This article first appeared in Internet-on-a-Disk #34, February 2000. Comments welcome.
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The Internet -- by linking so many people together efficiently -- makes it possible to do much with very little. You can market a company or product or Web site by doing good things, providing useful information and services, and promoting online discussion to spread the word.
But, Internet-time is different from the time-frame of traditional business. Change happens faster. And the expectations of investors are higher. As a result, ironically, few Internet startup operations, with ambitions of growing large, have the leisure to take full advantage of the free and inexpensive marketing techniques that the Internet makes possible.
Imagine that investors have just handed you a million dollars for your Internet startup. Or imagine that the company that you work for has just given you a large budget for a new Internet project. In either case, you are expected to spend the money allotted to you quickly and produce quick tangible results, which will help you get maximum value at the next round of financing, or at IPO.
So what can you/should you do?
My personal bias is toward low-cost, grassroots efforts, trying to build and serve an audience and mobilize word of keystroke. In this case, that's too slow. So you turn to banner ads. You check opt-in email lists built by other companies rather than taking the time to build your own. You sign up for other pre-packaged services like link exchanges and affiliate programs, caring little about how efficient or cost-effective they are. You pay dearly for partnerships with sites that have established audiences. Your mission is to get results, immediately, not to save money. Print ads, radio and TV ads, and billboards all start to look very attractive, despite the high price and low response rate -- simply because they are fast.
I think of this as "sprint marketing" as opposed to "long-distance marketing." And it has led to strange aberrations throughout the business world. It means that no matter how low banner ads sink in terms of click throughs, demand for them stays high. It means that radio, television, newspapers, magazines, and billboards -- media that theoretically should be hurting from declining ad revenues because of the availability of far less costly and more efficient means of reaching people over the Internet -- are in fact flourishing thanks to an influx of ads from Internet startup operations. It seems that on news-oriented radio stations more than half of all the ads today are for Internet companies. And, reportedly, much of the advertising at the upcoming Super Bowl will be Internet-related.
Meanwhile, the efficiency of business over the Internet had promised to push brick-and-mortar companies to the limit. How could they, with all their fixed overhead, possibly compete with Internet-only companies, which operated with no inventory and were readily accessible by anyone anywhere? But the intense competition for attention among Internet companies, and the mad race for immediate results has led these companies to spend far more on marketing than their brick-and-mortar competitors. Yes, all this marketing captures the public eye and helps escalate stock prices, but it also leads to bizarre business models, where profit is not an immediate goal, and an enormous percentage of revenues goes to marketing expenses -- which more than balances the fixed-cost disadvantage of traditional companies.
So who wins? By another bizarre twist, the startup that has been rapidly burning money with sprint marketing, gets a high stock valuation; so even though it cannot turn a profit with such a cost structure, it can buy other companies, including its brick-and-mortar competitors, with stock rather than cash.
Such is the world that we live and do business in, an Alice-in-Wonderland world that many of us now take for granted.
But I can't help but wonder if companies that use long-distance, instead of sprint marketing, that operate with very low costs and that provide true value, might not in the long term win the race. Or is that just wishful thinking?
Reply from JCGreen@ix.netcom.com, Sat, 22 Jan 2000:
It's kind of crazy out here in Silicon Valley. There are about 100 billboards between San Jose and San Francisco on US101. The dot com companies have bid up the price to match Times Square, about $100K per month. You can be sure it's venture capital being squandered. They've also bid up the price of Superbowl ads to $2M per minute. For all I know they've priced it out of the range of the traditional beer, cola, and athletic shoe sponsors.
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