Making Money on Internet Content|
Attractions Hesitations Complications Solutions The world of business is being drawn to the Internet as a new horizon of opportunity dawns. The Internet is a global network of computers, and an independent arena of communication; it is this fact that so motivates business interest. This arena of communication is not tied to a physical location, so the differences in participant locations are immaterial. In this way, consumers are always within touching distance of Web sites and each other. This proximity promises a very lucrative business involvement. Business interest in the Internet is growing for several reasons. A company founding a "presence" on the Internet (especially the World Wide Web) has access to markets throughout the world, and a potential customer base of millions. A "virtual storefront" can be constructed through which financial transactions, advertisement, and customer relations can take place. New markets of customers will open new avenues of income. Without the impediments incurred by physical barriers, the company can utilize and exploit communications links with remote markets. Amazon Books capitalizes on this remote accessibility, touting itself as the world's largest bookseller. Pharmaceutical companies frequently draw upon data compiled by world health organizations in order to develop and market new drugs, just as stock brokerage firms analyze market behavior in Tokyo, Hong Kong, London, New York, and Bejing. The speed of transmission through the Internet makes possible dynamic exchanges of time-critical information and data. These transactions minimize the problem of latency (delay) and allow the user to act with a timely knowledge base. The timeliness of data can be a cornerstone of business operation, and directly influences marketing decisions. Commercial airlines keep a close eye on fares and promotions offered by competing companies, to match promotion fares and lessen the increase in customer traffic the other airline enjoys during this time. One of the most successful uses of these exchanges is First Auction in Palo Alto, CA. It is a wholly owned subsidiary of the Home Shopping Network and became one of the first computer retailers on the Web, and now boasts a customer base of 120,000 and offers more than 40,000 computer products for sale. "Auction has proven itself to be the most successful online retail format," said Keith Foxe. Businesses are able to reduce advertised product costs through reducing overhead and the at-cost price. When the market for a product is widened, costs are divided by a larger number of customers; thereby resulting in a smaller cost per item. Business savings can also be accumulated through shortcuts built into the operating systems. Applications can be chosen from niche computer companies, that are designed to perform specific tasks for the business. Rather than relying on the capabilities of an operating system, selected applications can be installed on a stripped-down base, optimizing the utility of the system while minimizing costs. In this way, the computer system can reflect the goals of the business. Internet browsers need to display graphics, but need little hard drive capacity. With a Web presence, businesses can now experience a new kind of shopper, the self-selecting customer. With modest enticements, a company may be able to encourage these self-selected customers to provide information regarding their likes and dislikes via surveys and marketing polls. The company can also frequent areas of the Internet where its business products or services are discussed and advertised. Tracking a customer through their Web browser has become a common means of information gathering. MagicCookies, or cookies for short, record the travels of the user through servers that contribute data to a running log. Cookies operate much as mini-preference files that are read by the web server. Gathering information electronically through the Internet solves one of the oldest problems that advertisers have with media; how to overcome inefficient market targeting. When the customer categorizes herself as a "22 year old pink person who surfs the internet, free climbs, has a gerbil and goes to mud rallies," content areas that reflect the profile may more effectively market to this individual. These profiles can be both based on a record kept of where the customer went on the Web as well as surveys, sign-ons, memberships, financial data and purchases. The internet offers several new opportunities to businesses; easier access
to global markets, increased interaction with consumers by means of web
advertising and a home web site, decreased overhead, and
use of Internet high-speed communications. Further, self-selecting customer
practices and information gathering techniques increase the effectiveness
of targeted marketing strategies.
