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traditional companies versus .com startups:
the battle for internet consumers

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the audience: q & a

Q: Is it still possible to build an online brand on the Internet alone?

Ms. Modahl: Yes, I think it is. I think that the Internet has a kind of person-to-person nature to it which makes it very possible to do that. Certainly, in the early days, it was a lot easier than it is now because the noise level has gone up so much. I think the kinds of things that go word of mouth, person-to-person end up being fairly powerful and I don't really believe that has ended in a permanent sense.

I don't think it constitutes a valid strategy for business, though. It's the kind of thing that is hard and mysterious to get going, so I wouldn't recommend it as a strategy for a startup company to try word of mouth alone on the Internet. We already see a need to create traditional media presence. Magazines and television are experiencing enormous increase in ad dollars right now. The best businesses to be in are traditional media businesses because all the .coms are spending all their venture capital on traditional media. Somebody told me—I haven't checked this—but somebody told me that now over 60% of the space sold for the Super Bowl is .com stuff.

 

Q: Where do you see issues of personalization and customer profiling going?

Ms. Modahl: I think that there is a privacy line out there. I think one company will be marched all the way to the Supreme Court and they will be publicly flogged over the privacy issue. As a government, however, we have not yet defined what needs to be defined, which is, what are someone's personal information boundaries? I think there will be such a thing as personal information boundaries. It's a distinct membrane that you can't go inside without getting intimate with the person, without getting their permission. That membrane, or that boundary, has not been defined, so companies are crossing it right now pretty regularly.

The difficulty is that in order to provide good service on a Web site, there needs to be an information exchange. All the great sites, the ones that you go to for a great experience, are based on exchanging information. They have your credit card number. They have information about your eye color or your style preferences or whatever. It's important for a company to try to keep itself out of that debate by being fairly strict about what is personal information and what I call collective data. Collective data is things like how many visitors are male or female, race, income and aggregate sales information, that kind of stuff. Personal information is that which is very personal to me. What's really important is not to cross those two, so you don't want to be making personal inferences on your site based on some sort of general information, that is, you don't want to make inferences about me based on my race or sex.

It's very important to use personal information in a direct, two-way exchange where the consumer knows what's going on. It's important to show not only that you don't cross that line, but also that you can't do that kind of discriminatory behavior. That's going to be the focus of the legal battle. These folks who have come under scrutiny this week, Infobeat, have created a furor, but I don't that's the 'big if.' I think there are still another two or three big ones to draw in the privacy battle.

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Q: Here's a related question about loyalty programs. How do you think they are going to grow in the next five years, or not grow, as consumers no longer shop by price?

Ms. Modahl: Well, I think it's too much of a blanket statement to say consumers shop or don't shop by price. Some consumers shop by price and others don't. Also, some people shop sometimes by price and other times not by price. The best evidence of this is when you go to COSTCO or Sam's Club and see all those BMWs and Mercedes' lined up outside. Those folks are shopping on price for toilet paper and on image for cars. It's too much of a blanket statement to say that people will or won't shop on price, so you have to recognize that there will be both types of shopping. Loyalty programs have a role, but there is a limit to loyalty. It's certainly a tool since some people are going to shop on price, but it probably isn't going to have that much of an impact.

 

Q: Some traditional publishers have been slow to become effective online, but can the startup Internet-based sites really compete over time?

Ms. Modahl: I think the biggest issue is the cost of creating content in a local space. If you look at a newspaper's budget for the content they create in their local market, it's huge. Depending on what city you are talking about, it can be tens, even hundreds, of millions of dollars to create the content that supports a fantastic local property. That's the biggest issue for the startup company in the local space, the cost of content production. That said, newspapers have been very good at leveraging their advantage, although they have not been approaching the Internet in the same way as startups for many of the reasons that I talked about in my presentation, such as limitations on wanting to undermine the current business model.

 

Q: What will be the impact of wireless applications on company strategies for netpreneurs?

Ms. Modahl: I'm pretty excited about wireless and hand-held computers. Certainly, you are going to see different kind of applications from Web browsing to certain kinds of shopping, although some seem to be a little bit questionable. In terms of sheer convenience and information services, the wireless hand-held computer seems to be a pretty compelling application. I certainly can see something like stock trading being affected by that fairly quickly, but I'm not as sure of something like woman's clothing sales necessarily heading toward that kind of device.

Anybody in this space really needs to spend time looking at what they are doing in Europe. The whole wireless hand-held telephone space is moving so much faster in Europe with the GPS phone systems. Anyone interested in that ought to address that space, and I think they will do better to have their first efforts in Europe and their second efforts in the United States.

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Q: What role will electronic agents play in the near future? Are consumers willing and ready to trust electronic agents?

Ms. Modahl: That varies a lot by consumer segment, and a lot depends on the agent. If you are talking about price comparison shopping agents, then certainly the low-income optimists are huge aficionados. They love that stuff. What could be better technology? They are not afraid of it at all. Your pessimists are not as price-sensitive, and, in any case, they tend to go to the companies they know.

One thing that's likely to happen this Christmas is a clash of physical delivery systems against the demand. Right now, the demand is expanding rapidly, and I would expect this to be the Christmas of undelivered toys. People will buy stuff that just never shows up. That's my personal prediction for the number one press story of Christmas.

 

Q: What are the advantages and disadvantages of being in business-to-business spaces versus business-to-consumer, if any at all?

Ms. Modahl: That's a little hard to compare. It's like the advantages or disadvantages of being a man or a woman. You can talk about it all day long, but you are not going to change it. The business-to-business market is certainly a larger overall market, but it depends on what sector you are addressing. Certainly, in the business-to-consumer space there has been more of a focus on the financial services markets and investors because they like the scale of it. I would say that now it seems to be shifting a little bit to where business-to-business starts to look pretty interesting. One of the things that's important to recognize in business-to-business, however, is that, to a large extent, businesses do business with people that they know or know of. There is much more of a know or know-of marketing strategy in that space.

 

Q: Are the publicly traded .coms, such as Yahoo! and Amazon, overreaching by trying to broaden their business models beyond their original spaces?

Ms. Modahl: That's going to be a fairly important question. I certainly see some things differently having gone through the book writing process and working with publishers. It's becoming increasingly true that Amazon is not focused only on books anymore. They are less of a book seller in the classic sense, because book sellers really do pay attention to what's a good book, what's not a good book, careful reviews, editors choices, etc. which Amazon may pay less and less attention to. We'll see what happens. I think there is some significant threat to their original positioning. That's true with Yahoo!, too. Yahoo! has been a fantastic information service and guide, but I know as a shopper it becomes suspect. I don't know how many of you have spent time shopping on Yahoo!, but it's a suspect experience. You don't have a sense of getting all the best choices, necessarily, and so there is real potential to damage their brand in that strategy. I think they are all making the bet that this is such a huge scale business, that unless they scale and scale, they will be out of it. I think they look at it and say, "We will be able to lop off what doesn't work 18 months from now." You probably will see a few of those.

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