Battle For Internet ConsumersWhy Is Doing Business On The
Internet Becoming Like Jurassic Park?
(Bethesda, MD November
11, 1999) Everything that's big, old and slow-moving isn't necessarily a dinosaur. That's
a lesson netpreneurs would do well to keep in mind before prematurely writing off
competition from traditional businesses.
More and more mainstream consumers come to the Net
everyday, and that means that buying and behavior patterns are changing radically. At
yesterday's Netpreneur Program Coffee & DoughNets meeting, Mary Modahl, Vice President
of Research at Forrester Research,
explained some of those changes, and the implications they have for .com companies. The
upshot? Online businesses must prepare to fight for survival as the competition from
traditional companies heats up.
Modahl is the author of the soon-to-be-published Now or Never: How Companies Must Change To Win The Battle For Internet
Consumers which explains Forrester's Technographics® model for understanding how
people use the Internet. Where traditional demographics and psychographics give only a
sketchy picture of consumer behavior, technographics is a predictive mechanism that shows
how different kinds of people are likely to adopt and use a given technology.
According to Modahl, mainstream consumers are different
from the early adopters that most .com's have catered to. Yet she points out that
"the total disposable income of the two groups is almost the same, so if your company
is so 'early adopter-oriented' that you can't appeal to the mainstream, you are only
addressing half the market." And that doesn't even include a third group of
consumers, the "laggards" who resist technologies, but will probably get to the
Technographics divides consumers into 10 sectors, but
Modahl focused on two main characteristics that separate early adopters from the
mainstream: adventurousness and income. Early adopters tend to be more excited about and
willing to explore new technologieswhat Forrester calls "optimists" as
opposed to "pessimists" who are technology resistantand they tend to be
wealthier with household incomes above $65K. Mainstream consumers, it turns out, fall into
one of two groups: low income optimists, such as young people just out of college,
and high income pessimists, usually older people with little compelling reason to
use a new technology. Each group is looking for different things, and sometimes
traditional businesses have more to offer them, even online.
"What you see," said Modahl, "is the de
facto assumption that the .com's have won this battle, that being a startup is much
betterthat you are freer, can move more quickly and are more exciting. These
traditional companies are flat-footed. They are slow and the management doesn't get it.
That's now conventional wisdom in our marketplace, but I believe that the market is
beginning to shift. Traditional companies are not as DOA as they may appear."
Modahl cited companies that have done a good job targeting
mainstream consumers online, such as startup theknot.com, which specializes in the newer challenges of post-modern
weddings, and traditional financial services firm Fidelity Investments which satisfies the need of high income
pessimists for a more familiar venue than what they find at E*Trade or Charles Schwab. While Fidelity may not
get the press or have the cutting-edge image of an E*Trade, it's sobering to remember that
the company has over $200 billion under management compared to E*Trade's $7.8 billion and
Schwab's $81 billion.
Giants like Fidelity and Disney may not be dinosaurs, but
they do have teeth and they're going hunting on the Internet.
Modahl went on to explain some of the comparative
advantages of startupsincluding funding, leadership, organization, lack of channel
conflict and technical skillsand those of traditional businessesincluding
established brand identity, customer base and physical presence.
Speaking to this group of envelope-pushing Internet
entrepreneurs, Modahl pointed out "We look at companies like Amazon.com and Yahoo! and those guys have done
incredibly well with branding. We know of companies like Mercata, but mainstream consumers have
no idea who most of these .com companies are. There is nowhere near the kind of brand
equity that exists in a Victoria's
Secret or a Wal-Mart. Among
early adopters there is a willingness to try out new companies, but among mainstream
consumers there's much less of a willingness to do that, particularly the high income
Modahl explained the two primary ways in which traditional
companies are tackling E-markets. In the first, the brontosaurus evolves into a mammal
through wholesale transformation to an Internet-focused company. Intuit has done this with its TurboTax producteven though it
didn't have toin order to capture the burgeoning electronic tax filing market.
Charles Schwab has also done it in the personal investing space, proving the threat to
.com's offered by traditional businesses. E*Trade may have been the pioneer in this
market, but Schwab has successfully remade itself into the largest online broker.
The other method by which traditional businesses are moving
to the Net is through risk-balancing strategies that involve taking a business unit,
perhaps combining it with VC money, and spinning it off. Disney has done this better than anyone, combining ESPN Sports Zone, which it acquired when
buying ABC, with InfoSeek to form the
foundation for what is now the Go Network,
one of the top five media properties on the Internet.
Modahl explained, "[Disney] controls the brands at
every point, and that's been a very important part of their strategy as a traditional
company. They have also been able to support Internet businesses fully. If you look at
Disney television, you see Go Network promoted on a regular basis. You can't buy that from
Disney if you are not part of the Disney empire. You can't get marketing in the Disney
theme parks unless you are owned by Disney."
Modahl went on to talk about some of the implications for
.com's of this stampede by traditional consumer businesses to the Net, such as the need to
create multi-channel brands and the pressure to scale up fast. And while she was
enthusiastic about the still vast potential for startups, she urged netpreneurs not to
take their own press releases too much to heart.
".com's, have taken the early lead on the
Internet," she warned, "but traditional companies can still win. You see this
definitely in the financial services market and in the travel space. I would say the
airlines have been the absolute biggest winners in the travel space. You definitely have
to take into account that traditional companies will be among the top two or three players
in almost every category. Startups really need to build management, brand and presence to
win, particularly with the consumer."