BuzzWord

2001-02-08T08:01:00.000-05:00

Syndicate Or Die

By Matt Hicks, eWEEK

It may be the winter of dot-com discontent, but you wouldn't know it from Salary.com Inc. Since last May, the year-old site has more than quadrupled its unique visitor count to 586,000 per month, vaulting Salary.com to No. 6 on Jupiter Media Metrix Inc.'s list of top career sites. The Wellesley, Mass., company even managed to raise $2.6 million in new venture backing last month, no mean feat in the current dot-com downturn.

So how did Salary.com do it? Not by taking the usual dot-com marketing tack, spending millions on offbeat Super Bowl ads or promotional mass mailings of back-flipping toy dogs. Instead, Salary.com dramatically drove traffic by syndicating its specific brand of job information—proprietary compensation data on 1,000 positions plus a search tool called Salary Wizard—to other top career sites and major portals such as Yahoo Inc. So far, Salary. com has signed up 150 syndication partners, which are generating "significant" revenue for the site in addition to big-time visitor increases, said Andy Linn, vice president of product management.

"Syndication works when you have content that adds value to [a] site," said Linn, who declined to discuss Salary. com's revenue or profit picture. "It improves the user experience, and as a syndicator of content it provides us a distribution network for our unique content."

Under pressure to find new revenues beyond online advertising, dot-com content sites are increasingly syndicating their content to other sites for a price. Syndication, experts say, offers not only a new source of revenue but also a way to quickly build traffic at a relatively low cost, particularly if e-businesses make use of a growing group of new online syndication networks. The trend even offers opportunities to non-content-driven dot-coms, which now have a chance to enrich their sites by adding syndicated content. Experts, how ever, offer a word of caution to dot-coms considering the syndication route: Always protect your brand by being selective about where and how your content appears.

There's gold in syndication

spurred on by dot-coms such as Salary.com, the market for syndicated online content is expected to grow rapidly over the next few years. Forrester Research Inc., of Cambridge, Mass., predicts the total value of content syndicated online will grow from $718 million in 2000 to more than $3.5 billion in 2005 (see chart, Page 55). While that won't make syndication anywhere near the dominant source of revenue for Web sites— advertising will continue to fill that role, according to Forrester—much more money will be made on syndication over the next few years.

Who makes most of that money, say experts, depends a lot on the type of content a site has to sell and how much leverage it can exert in the market (see chart, below left). The more valuable the content, for instance, the bigger the premiums are that sites receive through syndication, said Daniel O'Brien, an analyst at Forrester.

One e-business that's used syndication to boost revenues is online financial news source MarketWatch.com Inc. The site, which includes the well-known CBS MarketWatch.com and BigCharts.com, has seen proceeds from content licensing grow to account for about one-third of its revenues, with the rest coming from advertising, said Scott Kinney, executive vice president of licensing for MarketWatch. com, in Minneapolis. In the third quarter of 2000, about $4.2 million in revenue came from licensing fees, compared with only $1.8 million from syndication in the same quarter a year earlier, the company reported. Among MarketWatch.com's syndication customers are Datek Online Brokerage Services LLC, a subsidiary of Datek Online Holdings Corp., and ETrade Securities Inc.

Much of the jump in syndication revenue resulted from MarketWatch.com's purchase of BigCharts. com in June 1999. BigCharts.com's income was split almost fifty-fifty between sales of its content—stock quotes and financial news—and advertising, Kinney said.

In most of MarketWatch.com's 250 content licensing deals, it works directly with syndication customers, creating for them custom Web sites that incorporate a combination of content from stock quotes and financial charts from BigCharts.com as well as financial news from CBS MarketWatch.com, Kinney said. A team of 35 people works from MarketWatch.com's Minneapolis offices exclusively on licensing and syndication deals. In some cases, they host the content pages for syndication customers. In others, they download content.

For e-businesses such as Mar ket Watch.com, a big advantage to syndication is that revenue tends to be more stable and predictable than that from online advertising. Licensing agreements tend to be at least one-year contracts, if not for multiple years. MarketWatch.com charges sites a monthly fee that varies depending on a site's business model. A brokerage site may be charged based on the number of account holders, for example, while a subscription-based site will be charged based on the number of subscribers, Kinney said.

Finding deals

marketwatch.com has been more successful at syndication than most content sites, experts say. Few, so far, have been able to grab such a large percentage of revenue from syndication, Forrester's O'Brien said. Working in its favor is MarketWatch.com's concentration on financial data and news, which is highly marketable.

For other content dot-coms, such as general-interest news and features site Salon.com, syndication remains a challenge. So far for Salon.com, syndication accounts for between 5 percent and 10 percent of revenues, said CEO and President Michael O'Donnell, in San Francisco. Meanwhile, Salon.com continues to struggle to turn a profit. Salon.com reported losses of $3.5 million for the quarter ended Sept. 30, compared with a loss of $4.7 million for the same period in 1999. In December, the company cut 20 percent of its staff as part of an effort to cut expenses.

It's not surprising, then, that Salon. com continues to pursue syndication deals. O'Donnell's goal is to make syndication a more substantive part of the company's revenues—about 25 percent—to help Salon rely less on advertising. The company has two of its salespeople concentrating on syndication.

The biggest problem for Salon.com has been finding lucrative, long-term syndication deals for its content. Although the company has found particular interest from foreign publishers, such as Italian publisher Gruppo Mondadori, in the United States most of its content syndication deals have been one-time purchases of articles by print publications, O'Donnell said. The company, for example, has worked with book publishers on three compilations of Salon.com writing.

Besides chasing syndication deals themselves, Salon.com, MarketWatch. com and other e-businesses have begun to syndicate content through online syndication distribution networks such as iSyndicate Inc., ScreamingMedia Inc. and NewsEdge Corp.

Such services essentially license content and resell it to content-consuming sites, taking responsibility for online transfer of the material.

Salon.com, for instance, first started selling its content in 1997 through traditional newspaper syndicator United Media, a division of The E.W. Scripps Co. It also has worked with Web syndicators such as iSyndicate.

Working through such syndication networks can be a quick path to gaining exposure for your site and your content, Forrester's O'Brien said. Syndicators provide a ready-made base of hundreds of Web sites that will have access to the content and, in some sense, act as an outsourced sales team cultivating new business. They also handle the complexities of delivering content in various forms, from Extensible Markup Language and HTML to the many wireless protocols.

Syndication networks are not necessarily a guaranteed source of significant new revenue, however. O'Donnell said none of the syndication network relationships that Salon has entered into, for example, has generated significant revenues.

"We have deals with them, but it's not a priority," O'Donnell said.

The problem with syndicating through online networks, experts say, is that the site providing content receives only a percentage of the revenues generated from syndication deals and must compete with hundreds of other content sources vying for placement on Web sites. In ScreamingMedia's case, for instance, 70 percent of revenues go to ScreamingMedia, and 30 percent to content providers.

There can be many permutations. NewsEdge pays some content providers a flat annual fee so that it can provide customers the option of an unlimited news feed from specific sources. Sites providing content might even pay, as is the case with one of iSyndicate's services through which Web sites can post headlines from iSyndicate's content partners for free. Those headlines then include links to the content site, which pays for the extra traffic on a per-click basis.

"You can get to hundreds or thousands of sites by working through a syndicator," O'Brien said. "[But] at the end of the day, 10 solid licensing deals with volume may be worth more than a thousand smaller sites. You can do both, using a licensing staff for the largest arrangements and doing the rest through a syndicator."

In most cases, content dot-coms say it makes more sense for them to do it themselves, particularly if they're selling many types of content and can add services on top. "When we're doing a complicated project for a large brokerage or a large bank, we're designing and developing dynamic pages that change every second with new market data," Kinney said. "If we were only syndicating CBS MarketWatch.com news, then the opportunity would be much less."

Protecting the brand

whatever the arrangement, content sites must consider how syndicating their content across the Web will affect their brands and destination sites. Overexposing its content to the point that it no longer offers any unique value on its own site, or allowing its content to be represented or changed inaccurately, could damage a content provider's reputation rather than help it.

Some syndication networks give providers some control over their content. At ScreamingMedia, for instance, content providers can choose which sites have access to their content. That way, they can block competitors or avoid sites they believe may damage their brand.

All the syndicators also allow various amounts of control over how content is branded, making sure articles, for instance, are sourced. iSyndicate even has content providers that require that their logos appear on all their content shared in the network.

"Our content providers inherently trust us because they preapprove where their content will go," said Kevin Clark, CEO of ScreamingMedia, in New York. "Our content providers don't want to go to a competitor. They want to know explicitly that their content goes where it's best represented."

That doesn't mean all content sites shy away from selling information to competitors. MarketWatch.com has syndication deals with competitors to its CBS MarketWatch.com site, such as business and financial news sites TheStreet.com Inc. and Dow Jones & Co.'s WSJ.com, Kinney said. He said he doesn't believe such deals harm MarketWatch.com's destination site, partly because the competitors tend to buy stock data and charting capabilities rather than financial news. In addition, the destination site is competing on the way it presents and prior itizes news, and not all its content is shared through syndication.

"We focus hard on delivering products to those guys that are of high value and enhance the capability of their sites, and if that makes them more competitive to other parts of our business, then we accept the trade-off," Kinney said.

While syndication, if done right, can provide content dot-coms with a needed new source of revenue, increased exposure is the principal motivation for some. Consider Planet Out.com, a gay and lesbian portal that was first launched on MSN.com in 1995 and today provides its news and features for free to top portals such as Yahoo and America Online Inc.'s AOL.com, Netscape Netcenter.com, ICQ.com and Compu Serve. Those deals, said Beth Callaghan, senior director of content and programming at PlanetOut Corp., in San Francisco, help establish PlanetOut as "the gay voice of record."

So far, however, syndication is only a blip on the site's revenue radar screen, Callaghan said. PlanetOut also is using syndication networks ScreamingMedia and iSyndicate.

Syndication's value, though, isn't always best measured in direct revenues, as Salary.com learned so well. The instant exposure Salary.com gained was syndication's biggest payoff. With traffic numbers soaring, Salary.com also established itself as a destination, and that means even more opportunities for revenues and future profitability.

"If you can get more and more sites and get them to market the information in the right way," Linn said, then "it's basically limitless."

In fact, with syndication as part of their strategy, content-oriented sites like Salary.com may yet survive the dot-com winter.

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Sizing up the syndicators

Syndication, the latest tactic to extract money from content on the Web, has attracted a wide variety of online service providers, from Old Economy news services to new businesses combining content from diverse Web sites. While a shakeout seems inevitable, who survives will hinge on the quality and uniqueness of the content provided and on the syndicators' ability to quickly respond to the changing needs of subscribers. Here's a look at some of the top providers in this market.

Factiva A Dow Jones Reuters company, Factiva provides access to high-quality content, including The Wall Street Journal. Includes a good suite of software tools for integrating content with an intranet or extranet. www.factiva.com

iSyndicate One of the first Web-based content syndicators, iSyndicate has a large and diverse set of content providers. Some of the content is free, while some can cost sites thousands of dollars per month. www.isyndicate.com

Moreover Although it provides news content as do most other syndicators, Moreover also uses powerful search technology to let sites get content from industry Web sites and discussion groups. www.moreover.com

NewsEdge A syndicator that predates the Web, NewsEdge has been providing content via e-mail and online services for 12 years. As part of its service, NewsEdge employs editors who filter content by topic. www.newsedge.com

Source: eWeek Labs

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Who has the upper hand?

As syndication grows, there will be more deals between buyers and sellers of content. The following factors will be among those determining who has the most leverage for revenues in syndication deals.

Who has the unique product? The more difficult it is to duplicate certain content, services or products, the more a provider can demand in license fees and revenue shares.

Who has the largest audience? Content providers that already have a wide audience can demand more money than those that are unknown. The latter may be forced to give away content for exposure.

Who drives the customer experience? If the content provider—a popular portal, for example—shapes the way a customer acts, it can exert more bargaining power.

Source: Forrester

2001-02-07T07:54:00.000-05:00

Amazon to Charge Publishers To Promote Books by E-Mail

By NICK WINGFIELD and MATTHEW ROSE
Staff Reporters of THE WALL STREET JOURNAL

Amazon.com Inc. is finding a new way to get money from book publishers, and once again potentially blurring the boundaries between advertising and editorial judgments.

The Seattle-based Internet retailer recently notified publishers that it will begin to charge them as much as $10,000 per title in exchange for a better shot at having Amazon recommend their books in special e-mail promotions sent to customers. Previously, the e-mail recommendations were free to publishers and were based solely on the judgment of Amazon book editors. With the new fees, Amazon is extending a longtime practice on its Web site of allowing publishers to nominate a book and charging them if Amazon editors agree it is worthy of a recommendation.

Amazon says it will continue to recommend titles via e-mail for which it has received no fee from the publisher -- possibly confusing some customers about what are effectively advertisements and what are titles selected for purely editorial reasons. Those titles would likely include expected best-sellers, books from well-known writers or other titles Amazon's editors believe are good. Though Amazon says it will disclose which titles it received payment for, users will have to click on a hyperlink to the Amazon Web site to see which titles fall into that category. Amazon plans to begin sending the e-mails containing the paid recommendations within the next couple of weeks.

The new fees involve a program Amazon calls Past Buyer Mailings, mass e-mailings that send book recommendations to existing Amazon customers based on their purchasing history on the Web site. Amazon recommends books using various criteria, including suggesting books by authors that customers have already shown an interest in. The company may also recommend similar authors or genres, such as mysteries or autobiography, suited to a customer's tastes.

Amazon emphasizes that all of the book recommendations sent to its customers over e-mail, like many recommendations on its Web site, are selected by teams of editors. But the new arrangement could give Amazon a financial incentive to select titles for which publishers are eager to cough up a large sum to be included in e-mail promotions.

In addition to the new fee levied if publishers' nominations pass muster with Amazon editors, the publishers will be required to buy advertising on one of Amazon's pages, pushing the cost of the total package to as high as $17,000. Amazon says it will regularly reject titles it deems unworthy of promotion.

Amazon spokeswoman Kristin Schaefer described the new e-mail program as an extension of what Amazon has been doing since it began accepting placement fees from publishers in ex change for exposure on Amazon's Web site. "Now we're allowing publishers to have input as to what titles they would like to have included in those e-mails," she said.

Some publishers say Amazon should tread carefully with the new policy. Laurence Kirshbaum, chief executive of AOL Time Warner Inc.'s Time Warner Trade Publishing, says Amazon could hurt its reputation if it doesn't fully disclose that publishers are paying to get their books publicized this way. "If you don't distinguish between editorial and advertorial you could lose credibility," he says.

Amazon raised concerns among customers and media critics in 1999 when it first began charging publishers to increase their chances of receiving a featured slot on Amazon's heavily-trafficked Web site. Initially, it didn't disclose the titles for which publishers had paid promotional fees, saying that all of its recommendations were vetted by Amazon editors. Amazon later began disclosing specific titles backed by payments -- in a section reached by clicking on a hyperlink on its Books home page -- after complaints from customers. Amazon still lists those titles: Among the ones listed Tuesday were "A Painted House" by John Grisham and "Crooked River Burning" by Mark Winegardner.

Amazon executives have said that their disclosure policies are better than those of traditional "bricks-and-mortar" retailers, who also accept payments from publishers in exchange for favorable placement of books in their stores. Publishers typically pay for such placement from so-called cooperative marketing budgets, which represent by far publishers' greatest marketing expense. Every year, publishers give money to retailers -- both online and bricks-and-mortar -- based on the amount of sales they generate. The retailers can use those "co-op" funds to promote titles in various ways -- whether through print advertising, in stores or on the Web -- usually with the publishers' consent.

E-mail has become one of Amazon's most effective marketing tools. The company won't say exactly how many of the Past Buyer Mailings it typically sends out, but it has grown to be a favorite marketing technique among Amazon's publishing partners, with many publishers saying they often see significant spikes in sales following the promotional e-mails.

According to an e-mail sent to publishers, Amazon has told publishers that it will cost between $5,000 and $10,000, depending on the book, for Amazon to promote their titles through e-mail. According to the e-mail sent to publishers, Web-site fees start at $2,000 for promotions on "category" home pages and $12,000 for promotions on the more visited Amazon Books Home Page. Amazon declined to comment on the authenticity of the e-mail or the fees it charges publishers for promotions.

Some publishers say the new fees connected with its e-mail promotions will be tough to stomach. The cost of promoting a title on the Amazon Book Home page and through e-mail -- the most expensive combination -- is about 40% higher than the cost of getting a book placed in a prime location in one of the major chain bookstores, according to one publishing executive. Getting good in-store placement is one of the most effective ways of pushing a book.

Amazon's fees are "way beyond the budget," says John Oakes, publisher at Four Walls Eight Windows Inc., a 30-book-a-year New York publishing house. "It doesn't matter what you are told by Bertelsmann or Simon & Schuster; that is a significant amount of money for any publisher." It's also hard to justify the cost as the e-mail is a one-shot marketing tool, says Mr. Oakes, who says he hasn't yet been notified about the change.

The additional charges will likely make life harder for smaller publishers like Mr. Oakes with limited amounts of marketing cash. If publishers can't or won't pay to promote smaller titles, the program could hurt Amazon's ability to promote quirky books that sometimes grow into best-sellers but aren't obvious successes.

Publishers worry that the high cost of the e-mail program compared with other marketing expenses could drastically cut into their co-op budgets and hurt their ability to promote other books, especially low-selling literary titles. "It's robbing Peter to pay Paul," says one publishing executive.

2001-02-05T07:31:00.000-05:00

The Web Offers Radio Station A New Life After the Airwaves

By SHEILA MUTO
Staff Reporter of THE WALL STREET JOURNAL

Tossed off the airwaves, a Los Angeles-area radio station has found a new home on the Internet.

In August, the station's owner, media giant Clear Channel Communications Inc., sold the rights to the station's broadcast frequency. The new owner immediately switched formats, from "adult alternative" rock to Spanish-language music. But just as quickly, the station resumed playing music ranging from the Beatles to the Wallflowers at www.WorldClassRock.com (www.worldclassrock.com).

Clear Channel, which had to be talked into the experiment, is now embracing WorldClassRock as a possible model for future Webcasting efforts. After all, the station, which made a small profit in its previous life, has quickly achieved something that has eluded most Web entertainment ventures: It's making a profit on the Internet, says John J. Martin, president of Clear Channel Radio Online.

So far, the key to WorldClassRock's profitability has been Clear Channel's partnerships. Microsoft Corp. and RealNetworks Inc. pay WorldClassRock a fee to link to sites where their Internet-streaming software can be downloaded. Akoo.com Inc. gives the station a commission on the wireless Internet audio devices it sells to WorldClassRock listeners. These and other agreements generate enough revenue to keep the station in the black, Mr. Martin says.

The scale is small. People from as far away as Brazil and Germany listen to the Webcast, but only about 130,000 tune in each month. That's way below the 246,000 people who listened to the station each week when it broadcast over the air, according to Ceridian Corp.'s Arbitron.

But for Clear Channel, profits are just part of the story. WorldClassRock is serving as a laboratory to help its parent determine how Internet radio can generate revenue, what technologies work best, and how to create synergies with the company's other properties. The San Antonio company owns some 1,120 traditional radio stations, about 300 of which also broadcast over the Internet. The company also owns Eller Media, a large outdoor-billboard company; SFX Entertainment, a live-concert producer and ticket seller; and Premiere Radio Networks, which offers syndicated radio fare, including "The Rush Limbaugh Show" and "The Dr. Laura Schlessinger Program."

Clear Channel's broader Internet radio strategy includes launching several more Web-only stations this year to complement the programming on its over-the-air stations. It is significant that it's forging ahead in this area despite a ruling last month by the U.S. Copyright Office that radio stations that put their programming online must pay music royalties to record labels in addition to the royalties they already pay to music publishers.

Even with a sagging economy, Kevin Mayer, chief executive of Clear Channel Internet Group, forecasts that the company's overall online ventures -- from SFX Entertainment's online concert-ticket sales to online radio -- will be profitable by next year. Toward that end, Clear Channel announced a deal last week with Hiwire Inc., a Los Angeles company that provides the technology for inserting ads into streamed Webcasts, to deliver targeted ads to listeners of WorldClassRock. The deal gives Clear Channel an early lead in tapping into the $140 million that Jupiter Research expects advertisers to spend on streaming audio and video online by 2005.

Nationwide, there are 4,500 traditional radio stations that stream their programming online, and 500 companies that offer some kind of music online, according to BRS Media Inc., a consulting firm in San Francisco. WorldClassRock's quick success on the Web suggests that existing broadcasters have a huge advantage over most of the upstarts that launch Web-only radio stations. "Clear Channel already has the infrastructure to program and promote and drive traffic to its Web sites," says Credit Suisse First Boston analyst Paul Sweeney. "That allows them to operate at pretty low costs."

When WorldClassRock was an over-the-air station operating under the call letters KACD-FM and KBCD-FM, it had a relatively weak signal. As a result, its 60-second commercial spots commanded only about $110, according to Duncan's American Radio, a broadcast research firm in Cincinnati. But, with a staff of only 10, its operating costs were low. Its 14 to 15 minutes of commercials an hour were sold by the ad-sales staff of another Clear Channel-owned station in the area, says Nicole Sandler, now WorldClassRock's station manager and afternoon disk jockey.

When the station was sold, Clear Channel executives were at first reluctant to approve the KACD air staff's request to shift the broadcast to the Web. "They wanted to know whether our audience would stick with us," says Ms. Sandler. Approval was granted only after more than 30,000 listeners signed an online petition saying they would listen to a station broadcast over the Internet. Still, Clear Channel hedged its bets by also putting WorldClassRock on an AM frequency, even though it can be heard only by a small group of listeners and doesn't rank on Arbitron's list because there are so few.

Now that the station is operating online, Clear Channel executives won't disclose details of WorldClassRock's revenue sources or its operating expenses, including the cost of streaming its seven-day-a-week Webcast, its seven-person staff, and the rent on its Santa Monica, Calif., studio.

But clearly one of the keys to its success is its synergy with other Clear Channel properties. For instance, the company recently completed a centralized data center in San Antonio, and all of its Web sites are now hosted there. The cost of streaming appears to be minimal, in part because of the relatively small size of WorldClassRock's audience. Web radio observers say that streaming audio over the Internet can cost as little as 3.4 cents an hour per listener these days. As a result, broadcasting WorldClassRock about 130,000 times a month for 37 minutes each, the average time of each listener, would cost only about $3,000 a month.

In contrast, NetRadio Corp., which first began Webcasting in 1995, has been in the red since it went public in October 1999, even though it attracts 2.5 million unique users a month who collectively spend about five million hours tuned into its 120 radio channels. The Minneapolis company, which broadcasts only over the Net and offers a range of formats from talk to hip-hop, incurred about $12.8 million in losses on slightly more than $1.6 million in revenue during the first nine months of last year, according to its most recent federal filing.

But others may be close to following WorldClassRock into profitability. For example, Santa Monica-based KNAC.com, a heavy-metal Internet radio station, is about six months away, according to its founder and general manager, Rob Jones. Like WorldClassRock, KNAC had its over-the-air frequency sold to a Spanish-language broadcaster in 1994. It re-emerged on the Web three years later as KNAC.com. Mr. Jones says that more than one million unique listeners a month now tune into KNAC, which last year became part of closely held Enigma Digital in Santa Monica, operator of five other online radio channels. Along with banner ads and ad copy read by DJs, KNAC generates revenue by selling sponsorships for such events as online interviews with musicians and listener contests.

