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The Web Economy’s Wild Ride
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ObjectivesIn this chapter, you will learn: The main reasons that business on the
Web grew so quickly The reasons that Web sites experienced
huge losses in the late 1990s Global economic factors that contributed
to the Web economy’s downturn The role of brands in Web site success The differences between online and mass
media advertising
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Objectives The rush to invest in sites that were
conceptually flawed How traditional businesses entered the
online online marketplace What to expect in the future for Web
business
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A quick tour of the Web landscapeWhat goes up must come down
Web start-ups or businesses that exist only online are called pure-coms
Dot-com refers to the online businesses of both the pure-coms and the traditional marketers
Having a “dot-com” next to your name practically guaranteed success; not having one got you branded “old fashioned” by the industry media
For a while, the sky was the limit and electronic commerce (e-commerce) increased to record levels
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What Goes Up Must Come Down The third quarter of 2000 saw the
beginning of the end of the hype
Interest rates and gasoline prices were on the rise as the U.S. presidential election was being hotly contested
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The Party’s Over In the middle of the third quarter of 2000, the
pure-com market started to collapse
Priceline.com stock price fell from the 52-week high of around $104 to just over $1 per share
Amazon.com stock dropped from a high of $250 per share to around $12
It was no longer a badge of pride to be an Internet only business and many pure-coms re-branded themselves to avoid the negative ramifications of Internet association
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Many Causes The inexhaustible venture capital
money that funded many start-ups began drying up
The Federal Reserve’s planned slow down of the U.S. economy was not as effective as anticipated
The growth of the computer industry that had helped fuel the economy of the 1990s suddenly began to dry up
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Many Causes
NASDAQ, the home of the pure-coms and other tech funds, began a dramatic downturn
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A Changing Economy In the Old Economy fewer than 5 percent
of American households owned stock Those who did own stock were generally
a specific type of conservative white-collar investor
The market was a source of stability even during times of economic recession
Stock reports were available in a few editions of a daily newspaper
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A Changing Economy The New Economy of the 1990s and beyond
is an environment of instant data, endless opportunity, and instantaneous decision-making
The average American is an informed and active participant
Circumstances and conditions we’ve never faced before are creating a haphazard set of economic rules that we struggle to understand and work within
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An Upward Spiral For most of the 1990s, the U.S. enjoyed intense
economic growth
In 1999 alone, the Dow was up 25 percent; the NASDAQ climbed 85 percent
Growth of new Internet companies from pure-coms, consultancies, ISPs, to production houses, benefited the existing tech companies as they gained new customers
Smart money at the time was betting that Internet usage would eclipse television usage
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An Upward Spiral NASDAQ’s indexes were rising higher than
ever
The Federal Reserve issued repeated warnings about the dangers of inflation in an over-heated market, but investors continued to pour money into many pure-com start-ups
Seemingly endless wealth and extraordinarily high consumer confidence were creating new markets for high-tech gizmos
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An Upward Spiral To maintain growth, companies needed to
expand and recruit skilled workers
The market for employees was saturated
Employers went to great lengths to find and retain qualified employees
High demand for employees is what kept the Federal Reserve nervous about potential inflation
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An Upward Spiral
Increased salaries to lure and maintain new workers would require a rise in prices of their goods and services
Instead of offering more cash, enticing stock options were offered
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An Upward Spiral
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The Downward Slide When Pets.com shut its doors in the third quarter
of 2000 it was the first real indicator that something was terribly wrong
Soon, many high profile pure-coms were warning that they only had enough cash to last for a few more months
Traditional tech stocks plummeted as bills from failing pure-coms went unpaid
The economy for the third quarter of 2000 grew at 2.2 percent, the slowest rate in years
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The Downward Slide
The Standard 100, an index consisting only of dot-com and tech stocks gained 28 percent between January 2000 and March 2000
However, the Standard 100 suffered a 69 percent loss between January and November of 2000
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Contributing FactorsThe New Economy Environment The New Economy is an economic
environment in which the majority of American workers are participants
Information has become easier than ever to get and this brought too many inexperienced people into the stock market
With so many people invested in stocks, the market became less a source of stability and more a measure of the economy in general
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Contributing FactorsThe New Economy Environment Consumer confidence is the single most
important factor in maintaining momentum in the economy
The slide in the market and talk of a recession didn’t immediately hurt the unemployment rate, though later on, it rose to 5 percent
Over 145,000 new jobs were created in the midst of all the layoffs, although biotech and pharmaceutical firms created most of these new jobs
At the same time, nearly 65,000 tech workers lost their jobs
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Disregarding the Brand Basics Many pure-com sites used large-scale advertising
campaigns to drive traffic to their sites and not enough to build up the brand
A brand is the promise that a Web site, company, product, or service makes to its customers
Logos, along with tag lines, colors, and font styles are just components of the brand
One of the hard lessons of marketing is that it is rare for a brand to be built over a very short period of time
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Dot-Coms and Branding Failure to deliver on brand promises is
where many of the pure-coms went wrong Massive amounts of money thrown at
expensive advertising campaigns do not equate to brand development
Instead of expensive ad campaigns, the pure-coms should have spent more on shipping and distribution systems and building site enhancements to keep visitors coming back
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Dot-Coms and Branding Customer service, public relations, a well
organized marketing strategy, uniqueness in offering, and quality of service are all part of the overall brand
