The Internet Marketing Mess
by Chad Rueffert


Most of last year’s dot-com superstars are in a dot coma this year.  For seven straight months the companies that drove advertising revenues through the roof and dominated the Superbowl show have been laying off record numbers of employees.  Almost 42,000 jobs were cut this year from 496 Internet-based companies as venture capital dries up and sales slow down.

 

On the other hand, Internet sales, according to most reports, more than doubled this Christmas season and are expected to continue to grow for the foreseeable future. 

 

These statistics seems to contradict each other.  The market is growing, sales are going up, and yet the majority of companies in the market are struggling, closing down and laying off employees. 

 

The Internet marketplace is a mess, but the clean up has already begun. Beyond it’s use as an advertising vehicle and a virtual store front the Internet has uses in the realm of communication, information exchange and business to business applications that will continue to make it a part of our every day lives and ensure its place as one of the great technological achievements in history.  But in terms of Internet retailing, there are some hard truths that have to be faced before the clean up can be completed.

 

It’s a tricky business trying to predict the future of the Internet, but here are a few predictions that I think are sure-enough bets that I’m willing to put them on paper.

 

1 Dot-coms will continue to go out of business.  Like any other marketplace, only the strong survive.  As the newness of the Internet wears off, only those sites that have a competitive advantage will flourish.  Most companies and products will end up in a two-horse race with two big competitors (think Amazon.com and Barnes&Noble.com) and a group of specialty stores that cater to niche markets.  The rest will be purchased by the big boys (Barnes&Noble.com just bought the business book site FatBrain.com) or will be filing for Chapter 11.

 

2 Consumers will buy brand names, even on the Internet.  Consumers buy from companies they identify with and trust.  When you give your credit card number to the people at Target.com, you’re relatively certain you’ll get the same level of service and security you get from the brick and mortar store.  Why?  Because Target already has a brand name that you trust and understand.  Consumers have a history with that company that gives them peace of mind.  Brick and mortar retailers will be big on the Internet because they already have established brand names.  Internet only companies will survive only if they build brand names for themselves.

 

3  Dot-com companies will put more money into off-line advertising.  Companies like Ebay, who is set to spend millions on television advertising, will begin to use more traditional methods of advertising and branding and pull money away from banner ads and on-line promotions.  The goal for these companies is to generate customer loyalty even before consumers are fully Internet friendly.  Don’t be surprised to see price promotions publicized through traditional media trying to drive first timers onto websites and create long term relationships.  And don’t be surprised to see websites encouraging shoppers to visit physical stores, either.

 

4 Banner ads will be dominated by a few advertisers.  Even on such top sites as Yahoo! the cost per thousand impressions is only about $30 to $40.  But industry figures show that only 1% of online users click on a banner ad to go to that site.  And only a small percentage of those actually purchase anything.  In the coming years, you will see banner ads used for sales promotions (save 25% by clicking right now!) and for branding by larger companies. In the past, most banner advertisers wanted a browser to see the ad only once, thinking multiple exposures would provide diminishing returns.  But studies show that even with the low click-through rates, banner ads increase brand recognition by as much as 5%.  This figure can jump up over 10% when a consumer is exposed at least 4 times, so you’ll begin to see frequency rates increase. Thus, you’ll begin to see bigger companies advertising more often.

 

5 Email marketing will continue to grow.  Although the response rate is low, the miniscule cost of marketing via email will prompt more and more companies to use it as a tool to drive traffic to their websites.  Email newsletters and promotions to regular customers will become as common as the catalogs we all receive in the mail every day.  Email marketing is guaranteed to grow because catalog companies like Spiegel and Eddie Bauer are seeing high returns on their investments and should continue to use email as a promotional tool.

 

6 Internet sales will continue to go up.  There are billions of people who have yet to make a purchase on the Internet.  That alone ensures sales will grow.  As DSL and cable modems become commonplace, buying on the Internet will become easier, again ensuring growth.  And some products are just made to be purchased on the Internet.  Books and CD’s, small gift items, insurance, mortgages, auction items and anything that has been successfully sold through a catalog.  The ease of price comparisons and the availability of cheap overnight shipping make the Internet marketplace viable for many products.

 

Think of the World Wide Web as one big shopping mall.  There are several anchor stores that do most of the business, and the specialty stores inside come and go as social trends change.  The anchor stores do most of the advertising, while the specialty shops rely on their proximity to the big boys to generate store traffic (think in terms of links here).  The web may be the world’s biggest shopping mall, and you may be able to shop in your underwear, but the rules really haven’t changed for retailers.  Value, selection, customer service and a good brand image still ensure success, even in the virtual world.