MusicMatch Inc. expects its two-month-old online radio venture to post a profit within a year. The San Diego company has been marketing its radio stations to the 13 million people who use its jukebox programs, software that allows users to store and play music on their computers. The company says its stations already generate about 4.5 million listening minutes a day, and send about 45,000 people daily to e-commerce sites, for which it receives referral fees. MusicMatch executives boast that they have sold a healthy number of radio sponsorships. "Instead of blanketing our airwaves with loud ads, it's more effective having a few advertisers to quietly sponsor the next couple of hours of commercial-free radio," says Bob Ohlweiler, senior vice president of business development.

Until last week, advertising revenue at WorldClassRock came from a few banner ads and e-commerce deals. Now, using Hiwire's technology, WorldClassRock plans to stream about 10 minutes of commercials each hour within the Webcast, says Ms. Sandler. Hiwire Chief Executive Warren Schlichting says that based on his company's experience so far, advertisers are willing to pay $30 to $60 per 1,000 listeners for a targeted audio commercial.

Others say it's folly to rely too heavily on streamed advertising. "The best business model is the one that offers the most nonintrusive listening experience," says Mike Wise, NetRadio's chief financial officer, noting that NetRadio runs a maximum of two minutes of commercials an hour on its Webcasts. "We will never let advertising time increase to anywhere near that of traditional radio because online listeners won't appreciate it and won't come back," he says.

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Internet Airwaves
The top Internet-only radio stations, as of October 2000

RANK/RADIO PROGRAM -- TOTAL LISTENING HOURS PER MONTH
1. NetRadio's smooth jazz -- 289,100
2. NetRadio's '80s hits -- 269,400
3. NetRadio's contemporary hits -- 267,900
4. Enigma Digital's Groove Radio's electronic dance music -- 240,100
5. Net Radio's quiet classics -- 237,000

Note: According to Clear Channel, WorldClassRock.com draws 80,000 listening hours/month and would rank 24th in this list.

Source: Ceridian's Arbitron

2001-01-20T05:50:00.000-05:00

All hits, all the time: Ashley Power's Web site -- Goosehead.com -- is clicking like crazy with teens

By Elizabeth Hume
Bee Staff Writer

Dot-coms come and go, but 15-year-old Ashley Power's 300,000-hits-a-day teen Web site, www.goosehead.com, has taken the entertainment industry by storm.

The site's popularity has attracted production offers from NBC, MGM Entertainment, Showtime and Disney, and a partnership with Academy Award-winning actor Richard Dreyfuss.

The high school sophomore, who lives near Los Angeles, isn't fazed by all the attention. "I'm just kind of doing what I like to do," Power said.

What she "likes to do" is develop cutting-edge content for the site, which is specifically for and by teens. Her skills and talent have certainly brought her success. Last year, Power was named Entrepreneur of the Year by CosmoGirl magazine, and won a Lifetime Achievement Edgy Award from Robert De Niro and Jane Rosenthal's Tribeca Film Center.

Goosehead's allure seems to be Power's understanding of what interests teenagers.

"I like Goosehead because it's a really fun place to be," said Cheryl Yin, 15, of Long Beach. "Ashley's a teenager like us, so she knows what we like and what we want."

One of the site's main attractions is the edgy, low-budget teen cyber-soap opera "Whatever," which Power writes and stars in under the stage name Skye Warner.

Power comes up with ideas for the "Whatever" content and then works through the script and story line with her stepfather, Mark Schilder, who also directs the show, and her co-creator, Dreyfuss.

Dreyfuss got involved last spring after hearing about the site from his brother, whose daughter, Natalie, acted in "Whatever."

Efforts to contact the actor for comments were unsuccessful, but he does have an official statement on the site: "My Internet fever was enlarged when I first saw goosehead.com, and I couldn't stop thinking about stuff it had and might have. I think Ashley is going to have a helluva lot of fun with this thing, as is everyone visiting it. I wanted to have some of that fun, so here I am."

Dreyfuss contacted the teenager, and now Ashley jams out ideas with him at the office, at her home and even at his house in New York.

"He and I create content together. He is so amazing," said Ashley. "I could listen to the man talk for hours."

The six episodes of "Whatever" deal with common teen issues -- parents, peer pressure, love and so on -- in a straightforward way and in somewhat graphic language. The 15-minute segments are largely based on Ashley's observations of teen life. For instance, while she was being grounded at home, she conceived the idea for the first episode, which deals with parental punishment from a teen's perspective.

The cyber-drama's unusual style attracted a first-look deal with MGM Entertainment.

"It means that any TV shows we create, MGM has the right to produce," stepfather Schilder said.

MGM Entertainment is currently negotiating with Showtime to broadcast a two-hour movie that might be turned into a weekly TV series.

"It's still in negotiation. No official announcement has been made," said Bryan Bird, the director of public relations for Showtime's Los Angeles office.

In addition, the Goosehead company has just made a deal with NBC to produce a live teen talk show, "Goosehead TV." Every Saturday morning, Power and five other teenagers will discuss teen issues and new music. Schilder describes the new series as a cross between MTV and "The View."

"In television, we are always looking for a way to make our shows interactive and to change our formats to keep the attention of an audience of multitaskers," said Linda Mancuso, president of Peter Engel Productions.

"Goosehead on television is the most organic example of this that I have seen by far."

Power's ability to connect with teens has also prompted the interest of Disney's Hyperion Books. Over the summer, she wrote "The Goosehead Guide to Life," where she shares her thoughts on subjects such as dating, friends and the creation of Web sites.

"We were looking for a voice that would speak to the teen audience," said Helen Perelman, senior editor of Hyperion. "Goosehead.com is not your typical Web site, and it's not your typical teen guidebook."

Goosehead has also ventured into the world of motor sports by sponsoring three-time National Hot Rod Association top-fuel champion Shirley Muldowney.

"All through her racing career, she was told she couldn't do this or she couldn't do that. But each time she proved her detractors wrong, which I can relate to, because I heard the same things in building goosehead.com," Power writes on her Web site.

Muldowney, Dreyfuss and "Whatever" might have brought the media to the Web site, but teens log in because of the message boards, chat rooms and music pages. The message boards and chat rooms are abuzz with a wide variety of Internet users, mostly teens, from as far away as Wollongong, Australia.

"I spend most of my time on the message boards, as well as the advice page," said Aaron Robinson, 15, from McLean, Va. "I find it interesting to see what other teens are going through."

For teens interested in music, there's an MP3 page and a link to live365.com, which allows users to have their own online radio station. The site also offers music videos and reviews of the hottest new bands. For example, goosehead.com introduced the Vacaville-based alternative group Papa Roach long before the release of its first major-label album, "Infest."

The site also has cartoons, poetry, homework help, art, news, games, e-mail, advice, horoscopes and other attractions that could keep teens logged in for hours.

"The topics that goosehead.com offers cover so many various interests, everybody is bound to find some place they can enjoy browsing," said Kari DePonte, 17, of Honolulu.

Power started goosehead.com in eighth grade after she transferred to a new school, where a popular group of girls made her life miserable. During this lonely, no-friends stage, she spent her free time surfing the Web.

Power discovered that most teen sites were either too young for her age group or designed from an adult perspective. She decided she could do a better job and set out to create a Web site for teens.

"I wanted to do something that we could relate to," Power said. "People who come to my Web site are people like me."

Four months after Power got started, she had her own site, named after a concrete goose lawn ornament that she decapitated while she was moving into the family's new home.

What began as a place to post pictures of herself, her friends and their pets has become a major business. Last February, a new and improved goosehead.com was launched.

"Goosehead.com was never designed to make money," said Schilder. "It was set up from an entertainment perspective." Though the site itself may not generate much money, it's a sure thing that the peripheral TV and book deals will.

Power may be the CEO of a company, but she is also a normal teen who likes to spend time with her friends.

"She's still a teenager, which I have a hard time remembering sometimes, like when she wants to go to the mall," said Schilder.

Power's friends tell her she works too much, as she rarely has time to hang out with them. Goosehead even seems to have affected her dating life.

"I never have a date, ever," she said. "It's getting to the point that I feel like I'm an alien."

While the family is excited about her success, Ashley's high profile has generated unwanted attention.

"I'm really excited, but in another sense, there are areas that are difficult," said Schilder.

"Weirdos are coming out of the woodwork. We're moving because of it."

At one point, Power had 30 people working for her, including her mom, Michelle Schilder, and her stepfather. She has recently downsized her staff, opting instead to use other teen Webmasters who work from home.

"She wanted to be able to say that this is a teen Web site, and I have a lot of other teens helping me," said Schilder.

Power is constantly working on developing new content for the page -- keeping a handle on what's cool and cutting edge. She and Dreyfuss are working on developing two new cyber-dramas. "The Janitor" will be about a mob hit man in the Witness Protection Program who gets relocated as a janitor at a high school. The other cyber-drama, "G.A.," will be about guardian angels.

In addition, Power is looking for other teen-produced cyber-dramas to put on the Web site.

"Her focus is getting shows from other teenagers," said Mark Schilder. "She believes that everyone should benefit from (her success) and I agree with her."

Both Goosehead's and Power's futures look bright. In a few years, Power will be moving on to college, but she plans on leaving goosehead.com as a teen site.

"I would like to turn it into a teen entertainment network," Power said. "I do want it to always remain a teen site."

-----------------------------------

2001-01-18T08:27:00.000-05:00

Web Sites Begin to Self Organize

By KATIE HAFNER

SUZANNE CROSS, a 49-year-old paralegal in New Orleans with a passion for history, is a prolific writer for a Web site called The VinesNetwork, which bills itself as "the Encyclopedia of Everything, Built by Everyone." Articles on the site, covering dozens of different topics, are all written by members.

Since Ms. Cross began writing for The Vines last August, she has produced nearly 40,000 words about ancient Rome. Her nom de plume is Heraklia Aelius and her lengthiest work to date, 18,000 words, is a series on the life of Julius Caesar.

Ms. Cross knows her writing is valued highly by other members of The Vines (www.thevines.com). In fact, she knows exactly how highly she is prized, because they give her grades. They rate each of her articles on a scale of 1 to 10. Ms. Cross consistently scores above 9.5, which puts her articles at the top of their category. As a result, she is featured more prominently on the site than lower-scoring writers.

The Vines and similar sites for writers operate not as conventional publications might, with dozens of editors deciding what to publish. Everything that is submitted is published, and then the members' tastes determine what articles you can actually find without burrowing into the site in search of that 0.5 article on someone's theory about other universes.

"It's really hard to find the really bad stuff on The Vines, said Eden Muir, a founder of the site. "It's designed to make the bad stuff disappear. It will be up for a little while, then it will sink like a stone."

On the other hand, articles with the highest ratings bubble to the top, and aspiring writers like Ms. Cross, whose articles have also attracted notice from the outside world, are enjoying a level of recognition that might not have been possible without the Web.

The Vines is an example of an emerging class of what are called self-organizing Web sites. Such sites are demonstrating that with a dab or two of well-written code and a bit of careful planning, a site can take a random collection of links or posts and turn them into a sophisticated, adaptive system.

Articles submitted to The Vines are read and rated by members. Software handles the rest, putting the highest-rated articles at the top of their respective categories. Royalties are based on the popularity of the article. The Vines also holds periodic contests and awards cash prizes to the writers with the highest standing, using the automated ranking system.

"The Web in 1996 didn't need to organize itself," said Joey Anuff, who is editor in chief of a new self-organizing site called Plastic.com. "But we have a Web now that's measured in billions of pages and millions of users, so any kind of mechanism that automatically imposes order becomes more useful and important."

Most efforts at self-organization so far have been fairly simple, but effective. Several features on Amazon.com, like the list of authors with books similar to the one being viewed, take what could be a random database and develop relationships within it. The search site Google, which ranks a site depending on how many other sites have linked to it, is yet another example of self- organization at work.

Sites for writers, like The Vines and others, are growing quickly, largely because of people's pent-up urge to pepper the world with their prose.

The writers certainly aren't driven by money. Contributors to The Vines and other self-publishing sites are paid a nominal fee. Ms. Cross has been paid $50 so far for roughly 40,000 words. "Maybe someday it will amount to something," she said, "but I'm not planning retirement. I'm not even planning a dinner."

More gratifying than the small payments is recognition from the outside world. On the strength of her articles on The Vines, Ms. Cross was recently asked to contribute a chapter to a book on ancient Rome, to be published in the spring by ibooks, a new imprint of Simon & Schuster.

Carol Skolnick, a 43-year-old copy writer in Manhattan who focuses on spiritual topics, writes for ThemeStream (www .themestream.com), another writers' site. Ms. Skolnick has been asked to contribute four of her ThemeStream essays to the "Chocolate for Women" series of inspirational books, published by Simon & Schuster.

Another ThemeStream author, A. M. Benneter of Seattle, who writes film reviews, noticed recently that her review of the Sylvester Stallone film "Get Carter" had been quoted in national advertising campaigns.

Yet another ThemeStream writer, Laura Shanley, of Boulder, Colo., who specializes in health and nutrition-related topics, recently attracted the attention of television producers at work on a medical series. The producers sent a film crew to interview Ms. Shanley. They were especially interested in two of her articles, "Cleanup on Aisle Nine: Woman Gives Birth in Grocery Store" and "Milkmen: Fathers Who Breastfeed."

There is also plenty of potential for abuse on the writers' sites. Recruit a group of friends to award your writing four stars every 20 minutes or so for a few days, and your work is bound to drift to the top of the heap.

But Themestream and other sites have developed methods for identifying so-called click circles, which consist of people who work to inflate one another's ratings. "We look for people who exhibit certain characteristics," said Bill Turpin, a founder of ThemeStream. "We measure the time between when you load the page and when you rate it, and if you rate everything good, with no variability in your ratings."

The reverse can happen, too. Richard Bossi, a 42-year-old freelance writer and former chef in Folsom, Calif., contributes food-related articles to The Vines under the name ChefCayenne. His ratings are consistently high, but once in a while he will see one of his articles come under attack by what some Web writers call retalirators. "People will sink me to the bottom," Mr. Bossi said. "There's a lot of jealousy."

Another form of adaptive Web site assigns ratings not to submissions themselves but to members' comments about the submissions. Slashdot, a three-year-old site for computer buffs that uses such a system, is the model for the new site Plastic.com. Slashdot operates with a minimum of human intervention yet gives visitors the opposite impression.

Articles sent to Slashdot (slashdot.org) are culled from the Web. After passing an initial test of suitability, administered by a Slashdot editor, a contribution is posted, followed by dozens, sometimes hundreds, of comments from the site's 305,000 users.

Once you have established yourself as a seasoned Slashdot user, the system will periodically assign you "moderator" status, a temporary position that carries with it the right to rate other members' comments on a scale of 0 to 5. Users can then browse through Slashdot using a quality filter. With the filter set to 3, for example, a visitor will see only those comments with a rating of 3 or higher.

Slashdot members who receive high ratings also earn special privileges: their posts start out at a higher rating than usual, and they are more likely to be chosen as a moderator in the future.

"This last privilege is a brilliant example of metafeedback at work," said Steven Johnson, the author of the forthcoming book "Emergence: The Connected Lives of Ants, Brains, Cities, and Software" (Scribner, 2001) and a vice president of Automatic Media, Plastic.com's parent company.

"It's the ratings snake devouring its own tail," Mr. Johnson said. "Moderators rate posts, and those ratings are used to select future moderators." The most impressive aspect of the Slashdot system, Mr. Johnson said, is that it not only encourages high quality in submissions to the site, but it also sets up an environment where community leaders can naturally rise to the top.

"It's interesting and powerful and it really works," Mr. Johnson said, adding that only the Internet could give rise to such a system. "It allows large groups of minds to get together and interact in a way they could never do before, in any other medium."

Another self-organizing aspect of Slashdot is the fact that because nearly all of the site's content comes from its readers, its emphasis changes according to contributors' interests. "The subject matter we cover has changed over the last couple of years because what our readers are interested in has changed," said Jeff Bates, a Slashdot founder.

Now, for instance, Mr. Bates said, the site carries far more articles about civil liberties than it did two years ago. "It's not a decision we made by sitting down in a smoky room and saying, `All right, we're going to be all about civil liberties now,' " Mr. Bates said. "But we all agreed, in some kind of Jungian collective unconscious way, that that topic was a big deal."

Plastic.com, which made its official debut earlier this week, is very similar to Slashdot, but with a more general audience in mind. While Slashdot advertises itself as "News for Nerds," Plastic.com will cover politics, movies, technology, games, music and other topics.

"We're trying to develop a system that can take the whole concept of news and figure out a way where the people who use the system can themselves decide what's interesting or not," said Mr. Anuff, who is also co-founder of Suck.com, a popular online magazine. "The end result will be a community-defined front page."

A still purer example of a self-organizing site is Everything2.com, created a year ago by Nathan Oostendorp, 22, a Slashdot founder. Unlike Slashdot and Plastic.com, which draw heavily on news stories found on the Web, Everything2 (everything2.com) more closely resembles writers' sites like The Vines, because it links only to other links within the site.

Yet Everything2 works far more autonomously than sites like The Vines. The Everything2 software monitors traffic patterns and modifies itself accordingly, assigning higher status to the more popular links. Users can also collect "experience points" and vote on one another's posts.

"It's this soup where people can drop in any little bit of information they want, like their favorite movies or directors or any other ideas," Mr. Anuff said, "and the only things they can link it to is other people's ideas in the same soup."

At first glance, Everything2 appears to be a chaotic jumble of random discourse. Look a little more closely, however, and you will see an intricately interconnected conversation, touching on topics as diverse as the languages of India, MTV and melanoma treatments.

"It's not really about anything in particular," said Mr. Oostendorp, whose site has about 2,000 users a day. "The only thing that's there is the system. Here's an open database with these rules functioning, and if you come in and spend time on it, you can gain prestige and reputation within the system, and that's an attractor to a lot of people."

Web sites with mechanisms for self-filtering, self-ranking and self-organization are very likely to continue to grow in number. "This is a fundamental shift in the Web's evolution," said Mr. Johnson, at Automatic Media. "The first generation of the Web was individual interactivity. And now, after a period of distraction, it's getting back to the roots of the idea of interactivity." But this time, he added, the interactivity is collective.

Copyright 2001 The New York Times Company

2001-01-16T12:51:00.000-05:00

Marketers Turn to a Simple Tool: E-Mail

By JOHN SCHWARTZ
The New York Times
December 13, 2000

SETH GODIN remembers when the dot-com people laughed at him. Mr. Godin had formed Yoyodyne, one of the early companies trying to promote Internet start-ups through the online equivalent of direct mail, which is usually referred to as junk mail.
A lack of glamour and a stench of spam -- the dreaded mass-e-mailed sucker bait of get-rich-quick schemes and online nostrums -- have long accorded e-mail déclassé status among the technoids. Mr. Godin recalled that when he pitched professionally written and targeted e-mail as a low-cost, efficient and effective way to reach the online audience, the response was less than enthusiastic. E-mail is boring, he was told.

But guess what: now it's Mr. Godin who is laughing, along with other champions of lowly e-mail, who have watched as Internet advertising companies have flamed out after spending millions of dollars on Super Bowl commercials and spectacular multimedia online advertisements.

That is because in these times of dot-com belt-tightening, e-mail looks like a bargain. Sending out a catalog mailing can cost $1 a customer, while a personalized e-mail is 5 cents, according to a report issued earlier this year by Forrester Research in Cambridge, Mass.

What's more, while the rate at which consumers "click through" to read banner advertisements has plummeted in the last year to less than 1 percent, the response to e-mail messages was measured in the January Forrester survey at about 10 percent, with a quarter of those actually buying something. (Because this was a one-time survey, Forrester could not determine whether the response rates are rising or declining -- but more on that later.) Direct e-mail marketers see these as positive numbers.

So, apparently, do advertisers. A Forrester survey of 50 e-mail marketing managers found that they planned to triple their e-mail spending by 2004, the year that the analysts predicted that American marketers would send almost 210 billion e-mail messages.

For consumers, such a blitz could be hellish or heavenly. To those who feel inundated by unbidden electrons and try to guard their privacy against the commercial world, no amount of online coupons will seem anything but menacing.

But for those who enjoy receiving bargain tips, who zip through their morning e-mail messages without complaint, the new age of personalized, targeted messages promises to bring information and deals they want, when they want them and where it is most convenient -- be it a home PC, hand-held organizer or squint-inducing cell-phone screen.

Most of these messages will not be spam, according to Forrester, though the onslaught of unwanted e-mails may never go away. Four years from now, Forrester predicts, most e-mail will go to consumers who agree explicitly to receive it. Most of it will be intended to hold on to current customers -- the most economical use of the medium.

The rise in the fortunes of e-mail -- now being used by retailers and e-tailers like Amazon.com, Eddiebauer.com, BarnesandNoble.com, Borders.com and Victoriasecret.com -- comes after several developments in the e-commerce universe, not least of which is the realization that money really does matter. At first, as new enterprises crowded the Internet, one significant question was hardly ever asked, and even less frequently answered: namely, who would pay for it?

Some predicted that Web companies would follow the example of newspaper publishers, who sell their product for little or nothing and make their profits from advertising sales.

B UT Internet companies have also learned an old rule of advertising, which is that even the best commercials cannot make a business successful if the business does not make sense in the first place. An online advertisement can do only so much, however refined, powerful or entertaining it may be. On the other hand, e-mail, even if it's homely, gets the job done, especially when coupled with time-tested principles of the direct-marketing industry, which boil down to "test, test, test, measure, measure, measure," said H. Robert Wientzen, the chief executive of the Direct Marketing Association.

Those who are among the best at formulating and directing e-mail are the people who are good at sending regular direct mail, old-economy types like Mr. Wientzen, who gleefully say they have beaten many new-economy people at their own game.

A recent survey for the Direct Marketing Association found that nearly all the group's members were on the Internet; 69 percent reported that their online operations were profitable, with 20 percent reporting profits of more than $1 million a year. These figures are especially hearty at a time when some of the best-financed dot-coms are circling the drain. The profitability figure, though unverified, is up from 49 percent a year ago.

"The guys who know how to do it are the ones who are going to come out ahead," Mr. Wientzen said. "I don't think that's brain surgery." The difference is the attention to detail that may make the direct marketer a bore at parties but a winner at the bank.

E-mail works precisely because its success can be calculated so extensively, William Park, the chief executive of Digital Impact, said in an e-mail interview. "It's the most measurable marketing vehicle of all time," said Mr. Park, whose company, in San Mateo, Calif., helps the Hewlett-Packard Company and other businesses reach customers through personalized e-mail and other media. "You know exactly who you are sending e-mails to, you know how they are responding -- did they click, did they buy?"

The speed of e-mail revolutionizes direct marketing, Mr. Park said. "People respond to their e-mails in a matter of days or they won't respond at all," he said. "So marketers can determine if their campaign was a success in 48 hours versus the four to six weeks it might take for a direct-mail campaign."

The combination of lower cost and greater effectiveness has made believers out of many online merchants, including Jon Nordmark, a co-founder of E-bags, which sells luggage and accessories. In the last year, he said, judicious use of e-mail has helped him lower advertising costs by two-thirds, while sales have more than doubled. Last December, the company sold 18,000 bags online; this December he said he expected to sell 43,000.

Mr. Nordmark said that his company had tried to economize from the start, while other companies spent their venture capital and stock money wildly. "Too much money makes you stupid," he said. While the flashier dot-coms are still trying to figure out how to get people to pay for something they already receive free, like online news, direct marketers are building on decades of experience in sending consumers mail they don't think they want.

They are then making sales from a small but profitable fraction of the recipients. And they don't sulk that their contribution to the new economy is going unrecognized. Profits are a powerful consolation.

