Internet Marketing

OverviewDr. Mary WolfinbargerInternet MarketingHistory….Wired: What's your sense of when you first thought that this thing you were working on was going to take over the world? Paul Baran: Around December '66, I presented a paper at the American Marketing Association called "Marketing in the Year 2000." I didn't talk about packet switching, but I described push-and-pull communications and how we're going to do our shopping via a television set and a virtual department store. If you want to buy a drill, you click on Hardware and that shows Tools and you click on that and go deeper. History….In the end, if you have two drills you're interested in, then you hit your Consumers Union button, and their evaluation goes up on the screen. Pretty much what WebTV is. Some in the audience were furious. They said, "People don't go shopping to buy things. They go there because of the enjoyment. You don't understand women." I could see a few people going for it, but most of them were shaking their heads. So, what do marketers know?What is E-commerce anyway?“…all the marketing and selling and various other business-related activities that take place over a network.” (Communications Week Interactive)“all the activities you‟d conduct online to interest a customer in your products before the sale, as well as fulfillment and customer support after the sale.”(Internet Computing) What is E-commerce anyway?“…the vast network of small businesses, government agencies, large corporations, and independent contractors [molded] into a single community with the ability to communicate with one another seamlessly across any computer platform.” (Electronic Commerce Resource Center, ECRC)What is E-commerce anyway?“more than simply buying and selling goods electronically; involves using network communications technology to engage in a wide range of activities up and down the value-added chain both within and outside the organization.”--Applegate et al.What is E-commerce anyway?Sectors:B2C (online businesses selling to consumers)B2B (online businesses selling to businesses)C2C (consumers selling to other consumers, e.g. auctions)200020032005U. S. Consumer e-commerceB2C$40 billion$100 billion (5% of retailing)$143BInternet advertising revenue$8 billion$6.5-7 billion(less than 3% of advertising)$13 billion(4.6% of advertising)Whatever it is, the dollar value is growing:Growth in Online Ad Spending•Why did online advertising revenue fall in 2001 and 2002?Auction revenues :•Ebay claims 100,000 people “make a living” selling on eBay•70,000-100,000 sellers make at least $2000/mo on eBay in gross monthly sales*AuctionBytes, Feb. 2, 2003Total B2B commerce$841 billion(2002)$2.8 trillion (2004)Whatever it is, it’s (still) growing:20002005Online banking customers10 million53 million# filing taxes online35 million49 million(2004)Percent of colleges offering online courses47%87%Note: US Population =297 million•What product categories have been selling the best on the Internet?•What type of content has been selling best on the Internet?Largest Category on the Internet•Travel 60.9B•Non-travel (retail) 82.3 B–Apparel grew 36% to 12.2B last year–Prediction for 2006? Online retailing will grow another 20%•And it did so through the first half of 2006.Content Sales on the Internet•Online dating –($470M in 2004, $576M in 2005)•Business/investment ($313M in 2004)•Digital Music($414M in 2004; $790M in 2005)•Sports sites and games are growing–online games ($1. 1B in 2005)–Sports (predict $1.2B by 2007, including tickets)•Video viewing –in May 2005, 3. 7B streams served; viewing is 100 minutes/mo up from 85 just 7 months earlier –up across demographic groups (Revenue??) Three ErasEra 1: Early 90s•Text Heavy, low bandwidth–World Wide Web (www) not available until 1991–First Browser (Mosaic) not available until 1993•Limited transaction infrastructure•Limited subscriber base (around 5 M)•Early adopters --upscale technophile males, Universities•Usage --email, BBS, computing•Little interest by mainstream companiesThree ErasEra 2: Emergence as a marketing tool/mid-late 90s•Explosion of graphic content via WWW•Security and bandwidth issues start to be addressed•Subscriber base growing and broadening to younger and female users•Still mostly communication --transactions begin in some niches --e.g. travelThree ErasEra 2: Emergence as a marketing tool/mid-late 90s•Growing interest by consumer cos.