Brands take time to develop and the strategy behind them needs to be long-term – not overnight
Although a strong brand cannot guarantee success, the lack of one can almost guarantee failure
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The Perceived Failure (and Misconception) of Banner Advertising
Web site banner advertising is more effective than its mass media counterparts
According to Jupiter Media Metrix, general consumers are over 3.5 times more likely to retain and recall the message and brand associated with a Web banner ad than with a TV commercial
Marketers new to the Web are eager to quantify advertising success by measuring click-through
Currently, click-through rates are approximately 0.5 percent
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Recognition versus Action Most of the TV ads are brand recognition efforts An advertiser doesn’t expect you to get up and
buy their product as soon as you see the commercial; instead its goal is to build the brand
Television has survived and prospered as an industry because it is an advertising/branding medium, not a call to action forum
Television also has some call to action ads, which require immediate customer response to be successful
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Revenue Models The main reason for starting a Web site
is usually to make money and there are various methods to bring in revenue online, including: Selling advertising
Selling information
Selling products or services
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Revenue Models Online retail sales known as business-to-business
electronic commerce (B2C), comprises the largest percentage of sites and by all indications, most sites should be generating a profit by now
A July 2001 article in The Industry Standard showed that of the 43 publicly traded online retailers only four had managed to squeeze out a profit
Online sales are obviously hot and still growing rapidly, but distribution problems often cost sites more money than anticipated
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Some Ideas Just Don’t Work
Mercata.com worked off the concept of group buying, which is the idea that the more people buy a product, the lower the price becomes
It was difficult or impossible to find a large group of shoppers who wanted to buy the same gadget all at the same time
The site closed at the end of January 2001
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Unforeseen Issues in Electronic Commerce As the Web was gaining some commercial
success, a few economic theories became popular among site developers and marketers: If you build it, they will come
The Web lets small players compete equally with the monster corporations
Getting into a Web business is relatively cheap
Not surprisingly, not one of these early “Webisms” proved true
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The Web Got Ahead of Itself During the 1999 pure-com boom, it was generally
believed that online purchases would account for a significant percentage of all retail sales
As of the first quarter of 2001, online sales accounted for only about 1 percent of all retail sales
Three reasons why Americans weren’t ready to do more Web business: Poor service and high prices
Too much to choose from
Inconsistent technology
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Too Many Choices Is more always better?
An online search normally results in hundreds of items
Overwhelmingly, buyers have turned away from an excess of choice, abandoning their intended purchase because of “selection fatigue”
Site navigation and the ability to better confine a search for increased convenience are issues that e-tailers will need to deal with
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Enter the Experienced Business Players
While start-ups were dominating the Internet the established retailers were barely visible in the online world
The big players suddenly became dinosaurs
Did the established retailers know something?
In the rubble of start-up collapse, the Internet horizon boasts a new landscape
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Brand Loyalty and an Established Market Established retailers already enjoy brands
that have penetrated consumers’ consciousness over the course of decades, not just months
Brand recognition brings a high level of trust
Ideas and good intentions just can’t compete with experience and strong branding
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Deeper Pockets Many pure-coms were warning that they
only had enough cash to last for a few more months
Some traditional marketers have also succumbed to a dropping economy
Generally, the big retailers have dot-com operations that can rely on more traditional sources of revenue to weather the storm
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Easier, Less Expensive Marketing Avenues Established retailers already have
marketing dollars worked into their annual budgets as they continue brand awareness campaigns
Mailing lists of established customers already exist
Brick-and-mortar locations are aggressively used to promote their affiliated Web sites
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What’s in the Future? The one universal truth that we can
safely assume is that the Web will only get bigger and better
It won’t necessarily take the path that most people expected it to
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Hype Will be Replaced by Substance
The new Web businesses will be stronger, more reliable with clear, manageable business models
Partnerships similar to the ToysRUs/Amazon affiliation will be standard
Shoppers will have more options for using both a retailer’s Web site as well as its brick-and-mortar location
This form of partnership will work together more frequently for service, support, ease of production return, and so on
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Convenience Will Increase While Prices Will Decrease Web businesses will develop dramatic
improvements in how they serve their clientele
real-time chat sessions
toll-free 24-hour phone access to helpdesks at partnership’s brick-and-mortar retail location
e-tailers will quickly find ways to reduce shipping costs and pass those savings along to valuable customers to bring back the disenchanted and also help recruit new Web shoppers as well
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Merging Old and New Technologies As TV and Internet converge, and as
products like TiVo catch on, product advertising will take the form of in-show placements rather than standard 30-second spots
In the future, with a click of a button on the remote, viewers will go directly to the product’s Web site for further information or order it directly
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Summary As the Web comes of age and the shakeout leaves many
of the original players dead and forgotten, the financial world is learning a few lessons about the Web and the New Economy
The stock market has become a part of common culture, and fortunes rise and fall with popular opinion
Traditional marketers are making a big splash on the Web, leveraging their established brand identity, deeper financial pockets, and easier marketing avenues for better Web potential.
The Web will become a haven for traditional marketers, as business-to-business sites become more popular
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Summary The most important factor – increased
convenience – ultimately, will drive the success of Web sales
Increased customer convenience will need to be enhanced to compensate for high shipping costs as the dot-coms make their way into the next phase of development