Before we head off into an exploration of marketing in cyberspace, I would like to put the subject of technology-driven marketing into his-torical perspective from my own vantage point. In 1974, I became em-ployee number 51 at a small company called Epsilon Data Management.
Epsilon was in the business of helping fund-raising and membership organizations communicate with their constituents—past, current, and future donors or members.
Epsilon’s real business, though, was database marketing. The four Epsilon founders had helped pioneer the use of computer technology to take massive lists of donors’ names and addresses and “smarten” them with data. Each donor record was constructed with variable-length fields so that a lot of data could be stored and tracked. Because each donor could also be given a unique identification number, the data could drive fund-raising programs that recognized the individual donor’s unique characteristics.
Epsilon was one of the leaders in a technique called “variable up-grading.” When each donor received a computer-generated letter, the suggested donation amount could be varied, based on the donor’s previ-ous contribution. A majority of donors would in fact upgrade their gifts to the new suggested amount. Even in mailings of several hundred thou-sand letters, the technique could be applied. I remember watching the line printers chunking out the letters on continuous form paper.
I was amazed as the letter-quality line printers were directed by the computers (mainframes back then) to spit out very respectable corre-spondence without hesitation. Each letter had a different name and ad-dress, and each letter and accompanying personalized reply slip had a different suggested gift amount inserted into the letter text. Signatures were preprinted or postprinted on the paper stock in blue ink, perfectly
positioned with the computer-generated text, to simulate hand signing.
It all looked very believable, and it was responsible for raising millions of dollars.
I was witnessing a paradigm shift, of course, although I did not real-ize it at the time. The 1970s were the early days of computer personaliza-tion driven by database marketing, now a common and accepted practice.
In those days, it took mainframes in climate-controlled, glass-en-closed, raised-floor computer rooms to make all of this marketing magic happen. Today, you could run a sophisticated database program that does much the same thing, only better, right from your desktop.
The reason for this reminiscing? To demonstrate that, over 25 years ago, something quite profound happened to marketing. Computer tech-nology changed it forever.
We can state without reservation that the impact of the Internet on marketing today is no less profound, and once again, database market-ing is playmarket-ing a key role in the evolution of marketmarket-ing, drivmarket-ing the Internet to be the ultimate one-to-one relationship-building marketing tool.
Computer technology has stretched across physical boundaries, and we have created a virtual world no less real than our physical one via networked communications. The Internet has caused networking, tele-communications, hardware, and software companies to completely reengineer themselves. Practically all other businesses are following suit by reorienting their business operations and information systems for the electronic future. Organizations are feverishly building intranets (in-ternal Internet-based networks) and extranets (“private use” ex(in-ternal Webs), depending more and more on the Internet for entire networking infrastructures.
As a testament to this fundamental change and the influence of the Internet, you have only to look at the nomenclature of popular IT lications. CommunicationsWeek, long a major computer industry pub-lication, was renamed InternetWeek (www.internetwk.com) in late 1997.
In May 2000, PC Computing changed its name to Smart Business and PC Week became eWeek. Business 2.0, focusing on the Internet economy, became one of the most successful magazine launches ever. The Wall Street Journal and The New York Times launched recurring sections on e-business and the Internet, BusinessWeek introduced e.biz, and Time magazine spun off On magazine. Now there are more publications (both in print and in electronic versions) covering the Internet and the Web than in any other publishing category.
What the Internet Contains That Marketers Can Use E-mail
E-mail began, innocently enough, as a convenient electronic means of communication between one person and another over a local area net-work. It was largely restricted to, and intended for, internal use.
It was really such companies as America Online (www.aol.com), CompuServe (www.csi.com), and Prodigy (www.prodigy.com) that popu-larized the notion of e-mail communication outside the boundaries of cor-porate networks. Seasoned Internet users may have learned how to send and receive e-mail, but consumers and general business users needed both Internet access and e-mail software to take advantage of electronic com-munications. They got it through the private online service providers.