Hesitations Business might be hesitant about engaging in business on the Internet for a variety of reasons. Questions about secure transactions, profitability, staffing, and incorporation with legacy systems are just some of the issues that may arise. Types of Internet Content Businesses
Companies that sell goods and services on the Internet have to deal with a wide range of concerns, including attracting customers to their site, presenting an attractive, easy-to-navigate site, and ensuring that transactions made over the Internet are secure. Firms selling Web content are also concerned with attracting people to their site and ensuring secure transactions. But they also need to convince consumers to pay for their information, which may be difficult in an environment such as the Internet where so much is available for free. A company with pieces of information to sell might be interested in charging use per page, but right now there is no capacity for “micropayments” to make this a reality. Many newspapers and magazines (Microsoft’s Slate Magazine, for one) had planned on offering subscriptions to Web readers, but abandoned their plans when they realized that people were not willing to pay. Privacy
Concern about privacy is a significant factor in many consumers’ decisions not to shop on-line. One company, TRUSTe, is developing codes of practice and certification programs for Web commerce sites to help alleviate people’s fears. Businesses also need a publicly available, explicit policy that states how the company will protect customers’ privacy. When creating a Web site to sell goods or content, businesses must address any internal security issues that may be a problem during online transactions. They need to protect their own systems from potential access by unauthorized people. Businesses may also need to set up new ordering systems to deal with the new type of transactions. Right now many traditional companies that sell items on Web sites, including Eddie Bauer and Sharper Image, have not incorporated new Web sales with their old accounting system, so a lot of the work must be done manually. Cost vs. Profits
These days, however, when even individual cereals have their own Web sites, it is necessary for almost any type of business to have a presence on the Web. The additional name recognition and potential opportunity to attract new business are often reason enough to sustain a Web site endeavor, even if the direct profits are minimal. Lack of support from the top executives may hamper the creation of a business’ Web site. Executives may be resistant to the new, unproven ground of the Internet, and be unwilling to commit the necessary resources. It is necessary to have full support from the very top in order to insure dedication to the Web site investment. Directors have to appreciate the effort involved in constructing a successful Web presence. Forrester Research, Inc., a Massachusetts consultancy, says that “insufficient resources” (funding) is the leading factor restraining Internet and intranet development. Successful Web sites need input from a variety of directions, including marketing, legal, editorial, and technical. Support from top company officials who realize that resources are needed can insure a cohesive, overall Internet strategy with disparate sectors working together. An additional hesitation for businesses to engage in Internet commerce is the international issues that may arise with the global nature of the Internet. The United States imposes restrictions on encryption export, which can limit the extent to which businesses can operate overseas. Other countries may impose restrictions as well, and it may be difficult to comply with all regulations in all countries where a Web site may be viewed. Consumer Hesitation
If businesses want to sell good, services, or information outside of the United States through their Web page, they need to be aware of foreign audiences. Some international customers may not be ready for certain types of content or images familiar to savvy Western consumers. Firms will be limited in their potential revenue unless consumers, both foreign and domestic, are comfortable browsing the Web and conducting business online.
Complications "In the three years since the Internet has taken off, the slow growth of electronic commerce has been one of its greatest disappointments." ("In Search of the Perfect Market", The Economist, May 10, 1997) Several culprits have been identified for this situation, one of which is the rate of technological change that "mak[es] it difficult to develop policy that is both timely and appropriate." (http://www.whitehouse.gov/WH/New/Commerce/) However, it may not be the rate of change that complicates the deployment of technology in the service of commerce. For example, an article from the San Francisco Chronicle ("High Speed Holdup - Bells won't lease lines for new, fast Internet hookups", 10/9/97) illustrates how even in the "wired" Bay Area, implementing faster delivery methods such as digital subscriber line (DSL) modems can be frustrated and delayed by the obscure reasoning of the local carrier. Rather than technology itself, it may be mundane but complicated interdependencies
such as policy formation, pricing and competition, infrastructure gaps,
and the still-evolving skills/mindset needed to understand the technology
that hobble its effective use. The impact of these interrelationships will
be illustrated through a discussion of three topics that have most often
implicated—incorrectly— technology as being part of what impedes Internet
commerce. Those topics are:
I. The Internet depends at a fundamental level on telecommunications, the workings of which should be transparent to the user to help make global e-commerce attractive. However, many customers find highly constrained bandwidth, while services are incomplete or undependable. The situation is exacerbated, of course, in the lesser developed countries where a telecommunications infrastructure and local will and funding to build one may not exist. That is, although the technology is available, pricing structures and competitive practices are choking the development of the network. The following “areas of concern” drawn from the Magaziner report summarize the situation: •Leased lines: Data networks are often composed of lines that must be leased from monopolistic entities which may impose artificially inflated prices and usage restrictions that impede the provision of service by online service providers (ISP). •Local loops pricing: ISP must often purchase local exchange services from monopolies or government-owned companies in order to reach their subscribers. These services are also often priced at excessive rates. •Interconnection and unbundling: ISP must be able to interconnect with the networks of incumbent telecommunication companies for a seamless flow between all users. Monopolies or dominant telephone companies often price interconnection well above cost, and refuse to interconnect, alleging concerns about network compatibility or absence of need for other providers. •Attaching equipment to the network: Some telecommunication monopolies have restricted the connection of communication devices to the network. Even when the monopoly has been broken, many "type acceptance" practices have been used to retard competition and make it difficult for consumers to connect. •Internet voice and multimedia: Some nations claim that "real time" services on the Internet are "like services" to traditionally regulated voice telephony and broadcast, and therefore should be subject to the same regulatory restrictions. In some countries, these providers must be licensed, controlling both the transmission and content. This approach could hinder the development of new technologies. Clearly, all of these concerns show a discrepancy in policy with regards
to the new models of electronic activity being conducted on the Internet.
Additionally, some of the non-competitive practices reflect efforts to
protect an entity’s investors and preserve the networks that are the legacy
of the capital provided by those investors. Therefore, it would seem that
policy and compensation remedies could be offered to encourage both new
governmental approaches and new investment.