Along with the testing, measuring and datamongering that Mr. Park speaks of, classic direct marketing means providing the kind of customer service that puts workers on the telephone to answer questions and puts armies in the warehouses to ship products and manage the inevitable returned goods.

Mr. Wientzen recalled a recent visit to the luxurious offices of a lowerManhattan online retailer that was trying to to pull itself toward profitability. With wonder in his voice, he recalled that the first thing the company wanted to show him was its sophisticated Web site.

"They kept using the term 'storefront,' " Mr. Wientzen recalled. "I kept thinking of it as a movie set without much behind it."

Hans Peter Brondmo, the author of "The Engaged Customer: The New Rules of Internet Direct Marketing," said that gradual understanding -- that there is more to e-commerce than designing a cool Web site -- was leading to a broad change in how online companies do business.

"Marketers are having to shift their thinking into being service providers," he said, as opposed to what he calls simply telling and selling.

One company that Mr. Brondmo works with, Palm Computing, uses e-mail messages to alert customers about new software for their hand-held devices, tying the messages directly to the kind of device the customers own, as well as to their line of work. The customers reply by e-mail with questions and complaints.

The key to making e-mail effective, enthusiasts say, is getting personal, which strengthens bonds with current customers.

"If a person buys red wine, send offers related to red wine rather than discounts on white wine," Mr. Park said. "Your customer has given you permission to e-mail them; you have an obligation and an urgency to send them relevant e-mails, because if you don't, your customers will begin to ignore your messages much like they ignore banner ads."

West Shell III, the chief executive of Netcentives, a San Francisco company that helps other companies operate their e-mail marketing programs, agreed. "Relevancy drives response," he said. "If you're not relevant, you're gone." Companies like Petopia, which sells pet products, build on their knowledge of the customer with each successive e-mail by asking questions -- What is your dog's breed? What is his name? -- that are worked into future messages.

This lesson is taken to heart at LifeMinders, a company in Herndon, Va., that sends regular, personalized e-mail that includes advertising and offers of bargains to 20 million consumers. Its customers supply personal information in exchange for more accurately targeted offers, which range from discounted subscriptions to Sports Illustrated to pitches for dog food.

"If I put something as simple as the name of your dog in the subject line of your e-mail, the e-mail is opened about six times more frequently than if it were not there," said Stephen R. Chapin Jr., the chief executive of LifeMinders.

LifeMinders now helps other companies manage their e-mail marketing. Mr. Chapin came to the Internet from direct marketing, where he sold credit cards by mail. "The same thing we did in direct marketing we do in online advertising," he said.

A NOTHER lesson emerging from the e-commerce shakeout is that the Internet works better as one element of a company's marketing strategy than it does as the only way to reach consumers. Kenneth Weil, the vice president for new media at Victoria's Secret, which features supermodels wearing sexy underwear in its advertisements and in its e-mail, said his company sends e-mail to 3.3 million people, encouraging them not only to go to the Victoria's Secret Web site but also to call or visit such a store nearby.

"It's part of a greater strategy," he said, a strategy that totals $145 million in advertising and marketing expenses each year. About half the e-mail messages contain images and links to Web pages and the rest are simple text messages sent to customers whose computers can't receive more complex mail. Privacy advocates have warned that the picture-laden e-mails, because they use much of the technology from Web pages, open consumers to the same kinds of surreptitious monitoring that online sites engage in. But the use of the e-mail with pictures and Web links is sure to grow, since industry analysts estimate that those messages are about two and a half times as effective as e-mails that use plain text alone.

This being the ephemeral Web universe, there are those who detect chinks in the electronic armor of online direct mail. One is Donna Hoffman, a business professor at Vanderbilt University in Nashville, who studies marketing on the Internet. "Things seem good now, but, in fact, the signs are already coming," she said, that the success of e-mail marketing has led to a glut, and that "the overuse has already reduced its effectiveness."

Professor Hoffman said she had seen other industry figures that indicate the 10 percent click-through rate in the Forrester study has slipped to 5 percent. "I think it's going to go the same path as banner ads," she said. "The more of this stuff you get, the more likely you are to start deleting it. It's like, 'Enough already.' "

Several companies said they were aware of the pitfalls of overzealousness. Todd Simon, a senior vice president of Omaha Steaks and the vice chairman of Omahasteaks.com, said he wanted his companies to be known as purveyors of fine meats, not purveyors of spam. "We have to be very, very sensitive to the spamming issue," Mr. Simon said. "There's a chance if you just give them too much stuff, or they're not interested, they're going to say bye-bye."

For his part, Mr. Godin of Yoyodyne said his new passion was viral marketing, in which companies try to adapt the notion of word of mouth to the Web.

Viral marketing has been praised as the next big thing; its promise, like so much in the online world, has not been borne out so far. But Mr. Godin says that is because people have not figured out how to do it right yet. He said viral marketing can take many forms, including Web pages and banner advertisements. Another one, unprepossessing as always, is e-mail.

2001-01-16T08:10:00.000-05:00

With Soft Economy, Financial Insecurity, Employees' Workplace Stress May Worsen

By CAROL HYMOWITZ and RACHEL EMMA SILVERMAN
Staff Reporters of THE WALL STREET JOURNAL

As a real-estate and business attorney, John R. Browne III is familiar with stress. But in his 34 years on the job, nothing has compared to what he shoulders now as the economy heads downward.

With five children's college tuition to pay and a portfolio of tanking technology stocks, the 62-year-old attorney worries every day that his retirement nest egg will crack further. His clients, anxious about their own futures, are driving harder bargains now and taking longer to pay their fees. And even the things that were supposed to make his life easier -- like e-mail and his cellphone -- have tethered him to work and usurped his private life.

"I feel more stressed than I've ever been," says Mr. Browne, who sets an alarm clock every evening in an attempt to leave the office at a reasonable hour. And he figures the more the economy slows, the worse the strain will get. "I work hard, and to see your retirement going down the drain ... it's very disconcerting."

Multiply John Browne times millions of other lawyers, doctors, sales executives, factory workers, dot-commers and anxious stockholders, and you've got a picture of stress in early 2001. Whatever their station, all have come to expect more wealth in recent years. Now with the first economic slowdown in a decade, they are facing an unsettling uncertainty. Stock portfolios are shrinking and gluttons for punishment can even constantly monitor the shrinkage online.

Meanwhile, mergers, downsizings and the ability of managers to monitor individuals' job performance add more layers of insecurity. As workers fret about layoffs, they do so knowing that with new information technology, their managers can track performance division by division, employee by employee, with startling precision.

Today's stresses, of course, pale beside the conditions of decades past, when some workers feared for their lives in dangerous factories and bleak sweatshops. Stress was a "hardy perennial in the textile mills and meatpacking yards of the 19th century, and the factories and offices of the 20th century," says Nancy Koehn, a business historian at Harvard Business School. Letters by business tycoons, commodity clerks and assembly workers in the early 20th century are filled with complaints about how "no one has time to stop and give a stranger directions, or time for family or service to community," says Ms. Koehn. "There has always been the omnipresent authority of the clock at work."

Today's stress is, in many ways, about too much information coming from too many sources -- and the loss of control that instills. A survey by Pitney Bowes of some 1,200 workers from receptionists to chief executives at top companies found that employees handle an average of 204 messages a day, counting e-mail, voice mail, snail mail and memos. And all the cool tech tools now available -- from credit-card size cellphones to wireless Palm hand-held organizers -- have in turn made us reachable anytime, anywhere.

"You never feel done," says Paul Finkle, chief operating officer of HRPath.com, an online human-resource company based in Alameda, Calif. He used to listen to music in his car driving to and from work but now talks on his cellphone with clients while he drives. And although e-mail enables him to communicate more quickly than he once did with faxes and letters, the volume of messages he sends and receives has increased his workload by 30% in the last three years, he estimates.

Mr. Browne, the attorney who heads the business, real-estate and trust department of Laughlin Falbo Levy & Moresi in San Francisco, grumbles that because his legal clients now insist that he communicate with them by e-mail, "You have to check that every five minutes." Clients also expect to be able to reach him at any hour of the night or day. "It's a blow to my privacy. It doesn't just affect me at the office, it affects my life," he says.

To be sure, some workers thrive on stress. It's the lifeblood of such professions as medicine, law and the military, where the ability to perform precisely under pressure has long been a prerequisite. Today, the young software engineers and venture capitalists who launched the Internet revolution love to boast about their 24/7 schedules.

Is there a happy medium? Some stress experts use the analogy of a violin string. Not enough pressure on the string produces a weak, raspy tone. Too much pressure can produce a shrill noise, or even cause the string to snap. But "just the right degree can create magnificent tones," says the Web site for the American Institute of Stress in Yonkers, N.Y.

The problem is, in today's workplace, many employees, like the shrill violin string, are being pulled too tightly, and in too many directions. "There is a lot more stimulation at work, which is exciting but also exhausting," says Harvard Business School's Ms. Koehn. The constraint of being stuck at one job or one company for life has given way to the freedom of job-hopping and taking charge of one's career. But even that can inspire its own insecurities. With people "getting yanked around [because of layoffs or mergers] and having to reinvent themselves ... there is less opportunity to experience a shared narrative," says Ruth J. Luban, a Santa Monica, Calif. psychotherapist who counsels layoff victims.

Such anxieties were easier to tolerate in a booming economy, when employees could count on ever-fatter pay checks, options and richer retirement portfolios, as well as new jobs if they lost or didn't like their old ones. For those who entered the work force in the last five years and have never weathered a downturn, the economic whiplash may prove particularly disquieting -- and humbling.

Not surprisingly, employees report more severe workplace stress ailments during economic slowdowns than booms. In 1998, a boom year and the most recent for which Bureau of Labor Statistics data was available, there were 53% fewer reported stress-related cases than in 1993, a time when the job market was weaker and corporate layoffs rife. Even so, stress took a toll on productivity. The median job absence for stress-related conditions was 15 days in 1998, according to the BLS. But despite numerous claims, most courts have rejected the notion that workplace stress is a disability in and of itself. As a result, employers in most cases are not legally required to make their workplaces more accommodating to stressed-out workers.

Still some are starting to add once unheard-of perks such as gyms or meditation centers, for example, where they can unwind. Sales of squeezable stress balls at Stressballs.com have doubled every year for the past three years -- due mainly to corporate purchases. A handful of employers, including Goldman Sachs, give out scented candles as freebies at job fairs in a symbolic nod to the pressures of work.

Meanwhile, some Internet companies in Silicon Valley have offered employees a paid week or two off -- unthinkable just two years ago, when round-the-clock devotion was all but mandated. With so many workers' stock options under water, "these companies can't work employees like animals any more simply by promising them that they will be rich in a few years," says H.R. Path's Mr. Finkel. "They have to focus more on their culture."

For the most part, employees are on their own when it comes to coping with stress. Attorney Mr. Browne, who feels "zonked and spaced out" when he is stressed, meditates when he gets to work at 7 a.m. and does yoga at least three times a week "or my blood pressure goes up," he says. To relax, he also dons "big flashy bow ties" and does magic tricks. "You can't think about your law cases then," he says.

2001-01-16T08:08:00.000-05:00

Managers Suffering From Stress Should Speak Up to Find Relief

IT ISN'T HARD WORK that causes managers the greatest amount of stress. Most accept long hours and pressured deadlines as part of the job.

What triggers harrowing days and sleepless nights is a syndrome that can be called "impossible expectations." Managers suffering from it are asked by their bosses to solve problems, but then don't receive the tools or resources that will enable them to do that.

This scenario, already prevalent in corporate America, is occurring more frequently as the economy softens. It also helps explain why so many midlevel managers are acutely frustrated so much of the time, says Gerald Kraines, president of the Levinson Institute, Cambridge, Mass. "Over and over again, managers at all sorts of companies tell me they really care about being successful and helping their companies be successful, but that they are set up to fail," he says. They get problems to solve but not the people, budgets or consensus to forge solutions. Instead of feeling challenged, he says, they feel "burdened and abused," which causes a lot of stress.

THE MANAGER of a new customer-order system at a technology company has been putting in 12 and 14-hour days to get the system activated quickly, but he increasingly asks himself, "Why am I killing myself?" An engineer by training, he agreed to take on the job a year ago because superiors told him a streamlined and computerized order system would improve productivity and customer service and produce substantial savings.

But he failed to realize what enormous obstacles he would face. While the system was approved by top managers, "they never communicated their expectations or commitment to the troops," he says. Because the system affects almost every department and business process -- from accounting to manufacturing and marketing -- hundreds of employees had to adjust to it. Yet not even the company's salespeople, the system's primary users, were told they had to use it.

That task has fallen to the manager, who spends hours each day trying to quell employees' anger and justify the need for the system. "Since when was I supposed to be the defender of this?" he asks, noting that he is inundated with e-mail from colleagues who insist the system is inefficient or unnecessary.

Overcoming fears he would be judged inept, the manager finally told a vice president about his difficulties last week. "Thankfully," he says, "the vice president has agreed to get involved" and help motivate employees with training programs.

Another stress-producing scenario for managers is being assigned a job that clashes with their talents. Call it the "mistaken identity syndrome." It typically hits managers in midcareer, after they have climbed a few corporate rungs and proved their expertise in a particular area. Then they are promoted to a job that their bosses assure them is important but that they quickly come to dislike.

SUCH WAS THE CASE for a manager at a health company who earned her stripes as a brilliant marketer. She relished her role as a mentor and maintained a hands-on approach even when she was overseeing a staff of 500. But when she was promoted further and found herself in the corner office, she had to delegate the work she most loved doing to thousands of subordinates.

Convinced she had to prove herself in her new job, she stifled her discontent for months -- until she started to suffer migraine headaches and dread coming to work. At home, she was often short-tempered with her family. At work she either became overly involved in projects that much lower-level employees were supposed to handle or resentful of managers now in charge of staffs and jobs she had once held. She continually second-guessed her subordinates to stay involved in the work she enjoyed, but then lost a number of key staff members who felt stymied by her and quit.

The manager finally made a break herself -- leaving the company and eventually landing a new job at a smaller concern where she is in charge of sales and marketing and a staff of about 300. "Some people may say I couldn't handle the prestige and power of what I walked away from, but I'm back in a job I love," she says.

Many managers who find themselves in unfulfilling jobs feel stuck, because they believe either that they have no place to go or that they will be poorly regarded if they reveal their discontent. They often delay making a change but then perform poorly in jobs they dislike, undermining their chances for new positions.

Stressed managers who don't speak up won't get any relief. And sometimes even seemingly small moves can make a big difference -- from delegating tasks the manager is ill suited for to refusing an extra assignment that will take too much time away from enjoyable tasks. What is important, career counselors say, is taking time to identify what work yields the most pleasure.

A corporate attorney who realized after five years that she disliked being a lawyer used a four-week vacation to figure out her situation. She realized she liked working with people far more than writing briefs -- and subsequently became a manager in her company's training department.

Wall Street Journal

2001-01-16T03:40:00.000-05:00

Long Hours, Cramped Quarters Produce Short Fuses at Work
By DANIEL COSTELLO
Staff Reporter of THE WALL STREET JOURNAL

For months, Costas Tsolkas kept his frustration over long hours, cramped quarters and rushed deadlines at a New York Internet company under wraps. But last summer, when his boss, Ron Yudovich, needled him one time too many, he erupted, lashing out with an obscenity-laced tirade.

"Sometimes you just snap," says Mr. Tsolkas, who quit his job a week later. Mr. Yudovich, for his part, simply calls Mr. Tsolkas a "bad employee."

First there was road rage, then air rage. Now, there's desk rage. A New Economy cocktail of longer hours, increased workloads and stock-market tremors is fueling a growing number of explosions at the office. Buckling under the pressure, employees are increasingly losing their tempers with bosses and colleagues.

Occupational experts and authorities on workplace stress note that companies generally do not report instances of worker confrontations; but a survey on workplace stress released last summer by The Marlin Co. of North Haven, Conn., showed that 42% of office workers said they had jobs in an office where yelling and verbal abuse happened frequently.

Victor Scarano, director of occupational and forensic psychiatry at Baylor College of Medicine in Waco, Texas, pins much of the blame on the stress induced by overwork. "You can't run an engine at full throttle for 10 years and not expect it to crack," Dr. Scarano says.

The physical aspects of the workplace also come into play. Integra Realty Resources Inc., a real-estate appraisal company, believes that high commercial real-estate prices have led to the "Dilbertization" of America, whereby workers, as in the "Dilbert" comic strip, spend their lives trapped in a maze of tiny cubicles.

Sean Hutchinson, president of New York-based Integra, says the average number of employees per square foot in many office spaces is at an all-time high. He calls it the "scrunch factor" and says it exacerbates the traditional real-estate caste system separating management and lower-level employees. "The big guys take offices that are just as big or bigger than in the past, while the minions are getting stuffed into smaller and smaller spaces," Mr. Hutchinson says.

The economic boom of the last few years hasn't helped matters either. For one thing, it has led to a big jump in the cost of homes in most cities, sending people farther into the boondocks to live and making commutes longer. By the time worker bees arrive at the office, they are already irate.

Then there is the youth factor of the Internet age. There are more younger employees in high-profile positions -- smart, but unused to organizational pressures. Philip Antonelli, 26 years old, took a high-profile sales job at a technology company in Boston last year, clocking 14 hours a day and overseeing a number of big accounts. The result: He has become so stressed he feels he's "always in the bottom of the ninth inning with two strikes out. ... I've gone through four phones since I got here because I keep throwing them against the wall."

Workplace violence culminating in bloodshed -- for example, the recent shootings in a Massachusetts office that killed seven people -- gets the most publicity, but far more common are the shouting matches and fistfights that don't make the evening news. Robert Wichowski, an engineer at an aerospace company near Hartford, Conn., recently watched, horrified, as two engineers in his office had to be physically separated after a disagreement over the proper procedure for filing paperwork on a faulty computer chip. And in a separate incident, a co-worker raised his fist at him over a disagreement about a basketball game. "Some of these guys are really high-strung," he says.

The Marlin Co. says that men between the ages of 25 and 45 are most prone to act out in the workplace, but the company notes that more women complain of on-the-job stress. "Women are definitely having desk rage," says Frank Kenna, Marlin's president. "They just do it more subtly."

The Marlin study says larger companies have more stressed-out employees: Nearly one-third of employees at companies with more than 1,000 people say they are "at least somewhat" stressed, compared with 16% of employees in companies of fewer than 100 people.

Most companies ignore the problem, says Don Grimme, one of the many "workplace stress" consultants popping up in the last few years. General Motors Corp. has an employee-wellness program that includes meditation and tai chi in its workout facilities and a 24-hour help line for harried workers. And Ernst & Young LLP's new tax center in Indianapolis has putting greens, fish tanks and a recreation room where workers can nap.

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Warning Signs

How can you tell if a colleague has reached the breaking point? Experts note some possible indicators:

Skipping group lunches: A signal someone feels demoralized and not part of their work community

Coming to work late: One of the first hints that stress is eating away at motivation

Calling in sick frequently: If people feel they aren't getting a break at work, they may start taking them on their own

Withdrawing: When someone uncharacteristically retreats from watercooler talk and office banter, it may indicate an unhealthy distancing from colleagues

Obsessing: If colleagues focus on seemingly insignificant matters or isolated incidents, it may mean they are angry or can no longer cope with the big picture

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2001-01-15T10:29:00.000-05:00

As Pace of Mergers, Acquisitions Quickens, Takeover Stress Takes Its Toll on Workers

By JOANN S. LUBLIN
Staff Reporter of THE WALL STREET JOURNAL

TORONTO -- David R. Brown spreads his long, thin hands on a restaurant table covered with butcher-block paper. Nearly every cuticle looks ripped and red.

"See my fingers? That's self-inflicted,'' says the 48-year-old president and chief executive of StackTeck Systems Inc., a small producer of plastic injection molds used to make lids, containers and plates. "That's how the stress manifests itself. My wife says I do it in my sleep.''

Mr. Brown has endured several bouts of takeover stress since the fall of 1996, when his Toronto employer, Tradesco Mold Ltd., was bought by Castle Harlan Inc., a New York private-equity firm. StackTeck was formed later as a holding company to operate Tradesco and other units. Mr. Brown, formerly Tradesco's vice president of technical services, assumed its presidency in March 1997. After a stressful "honeymoon from hell" in the top job, he then found himself on the other side of the fence, seeking takeover targets and trying to alleviate workers' anxiety.

The quickening pace of mergers is making experiences like Mr. Brown's increasingly common. The total value of announced mergers and acquisitions world-wide grew 5.1% to a record $3.48 trillion last year, with the number of deals totaling nearly 37,000, according to Thomson Financial Securities Data. Yet 75% of those deals, by several experts' estimates, will fail to achieve expected results. One reason: Most buyers overlook the tremendous uncertainty and insecurity among employees triggered by a takeover. "They underestimate how much human pain is required to get to the financial gain, if they get the gain at all," says Mitchell Marks, an M&A consultant and organizational psychologist in San Francisco.

Takeover survivors fear not only job loss but also the frustrations of working for strangers. Workplace consultants say employees frequently become depressed, sleep less, gain weight, resume smoking or increase their alcohol consumption. The stress level "is more intense the higher you go" in management, Dr. Marks reports.

So productivity often suffers and seasoned managers often quit. Merger-related stress is why people leave a merged organization "well over 50% of the time," says Robert Morgan, president of Spherion Corp.'s human-capital consulting group in Ft. Lauderdale, Fla. The staffing and professional-services concern itself was formed when two companies -- Interim Services Inc. and Norrell Corp. -- merged in 1999.

At times, employees' stress level is directly tied to how well a company prepares its staff for a takeover. For example, there were extensive layoffs at Norrell's headquarters in Atlanta, which had employed about 700 people, but absenteeism and voluntary turnover actually dropped substantially following the March 1999 announcement. "People told us they felt less stressed because we overcommunicated" details about the deal's impact on employees and customers, Mr. Morgan says. "We communicated something every day for the first eight to 10 weeks."

But in most deals, takeover stress often persists long after a deal's completion -- especially for individuals such as Mr. Brown who gain a far bigger job and workload. The lanky executive with a self-deprecating wit joined Tradesco as a $7-an-hour mold designer in 1978. With a willingness to work hard and a knack for getting along well with clients, Mr. Brown moved up the chain until he became vice president of technical services in 1990.

When he first learned about Castle Harlan's proposed $25 million acquisition of his company, he was fairly sanguine. It wasn't until after the deal was completed that his stress intensified. As Castle Harlan's top executives delayed in replacing Tradesco's exiting president, Mr. Brown started losing sleep, skipping lunch -- and toiling longer hours to impress his new bosses. Explains Leonard Harlan, Castle Harlan's president and then a Tradesco director: "We were looking to be convinced that we wanted to bet on him and that takes time."

Mr. Brown faced stress on several fronts. He worried that a new Tradesco boss "would force me to change the way I dealt with my customers. I could lose my customers," thereby jeopardizing his and four subordinates' jobs. But equally worrisome was the possibility that he, a high-school dropout, might have to take command of the 107-worker business. "I was totally lacking confidence" to lead, he recalls. He frequently woke in the middle of the night and occasionally stared at the ceiling for hours, wondering, "What do I do if I get picked?"

After he was chosen, the sleeplessness and edginess worsened during his initial year at the helm. "I thought I had to have all the answers," Mr. Brown recalls. "That was the biggest source of stress in my life." For his first monthly board meeting, he spent two weeks preparing each department's report, working his usual 11-hour days and letting other duties fall by the wayside. Meanwhile, Tradesco's new owners set stricter performance standards for the once laid-back enterprise.