•Early “winners” emerge (e.g. Amazon.com)Era 2“…1999 [was] ….the year that Corporate America [got]… with the program. No longer [were] corporate Web sites mainly a haven for product brochures and digitized versions of the annual report…entrenched companies [were] putting millions of dollars into Internet initiatives to make sure some „dot.com‟ upstart [wouldn‟t] steal their customers away.”--WSJJuly 12, 1999Era 2“The Internet-based marketplace is causing a huge re-engineering of business…It matches buyers and sellers, so that buyers can become infinitely informed without ever talking face to face.” Andy Grove, 1999 (Chairman of Intel) Three ErasEra 3: Early 2000 to ?•Bandwidth available at consumer-friendly cost –in 2004, ½ of U. S. internet users have broadband–In 2005, 105M users have BB•(15thon a per capita basis)•By 2008, over 80% of internet users are predicted to have BB–But 23% of American adults are still non-users•Most consumer companies use interactive media as a relationship medium, an information medium and a sales channel•Offline companies realize that the Internet isn‟t competition –it‟s another selling channel!Era 3“Today [1999] we are preoccupied with Internet companies….In five years…that label will be meaningless because all companies will be Internet companies.”Andy Grove (Chairman of Intel) Was Andy Grove correct?Era 3•Hypergrowth started in American e-commerce first, then in Britain and Germany, and then in Japan, France and Italy (Forrester Research)Era 4 (Are we there yet?)•The mobile internet?•Internet increasingly seen as an entertainment medium•Unlimited bandwidth?•On-demand world?•Internet becomes like electricity•Web 2.0?What is Web 2.0?•More marketing schlock?•Suggestions:–Web as Platform •OK, Netscape tried this, but didn‟t lay services over the software platform as has Google•With Web 2.0, service gets better as more people use it–Web 2.0 harnesses collective intelligence of the web–Importance of owning data as a competitive advantage (e.g. Amazon.com)–End of the software release systemWhat is Web 2.0?•Suggestions:–Software above the level of multiple devices (e.g. iPod)–Richer user experiencesWeb 2.0 companies?•http://www.alexaholic.com/sethgodin•In this definition, the focus is on community participationMyths of E-CommerceMost of which have come and gone!Myth #1: “It’s easy –low barriers to entry”•Barriers to entry: all resources required to get into a business or start selling a new product•Posting a website is easy --add “effective, scalable and successful” and it‟s much harderMyth #1:“It’s easy –low barriers to entry”“A web site is like an iceberg…below it you have infrastructure integration issues with maybe 40 or 50 databases.”(Delta Airlines CIO Charles Feld)Myth #2: “It’s cheap.”•A full-scale online commerce effort is not cheap. •However, it is often cost-effective and can help build customer relationships•Smaller sellers can sell via eBay or get specialized help to set up a transactional site (e.g. Yahoo!).Myth #3: “The 3 C’s: The way to success is Content, Community and Commerce.”•Content: Articles and information •Community: Virtual gathering place for consumers•Commerce:Now that you‟ve got the consumers there, now sell them something•Largely, the 3C‟s doesn‟t work; fundamental reason is how most consumers use and view the online medium•The most successful applications of content --e-commerce sites buy content sites and advertise on them (e.g. Amazon.com owns Imdb.com; ACE hardware owns OurHouse.com, a home repair site)–Well, at least until Myspace.com came along!Myth #3: “The 3 C’s: The way to success is Content, Community and Commerce.”•There are now 7 C‟s (more on this later)Context –aesthetic and functional look and feelContent–digital subject matter such as text, video, audio, graphicsCommunity–interaction between usersCustomization–tailor itself or be tailored by userCommunication–dialogue between site and usersConnection–formal linkages between sitesCommerce–sale of goods, products services on siteMyth #4: “It’s lucrative.”•Profitability was been difficult to achieve until 2-3 years ago•Amazon had its first profitable year in 2003•However, the majority online e-commerce companies are turning a profit now (the rest went out of business!!)