II. Commerce on the Internet may continue at its anemic pace unless transactions are adequately sheltered from dishonest practices: fraud, repudiation, and unauthorized use for purposes other than effecting the current transaction. The Internet’s operative security has been heavily criticized for the inability to satisfy these basic confidence issues. Again, however, the fault may not rest with the technology, but in concerns over how to implement security measures—and who should be able to crack that security. In brief, strong encryption like DES and RSA algorithms provide highly effective data shields against prying. However, unbreakable secrets are exactly what U.S. law enforcement fears: if anyone can hide their data, then possible criminal use will surely follow. In fact, the use of encryption is arguably the most emotionally charged issue about the Internet. Fears of government's misuse of access to private information exist alongside tragedies such as the encrypted personal organizer which may hold clues to identifying the molester of an 11-year old who committed suicide.(Click here for more information.) As is well known, the proposal of key escrow has been offered as the
solution to the problem of widespread encryption and discouraging its unlawful
use. However, even that proposal is hotly debated for its usefulness and
efficacy in privacy protection. No solution is pretended on this issue.
However, it is constructive to note that, again, unresolved policy and
not technology stands in the way of the e-merchant.
III. Depending on who is asked, upgrading software and hardware is either one of the most exciting/irritating things about using the Internet. Users who welcome new application features or incremental computing power are grateful for upgrades. On the other hand, users who are slower to learn software or are confused by hardware changes resent the demands on time and money presented by versioning. However, resolving this split may simply be, as a colleague has suggested, a design problem. That is, electronic commerce sites could capture an untapped audience that currently does not have the resources to be equipped with the latest technology by designing--for the time being—for less sophisticated systems and hardware. An analogy to this is the continued existence, and accommodation of, rotary dial phones. Just as this older technology grew less prevalent and yet persists, Internet merchant technology should tolerate diverse users. A further design failure is simply the lack of integrated applications for merchants. That is, one can purchase a serviceable shrink-wrapped mail order application, but it does not come with features for building a referral database, or handling payments in a more cost-efficient manner (e.g., electronic money transfers or credit cards), or analyzing sales data. This would seem to be an interesting product fit for financial institutions, for example. In-home expertise with their own intranets, security and systems development experience, and presence on existing networks make banks good candidates for development and deployment of total e-commerce solutions. The failure of policy, markets, and a narrow-audience design have probably masqueraded as technology problems due to the simplicity of the explanation. That is, it has perhaps been easier to focus on problems which may be resolved by science than to tackle the more diffuse and complicated issues surrounding agreements, tradition, and education. A final promising thought about the "woes" of technology and e-commerce
concerns the serendipity affecting those who, while not necessarily powerful,
have been successful using the Internet. Take Chank, the graphic
artist selling fonts on the Internet ("For a Designer Known as Chank Letters
are Art", Wall Street Journal, 11/7/97). This child of a single mother
began his on-line career when he started displaying and distributing his
work for free. Through a simple set of happy mistakes, the Cooper-Hewitt
National Design Museum asked him to exhibit his work. He financed his car
trip to New York by selling special packages of fonts, activity that ultimately
led to a steady revenue stream from his web site as well as design contracts
for such well-known products as Ocean Spray. Although anecdotal,
the tools that Chank used are what many potential electronic vendors would
do well to pay attention to: creative use of available technology, and
the guts to stay on-line until the right formula is concocted.
Solutions It is inevitable that within a few years many businesses and individuals will be making money on the Internet. The attractions are too compelling. Companies are on the Web today (November 1997) looking for the formula that will unlock the Internet's money making potential. Most of the successes to date have been in the business-to-business arena. Perhaps this is because it is easier to manage the complications discussed in the previous section within a closed system. The ever expanding open Internet presents challenges. However, they will be overcome and we can all expect ubiquitous Internet commerce before too long. Solutions to the problems discussed earlier will come from ongoing efforts as well as unexpected directions. Industry and governmental organizations established to confront the difficulties will hammer out compromises and adopt policies. It hardly matters in the long run what these groups decide. If the decisions are foolish or inhibiting to the market they will undoubtedly be corrected before too much time passes. There will be winners and losers along the way, but it is virtually impossible to believe that the effort to integrate commercial markets with the Internet will be abandoned. The big winners will be able to make online shopping safe and convenient for the customer. They will design websites that will work across platforms (including WebTV) and at a variety of access speeds. They will make it easy for the customer to find what he/she wants. A shopping-specific search engine could increase convenience for online shoppers and accelerate interest in Internet purchases. Today, even if you know exactly what you want, it can take an hour or more to locate the desired item online. Since saving time is a significant motivator in bringing commerce online, the weaknesses of today's search engines present a major hindrance to the market. A shopping specific search engine could help potential customers search by price range, theme (Star Trek, retirement, pets), or even adjective (classic, humorous, legal, floral). You could search for Star Trek theme items under $20 and retrieve listings for mugs, calendars, t-shirts, earrings. Instead of trying to find clothes or shirts, you could search for customized art clothes made with natural fibers. The easier it is for the consumer, the quicker online shopping will take off. This is true whether you're talking about goods, services, or content. The Internet may end up being segmented. The business using it as its primary customer support interface requires more reliable service than the weekend gamer and would presumably be willing to pay for it. We could see the World Wide Web divided into:
We can't be certain what the Web will look like in five years, but we can be certain that it will be more widely used than it is today. Companies and individuals will continue to experiment with this new technology, and will find ways to make money on Internet content. |
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