Castle Harlan officials noted the toll the new responsibilities were taking on him. He "was quite a bit hyper then. He was fidgety in [board] meetings" and sometimes criticized colleagues too quickly, Mr. Harlan says. Mr. Harlan privately urged the weary leader to take a vacation, which he had hadn't done since early 1995; still, he put the vacation off for another six months.

In December 1997, Mr. Brown exhibited dangerously high blood pressure. Later that month, Tradesco sales and marketing vice president Fernando Segovia marched into Mr. Brown's office, slammed the door, and turned to his boss. "He stuck his finger in my face and said, 'Brown, you stay the f--- out of my department!'" Mr. Brown recollects. (Mr. Segovia confirms the incident.) "I thought I was helping him," Mr. Brown says. "What I was doing was second-guessing."

Worried her husband might suffer a heart attack, Mr. Brown's wife, Kathy, fruitlessly urged him to give up the presidency. "He was always the calm one" in the family until then, Ms. Brown says. To ease his stress, he began to run every morning, pop more vitamins, eat better and delegate more at the office. His blood pressure fell.

The stress hasn't ended though. Mr. Brown came under new pressure to produce faster revenue growth, so he began looking for his own takeover targets. His insomnia returned as he learned the hard way that a takeover isn't easy on either side.

Indeed, one of his targets, Fairway Molds Inc., tersely resisted his takeover proposal during a tense session at the mold maker's Walnut, Calif., headquarters in February 1998. The pervasive sentiment was, "We want to kill you," says Tom Smith, Fairway's current head.

Remembering his own angst over Tradesco's acquisition, Mr. Brown agonized the whole flight home. "How am I going to do this deal without upsetting their culture?" he fretted. The solution: create a holding company with Tradesco and Fairway as separate subsidiaries. He completed his 10-month courtship of Fairway and formed StackTeck in October 1998.

Nowadays, Mr. Brown must assuage workers' apprehension at Unique Mould Makers Ltd., a Toronto manufacturer that StackTeck bought in June 1999, about being moved in August to a larger plant 40 miles away. More than 25% of its 70 highly skilled workers may quit rather than drive farther, predicts Mark Todd, a Unique vice president.

Though he believes such a forecast is overly pessimistic, Mr. Brown concedes "we will lose people." Trying to gauge workers' mood, he spends an evening chatting up the rank-and-file around Unique's noisy shop floor. "What do you think about the new building?" he asks Sylvester Szlendak, an equipment operator.

"It's too far for us," Mr. Szlendak replies, his arms crossed. "Nobody's going to like it."

Still pursuing takeover targets, Mr. Brown flew to the U.S. a dozen times in the past year to woo one Midwestern mold maker. The deal stalled in late summer. Mr. Brown anxiously tore his cuticles and fidgeted in his seat before disclosing the setback during StackTeck's September board meeting, according to Mr. Todd, an attendee. Mr. Brown concurs he felt agitated. "I took that [collapse] as a personal failure."

But the deal "is still cooking," the determined executive declares. He continues to lose sleep worrying about the potential acquisition, he says. But now, if he can't fall asleep again, he goes jogging -- because 3 a.m. is too early to head for work.

"You learn to get [stress] under control," Mr. Brown says. "Or you grow new fingers."

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2001-01-15T10:24:00.000-05:00

Never Underestimate The Power Of eMail

12 January 2001

By Jonathan Jackson

You can stick a fork in AT&T because they're just about done. For those who haven't been following their litany of woes, it's sad to see this American icon - once the favorite stock of "widows and orphans" - devolve into little better than a dot bombed company. Just before the holiday season, AT&T released still more bad news and blamed their problems, at least in part, on e-mail. In particular, AT&T's CFO singled out "more migration of [long distance] minutes to other technologies like wireless and e-mail."

Let's consider the implications. In the not-too-distant past, AT&T essentially owned the voice communications market. With deregulation and the attendant competition, their market share shrank. But by and large people were still reaching out to touch other people using a telephone. Then, along came the internet, and the ways people could communicate with each other exploded.

At the time, everyone thought e-mail was going to take the place of first class mail and the only loser would be the post office. As eMarketer noted in the eMail Marketing Report, e-mail is already used much more frequently than traditional mail:

As things turned out, e-mail has proved to be a threat to more than just surface mail. How many fewer express packages, for example, are sent as a result of e-mail? How long will it be before e-greetings gain market dominance thereby affecting both regular mail and greeting card companies?

On the bright side (at least for the advertising business), this has also opened up a panoply of opportunities for marketers. Needless to say, it wasn't really possible to advertise on a long-distance call or birthday card. But now, in exchange for free e-mail service, consumers seem more than willing to accept a little commercialism with their messages. In other words, for every e-mail that is sent instead of making a long distance call or sending a card, another marketing impression is available.

The sky's the limit if present trends continue. E-mail is by far the most popular internet application already, used by 96% of all active internet users. By year-end 2003, there will be 140.3 million e-mail users, representing 61.5% of the total US population of adults and teens (aged 14+):

In other words, there's going to be a tidal wave of e-mail in the coming years - much of it being sent at the expense of the telephone and first-class mail. It's up to marketers to position themselves now to surf that wave effectively.

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2001-01-15T09:09:00.000-05:00

Web Sees No Shortage Of Napster Alternatives
Wall Street Journal

VICKIE PURDUE LOVES Napster just the way it is. So if the online music service imposes a membership fee or unveils other drastic changes, she's prepared. Her secret weapon: a list of Napster rivals she can defect to with a mouse click.

There's Splooge. And WinMX. And Toadnode. There's Filetopia and Swapoo. And iMesh and Tripnosis and Aimster. Ms. Purdue's list already includes three dozen file-sharing systems that let music fans download songs -- and, increasingly, movies and TV shows -- for free. "You will see a mass exodus from Napster," predicts the Red Oak, Texas, financial-services specialist.

Ever since Napster forged an alliance with media giant Bertelsmann in October, the bitter debate about copyright and online file-sharing has died down. After all, the renegade has moved into the establishment's fold. But thanks to a growing legion of alternatives, the global swap meet will continue. Beaming music files around is just too easy.

The tough part of building a better Napster, it turns out, is the need to prevent stealing -- but not the kind the record industry complains about. Designers of file-sharing networks are working to thwart users who download songs but don't contribute files of their own. When too many freeloaders log on, free music networks can slow to a crawl.

"Our system was designed to encourage sharing," says Dietrich Stein, the 20-year-old co-creator of SongSpy, one of the free-music networks contending for members. Mr. Stein and his collaborator, Gavin Hall, call their approach Karma. Members earn points for expanding their collections by downloading songs, and then earn still more points for staying connected and letting fellow SongSpy members access those files.

JUST ONE HITCH: So far, SongSpy's karma points can't be redeemed for anything. Eventually, Messrs. Stein and Hall hope to reward members with everything from T-shirts to concert tickets. In the meantime, the SongSpy system is up and running, and would-be members can grab the software for free at www.songspy.com.

With millions of devoted users, Napster (napster.com) remains the dominant online music service. But it faces a difficult transition as it seeks to placate a recording industry that's livid over alleged copyright infringement. When it teamed up with Bertelsmann, Napster said it would eventually introduce a fee-based service -- a way to compensate artists and record labels for all that copying. It also promised to keep some kind of free service. Last week Napster took a first step toward eking revenue from users by incorporating a link to Bertelsmann's CDnow music store.

Most Napster users are taking a wait-and-see attitude toward fees. At least some of them will probably be willing to pay something because of Napster's vast member base. With so many users, it's usually easy to find whatever you want.

Not so with many of the alternatives. "The problem right now is too many people requesting files," says Jorge Gonzalez, Webmaster of Zeropaid.com (zeropaid.com), a site that tracks file-sharing systems. If too many people are taking and not enough are giving, users either can't find the songs they want or must wait in line to get files.

"There's a conception that freeloaders are evil, but that's not true," says Vincent Falco, creator of BearShare. Part of the problem, he says, is the advent of Web pages that let users tap file-sharing networks without the appropriate software. It's a convenient way to download songs but doesn't provide a way for users to send files back into the network. BearShare will sniff out such users and route them to a BearShare site.

All file-sharing systems have been broadly labeled peer-to-peer networks, but the individual approaches vary. Some systems, like SongSpy, have developed their own techniques. Others have created software that communicates the same way Napster does, using a central coordinating server.

STILL OTHERS are racing to improve and exploit the Gnutella protocol. When it was introduced last March, it created a stir because of its true peer-to-peer architecture. All communication on its network takes place between users' individual computers, making Gnutella practically impossible to shut down. But because all the peers are interconnected, Gnutella can be crippled by too many people connecting at slow speeds.

At LimeWire (limewire.com), a New York start-up, programmers hope to solve that problem. They're working with Gnutella-based software that can query a central server to find other users connected at the same speed and then clump those users together to improve the network's performance. LimeWire also plans to tackle freeloaders by giving priority on downloads to people who share files.

So is the recording industry doomed to a future of free music? Not necessarily. Jim McCoy, architect of a sophisticated file-sharing technology called Mojo Nation, thinks the ferment of peer-to-peer development may produce a way to pay for the tunes.

As media companies increasingly seek to deliver audio and video to consumers online, they will face enormous investments in the servers and pipes needed to beam out the data. Mr. McCoy believes it will be cheaper for them to use his Mojo Nation -- and the disk drives and Net connections of its users -- to deliver the goods. That way, he says, users could earn their free ride.

Tom Weber
WALL STREET JOURNAL

2001-01-11T07:29:00.000-05:00

E-Book Forecast: Cloudy
by Kendra Mayfield
WIRED
2:00 a.m. Jan. 11, 2001 PST

With the advent of the e-book, many predicted the death of print books.

Now, after a page-turning year of mounting hype, some are forecasting the death of e-books.

Maybe, maybe not.

While e-book sales will slide, digital textbooks and print-on-demand publishing will thrive, according to a recent study by Forrester Research.

Digital delivery of custom-printed books, textbooks and e-books will account for $7.8 billion in revenues -- 17.5 percent of publishing industry revenues -- in five years, the report said.

E-books and accompanying devices will reap only a small slice of that total figure, with dedicated devices generating only $251 million in 2005.

With limited content, inadequate reading screen resolution and differing formats, e-book devices will fail to find a mass audience, O'Brien said.

"The retail consumer market is not quite ready for e-books yet," agreed E. Yegin Chen, senior analyst for Eduventures.com. "E-book vendors need to improve the reading experience to obtain significant adoption rates."

Others believe that e-books will flourish, it's only a question of when.

"Ultimately e-books will eclipse paper books," said Roland Laplant, chief marketing officer for Xlibris. "It's just not convenient now.... There needs to be a lot of change in actual consumer behavior for that shift to occur."

But other industry insiders decried Forrester's forecast, insisting e-books will fare well in the next five years.

"Those numbers are ridiculously low," said Louis Lenzi, vice president of global business development and new ventures for Thomson Multimedia.

"The industry is going to get into the millions by year three," Lenzi said. "I'm sure we'll be past $250 million by year three by a long shot."

Thomson's foray into e-book devices indicates the multimedia firm's conviction that e-books will attract a mass-market audience, rather than a niche following.

"RCA/Thomson is not a boutique manufacturer," Lenzi said. "We're only interested in the tens of thousands. We think this market will succeed."

Other analysts are more bullish. Andersen Consulting (now Accenture) forecast last June that the market for consumer e-book content will reach $2.3 billion by 2005, with 28 million people likely to adopt dedicated e-book devices.

"We expect that in 2005, 10 percent of the market will be in electronic form on the trade side," said Andres Sadler, partner in Accenture's media and entertainment practice.

Andersen researchers asked consumers how likely they would be to adopt an e-book device if features improve. Two out of three said they would buy a device.

"If there is enough content available and some of the basic features are available ... consumers will be adopting the device," Sadler said.

While analysts diverge over the future of trade e-books, many are betting that digital textbooks will succeed.

Forrester predicts that digital textbooks will sell approximately 147 million units and net $3.2 billion in 2005, while trade e-books (including PC/PDA downloads and dedicated devices) will sell only 73 million units and net $674 million.

"Digital textbooks will be many times larger in five years than trade e-books," said Dan O'Brien, senior analyst for Forrester Research.

"By 2005, a quarter of textbook sales will be digital," O'Brien said. "It's not that digital textbooks will replace physical textbooks, but the opportunities there are much greater for this change to happen."

Instead of lugging heavy textbooks to class, students can download individual chapters or entire digital textbooks to their personal computers and print them out.
While most consumers may be reluctant to peruse an electronic edition of War and Peace, many believe that students will readily pick up a digitally enhanced textbook to highlight, search and take notes.

"Digital textbooks don't have the same hurdles as e-books," O'Brien said. "You're not reading a textbook for long periods. It's not an immersive experience. It's a reference experience."

"Digital textbooks for education offer a much better value proposition compared to e-books," agreed Eduventure's Chen.

In a separate survey conducted by e-publisher Versaware, 62 percent of students said they would choose an electronic textbook over a new print book.

With custom digital textbooks, publishers can make backlist titles available indefinitely, compete with the used book market and reach students directly.

"This gives publishers a direct digital link with students which they've never had before," O'Brien said.

What's more, custom electronic printing will allow teachers to mix and match different course materials.

"No professor could resist that," said Xlibris' Laplant.

E-publishers like Versaware and WizeUp are already striking deals with major educational publishers like Thomson Learning, McGraw-Hill and Houghton Mifflin to offer customizable digital content.

Despite their obvious advantages, experts say that it will take much longer for digital textbooks to penetrate the K-12 market.

"It will take longer to get to the elementary school level because kids aren't as wired," O'Brien said.

Digital textbooks and digital coursepacks will take years to reach their full potential at the K-12 level, according to a recent Eduventures report.

"Digital textbooks will be important in higher education," Chen said. "But there are different dynamics in the K-12 market."

Unlike college students, who primarily use digital textbooks outside the classroom, K-12 students would primarily use digital textbooks inside the classroom.

Since very few K-12 schools provide PC access to each and every student, it's unlikely that many schools will adopt digital textbooks in the near future.

"For current digital textbooks to become prevalent, there needs to be greater Internet penetration into K-12 schools, particularly at the desktop level," Chen said.

Textbook buying decisions at the K-12 level are also highly centralized, making it difficult for primary school teachers to customize digital materials. Since K-12 schools are slow to adopt new textbooks, educators can't always take advantage of immediate digital delivery.

"The education sector also needs to streamline the lengthy textbook procurement process to react more quickly to rapid improvements in digital publishing," Chen said.

Despite hurdles, many believe that e-books and digital textbooks are worth the wait.

"We realize that the education side of the business may experience a faster adoption than the consumer side," Sadler said. "But we see e-books as a better proposition for both sides."

"Forecasts may vary, but everything points to a very attractive and growing market that's a mix of print and electronic formats existing with each other," Sadler said. "Over time, e-books will be a great value proposition."

2001-01-08T08:35:00.000-05:00

As Dot-Coms Go Bust in the U.S., Bermuda Hosts a Little Boomlet

By MICHAEL ALLEN
Staff Reporter of THE WALL STREET JOURNAL

HAMILTON, Bermuda -- Operating out of a hurricane-proof command center in a former U.S. military base, Paven Bratch is a tax examiner's nightmare.

Although his Internet company, music and video merchant Playcentric.com (www.playcentric.com), has just 10 employees, didn't go live until September and has yet to turn a profit, it has the structure of a major multinational. Its computer servers are located here, its operating unit is in Barbados, and it has a distribution deal with a big record-store chain in Toronto. The 36-year-old Mr. Bratch figures this setup will save him so much on corporate income taxes and other expenses that he'll be able to undercut Amazon.com Inc.'s prices by more than 45% and still make a bundle.

"One thing that always amazes me is, why would anyone who's planning on generating a profit locate themselves in a full-tax jurisdiction?" he says.

'First Generation'

Plenty of dot-coms are asking themselves the same question these days. Undaunted by their industry's growing ranks of flameouts and hoping to emerge as one of the profitable few, dozens of them are popping up in tax havens around the world.

In Bermuda, they range from tiny publisher ISI Publications Ltd., which sells hard-to-find business books under the domain name Booksonbiz.com (www.booksonbiz.com), to E*Trade Group Inc., the big online stockbroker, which is locating its international trading operations here. Further south, on the Caribbean island of Antigua, an American trader has set up Indextrade.com (www.indextrade.com) to allow small investors to bet on swings in market indexes, while in Cyprus, a former British jazz singer is doing a brisk business by listing vessels such as a Soviet-era submarine on Ships-for-sale.com (www.ships-for-sale.com).

"These merchants are the first generation who can really domicile anywhere," says Andrea Wilson, chief executive of Bermuda-based First Atlantic Commerce Ltd., which provides credit-card payment systems for e-businesses. "They can be a virtual corporation if they choose."

The trend started with Internet gambling companies, which fled to the Caribbean to avoid the long arm of U.S. law. But now, thanks to an explosion of new telecommunications links to places such as Bermuda and Britain's Channel Islands -- and an ambitious push by promoters in such countries as Panama to set up facilities capable of hosting hundreds or thousands of Web sites each -- more-legitimate Internet companies are starting to make the leap offshore.

A Wealth of Ambiguity

There are serious questions about whether some of the structures would pass muster with the Internal Revenue Service and its foreign counterparts. But many accountants figure there's enough ambiguity in the industrial world's offshore tax codes that e-commerce companies could, at least theoretically, rack up tax-free profits for years before the authorities sort things out.

The issues are often murkier than for a standard offshore tax shelter, because they involve technological innovations that the U.S. Treasury couldn't have anticipated when it began laying the ground rules for offshore taxation in the 1960s. For instance, nobody's entirely sure how to tax the earnings of a programmer who sells his software by allowing buyers to download it from a Web site hosted on a computer server in a zero-tax jurisdiction.

Some tax attorneys take the position that the sale takes place where the server is located, and that the business owes no corporate or sales tax in the buyer's home country. "It would be no different than you or I getting on a plane, flying to the Bahamas, and buying a T-shirt in the hotel," says Lazaro Mur, a Miami tax attorney.

New telecommunications options have brought Bermuda and much of the Caribbean even closer than a plane ride away. Cable & Wireless PLC's phone monopoly among former British colonies in the region is breaking up, and C&W's new competitors are starting to lace the seabed with modern fiber-optic lines, breaking down old technological barriers to working offshore.

At the same time, so-called server farms -- warehouses built to accommodate row upon row of computer servers -- are sprouting up to accommodate high-tech newcomers. At Fort Clayton, a former U.S. military base in Panama, local entrepreneurs plan to open a 50,000-square-foot "high-tech hotel" later this month they say will be capable of hosting as many as 1.2 million Web sites.

HavenCo, a self-proclaimed "data haven," announced plans last year to host Web sites from an antiaircraft platform abandoned by the British after World War II. The North Sea platform has a colorful history: In 1966, a retired British army major seized control of it and has operated it for years as the sovereign "Principality of Sealand."

Ryan Lackey, HavenCo's chief technical officer, says the company, which spent the summer upgrading electrical power and air conditioning on Sealand, has more than 30 servers up and running, connected to the mainland by satellite and wireless service, and hopes to expand to as many as 5,000.

He says the company has fielded "several thousand" sales inquiries. "The big thing people really want is e-mail servers, because in the past people have been getting their e-mail servers subpoenaed," he says. He adds that HavenCo would only comply with subpoenas issued by the Court of Sealand. "But there's no Court of Sealand, so it's very unlikely."

Tax savings are the big selling point for many of the installations. "Offshore + Ecommerce=Tax Free Heaven," screams a banner ad for Bahamas.net, which offers server facilities in the Bahamas for as low as $2,200 a month.

Bermuda, which has a rich history of helping foreigners shave taxes, also is doing its best to encourage the migration offshore. Its two biggest banks, Bank of Bermuda Ltd. and Bank of N.T. Butterfield & Son Ltd., have launched major e-commerce initiatives, establishing systems to allow online merchants to bill customers in several major currencies. A common refrain among business leaders on this tiny fishhook-shaped island is that Bill Gates would be a much-richer man today if he had originally established Microsoft here.

The pitch helped reel in Robert Edwards, an editorial cartoonist who lives in Canterbury, England. Not long ago he went looking for help in setting up a Web site to sell works by him and about 30 other artists from around the world. Tipped off to Bermuda by a visiting delegation of businesspeople, he registered his company online through Appleby, Spurling & Kempe, a local law firm here, and was quickly directed to Web designers, a hosting site and a credit-card intermediary, First Atlantic.

Late last year, at a total cost of less than $200,000, his Drawnandquartered.com (www.drawnandquartered.com) went live, offering 4,000 artworks, which can be downloaded online with a credit card, for $200 and up. His company doesn't pay any income or sales taxes, and he only has to pay personal-income tax on the salary he draws. "I'm a perfect example of how it can be done," he says.

Playcentric's Mr. Bratch, a former Procter & Gamble Co. manager, says he relied on advice from an international tax attorney in structuring the online retailer, which will market its compact disks, videos and DVDs partly through packaged-goods makers who want to reward loyal customers. Mr. Bratch, a Canadian citizen, put his operating unit in Barbados, which, unlike Bermuda, has a tax treaty with Canada, in order to take advantage of the Caribbean nation's corporate income-tax rate of just 2%.

He says he located his computer operations in Bermuda because of its extensive banking and telecommunications infrastructure. Its attractions include a state-of-the-art server facility built in an old U.S. naval base by 360networks Inc.'s TeleBermuda International unit, which laid an undersea fiber-optic cable to the U.S. in 1997.

Tax considerations also helped lure Todd Middagh, chief executive of Originals Online Ltd., to Bermuda. His brainchild: a site that will allow importers, exporters and shipping companies to swap legally binding trade documents online, instead of wasting days with couriers. "It's a digital product, global in nature, 24-hours-a-day world-wide," says Mr. Middagh, who has already attracted the interest of several major grain companies, including Archer Daniels Midland Co.

"We're going to be in almost every jurisdiction over time," he says. Meanwhile, Mr. Middagh, a native of Canada, will be presiding over the company from his house here, which overlooks the Atlantic Ocean.

Scott Rubman, a Long Island, N.Y., real-estate attorney whose family has long been in the fur trade, is putting together Furs.com (www.furs.com), a Bermuda-based site that plans to match mink farmers in, say, Norway, with fur-coat manufacturers in North America and China. As an American, Mr. Rubman may face a bigger hurdle in shielding any offshore profits from taxation. Unlike many other countries, the U.S. taxes its citizens on their income world-wide.

"If you move offshore strictly to evade taxes, that's something the U.S. will always look at," says Mr. Rubman, who is getting plenty of advice from U.S. tax experts. "When you have a legitimate business purpose to transact business offshore, I'd think the U.S. would be supportive of that."

And if the U.S. isn't supportive? Cryptographer Vince Cate thinks he has that covered. In 1998, the onetime Carnegie-Mellon University Ph.D candidate walked into the U.S. Embassy in Barbados and renounced his American citizenship, declaring that he was henceforth a citizen of Mozambique, thanks to a document he purchased for $5,000 over the Internet.

Then, he went back to the Caribbean island of Anguilla, where he had developed a reputation as a computer-encryption visionary. Among his many ventures, he has taken over the operations of an online marketer of driver's-license information that had run afoul of a new privacy law in Texas. Mr. Cate plans to build the business without paying a cent of taxes.

"Because I'm not a U.S. citizen, I'm not in the United States, and Anguilla has no taxes, I don't believe I have any problem," he says.