•Which e-commerce company was profitable almost from its inception (hint: they carry no inventory)?Myth #5: “The Web Levels the Playing Field”•Most e-tailers are established companies --“hybrid” strategies (brands still matter)•Burn rate (cost of marketing per each customer who purchases) is much higher for “pure” plays (until and unless the pureplay builds brand equity)Myth #5: “The Web Levels the Playing Field”•Trust matters in B2B, too; doing business with vendors requires believing the vendor can deliver what he says he can deliverMyth #5: “The Web Levels the Playing Field”“There‟s a low barrier to doing e-commerce, but a very high barrier to becoming one of the leading choices.”•Importantly, the web can support niche players because of its ability to “aggregate demand.” (e..g Oddballshoe.com, Scrunchies.com, Dogtoys.com)Myth # 6: “ It means the end of mass marketing”Marketing to a “segment of one” has been goal of database marketing and data mining •Technology is making it possible at low CPM (cost per thousand) –advertising messages, content, and websites can be personalized and customized •But, how do we get customers to the web site? (Offline advertising? Portal sites? Search Engines? Isn‟t this MASS marketing?)Myth # 6: “ It means the end of mass marketing”“The Net is like TV with 10 million channels. You can‟t just hope that someone surfs by” (Cliff Conneighton, CEO of Icomes Inc.)Myth # 6: “ It means the end of mass marketing”Attention Economy: “A marketplace based on the idea that while information is essentially infinite, demand for it is limited by the waking hours in a human day.”--Encyclopedia of the New EconomyThe question is: How do we get eyeballs (important for both commerce and content sites)?Myth # 7: “It leads to product commoditization.”•Pricing has been important, but somewhat less important than anticipated•Branding and service have been keys as well. •Amazon.com and Dell have most online customers in their industry, and don‟t always charge lowest prices.Myth # 7: “It leads to product commoditization.”“[On the Internet], price has been defined as the primary if not the sole competitive variable. Instead of emphasizing the Internet‟s ability to support convenience, service, specialization, customization and other forms of value that justify attractive prices, companies have turned competition into a race for the bottom. Once competition is defined this way, it is very difficult to turn back.”Micheal Porter –Harvard Business Review, March 2001Myth # 8: “The Internet will result in disintermediation.”•Disintermediation: Cutting out the middleman•If products are sold direct, who needs intermediaries?•Fullfillment requires intermediaries (e.g. Amazon.com has invested heavily in warehouses; FedEx and UPS has extended their business to “the last mile”)•New types of intermediaries: e.g. Truste, Paypal, web designers, truck fleets hired by Staples…..Myth #9: “e-Commerce is dead.”•Internet businesses have crashed and burned at an alarming rate•Many different problems have led to demise; too many firms failed to focus on profitability and /or didn‟t use Internet technology to provide a “sustainable competitive advantage” •Offline shopping has many real advantages•Nevertheless, e-commerce is growing.•Upper limit? 5%? 8%? 15%? More?Myth #9: “e-Commerce is dead.”“We need to move away from the rhetoric about “Internet industries,” “e-business strategies,” and a “new economy” to see the Internet for what it is: an enabling technology –a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of any strategy….E-commerce is not dead, but:….Some companies … have used the Internet technology to shift the basis of competition away from quality, features and service and toward price,making it harder for anyone in their industries to turn a profit…Until recently, the negative effects of these actions have been obscured by distorted signals from the marketplace. Now, however, the consequences are becoming evident.”--Micheal Porter, Harvard Business Review, March 2001 Historical Context•1904-1908: over 240 companies entered the automotive business.What happened?•1910: A shakeout occurred: too many cos. operating inefficiently at low scale.•Who won (for awhile anyway?)Historical Context•Thomas Edison thought the phonograph would be used primarily for dictation•One company was interested in using the phonograph to broadcast music using a nascent invention –the telephoneOther Myths•No one will ever pay for content on the web•Advertising online will never work because of “banner blindness”•Not a myth: Some VCs are now dusting off old dotcom plans because they think they might work now