America Online (AOL), for example, recognized the true mass-mar-ket opportunity early on, even though CompuServe and Prodigy got there first. AOL used aggressive marketing tactics to saturate the mar-ket. I would be surprised if any reader of this book has not received a diskette from America Online at one time or another, either through direct mail or as a result of buying a “bagged” magazine with a disk enclosed. It was America Online that first told millions of young and old alike “You’ve got mail,” a phrase so ingrained in popular culture that it became the name of a Tom Hanks movie.
America Online, CompuServe, Prodigy, and a few other early online service providers put their own marketing front ends on the Internet to give it shape and make it palatable for “the rest of us.” While setting the agenda, the online services were unabashedly self-serving and restric-tive, and as such, had to scramble and reinvent themselves when the popularity of the Web in particular usurped them.
In late 1999, Prodigy and SBC, the nation’s largest local telephone company, announced they would combine their Internet operations, with SBC taking 43% ownership of Prodigy. This deal would immediately turn Prodigy, a once-failing ISP, into a powerhouse with more than 2 million customers. More important, Prodigy would now have broad-band access to the 100 million people served by SBC.
AOL has managed to survive and succeed despite market pressures.
After going through a public relations battering over inadequately sup-porting the service requirements of its burgeoning user base, AOL re-covered and is still going strong. By 2000, AOL had over 20 million subscribers (today it’s 30 million) and reached a new level of
promi-nence with two blockbuster acquisitions, CompuServe and Netscape.
In acquiring its rival, CompuServe, AOL obtained a primarily business membership base of 2 million subscribers. Under AOL’s ownership, CompuServe has been maintained as a separate brand.
The acquisition of Netscape was even more strategically important.
In the battle for browser dominance with Microsoft, Netscape may have been losing ground, but adding AOL to the equation could certainly make things interesting. In combination with the antitrust suit against Microsoft, and the fact that Sun Microsystems (creator of Java and Jini) has now aligned with Netscape, the Internet browser wars took on a whole new meaning.
The biggest deal was yet to come. On January 10, 2000, AOL an-nounced the unthinkable: a plan to merge with Time Warner. Incred-ibly, the smaller but more highly valued AOL would own about 55% of the new company in a stock deal that would be valued at $350 billion, the largest in U.S. history.
Regulatory issues notwithstanding, the business and economic sig-nificance of such a combination cannot be minimized. If ever there was a question about the Internet’s dominant influence, it was resound-ingly answered with the AOL–Time Warner deal. Industry and finan-cial analysts alike immediately recognized the implication: that the world of e-commerce and media would change forever. At its most basic level, it brings together the online prowess of AOL with the deep content and broadband access of Time Warner, but it means far more than that if you look at all of the properties each company holds, as well as the far-reaching influence such a mega-corporation will have.
This one merger is as telling of the future as any.
The deal dwarfed the 1999 merger of EarthLink and Mindspring, an effort to play catch up to AOL’s rising star. Together, these ISPs serve over three million users. Growth across consumer and business-focused ISPs has been brisk, even as the traditional telecommunications and cable firms enter the ISP space.
With the mass acceptance of external e-mail, this “private” one-to-one communication quickly became another promotional channel for business-to-business marketers. It wasn’t long before unsolicited e-mail-ings (“spamming”) were commonplace.
It is this kind of environment, coupled with the Internet’s explosive growth, that has led to a tougher legislative and regulatory environ-ment that is already placing severe restrictions on unsolicited e-mail.
Newsgroups
These havens for information sharing are part of the Usenet, an Internet-related network of e-mail boxes and newsgroups. Newsgroups were de-signed to be informal discussion groups, yet some marketers have unwisely tried to invade them with commercial messages. With the generally nega-tive response from newsgroup users, most marketers have backed off and are more cautious about promotional activities surrounding newsgroups.
Some newsgroups will allow promotional messages, but marketers are advised to carefully follow each newsgroup’s specific rules.