Write to Michael Allen at mike.allen@wsj.com

2000-12-26T07:06:00.000-05:00

As the Web Turns 10 Years Old,Its Inventor Tries to Keep It Simple

Associated Press

CAMBRIDGE, Mass. -- It's amazing to think today, with the Web now spanning some 7 million sites, that its creator could barely get his colleagues interested at first.

Ten years later, Tim Berners-Lee has different worries: keeping the Web from growing out of control as commercial developers pile layer after layer of software on top of the Web's foundation.

Born as an unsanctioned project at a European physics lab in December 1990, the Web succeeded because of its simplicity -- and Mr. Berners-Lee wants to keep it that way.

"My worry is that we'll make a system that isn't conceptually clean enough ... so that in 10 years time, we'll find the technology is limiting," he said.

Hints of this British computer scientist's humble and shy nature comes through as he describes the Web's origins, evolution and future in his cluttered office at the World Wide Web Consortium, an organization he formed in 1994 to develop Web standards.

Unlike scores of other software innovators, Mr. Berners-Lee didn't seek to get rich off the Web. For the first three years, he wasn't even sure it would take off.

"At any point, we were waiting for something to happen -- a competing commercial product to knock it out of existence or a competing Internet service to knock it out of existence," he recalled.

An information retrieval system called Gopher emerged as a competitor, but many users abandoned it in 1993 when the University of Minnesota tried to charge for the software. Later that year, when a team at the University of Illinois' National Center for Supercomputing Applications released Mosaic, the first browser to combine graphics and text on a single page, Mr. Berners-Lee knew his invention would survive.

That NCSA team would soon leave to form Netscape Communications Corp. and develop the first commercial Web browser, piquing the interest of Microsoft Corp. and other developers who would tap the Web's commercial potential.

Mr. Berners-Lee first proposed the Web in 1989 while developing ways to control computers remotely at CERN, the Geneva-based European Organization for Nuclear Research.

Essentially, the Web combines two concepts that date to the 1960s: the Internet and hypertext, which is a way of presenting information nonsequentially. Though the two concepts were well known among engineers, Mr. Berners-Lee saw the value of marrying them.

He never got the project formally approved, but his boss suggested he quietly tinker with it anyway.

Using a NeXTStep computer, Mr. Berners-Lee began writing the software in October 1990, got his browser working by mid-November and added editing features in December. He made the program available at CERN by Christmas Day.

At the time, he and colleague Robert Cailliau were the Web's only users. Mr. Berners-Lee wanted to show off his browser, but with only one Web site initially, there wasn't much to browse.

"The whole development of the browser was very exciting," he said. "The difficulty was in knowing what to do next."

To encourage use, he worked on getting colleagues at CERN to put up a phone book and other resources on the Web. He found interns and research fellows through backdoor channels to work on adapting the browser to other computer systems.

He balanced advocacy with keeping things quiet so that upper management wouldn't question the time he spent developing something he hadn't been hired to do.

The first public browser, released in 1991, didn't have the friendly graphical interfaces of today. Rather than click links, users typed in commands.

Its early advocates, though, went on to improve it. Ultimately, Marc Andreessen and the Mosaic team added graphics, made the software simple to install and essentially opened the Web to the world.

"What amazed me during the early days was the enormous amount of free energy that went into developing that technology," said Michael Folk, who ran the Mosaic team after Mr. Andreessen left. "People from all over the world contributed huge amounts of time and ideas in a surprisingly noncompetitive, collaborative way."

But the Web's commercial phase soon began, and Mr. Folk notes that these days, many developers apply for patents first and share later, often for a fee.

The later years also brought advertising and e-commerce.

The beauty of the Web, to Mr. Berners-Lee, is its vast potential for spreading knowledge. But that doesn't mean, he insists, that he is troubled by all the commercialism.

"The Web was not designed to be restricted to any one domain at all," he said.

Noncommercial sites still exist beside the commercial ones: "Hello! If you're not reading them, it's because you're not reading them. It's not because they've been pushed out."

But Mr. Berners-Lee is somewhat troubled by features that track where users come from and collect other personal details. His consortium is developing standards to help software limit the capabilities of business-oriented information gathering.

He also questions search engines and computer desktop links that favor marketing partners and provide commercially biased results.

Vinton Cerf, who invented the Internet communications protocols that made the Web possible, says Mr. Berners-Lee's "notion of using the Web for world's knowledge is still alive." Mr. Cerf notes that many users have personal Web pages and can access a lot of information for free.

What worries Mr. Berners-Lee more is the potential for fragmentation -- if companies innovate without first agreeing on standards.

Java and other Web-based programming expands the Web's usefulness, but it could make sites useless to older computers when scripting languages change.

Nowadays, some Web sites exploit certain fancy features in the latest Microsoft or Netscape browsers. But that makes the Web less universal.

Mr. Berners-Lee's Web consortium is trying to develop standards for the Web's next phase. They include extensible markup language, or XML, which tags Web information with hidden codes so businesses can exchange data without having to reformat them.

The Web's foundation would remain the same. Software at Web sites and users' computers only need to understand the Web address, the markup language and the Net transmission scheme.

Mr. Berners-Lee has no regrets about turning down commercial opportunities.

In fact, he says, the Web wouldn't have grown in popularity without a someone pushing for openness and consistency.

"No other businesses would have been prepared to bet their entire company on the Web, as a huge number of businesses do," Mr. Berners-Lee said. "All the volunteers, all the nonprofit groups would not have done it. Having a neutral was essential."

Michael Dertouzos, director of the Laboratory of Computer Science at Massachusetts Institute of Technology, says the Web might not have grown at all had someone other than Berners-Lee invented it.

"While everybody wanted to make the Web theirs," Mr. Dertouzos said, "he wanted to make the Web belong to everybody."

Mr. Berners-Lee says that upon reflection, there was little he would have done differently -- except perhaps to craft differently the Web addresses known as uniform resource locators, or URLs.

"I wouldn't have put the double slashes in," he said. "I didn't realize how much people would be writing these URLs out and reading them out and how much time it takes for people to say 'slash slash.' "

2000-12-10T07:02:00.000-05:00

CMGI Can Defy Gravity Only So Long

By SAUL HANSELL
The New York Times

First came the flashing video images. Then the dancers in psychedelic body paint, the New Age pianist, the opera singer in a white fur stole who descended on a construction crane and three men in gas masks who banged on garbage cans to disco music. White smoke billowed. Finally, the lights went up to reveal the Boys Choir of Harlem, singing spirituals.

This sumptuous show last fall at the Hammerstein Ballroom in Manhattan represented the avant-garde not of theater but of Internet hype. It introduced a new home page and ad campaign by AltaVista, the search engine, to about 100 journalists and Wall Street analysts, and laid the groundwork for an initial public offering. AltaVista — prompted by its new owner, CMGI, one of the most successful incubators of Internet companies — promised to take on Yahoo with "a portal as powerful and immediate as life itself."

To do so, it would spend $120 million on a new slogan, "Smart is beautiful."

These days, that strategy does not look very smart, and the prospects for the CMGI empire are not very beautiful.

Hopes for AltaVista's offering were dashed by the tumble in Internet stocks last spring. CMGI is closing other units, laying off employees and facing tough questions about the viability of the business behind the flashing lights and new-economy rhetoric.

In recent weeks, an increasing number of investors, analysts and even CMGI executives have wondered aloud whether David S. Wetherell, CMGI's chairman, founder and driving force, was too emboldened by his early success — largely investments in some pioneering Internet companies that earned stratospheric returns. Now that the market will not let him profit by taking companies public, these skeptics are asking whether CMGI has the vision, strategy and management skill to make its sprawling portfolio worth even the sum of its parts.

"CMGI was the ultimate bull market creation," said Gene DeRose, president of Jupiter Media Metrix, the research company. CMGI, he said, claimed credit for what was just extraordinary good luck. "It epitomizes strategy in hindsight," he added, "rather than a disciplined process for incubating and managing companies."

Mr. Wetherell, 46, says the company is taking the steps that are needed to thrive in tough times. "Our foundation is solid and mission is clear," he wrote by e-mail. "After five years of hypergrowth, we, like the market over all, are taking a step back — planning the coming steps and phases that can and will maximize growth and enhance investor support."

A year ago, CMGI was the model incubator, a new corporate creature somewhere between a conglomerate and a venture capital fund. It started some companies, invested in others and kept operating control of many, hoping to take all of them public. Mr. Wetherell was hailed as the "Warren Buffett of the Web," by The Daily News of New York, and CMGI ended 1999 with a market value of $41 billion. It was the best-performing United States stock of the preceding five years, returning 4,921 percent.

In its fiscal year ended July 2000, CMGI lost $1.4 billion on revenue of $898 million.

Today, CMGI's main companies, like Alta Vista and Engage Technologies, an Internet advertising business, are scaling back. The chief executives of both of those companies resigned recently. Smaller companies are being sold or merged. And CMGI's shares are off 91 percent this year, to a value of about $3.8 billion, closing on Friday at $11.94.

"A year and a half ago, people were saying this was the best business model ever," said Vik Mehta, an analyst at Goldman Sachs. "Now the financial markets are telling them they will go out of business."

Mr. Wetherell, whose 11.2 percent stake in CMGI is now worth just $430 million, still has defenders. They say he is a tough executive with an eye for financial detail, but he also understood that the early days of the Internet demanded growth, not profits.

"Most people thought he came by all this by accident, but he is a guy who has been very thoughtful and very strategic early on," said David Bohnett, co-founder and former chairman of Geocities, the online community that was one of CMGI's greatest successes. "You can't blame him for taking advantage of the opportunities in a bull market."

Mr. Wetherell declined to be interviewed for this article, choosing instead to answer some questions by e-mail. And he ordered many CMGI directors and executives not to respond to interview requests. But more than 20 current or former directors and executives, all of whom insisted on anonymity, were willing to discuss CMGI and Mr. Wetherell. Several former employees also took the risk of speaking, despite the confidentiality provisions that CMGI regularly writes into its severance agreements; they, too, requested anonymity.

From those interviews, a new picture emerges — not so much of a company working from a visionary blueprint but of one in which decisions on everything from hiring to strategy are made on the spur of the moment — and reversed just as fast. Many moves were made largely to generate optimistic news releases, helping the stock to surge, the executives said.

Some companies were started on a whim, and when they failed to fulfill Mr. Wetherell's grand hopes, they were transformed, renamed or merged. Of CMGI's 15 majority- owned companies at the beginning of the year, four were merged into other CMGI entities and two were closed. Of 40 companies in its venture capital portfolio, five were closed and four were sold.

Indeed, even as incubators have been promoted as a way to merge small-company entrepreneurialism with big-company resources, it is not clear that having CMGI as a parent is worth the trouble. The effort to encourage intra-company deals results as often in unpleasant compromises as it does in powerful synergy, executives said. And the oversight from CMGI headquarters in Andover, Mass., has limited value, they added, because Mr. Wetherell seldom hires experienced managers. Most of the few large-company veterans who signed on, like Neil Braun, the former president of NBC Television, and Jeff Cunningham, the former publisher of Forbes, left within months.

"CMGI is one of those great transitional companies that is not meant to last," one former top CMGI executive said. "They were meant to aggregate all the buzz of the new economy. They are not a General Motors but a Tucker" — a reference to the failed upstart auto company memorialized in Francis Ford Coppola's 1988 film.

Mr. Wetherell contends that CMGI is far more than a dream.

"I try to use technology to solve tough problems that have broad market appeal," he wrote. "This provides high barriers to entry, providing there is a first-mover advantage and proper leverage from other CMGI companies. When all of these elements exist, we have a formula for success."

The Beginnings

From Mailing Lists to the Internet

In its short history, CMGI achieved astounding returns by staying one step ahead of the Internet explosion.

In 1994, CMG Information Services was a tiny company that sold mailing lists of college professors to textbook publishers. Mr. Wetherell, who started out in computer programming, acquired the company in a leveraged buyout in 1986. In trying to sell books online in 1993, it developed what became one of the first Web browsers, Booklink, which it sold a year later to America Online for stock it later sold for $70 million.

With that windfall, Mr. Wetherell began investing in other Internet companies. In its most significant move, Dan Nova, the only CMGI employee with venture capital experience, bought a search technology from Carnegie Mellon University for CMGI that became the basis for Lycos, now the Web's fourth-biggest site.

Mr. Wetherell also invested in Geocities, which enabled people to build home pages about their interests. He sold it to Yahoo in 1999 for $3.6 billion. But early on, he wanted to be more than an investor. So he started a series of companies that CMGI incubated, most based on the premise that the Web created the ideal environment to merge advertising and direct marketing. Engage, for example, was started in 1995 as a network of sites that would keep track of the topics that interested users, though not of who they were. A Web-surfing soccer mom would then see banner ads for minivans, while an aging stockbroker would see sports-car pitches.

As his investments expanded, the potential grew for CMGI's companies to cooperate with one another.

But it was just as likely for them to compete, and conflicts arose quickly. Mr. Wetherell announced, for example, that Geocities would contribute information about its users to Engage's data base, but Geocities spurned his pressure to do so. And he started Planet Direct, which offered a comprehensive Web portal — seemingly a direct rival of both Lycos and Geocities, though it sought partnerships with each. Many executives at CMGI's Web site service companies complain that they were subjected to extraordinary pressure to do unattractive deals with corporate cousins.

Mr. Wetherell wrote that CMGI's policy was that companies deal with one another at arm's length.

The conflicts rose to a grand scale in January 1999, when Yahoo made an unsolicited bid for Geocities. Mr. Wetherell tried to orchestrate a combination with Lycos instead, but when he could not reach an accord with Robert Davis, Lycos's strong- willed chief executive, he backed the Yahoo bid.

"It was like a food fight," one bemused Geocities board member said. "Bob wanted to do what was good for Lycos, and Dave wanted to do what was good for CMGI."

Indeed, several Geocities directors said Mr. Wetherell notably did not recuse himself from voting on the merger transactions, despite the seeming conflict of his serving on Lycos's board.

Mr. Wetherell says he offered to recuse himself but the board did not ask him to; his pressure, he added, encouraged Geocities management to conclude the deal with Yahoo rather than accept a lower bid from another company.

These issues burst into public view the next month, when Lycos agreed to merge with the Home Shopping Network and other properties controlled by USA Networks. At a board meeting, one member recalled, Mr. Wetherell not only voted for the USA deal, but also stood up and applauded when it was approved.

Two days later, after Lycos's shares plunged 31 percent, Mr. Wetherell voiced public doubts about the merger; he soon resigned from Lycos's board and fought successfully to have the deal aborted.

To the public, it was a curious display of indecision, but to those who knew Mr. Wetherell, it was a reflection of impulsiveness. "Dave was a big believer in riding the wave," said a former chief executive of a CMGI company. "If auctions became hot, he would demand that auctions be front and center. Now."

Mr. Nova, the venture capitalist who worked at CMGI early on, said the market rewarded Mr. Wetherell's instincts. "The rising tide covered up any mistakes we may have made," he said. "Every spreadsheet we ran at the time was off by a magnitude of five or six times. No one expected Lycos and Geocities to be worth billions."

And Mr. Wetherell, an eye on the market, was convinced that speed and growth were paramount. Inside CMGI, employees summarized the strategy with the initials G.B.F., for Get Big Fast. "At our management meetings," one former executive said, "any time Dave heard of a deal or other good news, he would say, `Sounds like a press release to me.' "

To maintain momentum, Mr. Wetherell needed Wall Street. "The currency he did deals with was his stock," one former executive said. "Keeping the stock going was a theme that went through a lot of our conversations."

The Upswing

Expansion Binge Brings Strains

Mr. Wetherell's success at killing the Lycos-USA merger, and the resulting publicity, appeared to embolden him, former executives said. The company's surging stock price, along with the cash it made from selling Yahoo stock it received for Geocities and from other investments, allowed him to embark on an expansion binge. CMGI bought 18 companies in 1999 and 5 more this year.

The expansion was a strain. CMGI hired a head of human resources and created strategy and business development units, but Mr. Wetherell continued to make the key decisions.

"When I got inside, it was clear they weren't really an operating company," one former senior executive said. "They didn't have guys who could sit across the table and say, `I have seen this before.' "

Another former executive described CMGI headquarters as a "giant chicken with its head cut off."

"They were working crazy hours, but it would take a long time to get things done," he added.

Mr. Wetherell wrote that CMGI is shifting the sort of executives it hires from "entrepreneurial types" to those with broader experience. But some of those hired from big companies did not work out because they found the Internet to be "foreign territory."

All last year, Mr. Wetherell kept pressing companies for growth and talked often of taking on America Online, Yahoo and DoubleClick. But there were signs that the slingshots of CMGI's giant-killers were empty.

Consider the effort to best AOL through Planet Direct. It was meant to provide content and services in partnership with providers of Internet access, like telephone companies. But the company attracted few service providers.

As the business languished, Mr. Wetherell pressed management last year to spend $100 million to buy another company that would transform Planet Direct, renamed My Way, into something else. Earlier this year, My Way bought Zip2, which operates Web sites for newspapers, from AltaVista, by then also owned by CMGI.

Engage, Mr. Wetherell's pet project in targeted advertising, was also in trouble. The few advertisers who tried the system found only modest benefits. Mr. Wetherell bought eight Internet advertising companies and merged them into Engage, broadening its scope and giving it a new lease on life — for a while.

Icast was another company that transformed itself several times. In February 1999, Mr. Wetherell hired Mr. Braun, formerly of NBC, to spend $100 million to develop a company that would use sound and video over the Internet. (Yahoo had just bought Broadcast.com, a similar company.)

There was little agreement, however, about what Icast should actually do. Mr. Braun wanted to focus on live events and celebrity Web sites. He bought Signatures, which sells celebrity-endorsed merchandise, from Sony. But Mr. Wetherell saw Icast as the multimedia equivalent of Geocities, where users could post their own sound and video. He soon merged Icast into another of his struggling companies, zinezone, a knockoff of About.com, which features hobby and other topical sites.

Nine months later, Mr. Braun was dismissed. In a federal lawsuit filed last December, he contends that Mr. Wetherell did not honor his contract, which he says was worth $30 million to $50 million because of the run-up in CMGI's stock. CMGI denies the accusation.

Far and away Mr. Wetherell's biggest bet was in July 1999, when he bought 85 percent of AltaVista from Compaq Computer for CMGI shares worth $2.3 billion. It was a curious deal: AltaVista was a big rival of Lycos, in which CMGI still held a major stake.

But CMGI was under pressure from the Securities and Exchange Commission to expand its operating businesses, lest it be categorized as a mutual fund and subject to strict regulations. Moreover, relations with Lycos were strained, and Mr. Wetherell figured that he needed a general-purpose portal to tie together all his other companies.

The strategy turned out to be flawed. Despite its reputation as a very good search engine, AltaVista has never established itself as a provider of a broader range of information, former executives said. It did not attract enough traffic to help other CMGI companies, and they did not have enough to help AltaVista.

Still, as the Nasdaq was cresting, CMGI's stock reached a record high, $163.50, on Jan. 3.

The Downturn

A Stock Tumble, and Cutbacks

As the Nasdaq index began sinking in April, so did CMGI stock. But even as that slide turned into a free fall through the spring and summer, the company continued its expansion. It started a company jointly with Compaq to provide employee benefit information on the Web. And it agreed to spend $7.5 million a year to put the name CMGI Field on a football stadium being built for the New England Patriots. Former employees say that move was made largely to drive up the stock price, because none of the company's consumer businesses use the CMGI name.

As the year wore on, operating problems increased, especially as the market weakened for Internet advertising.

Engage was hit especially hard, although CMGI did what it could to shore up the problems with deals from its affiliates. In the quarter ended in July, it met analysts' forecasts for $67 million in revenue — but only because Compaq bought $13 million worth of advertising software and two other CMGI affiliates spent $7 million.

By the next quarter, Engage had to face reality. It laid off 175 people in September. In the quarter ended in October, Engage said it would post revenue of less than $42 million, and Paul L. Schaut, its chief executive, resigned.

The online retailers in CMGI's venture capital portfolio faced more bitter medicine. Unable to raise more money from outside venture funds, and unwilling to use more of its own cash, CMGI let Furniture.com, Mothernature.com and Productopia.com simply die off.

In September, CMGI announced a restructuring, saying it would focus on five business lines and on venture capital. It would chop the number of companies it operated from 17 to less than 10 through mergers or sales. The new goal would be profitability at all of its units.

That set in motion a huge shuffling of the portfolio.

My Way, based in Andover, was simply merged with Zip2's operations in Mountain View, Calif. In reality, My Way's original advertising- supported business closed entirely.

AltaVista abandoned its effort to be a vast consumer portal and focused on selling its search software to corporations to use on their own sites. It laid off 225 people. Rodney W. Schrock, its chief executive, quit in October.

Mr. Wetherell said the moves were not meant to abandon either AltaVista or My Way, but to focus more on revenue from licensing software, which is more dependable than that from advertising.

"We are concentrating on what works in both today's and tomorrow's Internet," Mr. Wetherell wrote. "Advertising will continue to be a major force for the Web, but it will be slower to develop than other revenue sources. When it does take off more strongly, we are well positioned to benefit."

Curiously, even through the fall, Icast, which depended largely on advertising, continued to hire senior executives and proceeded with its expansive plan to build an entertainment site. But in mid-October, CMGI suddenly decided to stop financing Icast and gave its management a few weeks to find a buyer. After fruitless discussions with prospects like the News Corporation, Icast closed. "It was very abrupt," one former Icast executive said. "It wasn't thought out. They were in panic mode."

The bad news was not over. Last month, the company warned analysts that revenue in the quarter ended in October would actually decline, a mark of dishonor for a growth-driven Internet company. It promised to reduce its burn rate from $225 million a quarter last July to $45 million next July. (It will announce its complete results this Thursday.)

Cutbacks, meanwhile, continued. CMGI closed 1stUp, its advertising- supported Internet service offered free to consumers, and it hired investment bankers to sell Raging Bull, a series of chat boards about stocks, which has been a personal favorite of Mr. Wetherell.

One director said the board's main priority was to encourage Mr. Wetherell to make sure he had enough cash on hand to stay solvent. Mr. Wetherell did not raise as much money when the stock was at its peak as the board had hoped, this person said, though CMGI's $1.1 billion in cash and marketable securities does provide a buffer.

The mood in Andover is grim. "It's a changed and beaten company," said one executive who left this year. "It has none of the bravado and world-domination schemes that had been there a year earlier."

One current top executive said CMGI's low stock price was prompting employees to abandon worthless options and seek their fortunes elsewhere.

Mr. Wetherell, moreover, wrote that he began looking for a chief operating officer last month because "we are getting to critical mass in size."

But even analysts are asking what that critical mass has become now that the quick I.P.O. profits are gone. CMGI says it will be a confederation of operating companies, perhaps a new-economy General Electric. But CMGI is missing at least one key piece of the G.E. formula: None of CMGI's businesses are No. 1 in their categories, and few are even No. 2.

"The market had evaluated Wetherell on his ability to identify great new concepts," said Lowell Singer, an analyst at Robertson Stephens. "Now the rules have changed. He is being graded on his ability to run them as businesses."

Copyright 2000 The New York Times Company

2000-12-08T10:25:00.000-05:00

The End of Marketing

Regis McKenna–the patriarch of modern marketing–predicts the demise of marketing, the end of branding, and other things to keep you awake at night.

