came Net advertising. Good services brought in more people which meant more ad exposures, more revenues and the funds for bigger servers for even larger crowds. The Net is now rich with high performance information sources of all kinds, brought to us by advertising.

22

Yahoo! is a well known directory service for Web sites--sort of like a Dewey Decimal System for the Web. Rather than providing free text search over the contents of Web pages, it attempts to categorize sites by the kind of information available. This offers two interesting Internet strategies. First, as one traverses the hierarchy of topics, she is indicating areas of interest. Yahoo can sell advertising based on its location in the hierarchy: e.g., pages on sites related to photographic supplies might be a good place for Kodak or Fuji to advertise. Second, site visitors can do keyword searches over the entries on the hierarchy and Yahoo will sell words. Kodak could buy the word "film" so that whenever anyone searches for film, the resulting page displays a Kodak ad.

Web Services

24

When Spring Street Brewery, makers of Wit Beer, went public, the initial public offering was handled across the Internet. The idea was to offer stock directly to the public without having to pay substantial commissions to brokers. It was a successful IPO and as of this writing Wit Beer is making a second stock offering over the Net. They have also talked of forming an investment company to assist in bringing other companies public over the Net.

This is an example of an Internet Strategy that exploits both the New Economics and New Relationships of the Net. Some professions such as stock brokering exist as information mediators, bringing together customers and the information they need and extracting a fee for the service. The Net makes information more accessible, reducing the need for information intermediaries (travel agents and real estate brokers...take note!).

Summary

There are millions of Web sites out there and the number continues to grow rapidly. Innovative Internet strategies can be seen at every turn. Those who think about their Web sites as components of their business strategies are likely to gain a return for their efforts. Those who understand the strategic advantages the Net offers and work to align those advantages with their business strategies have the greatest potential for competitive advantage.

©1997, Harry Tennant & Associates

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