The World Wide Web
Likened to the Wild West in its infancy, the Web as a quickly maturing adolescent was still a place with a lot of electronic marketing flotsam and jetsam, but now the Web is well beyond that in terms of business usage, having matured as a business and marketing medium. Industry estimates put the number of Web pages created each day at close to 2 million. In the early days, marketers glutted the Web with “brochure-ware”—nothing more than corporate collateral posted on Web sites.
Although this is still often the case, business-to-business marketing use of the Web is proliferating as inferior marketers begin to weed them-selves out. The tantalizing promise of the Web—electronic commerce—
has now emerged as a significant factor for business marketers.
Marketing Benefits of the Internet The Internet Is Boundless
According to CyberAtlas (www.cyberatlas.internet.com), there were almost 136 million Internet users in the United States by the end of 2000. Japan ranked second in the world with some 27 million users, Germany was third with about 19 million, and the United Kingdom was fourth with about 18 million. China was a surprising fifth, with almost 16 million online users. The Computer Industry Almanac pro-jected 490 million people worldwide would have Internet access by the year 2002.
The economic impact is staggering. Research firm International Data Corporation (www.idc.com) predicted in March 2001 that e-commerce revenue will rise from about $350 billion in 2000 to more than $3 tril-lion by 2004. Growth in the rest of the world will actually outpace that
in the United States, which will capture 38% of the global market by 2004. GartnerGroup (www.gartner.com) forecasted that b-to-b e-com-merce sales alone will reach $8.53 trillion by 2005.
Imagine the impact on b-to-b marketing if, with this kind of future, marketers begin to significantly shift their promotional dollars from traditional media to Internet-related advertising and marketing activi-ties. Surely, that is inevitable.
Television has long been accepted as the world’s greatest marketing medium for reach, but at some point in the not-too-distant future, the Internet could possibly overtake television or converge with it.
Actually, convergence is already here. WebTV (www.webtv.com), now owned by Microsoft (www.microsoft.com), provides easy televi-sion access to the Web via a set-top “terminal.” WebTV also provides Internet access at a variety of price points, similar to Internet service providers. It is part of Microsoft’s strategy to own emerging Internet channels of distribution. In June 1999, Microsoft invested $30 mil-lion in Wink Communications, an interactive TV data service that could enable TV-based e-commerce. Other entries in this emerging market take a different approach. WorldGate Communications (www.wgate.com) feeds Web pages directly through a cable system’s set-top boxes.
The legitimate question of whether or not the consumer will want to view the Web in this fashion remains, but the Internet/TV technolo-gies and services mentioned here and others now in development will continue to blur the lines between television and the Internet. The con-sumer convergence market may not directly affect the IT marketer, but next on the horizon for business is convergence in a different form.
Now every type of portable communications device, from laptop to organizer to cell phone to pager, will move into the Internet realm as wireless communications technology advances.
On the service side, major telecommunications and cable compa-nies have already entered the ISP market. The Internet access alterna-tives available to businesses and consumers are proliferating, as are the ways access can be provided. You can now obtain Internet access over both telephone and cable connections. Someday it may be bundled with your electric service. The end result will be the same: the commoditizing of the Internet.
One of the biggest concerns has been the bandwidth associated with delivering Internet service. As more people sign up for Internet access and
actively use the Internet to conduct business, networked portions of the Internet can become choked with traffic. The demand for bandwidth rises exponentially, but even the bandwidth problem is on the way to being alleviated. Massive technological improvements to the Internet infrastruc-ture are being made by leading networking companies.
Innovations are coming from all sides. Broadband is one significant advance, but it is not the only way that consumers and businesses are getting high-speed Internet feeds. DSL and other technologies mean the time is soon at hand when Internet access will be a utility. People will not even need to think about turning it on and off, because it will be more like the telephone, cable television, and electricity.
DSL is only the beginning. The year 2000 saw a new surge: the movement toward a wireless Internet. Cisco Systems, the leading manu-facturer of networking devices, was an early leader. In December 1999, the company announced its plans to offer Internet connections up to ten times faster than DSL via low-frequency microwave transmission. In 2000, hand-held computing devices and cell phones began incorporat-ing wireless Internet access.