Susan Kuchinskas
BUSINESS2.0

It's hard to overstate the impact of marketing maven Regis McKenna on modern corporate image making. McKenna is chairman of The McKenna Group, a busy consulting group in Palo Alto, Calif., that works with New Economy companies. But he's not just another money-mad shyster consultant preying on the fears of companies going online. Unlike most marketing consultants involved with Net clients, McKenna has been around since the beginning. The very beginning, when Silicon Valley consisted of fruit orchards and a handful of computer startups, and the Internet was only used by a few government computer geeks.

To say that Regis McKenna is the father of high-tech marketing is to say too little. During his 30-year career, McKenna has assisted in the birth of many of today's computer giants, including America Online, Apple Computer, Compaq Computer, Microsoft, National Semiconductor, and 3Com. The sexagenerian helped launch Apple's first PC, Intel's first microprocessor, and the first genetically engineered product for Genentech.

McKenna has invested in more than a dozen startups, and has launched a private investment fund, McKenna Management, with his son, Sean. Its holdings include AltoWeb, a maker of Web building and navigation tools, Caliper Technologies, a producer of custom chips designed to speed biological and genetic research, and ScreamingMedia, a wireless content and technology company.

In his most recent book, Real Time: Preparing for the Age of the Never Satisfied Customer (Harvard Business School Press, 1997), McKenna explained why business has to put the consumer in the driver's seat. His next book, due out next year, will discuss how marketing and brand have lost much of their meaning, particularly in the dot-com world.

BUSINESS 2.0: You often talk about "the death of marketing." It sounds like hyperbole. Marketing isn't really going away, is it? Isn't marketing still a huge component of a company's strategic plan?

Regis McKenna: Marketing is becoming an integrated part of the whole organization, rather than a specific function. Who's responsible for setting the direction of a business? Who sets the marketing direction for Cisco? For Apple? For Microsoft? More and more, it's the CEO who's becoming the chief marketer.

But companies still have vice presidents of marketing.

The marketing function is being marginalized to advertising and PR. You'll find in most companies that the person called vice president of marketing is really a "marcom" person. For example, customer relationship management is now as much a task for the CIO as for the vice president of marketing. Ditto for distribution and business development. So, in terms of actual practice, the CIO may actually be more responsible for marketing than the marketing director. And this represents quite a change from the early days of high-tech marketing?

In the years when I was in marketing, we [marketers] would have pricing meetings; we'd go out and set up distribution. We'd be responsible for major customer alliances and distributorships. Those kinds of things are gradually being assumed by other people, while more of the functions of managing relationships between partners and customers is being done by software programs. Those programs themselves are more and more integrated into a corporate strategy than into a marketing strategy. In fact, I don't think we can tell the difference any more between a corporate strategy and a marketing strategy. That's just vanished.

What about brand-building? Isn't that still an important marketing function?

We did a survey of 100 CEOs, lots of them entrepreneurs and heads of technology companies, and asked them, "What is brand?" We got 100 different answers.

You would get the same from traditional companies, too.

Yes, because brand itself is the refuge of the ignorant. People believe that if only their brand is well-known, they will be successful. But you can be very well-known and not make money, you can be very well-known and not keep your customers.

The current wisdom is that to succeed, Internet companies have to build their brands. Is that just wrong?

The people saying this aren't your average dummies–these are MBAs out of famous business schools. They're coming out and saying, "We need branding," when they haven't the first clue as to what branding is based on. Branding isn't awareness. You can only build awareness if you have first built a distribution infrastructure. Awareness doesn't change behavior, though it may lead people to take another look. The actual experience they have with the product is what changes behavior.

That's a scary notion for companies, on average, that are spending $50 to $150 to acquire each customer.

One thing that's working against the concept of brand is technology. Technology has created a whole series of consumer preferences that exceed brand. For example, choice. The average supermarket has 50,000 products. Wal-Mart has 300,000 products. Wal-Mart has the largest market-share ownership of clothes, cookies, beer, and computers. It's not any one brand anymore.

The whole entrepreneurial trend of the American marketplace is based on disloyal customers. Why would you start a new company if you didn't believe you could take customers away from where they are now? Portals don't talk about brand loyalty, they talk about stickiness. I think that's an unconscious acknowledgment that keeping people there is a temporary phenomenon. That doesn't mean that major brands don't do well, it only means that we Americans have become very accustomed to constantly changing what we purchase, who we do business with.

That still doesn't mean that choice won't be successful. Choice is a higher preference than brand. Choice is acknowledged by Websites like Amazon.com. It is able to retain customers because choice is a higher preference than brand.

The other thing that's a higher preference than brand is price. Almost everything we do today is either free, discounted, or incentivized. We know that the American consumer, across all economic strata, is looking at price, because products themselves are becoming more at parity. So does that mean dot-com marketers who think that portal placements are a good idea because they boost brand and provide access are wrong?

This kind of thinking is just not enough. Companies have to think about multiple forms of access. Some portals know this–Yahoo! has a magazine, for example.

Companies are going to have to adapt their technology to the mobile environment. We users are going to have multiple PDAs, cell phones, car phones, pagers. If you're going to be a viable portal, a viable dot-com, you have to think about how consumers are going to get information. This is an increasingly mobile society, and people enjoy mobility. The wireless world is going to be based on the market of nomads in the future. But companies are going to have to make the move to mobile in a transparent way, without me, the user, switching out of what I am doing.

If branding isn't important to dot-coms, what is?

Access. The early brands we paid attention to were established in the 1950s, in a broadcast world with limited choice. Now we're moving to a network access model. People don't understand this complete flip-flop from broadcast to access.

What's the difference?

The key point is persistent presence. For example, Coca-Cola is probably the world's most recognized brand. Every day one billion Cokes are bought. If I were to take away their bottlers and distributors, no matter how big the ad budget, would you buy a Coke? No, because you couldn't access it. In the access model, brands will be those that provide a networked presence to the community. Access will continue to replace broadcast. If I'm going to create loyal customers, how do I get them to access me without constantly banging them on the head with a message? You have a presence, a Starbucks store, an ATM, a place in the computer's architecture, a Coke machine.

Intel was one of the first technology companies to launch a consumer ad campaign. Was it a waste of money, then?

Before Intel ran its first "Intel Inside" ad, the company owned 85 percent of the market. Its market share hasn't changed. Intel went out and got design wins, it got a majority of the companies it worked with to support the brand. But without that infrastructure, the company shouldn't and couldn't have done it.

What's happening is that a lot of the dot-coms that are going on network television have no infrastructure, they have no market share, they haven't invested in the persistent presence.

Are you saying Intel really didn't need to do the ad campaign?

No, I'm saying the objective there was not necessarily to increase market share. What was happening is the various PC manufacturers could buy a 286, a 386, a Pentium, or any variety of microprocessor, because consumers didn't know the difference. What Intel did was bypass their own customers and educate end-users that their leading technology, which also happened to be a good margin technology for Intel, was the one to buy. They took more control of the end market, and by doing that they were able to become more profitable, but not necessarily increase market share. That strategy would not have worked if they owned 10 or 20 percent of market share. Can dot-coms learn a lesson from Intel?

Dot-coms should have read the history of marketing. If you go back 100 years, the word marketing didn't exist. If you were in marketing in the early days of Sears, Ford Motor, Procter & Gamble, all the ones who have sustained brands over years, you would have been in distribution. They were out there trying to establish distribution networks throughout the nation, and that's what sustained these brands through the ups and downs. It's easy to change brand and image; what's hard to change is that layer of infrastructure.

Dot-coms might have thought that the Web freed them from the need to create that infrastructure, since the Web was the infrastructure.

It doesn't. Look at what these companies like Amazon and Cisco are establishing with their equity. They're taking their money and building infrastructure. And America Online is saying the Web is not enough presence. First, it was a brilliant form, it did all kinds of things–had ease of use, broad distribution, a good price, free hours. It appealed to people's preferences. Now it is saying that it has to have a presence in multiple forms of media–television, radio, magazines. And Disney has multiple forms in the marketplace–movies, theme parks, toys, Websites.

What companies like this are doing is thinking about a strategy about how to build infrastructure. Infrastructure gives you this presence that sustains you through the ups and downs of business. Intel's got the design win with IBM, and that got them into so many computers. That design win sustained Intel through troubled times. What I'm saying is that the reason companies will not survive changes in the marketplace is not because consumers don't recognize their name. That's completely incidental to the fact.

Should dot-coms conduct more market research upfront before they launch?

You can't assume marketers know what they're doing. Once you get into the marketplace, the consumer begins to push back in the networked world. The closed loop systems today are enhancing the value of an enterprise in terms of everyone becoming a marketer. The marketing people are used to going out and researching, and six months later making a change. The technology people say, "We can't do that, we have to get feedback now." And you get that feedback going right back into engineering and distribution to improve the product.

If branding is irrelevant and marketing is disappearing, should businesses just forget about establishing a brand?

Brand has absolutely no hold on the loyalty of a customer. People hate to hear that. But until you admit it, you're not going to do the kinds of things that create and sustain a market presence.

Snapshot: Regis McKenna

Early on: Born in Pittsburgh, Penn., in 1939. In 1965, he joined the marketing department of an early Silicon Valley chipmaker called General Micro Electronics. McKenna then went to National Semiconductor, in 1967, where he was the marketing services manager.

Company man: In 1970, McKenna started his marketing strategy firm, The McKenna Group, based in Palo Alto, Calif. In the 30 years since its inception, the company has represented hundreds of high-tech clients, including Apple, Silicon Graphics (now SGI), 3Com, Compaq, Genentech, Lotus (now part of IBM), Microsoft, and AOL.

Marketing hits: McKenna has spent 35 years transforming the face of marketing. He helped Intel launch its first microprocessor and Apple its first computer. He worked on the repositioning of 3Com, and launched that company into the LAN market.

Some separate endeavors include the first retail computer store, called The Byte Shop, which he opened in Mountain View, Calif. in 1975 and his connection with VC firm Kleiner Perkins Caufield & Byers, where he is venture partner. He also is a dot-com investor, with his son, Sean, in an investment partnership called McKenna Management.

Susan Kuchinskas (susank@cmp.com) is a former senior writer for Business 2.0.

2000-12-05T10:24:00.000-05:00

What detonated the dot-bombs?

By Matt Krantz
USA TODAY

Over margaritas and guacamole in the restaurant where they dreamed up Garden.com five years ago, the company's three founders agreed to pull the plug. No more investors were willing to bankroll the gardening products e-retailer, which had been born on a napkin at the Iguana Grill in Austin, Texas. So at that Nov. 13 happy-hour meeting, CEO Cliff Sharples, his wife and chief marketing officer, Lisa, and Chief Operating Officer James O'Neill decided they'd urge the board to shut down the business. "We're still shocked at what happened," says Sharples, 36.

Some might think it shouldn't have been too much of a surprise: Garden.com burned through $15.3 million in cash and generated just $2.6 million in revenue during the third quarter.

But Sharples insists that Garden.com — which once had a market value of $186 million and employed 153 — was a solid business that could have lasted. It failed not because of a flawed business model, Sharples says, but because investors lost faith in it. Their sudden lack of interest cut off the fresh capital crucial to Garden.com's survival.

That's a common refrain among would-be Internet tycoons standing beside their companies' deathbeds, saying they didn't get a fair chance because of the nasty downturn in Internet stocks. But others wonder whether the free-wheeling market for initial public offerings and euphoria over anything Internet gave life to business models that never should have been hatched in the first place.

"Did any of these business models make sense?" asks John Hand, chairman of the accounting department at the University of North Carolina at Chapel Hill.

That question seems fair, considering the Bataan death march going on among dot-coms. More than 117 dot-coms failed from September 1999 to October 2000, according to Boston Consulting Group.

That includes 12 outright bankruptcies, such as e-retailers Value America and Living.com. Others have had to make radical changes to their business models, such as software seller Beyond.com and online music seller EMusic.com. Yet 15 others, such as Spanish-language portal Quepasa and online music site Musicmaker, have made harsh adjustments, including massive layoffs. And 63 simply shut down their Web sites.

Poor business models are the leading cause of dot-com demise, says George Stalk of Boston Consulting. He found 34% of the 109 pure-play dot-com fatalities were because of business models that didn't bring in enough revenue or were burdened with too many costs to have even a chance at survival.

Now, with a morgue full of dot-coms, it's easy to pinpoint several New Economy myths that are common among the business plans of failed Internet companies. While struggling or failed dot-coms may have their own unique problems, the New Economy boom led many entrepreneurs to think the rules of business had changed. As a result, they bought into one of several common misconceptions:

Mistaken assumption No. 1: It's okay to sell products for less than what they cost you, because that will bring you lots of customers.

That's what executives thought at Pets.com, right up until they told shareholders on Nov. 7 that they were shutting it down.

In fact, Pets.com lost 19 cents on every $1 of revenue in the third quarter even before paying overhead costs. So the more Pets.com sold, the more it lost.

The problem, spokesman John Cummings says, was delivery costs. Shipping products such as 18-pound bags of cat food from a distribution center in Union City, Calif., to many East Coast customers jacked up costs, he says.

Pets.com tried to solve the problem in early 2000 by opening a facility in Greenwood, Ind. But it wasn't able to get the site up and running fast enough to curb deepening losses.

Like Sharples, Cummings doesn't blame the failure of Pets.com on the business model. Impatient investors did the company in, he says, because they weren't willing to invest the additional money needed to break even.

"Not all companies are profitable in 14 months," he says.

But Daniel Ries, analyst at C.E. Unterberg Towbin, disagrees. Why invest in companies that can't even post a profit before they pay overhead costs? Those companies exist by selling products at money-losing prices or by pouring money into advertising, he says. Those financial Band-Aids work only for a short time.

"When consumers don't want what you're selling, you have to do some unnatural acts," he says.

Pets.com's fundamental flaw is still widespread in the New Economy. Nearly 60 of the 729 Internet companies in Market Guide's Internet universe have sold goods for less than they paid for them, not even including overhead costs, during the past 12 months.

Other Internet companies with this problem over the past four quarters include E-Stamp and Stamps.com, which are both trying to branch out beyond selling postage. Others include NetZero.com, a free Internet service provider, and sports portal Quokka Sports. Both have seen their stock prices drop about 90% this year.

Mistaken assumption No. 2: Internet-based companies are immune to economic cycles

That's the kind of thinking that tripped up Mortgage.com. The company thrived in its early days while interest rates were falling. Homeowners were willing to give the online mortgage lender a try because it was an easy way to refinance.

At Mortgage.com's height, third-quarter 1999 when the stock was trading at its high, about half its loans were made to customers who were refinancing. "They were able to generate a huge amount of volume, but almost all of it was refinance," says Eric Wasserstrom, analyst at UBS Warburg.

But when interest rates began moving up this year, Mortgage.com was caught flat-footed as refinancing business dried up. Although it tried many ways to get in on the business of originating mortgages, none worked, Wasserstrom says. Home buyers, especially first timers, wanted to sit across a desk from a lender so they could ask questions.

Mortgage.com ultimately tried to retool by trying to deal directly with real estate agents and home builders. But with a dwindling bank account, the company couldn't afford the shift.

There was only one choice . Mortgage.com said Oct. 31 that it would close its doors, laying off 518 workers.

Mistaken assumption No. 3: Internet companies can't spend too much on advertising.

That's the kind of thinking that killed Boo.com, a much ballyhooed e-retailer that sold its assets on June 1, says Ben Narasin, CEO of FashionMall.com, which bought Boo.com this year and relaunched the site Oct. 30.

The original Boo.com poured a staggering $223 million into advertising and promotions over its 18-month life, including a $42 million print and TV campaign at launch, he says. It got little for the money: The site picked up only 85,000 new users in its best and second month, December 1998.

Even at its peak membership in early 2000, the site never had more than 550,000 users, Narasin says.

Proving that advertising doesn't drive traffic: With an ad budget at launch of less than $1 million, the new Boo.com is attracting a peak of 30,000 new users a day.

"Amazon.com gave everyone an excuse to say it's not about profit," Narasin says, adding that the dot-com shakeout has made companies think twice about pouring money into ads that don't pay off .

Mistaken assumption No. 4: Internet companies that carry no inventory are infinitely profitable.

Remember all the talk about "virtual supply chains," where dot-coms wouldn't carry any inventory, but instead passed orders through to manufacturers? Profitability was supposed to be sky-high because the company didn't have to bear product costs.

Well, it didn't work out that way. In fact, by not carrying inventory, companies had less say in pricing and could boost profit only by pinching pennies, says Jim Winchester, analyst at Lazard Freres.

This breakdown was dramatic among online travel agents. Many thought that if they lured masses of customers, they could dictate to hotels and airlines what they were willing to pay for rooms and tickets, he says. "This is a flawed concept," he says. Airlines and hotels refused to buckle under the pressure.

Some online travel agents saw the problem and have retooled, he says. Expedia.com, for instance, gets rooms and airline tickets at discount rates by buying them outright from hotels and airlines. In other words, it carries its own inventory. Now, Expedia can earn more because it gets the products at a lower price, rather than simply taking the middleman cut for passing the order to an airline or hotel, President Richard Barton says.

More than half the company's revenue comes from such arrangements, he says.

Expedia got the idea in part from Hotel Reservations Network, one of the only profitable publicly traded online travel agents that gets most of its revenue from the Internet, Barton says.

But for most others, making money on the Internet remains a riddle. Expect the failures to pile up as more business models flounder.

"Why did (dot-com entrepreneurs) think a business model would work because it was on the Internet?" asks Marc Gerstein, director of investment research at Market Guide. "Sometimes (the old ways) work best."

2000-12-04T15:06:00.000-05:00

BN.com Still Waiting for Traffic Boom

Bookseller hasn’t seen spike since replacing Amazon

By Chris Allbritton
Inside.com

In mid-September, Barnesandnoble.com signed a marketing deal with Yahoo, taking Amazon’s high-profile spot on the No. 1 portal’s shopping space. It was a bold, costly ($28 million over three years plus bounties, according to sources close to the bookseller) move that through a combination of banner ads and promotional buttons was designed to ratchet up traffic, customers and, of course, revenue.

But early — albeit very early — returns are unclear as to whether the deal is paying off, judging by data from MediaMetrix, a Jupiter Media Metrix company. While the most recent weekly tallies of unique visitors reveal little movement, the latest monthly numbers, from October, show a jump from pre-deal numbers.

BN.com vice chairman and acting CEO Stephen Riggio declined to talk about the details or upshot of the Yahoo pact other than to comment, “We think all the deals we’ve made have been great. We’re happy with it.”

The online bookseller should be, according to some analysts, who when told of the deal’s terms by Inside expressed surprise at how favorable to the online bookseller they appeared. Twenty-eight million dollars “is definitely a decrease from what was seen two or three years ago,” said Drew Ianni, a former analyst at Lazard Freres & Co. in New York who recently became CEO of @tmosphere, a digital-branding consultancy. He had speculated that such a deal would be valued at between $75 million to $80 million. (In addition to the $28 million, BN.com will pay an undisclosed bounty for each customer acquired through the portal.)

BN.com expects the outlays to pay for themselves and more. The placement throughout Yahoo’s directory, featured merchant status on Yahoo Shopping and the presence of graphic links on every search result taking people to the bookseller’s site should, over the life of the deal, generate between $200 million and $250 million in additional sales, says one source with knowledge of the deal. (The pact also called for a free co-branded Internet service, administered by Spinway, for the customers at Barnes & Noble’s retail stores.) Through the first three quarters of 2000, BN.com brought in revenue of $214.5 million and posted a pro forma net loss of $104 million.

So far, however, Yahoo’s massive traffic — a daily average of 10.7 million unique visitors during the week ending November 12 — has yielded an equivocal result. In the two weeks prior to the deal’s announcement on September 19, BN.com attracted 227,000 daily unique visitors (for the week ending September 10) and 186,000 people (for the week ending September 17). The numbers for the two most recent weeks — those ending November 5 and November 12 — were 136,000 and 196,000 daily unique visitors, respectively. Amazon, the much broader online retailer, saw its traffic increase significantly, moving from 857,000 and 791,000 daily unique visitors in the corresponding September time frame to 1,039,000 and 1,044,000 for the two-week span in November.

Using the monthly Media Metrix tallies, BN.com did get a decent boost. In August, prior to the Yahoo deal, the online bookseller drew 5.8 million unique visitors, and that tally rose 4.9 percent in October, to 6.1 million. Amazon, despite losing the Yahoo spot, grew even more, jumping 10.5 percent, from August’s 15.7 million unique visitors to October’s 17.3 million.

This competing set of traffic numbers may reflect both Amazon’s clout as a well-known brand selling more products than BN.com as well as the decreasing ability of portals to generate traffic, say analysts. Thomas Wyman, an analyst with J.P. Morgan, said that Yahoo was generating only 1.5 percent of Amazon’s sales, and that half of the merchant’s traffic comes to the site without Yahoo, AOL or anyone else funneling them that way. “Amazon has become a megabrand and doesn’t need Yahoo to drive traffic,” he says. “Most new users, when they sign onto the Net, go to Amazon just to check it out.”

BN.com spokesman Gus Carlson reiterates that BN.com is happy with its Yahoo pact and cautions that determining what causes traffic spikes is an inexact science. “To put too much on one thing such as the Yahoo deal is dangerous,” Carlson says. “There are so many factors that go into attracting more traffic.”

The company believes it pulled of a coup of sorts by replacing Amazon on Yahoo. The Seattle based e-tailer originally hooked up with Yahoo in July 1997 for a three-year deal, with Amazon given a prominent place on all the portal’s search pages. But tensions between the partners grew as Yahoo watched Amazon grow into a billion-dollar company without giving the portal its due, sources close the company say.

This past spring, Amazon decided to let the Yahoo deal lapse, opting to renew the three-year, $19 million deal it signed in 1997 to be the exclusive bookseller on America Online’s Web home page and NetFind service. “The Yahoo deal was too much money for too little return,” says Amazon.com spokeswoman Patty Smith. “We looked at those relationships that deliver better results for us.”

Meanwhile, BN.com appears likely to renew its own four-year, $40 million deal on AOL’s proprietary service, despite some testy times early on in the relationship. BN.com, after all, was none too pleased when the 1997 AOL-Amazon combination was announced the day after the online bookseller thought it had locked up the online service for itself. “There was definitely animosity between BN.com and AOL when (AOL) signed with Amazon,” says Ken Cassar, an analyst at Jupiter Research. “That violated what BN.com thought was a pan-AOL exclusivity deal.”

BN.com’s Carlson declined to comment how renewal talks with AOL were proceeding. “It’s important to us, and it’s the third jewel in the triple crown (along with Yahoo and MSN, where it has a prominent spot on the shopping channel),” he says.

In addition to the Yahoo and other alliances, BN.com is banking on the Web kiosks being installed in Barnes & Noble stores and a new loyalty program offering discounts to power its growth. But will it be enough to overtake Amazon as the biggest online bookseller?

It’s a question BN.com executives declined to address. “Everyone brings their own set of qualities and capabilities to their own businesses,” says BN.com’s Riggio. “It’s a big world and we think competition is making us better.”

Copyright © 2000 Powerful Media Inc. All Rights Reserved.

2000-12-03T07:01:00.000-05:00

WAP is CWAP - Jakob Nielsen
By: Tim Richardson
The Register

A report published today recommends that companies looking to offer mobile Internet services should delay their entry into the marketplace until the technology improves.

The report claims the true potential for the mobile Internet isn't expected to gain momentum until 2003.

It argues that users are turned off by the WAP experience and that it simply does not live up to their expectations - regardless of the hype peddled by telcos.

The study adds further weight to the growing number of users who've tried the technology but conclude that WAP is CWAP.

Twenty people in London were asked to test the user-friendliness of the technology. After being handed the blessed things and told to use them for a week, 70 per cent of people said they would not consider getting a WAP phone within the next year. Only 20 per cent said they would like to get one within the next three years.

Those who tested WAP said that even the simplest tasks took too much time to be of any real use. The performance of WAP was described as "appallingly low".

"In my opinion, WAP stands for Wrong Approach to Portability," said Jakob Nielsen of the Silicon Valley-based user-experience think tank and consulting firm, Nielsen Norman Group.

"Companies shouldn't waste money fielding WAP services that nobody will use while WAP usability remains so poor.

"Instead, they should sit out the current generation of WAP while planning their mobile Internet strategy," he said.

The report's title, WAP Usability - Deja Vu: 1994 All Over Again, refers to the fact that the study's findings are strikingly similar to usability studies conducted by Nielsen in 1994 at the beginning of the Web phenomena.

And he predicts that the evolution of Internet mobility will follow along the same analogy - as the technology gets easier to use, so too will it increase in popularity.

Still, that hasn't stopped Nielsen from trying to cash in on WAP. You can obtain your own copy of the study by downloading it from the Nielsen and Norman Web site. .

Although $18 to find out WAP is CWAP does seem a bit steep.

® The Register 2000

2000-12-01T19:09:00.000-05:00

Wall Street May Not Like Dot-Coms, but Main Street Does

A new survey shows that consumers are more satisfied shopping online than off. They're not big on portals, though.

By Reuters

NEW YORK (Reuters) – Consumers are more satisfied making retail purchases online than they are shopping at traditional department and discount stores, according to a survey by the American Customer Satisfaction Index, a quarterly consumer report by the University of Michigan Business School.

The report, which was released on Monday, found that consumer satisfaction with the online shopping experience earned a score of 78 points out of a possible 100, which is significantly higher than the 72 points most recently scored by department and discount stores.

The survey found that No. 1 online retailer Amazon.com (AMZN) Inc. (AMZN) scored an 84, the highest of any service sector company included in the study, and discount warehouse store operator Costco Wholesale Corp. (COST) had the top score of 79 points among traditional retailers.

"There is little doubt that the importance of customer satisfaction in e-business is already immense and that it will become even more critical in the near future," said Claes Fornell, director of the National Quality Research center and a professor at the University of Michigan Business School.

"Companies that don't provide a positive customer experience will get much less repeat business and therefore be forced out of the marketplace," Fornell said. "Companies that provide superior levels of customer satisfaction have better odds of making it."

Online retailer Buy.com Inc. (BUYX) scored a 78, while Barnesandnoble.com Inc. (BNBN) scored a 77. Online auctioneer eBay (EBAY) Inc. (EBAY) scored an 80, while beleaguered Priceline.com Inc. (PCLN) scored a 66.

Fornell said as Internet businesses are forced to pay higher customer acquisition costs to attract business, the necessity of making sure those precious customers are happy becomes increasingly important.

"Perhaps it is a slight overstatement to suggest that competition is only a click away, but it is certainly true that the time and effort it takes a buyer to find a new vendor is much lower in the Internet environment compared with traditional business," Fornell said.

The survey shows that, as an industry, e-commerce scores very close to the national consumer satisfaction average of 73.2, which includes several industries, such as the postal service, the federal government and banks, for instance.

"Even though e-commerce provides higher levels of customer satisfaction overall, this is not true for all e-commerce companies," Fornell said.

"In view of the intense competition, the high cost of customer acquisition, and the ease by which customers can switch vendors and abandon their current suppliers, it seems safe to predict that companies that fail in satisfying customers will face difficult times," Fornell said.

Despite the boost from the online retail sector, Internet portals, such as those from Internet media networks America Online Inc. (AOL (AOL) .N) and Yahoo (YHOO) ! Inc. (YHOO), scored very low on the customer satisfaction index with about 63 points.

This is lower than telecommunications and postal service, each with 72 points, hospitals, the federal government and fast food, all with 69 points, and banks with 68 points.

Even more, Yahoo! scored a 74, while America Online is one of the lowest in the services sector with a score of 56 points on the index.

According to the index, although customer expectations for Yahoo! and AOL are virtually identical, AOL has many more customer complaints and much weaker customer loyalty.

AOL's shortcomings in customer satisfaction only clears the way for other portals, such as Microsoft (MSFT) Corp.'s (MSFT) MSN Network, which already scores a 71 on the index, to benefit even further.

"These results suggest that MSN will pose a significant threat to AOL," Fornell said. "In addition, both MSN's and Yahoo's home pages are considered superior to that of AOL's by the respective customers."

The index is computed by the National Quality Research Center at the University of Michigan Business School, along with the American Society for Quality and CFI Group, a management consulting firm.

Thirteen e-commerce companies providing portal services, brokerage services, retail, and auctions have been added to the 170 private sector companies, 29 federal government agencies, two types of local government service, and the U.S. Postal Service already included in index.

Consumer contentment is measured only for a specific sector of the economy each quarter.

Copyright 2000, Reuters News Service

2000-11-28T22:51:00.000-05:00

E-Mail Outpaces the Web

Net surfers are sending 10 billion e-mail messages a day, and that number will more than triple in five years.

By David Lake

There are people online who don't use e-mail, but not many. In fact, 94 percent of American adults online – 73 million people – access their e-mail at least once a month, according to market researcher Cyber Dialogue. Only 89 percent of online adults say they surf the Web that often.

The popularity of e-mail continues to blossom as more people go online and electronics manufacturers add e-mail capabilities to wireless devices. According to a new report from IDC, there will be 452 million e-mail accounts worldwide this year; that will grow to almost 1 billion e-mail accounts five years from now. And this forecast may be conservative: New York-based researcher Messaging Online estimates that at the end of 1999, 569 million accounts already existed worldwide.

Still, both firms agree that the U.S. dominates e-mail usage. Fifty-five percent of all e-mail boxes are created by people in the U.S. and Canada, according to IDC. Most people accessing these inboxes do so for business. Business needs drive 124 million Americans and Canadians to use e-mail, while 80 million people use it for personal reasons.

The number of messages that Net surfers send is also on the upswing. In 1998, the average number of messages sent per day worldwide was about 3 billion. This year, Net surfers will send almost 10 billion nonspam e-mail messages daily, according to IDC. And brace yourself for an even greater onslaught. By 2005, an estimated 35 billion e-mail messages will be sent daily – that's roughly six daily messages for each person on the planet.

Copyright(c) 2000 Standard Media International

2000-11-28T09:02:00.000-05:00

Europeans Have a Tough Time With the Informality of E-Mail
By ALLISON LINN
Staff Reporter of THE WALL STREET JOURNAL

Detlev Liepmann, a professor at Berlin's Freie Universitaet, was talking on his phone recently when an e-mail message popped up on his computer screen: "Hi Mr. Liepmann," began the e-mail from a student in Melbourne.

While the use of courtesy titles or a greeting may seem polite to U.S. e-mailers, who are used to the abrupt shorthand of electronic communication, in Germany this casual greeting would have been unheard of just a few years ago. This is a language where even a letter from the phone company begins, "Very Honored Mr... . " and professors are technically referred to as "Herr Doktor Professor."

Mr. Liepmann didn't necessarily mind the more casual greeting from his student, but he did notice it. "The art of correspondence is still imprinted in our minds as a cultural norm in Europe, " says Mr. Liepmann, a professor of business and organizational psychology. "We are still very used to classical forms of writing letters."

Welcome Change

But as e-mail slowly enters the European business world, nudged along by international clients and younger colleagues, the language of European business is starting to change as well. Where once a letter to a colleague had a formal air, now Mr. Liepmann says it is more and more common to receive an e-mail that "sounds more like a conversation."

In general, many business people say such a change is welcome in European business cultures that, some fear, have been held back by inflexible and formalized rules of engagement. "It's going to affect the way people are having relationships," says Gionata Tedeschi, president of the business division of Buongiorno.it SpA in Milan. "We are more toward the American way, but maybe it is better."

Mr. Tedeschi, whose company consults other companies on using e-mail as a marketing and consumer tool, says the informal air of e-mail allows business relationships to build more quickly, and also has improved information-sharing. After five years of using e-mail as a primary business tool, Mr. Tedeschi says, "[The ones] who are against it are the people who are not using it yet. Once you have e-mail, you wonder, 'How can I do business without e-mail?'"

Reason for Conflict

As companies become familiar with electronic communication, workers need to consider etiquette. "There is a risk in using e-mail within a formal context," Mr. Tedeschi says. When melding the traditional European art of letter writing with the lightning-fast mode of e-mail communication, Mr. Tedeschi says he often isn't sure whether to use formal or informal greetings, and still is very hesitant to address someone by their first name.

"You aren't exactly able to control the mood" of the e-mail, he says, "and people receiving the e-mail may over-emphasize what you are writing. E-mail can be the reason for conflict."

While Mr. Liepmann, the German professor, doesn't necessarily lament the loss of traditional European modes of correspondence, he does see the reason why they became the business norm. For example, he says, it is much easier to refuse a business offer if you are dealing on formal linguistic terms than if you are approached in a more familiar way.

"I think in certain situations it makes sense," he says. "There are certain boundaries that should be upheld."

Culture Clash

A few years ago, Helka Klinkenberg, a New York City-based consultant on international business etiquette, ran into this clash of cultures at a large British pharmaceutical company. Across the cubicles, Ms. Klinkenberg says, the Brits and the Americans were unintentionally offending each other with their interoffice notes. By the time things came to a head, the Americans were calling the formal British e-mails absurd and the British e-mailers were regarding the American informality as abrupt.

In the end, Ms. Klinkenberg advised the company to find a happy medium, and she still exhorts her clients to tread this ground carefully.

"With techies, you can be much more casual," she says, "but if you're dealing with business people, you need to be a bit more proper. I tell my clients to use standard English, and no euphemisms or colloquialisms."

And when it comes to virtual light-heartedness, Ms. Klinkenberg advises a policy of better safe than sorry: "In a business e-mail, jokes are not appropriate," she says.

Tool in Consumer Market

While e-mail is slowly becoming a norm within companies, Boungiorno's Mr. Tedeschi says the biggest roadblock in electronic communication is in getting companies to see its potential in the consumer market, as a tool for communicating with customers.

But here as well, many still find themselves unsure how to go about e-mail contact. Since the hip, alternative Berlin newspaper Tageszeitung, or "taz," began doing its customer service by e-mail, Klaus Heymach, a 27-year-old Berlin resident, has found himself repeatedly stumped by how to address the circulation department whenever he wants his newspaper canceled during a vacation. Each time, Mr. Heymach has gone through a series of verbal gymnastics, using passive and indirect speech rather than having to decide whether to use the formal Sie, the usual form of address for such matters, or the informal du, which is more typical in e-mail and at liberal publications. After nearly a year of this, Mr. Heymach confesses that he still doesn't know which to use.

The solution? "I'll just have to cancel my subscription," he joked.

Write to Allison Linn at allison.linn@wsj.com

2000-11-25T07:07:00.000-05:00

The Napster Master Plan
by Brad King
WIRED

While jaws dropped throughout the digital music space after Bertelsmann's eCommerce group extended the olive branch to Napster, the German media conglomerate has its eyes on a bigger prize –- the global market for electronic entertainment.

Since last year, parent company Bertelsmann AG has been developing a digital distribution superhighway through its Digital World Services (DWS) division. The goal: create the infrastructure to deliver secure digital media to retailers throughout the world.

Although the recent partnership with file-trading company Napster has focused everyone's attention on the music sector right now, Bertelsmann said that's just the first reel in an epic media adventure.

"Besides music, we are moving toward having our first publishing house online in Q1 of next year," Johann Butting, the CEO of the DWS division, said. "We're already looking into movies, then games will come later. Eventually, we'll be looking into (other) business opportunities."

The DWS division has a jump start on its most likely competition -- Sony and a combined Time Warner-America Online. Butting said that his company was the first major media conglomerate to begin building a ubiquitous, worldwide distribution network.

The company's business-to-business enterprise wants to connect content companies to their online retailers.

"We are the service provider," Butting said. "The business is to operate the technology platform that is selected by the content companies, and support the content companies."

While DWS won't be working directly with the new network being developed, Butting said that very likely eCommerce Group CEO Thomas Middelhoff will be joining his board of directors.

He would then consult with among others, BMG Entertainment executives, to determine the future direction of DWS. Last October, DWS was internally spun off from BMG Entertainment, which remains a shareholder in the company.

That creates a very interesting synergy for the DWS division, which could benefit greatly from a new, expanded multimedia version of Napster.

"Andreas (Schmidt, eCommerce Group chairman) has the idea to make Napster a big part of this," Butting said. "The stickiness of the sight makes the consumer part very valuable, and Napster has a big piece of the distribution pie on the Internet right now."

According to Napster, the company now has over 40 million users. But since the partnership with Bertelsmann is still fresh, DWS has looked elsewhere to develop distribution business models.

That synergy helped DWS launch its first series of distribution tests overseas with its Musicdownload24 initiative. DWS sent consumers a free CD which comes packed with Intertrust's digital rights management software, the Sonique player, and a link to a website to download secured music. When the CD is loaded, users have the option of purchasing any of the half dozen tracks available on the disk.

Through an imbedded links on the disk, listeners can also connect with other BMG websites that offer more downloadable music.

Unlike other content company's such as Sony and Universal which have launched their own proprietary music formats, Butting said Bertelsmann has largely stayed out of that market. Because the company envisions pursuing markets beyond music, he said it was important to create a distribution system that could be used by anyone.

So when Middelhoff said Napster would be developed so that other music labels would be able to come on board, he was referencing using DWS as the platform.

"It doesn't make sense to have a proprietary DRM solution because there will be standardization of all this," Butting said. "So if you want to be a business player in the media industry you have to do things that way, otherwise the other companies won't want to come along.

"The labels aren't using the same codecs or DRMs" Butting said, "so if we used proprietary solutions we couldn't achieve the interoperability we are looking for."

2000-11-24T08:36:00.000-05:00

Shrinking Streams to Grow Bigger
by Brad King
WIRED

Thanks to cost-saving technologies, U.S. webcasters might soon be able to create viable businesses that don't require moving to Canada.

Webcasters have been put on notice by Broadcast.com founder Mark Cuban that to have a successful webcasting business, they should move to Canada.

With unresolved licensing issues and a royalty payment scheme at the doorstep of the U.S. Copyright Office, webcasters have been faced with unwieldy costs for producing content. Since they largely can't control the cost of acquiring content, webcasters are turning to new technologies to distribute music and video streams.

Recently launched Octiv provides tools that reduce the bit rates for music and video files before they are encoded, without causing a loss in quality. The Octimax application sits in front of server software, allowing the pre-encoder to work with both Real Networks and Windows Media files -- or any other streaming format for that matter.

"Our heritage comes from the broadcast world, where processing makes the sound better so that commercials sound as good as the television shows," said Keith McMillen, president and CEO of Octiv. "Our claim to fame is better audio at lower bit rates. We use various digital signal processing which, when tuned and working together, really make the audio jump out of the speakers."

According to McMillen, the new Octiv technology will be able to reduce bit rates by up to 70 percent. That could save webcasters between $6,000 to $12,000 per month in bandwidth charges depending on the number of continuous streams being offered.

The technology also helps to improve the quality of audio and video streams together, allowing for a better consumer experience at the same cost to a webcaster.

"In terms of video streaming, the ability to make the audio sound better at lower bit rates allows video people to take an extra 20 percent of the bit stream," said McMillen. "There is no money savings per se, but they are giving better audio and video experience."

The service also allows webcasters and ISPs to remotely control distribution paths, enabling the increasingly popular ad insertions to be dropped in streams from multiple locations.

The new audio and video codecs coming out are also getting smaller as Microsoft (MSFT ) and RealNetworks (RNWK) continue to battle it out for control of the streaming market. That, of course, is good news for webcasters.

"The increasing quality of codecs is really reducing the cost of bandwidth," said Marty Roberts, RealServer product manager. "And bandwidth is falling faster than Moore's Law. Bandwidth costs decrease by half about once every 12 months. That is good news for broadcasters. They are getting more bang for their buck, but the bandwidth is getting cheaper."

"In the audio space, we are talking about formats that run 20 kilobits per second up to 64 kilobits per second. Many of our stations would broadcast 32 kilobits per second, but with RealAudio8 you can get the same audio experience by a rate reduced by a third, at 20 kilobits per second."

With RealVideo8, the recently released streaming technology, Roberts said the company has reduced the size of a stream from 1.5 Mbps to 500 Kbps without compromising the user experience. So, a standard $600-per-month T1 connection that holds about 1.6 Mbps gives webcasters more options for delivering content.

But the future of webcasting could very easily run through the open source movement where a group of developers have been working on free streaming servers. While webcasters traditionally have paid for encoding and streaming services, the Vorbis music file and Icecast streaming servers allow for a cheaper, commercial alternative.

"You don't pay royalties on any of the content, the software technology, or the streaming servers," said Chris Montgomery, architect at Xiph.org, the organization developing the OggVorbis project. "I expect that quite a few people are going to want to use this. People will initially be worried about buying into something that doesn't have widespread industry adoption. But in this case, the almost free lunch here really is as good as looks."

The tradeoff comes with the bandwidth costs. Montgomery said the design team has been largely focused on developing high-quality sound files meant to be multicasted. However, multicasting still hasn't achieved deep penetration in the marketplace. That means webcasters would initially be paying high costs for bandwidth to use Vorbis.

"The quality of the file is getting better, but the file size has remained similar," Montgomery said. "We are at quality levels with sound that Real and Microsoft haven't gotten to yet. They don't really have a high end for sound. We deliver more quality than low bit rate."

But he added that early into next year, he expected the file size to be shrunk down to the more affordable, lower-end sound encoded at 16 Kbps.

WIRED.com

2000-11-24T08:29:00.000-05:00

Net Myths You Should Ignore

Jesse Berst, Editorial Director
ZDNet AnchorDesk

I don't believe in the Tooth Fairy, the Easter Bunny or Santa Claus.

All myths.

The Internet has several myths too. They get repeated and take on their own lives. I'm here to explode seven of them so you don't fall victim to fuzzy thinking.

ECOMMERCE MYTHS
The business side of the Web has its share of untruths. Here are three:

Myth No. 1: There are millions of dot-com companies. There are only about 2,500 online start-ups backed by venture capital, according to International Data Corp.

Myth No. 2: All ecommerce sites lose money. IDC surveyed 600 commercial sites and found about half expecting to make money by year's end. And 35% already in the black. For instance, FTD.com, a spin-off of floral giant FTD, says it's now profitable.

Myth No. 3: Internet executives are all young. Sixty percent are between 30 and 50, according to IDC.

PEER-TO-PEER
Myth No. 4: Peer-to-peer networks are the wave of the future. Not among business-minded folks. Eric Scheirer, an analyst with Forrester Research, calls peer-to-peer an infrastructure, not a business model. Other experts say P2P is unproven commercially and impractical, given wide differences among computer platforms, software and other factors.

TELECOMMUTING
Myth No. 5: Telecommuting is how you'll work in the future. Fewer than 5% of all U.S. workers telecommute on a full-time basis, and the number seems to be shrinking, according to IBM research.

FAMILY TIME
Myth No. 6: The Internet cuts down on family time together. A recent study finds 92% of respondents saying household members spend the same amount or more time together since getting a home Internet connection.

JOURNALISM ACCURACY
Myth No. 7: Net journalists are less accurate than offline counterparts. I'm biased here. The fact is responsible journalists make mistakes online and correct them. Just like they do in print, on radio and on television, according to Steve Klein, who teaches online journalism at George Mason University.

Myths like Santa Claus and the Easter Bunny are fun for awhile -- but eventually you have to grow up.

2000-11-23T07:29:00.000-05:00

Got Content? Think Syndication
by Brad King
WIRED

It's the syndication, stupid.

That's the rallying cry for businesses hoping to make a living where the Digital Entertainment Network, Pop.com, and Pseudo.com failed. The differences between the old and the new appear slight, but these upstarts don't want to be the destinations users go to; they want to create the content that helps bring users to sites.

"As a destination site, our business model is different than DEN and Pseudo," said Douglas Tirola, head of production at Studionext.com. "We are selling our shows, and not our site. "My dad went to see The Patriot this summer, but he couldn't tell you who made it," Tirola said. "Nobody could tell me one show that Pseudo produced, which was a problem. As much as NBC tries to have Must See TV, people watch the shows they like, not the network.

"As a business our emphasis is on selling our services, trying to produce content both online and offline," he said. "We aren't just a website, we're a business. That's been our motto."

Studionext.com has already produced content for GE Capitol, adult entertainment company Nerve, Alec Baldwin, and BMG's GetMusic. Their biggest boon so far has been working with advertising agencies to create dynamic advertisements or short-form content to replace banner ads.

Ultimately, Tirola said he would love to get Studionext's content picked up by a major motion-picture studio or by network television, but the company isn't banking its future on that. Instead, executives are focusing on what Studionext.com does best: creating content for advertisers, businesses and individuals.

"Instead of asking a studio to take a $15 million risk on a new filmmaker, why not try to take a shot on the Internet as a first run," Tirola said. "You can go with us as opposed to spending $10,000 on five minutes of content like Pop.com hoped to do. There just aren't enough people on the Web who are interested to make content."

But television networks and the recording industry could use a new application from Loudeye Technologies (LOUD) to start attracting those users to the Web.

The Loudeye Media Syndicator allows Internet service providers to put an application on top of their servers that keeps content locked in the server until the appropriate time. Essentially, it's a firewall for the last mile.

The application would allow a television network to encode its shows, and ensure that their release times would coincide with the release of the shows in certain time zones. That would mean a viewer in New York could watch Friends three hours before a viewer in San Francisco could, just like on network television.

"This is all about selling a particular geography and a particular time," said Martin Tobias, Loudeye's CEO. "Our technology breaks up the Internet just like that. This would allow Studionext.com to give its content to Yahoo first, then a group of second-tier platforms, and eventually to everyone with just a simple set of directions."

Not all of the new syndication companies believe glossy and finished products are going to fly on the Web.

As the trend in syndication moves into repackaging other media and developing new delivery systems, Oddcast still believes in content creation –- as long as it is the consumer doing the creating. Oddcast CEO Peter Clemente believes that communication will move from email and instant messaging into interactive audio and video chat.

To capitalize on that market, Oddcast has developed content-creation tools that can be licensed out to various partners. Consumers then have the opportunity to create their own music videos by using pre-established JPEGs, video, and audio. That content can be uploaded onto branded sites such as Getmusic.com.

The goal is to create a network of content across several sites.

"There is a radical shift in the way people communicate, and as that changes, people are going to want to use audio and video," said Peter Clemente, Oddcast's CEO. "This is the future. That's why people are enamoured with reality programming because they can relate to it. It's unpolished and unfinished that people gravitate toward."

According to market-research firm Cyber Dialogue, about 25 million users want to interact with media online. By creating a network of sites using his interactive media applications such as the BeatSensor and VideoMixer, Clemente has banked his entire business model on the interactive trend continuing.

"If content companies don't compel their customers to interact with media, within 12 months they will lose those all of those customers," Clemente said.

Related feature:

GolfServ is focusing on providing syndicated golfing content to its partners. How successful is it? After only 7 months of business, the company has 160 partners. Learn more about GolfServ's unique model in this StrategyWeek.com interview with GolfServ's president and co-founder, Kathryn Savarese.

http://interviews.strategyweek.com/rs.nsf/FrontPagesByCompany/GolfServ+Online-President?OpenDocument

2000-11-22T12:37:00.000-05:00

Online Legal Advisor

Got a legal question? Ask Auntie Nolo, a self-described self-help source for "commonsense wisdom for your personal legal dilemmas." Or browse through past questions on topics ranging from estate planning to the noisy neighbors.