Another movement in late 1999 probably helped fuel Internet growth dramatically, as free Internet access became a popular phenomenon in the United States and worldwide. Of course, the catch is that users agree to view plenty of advertising in exchange for free Internet access. With PC companies bundling in Internet access with their hardware and cre-ative telcos (telecommunications companies) using free or reduced-cost access as a new business hook, the entire world of the ISP has been turned upside down. The free access concept even penetrated the DSL market by early 2000.
The Internet Makes Global Marketing a Reality
The Internet continues to grow as rapidly worldwide as it has in the United States. Europe and Asia are already seeing extraordinary in-creases in Internet usage. For example, Boston Consulting Group (www.bcg.com) predicts b-to-b e-commerce in Asia will reach $430 billion by 2003.
The Internet has already become the first truly cost-effective, wide-spread global marketing medium. With the Internet’s roots in world-wide networking and its technology enabled via simple telephone line or television cable access, any marketer theoretically could reach any online consumer anywhere in the world at any time. Information can be
transmitted via e-mail or over the Web and received instantly, without regard to time zones or geographic location. No technical skills are nec-essary to receive it.
Very little on the Internet is currently regulated in terms of interna-tional markets. As such, the Internet represents a kind of worldwide electronic free trade zone. Nations are just now trying to determine what regulations and taxes, if any, should be imposed. The U.S. Con-gress in 1998 enacted the Internet Tax Freedom Act, which placed a three-year moratorium on new and discriminatory taxes on Internet commerce and created a commission to develop a uniform system for the application of existing taxation of remote sales. The moratorium was extended in 2001. The World Trade Organization in 1998 reached agreement among its 132 member countries to not impose customs du-ties on electronic commerce transmissions.
Also in 1998, the U.S. and Japanese governments agreed to keep electronic commerce essentially free from regulation and cooperate at an international level to remove barriers to electronic commerce. A not-for-profit organization was established by the U.S. government to take over the technical management of the Internet Domain Name System (DNS). The Digital Millennium Copyright Act was passed to ratify and implement the World Intellectual Property Organization (WIPO) Copy-right Treaty and the WIPO Performances and Phonograms Treaty, pro-tecting copyrighted material online.
As for the Internet’s continuing worldwide reach, international ac-ceptance is growing rapidly. Although the Internet is still predominantly an English-language medium and the largest area of Internet activity is in the United States, the trend is changing. According a May 2001 re-port from the Aberdeen Group (www.aberdeen.com), 80% of multina-tional b-to-b companies will move to global Web sites by 2004. It is interesting to note that Aberdeen says that 68% of Internet users will be non-English-speaking by 2003, and that e-commerce spending will be larger outside the United States in that same time period. This means U.S. businesses who don’t globalize their Web sites could be missing significant opportunities.
The Internet Reaches People with Intellect, Power, and Money
Despite the ubiquitous nature of the Internet, early Internet users were somewhat elite—educated, influential, and upscale. In the case of busi-nesses, this often means key decision makers.
The core audience of the Internet is still there, even as the Internet becomes more of a reflection of the U.S. and global population. It is likely that these affluent individuals will still be primary users of e-commerce and thus continue to form the core of the Internet’s true buying public.
The Internet is home to these desirable and discerning consumers and business people. They are predominantly individuals who may watch tele-vision only occasionally but are avid Internet surfers and in many cases Internet buyers. By the way, the Internet has shaken its early reputation as a predominantly male haven. By 2001, close to half of all Internet users in North America were women, according to various reports.
As the Internet marches into consumer homes and smaller businesses, the bar will drop even further, changing the demographics and making it more a reflection of society. Yet b-to-b marketers will still be able to find and target the upscale, influential buyers they are looking for—
those who started the stampede in the first place.
The Internet Offers Increased Business Penetration
As a business tool, the Internet is unprecedented in its penetration of
As a business tool, the Internet is unprecedented in its penetration of