Check it out @ http://www.nolo.com/

2000-11-22T12:27:00.000-05:00

Internet Drawing More Advertisers Online

CyberAtlas
The Web Marketer's Guide to Online Facts

The number of new companies advertising online has more than doubled since January -- growing by 157 percent over the past ten months, according to AdRelevance, which tracked and analyzed traditional and dot-com advertisers coming online for the first time between January 2000 and October 2000.

Among the AdRelevance findings:

The number of new companies advertising online is growing at an average rate of 14 percent a month.

Twenty-four percent (949 companies) of all advertisers in the month of January 2000 (3,963 companies) were new to the Web. While traditional advertisers accounted for approximately 41 percent of the top 100 new online advertisers in January 2000, they make up close to 50 percent in October 2000 - with dot com companies rounding out the other half.

More than 1,000 companies have advertised online for the first time, each month since March 2000. Third quarter of this year saw 5,489 new advertisers coming online -- far surpassing first quarter (2,935 new advertisers) and second quarter (3,879 new advertisers).

Planet Project was the number one new online advertiser for October 2000, running a campaign with 110,000,000 impressions. Other top new advertisers for the month include: Major League Soccer (30,000,000 impressions), Norelco (16,000,000), Saks Fifth Avenue (11,000,000), 1800LUGGAGE.com (9,200,000), mailsweeps.com (6,800,000) and education.com (7,500,000).
"The latest AdRelevance data clearly illustrate that new advertisers are coming online on a regular basis. Despite a financially slower third quarter, it's interesting to note that far more advertisers came online for the first time in August than in any month prior to it this year," said Charlie Buchwalter, VP of media research for AdRelevance. "Even more compelling is the fact that new traditional advertisers are growing at a faster rate than new dot com advertisers. Fifty percent of the top 100 new advertisers in October were traditional companies -- in January they only made up 41 percent."

Even though more companies may be joining the ranks of online advertisers, top companies in the Fortune 500 list aren't among them. According to AdZone Interactive, of the estimated $1.6 billion spent in the month of September on Internet advertising, the top 10 Fortune 500 companies contributed less than $50 million.

Walt Disney Inc., which ranks 66th on the Fortune 500 list, was the leading Web advertiser among Fortune 500 companies. Disney spent an estimated $69.8 million advertising online. However, while four of the top advertisers in September ranked among the top 20 on the Fortune 500 list, only five of the top 10 companies ranked among the top 50. General Motors Corp., the top-ranked company in America, was No. 10 among Fortune 500 Web advertisers with an estimated $10.4 million spent online.

In contrast, seven of the Fortune Top 10 companies have spent less than $10 million for online advertising, while five of those companies: Wal-Mart, Exxon Mobil, General Electric, Citigroup and Boeing spent less than $1 million.

"Some of the larger companies haven't explored the value of on-line advertising. Sears.com was September's top advertiser on the Web, while Wal-Mart, number two on the Fortune 500 list, spent nothing," said John Cardona, president of AdZone Interactive. "It's amazing to see the differences of who is and who isn't committed to Web advertising."

Of the 10 largest companies, Wal-Mart was one of two companies not including online advertising in their budget; while on the opposite end of the list, AOL and Barnes and Noble Inc., ranking 337 and 443 on Fortune's list, spent an estimated $49.7 million and $21.4 million for online advertising.

2000-11-22T08:51:00.000-05:00

Global Tech Spending Tops $2 Trillion

Worldwide spending on information and communication technology exceeded
$2.1 trillion last year and is expected to surge 50 percent by 2004,
according to a study by International Data Corp. That spending now
represents 6.6 percent of the world's gross domestic product, including
almost 9% of U.S. GDP. Top spenders in 1999 were the U.S. ($762
billion), followed by Japan ($362 billion), and Germany ($139 billion).
The top-10 list was rounded out by Britain, France, Italy, Canada,
China, Brazil and Australia. The fastest growing market, however, was
Vietnam, booming at a compound annual growth rate of 35 percent over
seven years. Other countries growing at more than 10 percent included
Poland, Colombia, India, Hungary, Romania and Slovakia.

2000-11-21T08:57:00.000-05:00

Protecting Your Dot-Com Idea

1. Call your Lawyer. Ideas or "trade secrets" fall under the "intellectual property," laws, and they can't protect you if you do not have the proper documentation. If you can't afford an attorney, start educating yourself here:

World Intellectual Property Org.
http://www.wipo.org/

2. Go ahead and obtain your estimates for Web development, but BE VAGUE. All anyone needs to know at this point, is an outline of your basic needs. Once you have made your choice, get their confidentiality policies in writing, and have them sign a non-disclosure agreement.

An example of a non-disclosure agreement can be found here:
http://www.bitlaw.com/forms/nda.html

However, non-disclosure agreements come in many forms, and it is important to use the right one. Taking that into consideration, and the fact that the laws regarding the Internet are constantly changing, a lawyer specializing in e-commerce is a good investment.

Good luck!

2000-11-18T06:10:00.000-05:00

High-Tech Culture Fosters Ideals, Study of Silicon Valley Says
By BETTINA BOXALL
LA Times

Behind the Silicon Valley image of geeks squinting at lines of code and counting stock options lies a society that in many ways defies the stereotype.

While technology has seeped into the routine of ordinary life--from language to parental expectations--Silicon Valley also can be a surprisingly social, even spiritual place, according to a team of San Jose State University anthropologists.

The researchers, who have interviewed, watched and listened to Silicon Valley residents for thousands of hours as part of a long-term study, are finding that high-tech culture is shaping not just the office, but the home and the way people view themselves and their place in the world.

"Everybody thinks Silicon Valley is just associated with technology and completely ignores its cultural complexity," said anthropologist Jan English-Lueck, who, along with two colleagues, will present her latest findings today at the American Anthropological Assn.'s annual meeting in San Francisco.

There may be greed in the valley, but there is also a missionary-like sense among many high-tech employees that their work is changing the world for the better, that it will solve many of society's problems, the scholars found. Even shipping clerks and secretaries feel that way.

"High-tech work is swept into one grand endeavor, one that has moral implications," wrote San Jose State anthropologist C.N. Darrah.

In a paper he will deliver today, he quotes one employee as saying Silicon Valley is developing "new technologies so that we have a better quality of life that can reach all levels of society."

At work, the computer screen may seem the dominant form of interaction, but high-techdom actually demands considerable social skills, researchers concluded. "It's deeply social work," said English-Lueck, chairwoman of the San Jose State anthropology department. "A lot of favors need to be exchanged and information."

Moreover, tasks must be shared by a dauntingly diverse group of people. Silicon Valley draws from the world. A company team may include workers from 20 different countries. Bigotry is simply not practical. "There's a really high premium for tolerance," English-Lueck said. "It's not good business to be nasty to any particular culture."

Silicon Valley values could be described as an extreme expression of American values--risk taking, individualism and innovation are prized, and not just in the workplace.

"People think you can tinker with and redesign and engineer yourself. . . . How do you improve the product and the product is yourself," English-Lueck said.

That competitive spirit trickles into family life.

"I think it puts tremendous pressures on kids," said James Freeman, a San Jose State professor emeritus of anthropology and one of the Silicon Valley study team. "There are those who say they want to be the next Bill Gates and others saying, 'I really don't want to be, but my parents are pushing me.' "

The concentration of high-tech companies and high value placed on knowledge makes parents demand even more than those in some other high-pressure communities.

"In many families, parents are kind of loading up their children with a huge variety of activities to prepare them to become socially desirable people," he said.

For adults in Silicon Valley, networking has become nearly as automatic as breathing.

"We often find people are always on display," Freeman said. "Life becomes like a performance. You're always out there hoping to be noticed and be called."

Freeman cited one father who selected his son's soccer team based on the networking potential of the players' parents.

At the same time, Freeman said workers in the high-tech field can be very reflective, contemplating far deeper issues than the price of company stock or the next new product. He also observed more church-going than he expected.

More predictably, they have woven job lingo into virtually every aspect of daily life.

Parents will wonder if they have "the bandwidth to be a good parent," or will refer to family members demanding a lot of time and attention as "drag units."

"It's often done with irony," said English-Lueck. "People laugh at the fact that technology has permeated their lives."

Copyright 2000 Los Angeles Times

2000-11-18T06:00:00.000-05:00

STUDY: Enabled Mobile Phones Rarely Used For E-Commerce
QWEST Today

Fewer than a third of U.S mobile phone users have attempted to buy
anything via their phones, and 20 percent of those have given up in
frustration, according to a Boston Consulting Group study reported in
the E-Commerce Times today. The top five complaints listed by consumers
were: high costs, slow speeds, cumbersome navigation, difficulty typing
on a tiny keypad and unreliable service. Still, most of the 1,850 survey
respondents -- based in the U.S., Japan, Germany, France, Sweden and
Australia -- say they believe that m-commerce will become an important
part of their daily lives in the next few years. Based on the results,
BCG predicted that by 2003, global business-to-consumer m-commerce
revenues will reach about $100 billion -- about the same amount
generated by e-commerce in 1998.

2000-11-17T21:10:00.000-05:00

Seeing Online Ads Seems to Drive Conversions
CyberAtlas
The Web Marketer's Guide to Online Facts

People who recently saw an online advertisement have a dramatically higher propensity to purchase or register at the advertiser's site, according to a study. A result that indicates that viewing ads -- even without clicking -- drives conversions.

The findings come as part of Engage AdKnowledge's quarterly Online Advertising Report, which was compiled from information on the company's system. The sites on the company's system are representative of the Web advertising marketplace, according Nielsen//NetRating statistics cited by Engage AdKnowledge, with a reach of 95.85 percent of the home audience and 98.42 percent of the work audience.

Looking at the time lag between a view and a conversion, as compared to a click and a conversion, the researchers found that those who converted after a view did so after a longer period of time. In fact, 38 percent of those who converted after a view did so eight to 30 days after seeing the ad. By contrast, 61 percent of those who converted after a click did so within 30 minutes of the click.

The data on post-view conversions is the latest information to come out of Engage AdKnowledge that seems to support the branding or awareness value of banner advertising. The company's first quarter report found that 32 percent of all conversions followed an ad view without a click.

The value of online advertising has been hotly debated -- especially now, as the struggling of online ad companies seems to point to a flaw with the medium. The CPM model, especially, is under serious scrutiny, as this tight financing market drives dot-com advertisers to low-risk pay-for-performance deals. Although advertisers have been willing to accept nebulous proof of results from traditional media, the greater accountability possible with online media has spurred online advertisers to demand more hard effectiveness data. That has generally meant cost-per-click or cost-per-acquisition deals, but this latest study gives supporters of the CPM model more ammunition.

"This study shows there is measurable and concrete value to an impression without a click," said David Zinman, senior vice president, Engage. "That means marketers need to pay attention to the 99 percent of people that don't click. We think that this realization raises the value of the Internet as an advertising medium."

The study also found that marketers need to pay special attention to their current customers. Although 75 percent of customers acquired from ads converted only once, the remaining 25 percent -- the loyal customers -- accounted for nearly 50 percent of conversions. This means these folks are making up a significantly greater percentage of sites' business.

Additionally, the researchers looked at banner acceptance, and found that banner ads still have the greatest acceptance, by a long shot, although every format saw growth in the number of sites accepting them. Rich media formats also grew across the board, with HTML ads, Java ads, and JavaScript ads most widely accepted. Shockwave ads came in right behind JavaScript, topping the list of ads in proprietary formats.

Average CPM rates -- at least rate card rates -- came in at $33.64, falling one percent from $34.06 last quarter. Meanwhile, the number of sites and networks seeking advertising grew 35 percent in the third quarter -- from 4586 to 6206. Whether this growth in sites accepting ads is effecting actual CPM rates, though, remains to be seen.

The study also took at look at European CPM rates, which increased slightly in the last quarter.

This article was originally published by internet.com's Internet Advertising Report.

This article can be found online at:
http://cyberatlas.internet.com/big_picture/demographics/article/0,1323,5941_509941,00.html

2000-11-15T07:51:00.000-05:00

Yahoo's Scheme to Stream Music
by Brad King
WIRED

Yahoo's search for a music strategy could lead to a showdown with the recording industry.

After an aborted attempt to purchase music locker service Myplay.com, and after the underwhelming consumer response to the release of its own proprietary player, the portal giant is now eyeing the streaming market.

Executives from Yahoo (YHOO) reportedly visited the offices of San Diego's company Musicmatch last week to discuss a possible partnership. Both Yahoo and Musicmatch declined comment on the matter.

Musicmatch recently released a beta version of its interactive jukebox -- which allows users to choose artists they enjoy, view which bands' songs will play next in the stream, and click forward through the music.

"The new feature served off the Musicmatch servers, but there are DMCA rules built into all of our algorithms," said Musicmatch spokesman Gary Brotman. "These are play lists made by our in-house radio programs. If you want Eminem, you get a play list that has Eminem songs in it along with other artists who our users, who enjoy Eminem, are listening to."

The service skirts around the interactivity section of the Digital Millennium Copyright Act.

The DMCA sets out certain ground rules for webcasters. For instance, webcasters must wait three hours before playing the same song; they can't list the songs about to be played; and they can't serve songs on demand.

Musicmatch's service does allow users to program in an artist they like and receive audio streams of related music. While the player doesn't display the next song in the stream -- which is illegal -- it does show the next artist, and it enables listeners to fast-forward through music they don't want to listen to.
For now, Musicmatch appears safe from legal attacks from the Recording Industry Association of America since the rules of interactivity haven't been clearly defined. Currently, the Digital Media Association and the RIAA are engaged in arbitration in the U.S. Copyright Office to determine whether services such as Musicmatch are interactive.

If the government finds that this type of personalization is interactive, the webcaster would be forced to obtain individual licenses from the major labels before it could continue its service. The RIAA's position is that personalized services require webcasters to work with individual labels.

"The simple answer is that personalized radio is interactive and therefore requires individual licenses," said Steve Marks, the senior vice president of business affairs for the RIAA.

No worries though for Musicmatch, said Brotman. The company has been very up front with the RIAA and the labels, he said, and they don't expect trouble regardless of the outcome.

"We are doing this above board," Brotman said. "A listener cannot program a station. What we do is match them to a cluster of songs being listened (to) by other listeners."

Wired.com

2000-11-15T07:34:00.000-05:00

Young Dot-Commers Hit Really Early Midlife Crisis
By WENDY BOUNDS and RACHEL EMMA SILVERMAN
Staff Reporters of THE WALL STREET JOURNAL

Can you suffer a midlife crisis only a few years out of college?

Jeremy Wolf thinks so. After graduating from Columbia Business School last year, Mr. Wolf went to work for an Internet developer based in San Francisco and was charged with opening its New York office. He was 29 years old.

From the beginning, he thought he was wearing too many hats. In addition to finding office space and purchasing equipment, he says he consistently networked with clients late into the evenings. He felt he was always running late, "to the gym, to the office for a meeting, to dinner" and had no time to visit his family in California or take vacations alone with his girlfriend of the time.

Maybe the sacrifices would have been worth it. But at the end of last month, he says, his company, Fluid Inc. decided to not give out annual bonuses. (Fluid says it didn't have an official bonus plan in place until November and will have a plan next year.) For Mr. Wolf, who says he had taken a salary of $80,000 -- "about 40% less than my counterparts from B-School" -- in exchange for a 20% target bonus and equity, that was it. Within a week, he resigned and now plans to move back to California, where he'll be closer to his parents.

His next career step? He has no idea. "The reality is that I've been chasing my career," Mr. Wolf says. "I've been doing this to speed up, speed up and I finally need to step back and say, 'What's important to me?' "

Talk about arrested development. Mr. Wolf is part of a cluster of 20- and 30-somethings who cut their professional teeth at a time when the possibilities seemed endless (think stock options at 27, retirement by 32), if only you worked hard enough and sacrificed all things personal. But as the so-called New Economy undergoes a reality check, many of these young pioneers are reassessing their priorities in a manner that belies their age.

Buying Into the Dream

One disillusioned dot-commer abandoned the tech world at age 25 to become a junior-high math teacher, while a 29-year-old new millionaire took up race-car driving as he pondered whether to return to work -- ever. And though there is no official tally, counselors and religious groups say a growing number of the disenchanted are coming to them and asking: Is this all there is to life?

"I think people of this [young] age are looking for something deeper than the rat race," says the Rev. Greg Cootsona, whose Fifth Avenue Presbyterian Church in New York launched a lecture series this fall called "Faith, Hope and Love in the New Economy." They feel they "bought into a dream, but the dream didn't give them what they thought," he says.

Such feelings have traditionally plagued 40- and 50-year-olds who had worked for decades to achieve their dreams, only to find them unsatisfying or illusive. But the New Economy has triggered all that on Internet time -- success, riches, disillusion -- and for a much younger group.

For some, the riches have been beyond imagination. Last year, roughly one-third of "millionaire" American households were headed by someone between the ages of 18 and 39, up almost 15% from 1990, according to Mendelsohn Media Research in New York. In the Internet world in particular, a good idea and hard work could bring instant riches without years of toiling under a middle-aged manager's tutelage.

"I never had to wait for someone to quit the firm so I could get a promotion," says Mark Jacobstein, the 30-year-old chief executive officer of Small World Media Inc., which organizes online fantasy sports leagues.

Crisis of Confidence

High expectations were set; barely a week passed in the waning '90s without a prospective baby billionaire appearing barefoot on a magazine cover, flush with post-IPO success. So when the Internet bubble burst this past spring, many who had bought into the dream suffered a sort of professional and personal whiplash.

"People have a crisis of confidence when they see that something they believed in or felt good about goes sour," says Peter Karp, 26, a recently laid off dot-commer who now is trying his hand as a full-time jazz and rock drummer. In the Internet's case, Mr. Karp observes, "it went sour in like one year."

Suddenly the focus was no longer on the success stories but on sagging stock prices and skittish venture capitalists. Internet layoffs and company closings are now tallied regularly on the Web site of the Industry Standard magazine; as of Tuesday, 245 dot-coms had laid off at least 22,155 employees and 42 of them had closed altogether since the end of last year. The ghoulish scrutiny has left a nagging feeling among some New Economy refugees who wondered if the best years of their lives, professionally, might be over.

"We will never in our lifetime [again] experience what's happened these last three or four years," says 29-year-old Seth Baum, who turned down a $150,000 consulting job for a top executive slot at the now-defunct Petstore.com.

Certainly, every generation faces coming-of-age questions or unrest in first jobs. And throughout history there have been great technological advances -- from electricity and internal combustion engines to the railroad -- where people "on the frontier take a big shot and get trounced" when things slow down, says Elyce Rotella, professor of economics at Indiana University.

Still, it's as if a segment of today's young adults came of age too fast and lost something en route. The pattern for human development usually includes acquiring skills related to personal intimacy, time management and exploration of culture alongside professional growth, says Ellen McGrath, a New York-based psychologist who specializes in work/life issues. But because many Internet entrepreneurs averaged 70- to 80-hour weeks, everything but work got put on hold.

The peer pressure in Silicon Valley is "to have no life," says 29-year-old Theo Song, who left a consulting job at Bain & Co. for a Web start-up in the Valley but returned to Bain in Los Angeles this fall. "It was almost as if you are purely in execution mode, with no time to reflect or think if this was the right trajectory for me."

There is also the burden of being handed so much responsibility so early. Ms. McGrath, the psychologist, also runs an executive-coaching business and often finds herself counseling frantic young workers calling from cell phones outside their offices. "This is the first generation that has spawned casualties of the speed disease," Ms. McGrath says. "They were promoted so quickly that at 29 or 30 they are in the same position they typically would be at 50."

For those caught in the dot-com shakeout, the crash was an unexpected wakeup call. What concerns some counselors is whether those suffering major disappointments can see that they are still at a very early stage in life. "You have folks in their 20s who have never ridden out bad times," says Arlene Krohmal, executive director of CrisisLink, a nonprofit counseling venture in Washington, D.C. "When you don't have the experience riding out bad times, you don't have a basis to fall back on. It's very important that those lacking basic experience have good coping skills."

The answer for some is taking time to reflect on what really matters to them. At 26, Ilana Raz says she felt defeated when she realized her job at an upstart Internet health-care firm wasn't leading her where she wanted to go professionally. With her friendships and relationship strained from the stress of being unhappy, the honors graduate from Lehigh University left her big title and $80,000 salary in September determined to seek more meaning in her life. Should she pursue her life-long passion -- photography -- or go back to school to study biotechnology, another hot up-and-coming sector? Looking for inspiration, Ms. Raz picked up Maria Shriver's book, "Ten Things I Wish I'd Known Before I Went Out Into the Real World," and had regular lunches with her parents to seek their guidance.

"I can't believe how grown-up I've become overnight," Ms. Raz muses. "These experiences have taken away my naivete." Maybe it's part of growing up, she says, but sometimes "I want that back."

For those who scored big financially in the Internet boom, the question "What next?" can be equally vexing. At 29, Michael Klein has run three start-ups, retired once for a few weeks and seen his last company eGroups Inc. acquired by Yahoo! Inc. in August for about $450 million in stock. Since then, Mr. Klein has caught up on movies with his wife and has even taken up race-car driving. Where he works next is unclear, because having already chalked up so much experience, "some of the thrill" is gone, he says.

He could retire permanently, and yet the pace seems too slow. "I had let a lot of things go by the wayside, like getting your taxes done on time, spending time with friends and family." he says. "But I really quickly realized that the amount of time it takes to do those sort of things isn't enough to fill a day. Maybe I'd like them more if I were traditional retirement age, but now, it's not my cup of tea."

As part of their search for grounding, some young workers are looking to spirituality. At the Fifth Avenue Presbyterian Church in New York, 60% of new members are now in their 20s and 30s. Several books have been written examining religion and the Web, including one called "The Talmud and the Internet: A Journey between Worlds," by Jonathan Rosen, former culture editor of the national Jewish newspaper the Forward.

Meanwhile, a sermon last year at the Peninsula Bible Church in Palo Alto, Calif., seemed aimed directly at young dot-commers. "In Silicon Valley, work has become God," said Rev. Scott Grant. "We have bowed down before the altar of the almighty silicon chip. We have given it the best part of ourselves."

Typically, it's a life event that brings people back to church, adds the Rev. Paul Lent with Marble Collegiate Church in New York. Today, he finds "people have lost their way that much earlier."

That uncertainty is leading some, particularly disillusioned dot-com alumni, back to the very stability they once shunned. This past summer, Andersen Consulting wrote letters to ex-employees promising special benefits if they returned; by the end of August, at least 108 -- some of them under 30 -- had accepted the offer.

Robert Kanabay came back. In April, 26-year-old Mr. Kanabay left Andersen Consulting to join a Chicago Internet development consulting firm. "I thought I could advance my career faster; I thought I could make a lot more money a lot faster by leaving Andersen," he says. Almost immediately, though, he missed the "caliber" of his Andersen co-workers and realized he had taken for granted having necessary resources to get his work done. He remembers his embarrassment during an important presentation to one client when only half of the Web prototype worked.

"The entire stint at the dot-com start-up was a midlife crisis or early-life crisis," he says. Now back at Andersen, Mr. Kanabay says he is more appreciative of what makes the company "so neat" -- things such as mentors and having "all the training needs I need or want" met. Forget slave hours: Mr. Kanabay now keeps a balanced 40-hour week, never works weekends and plans to "enjoy my life and travel as much as possible."

The silver lining to the early angst is that by reassessing their priorities so early in life, this generation could ultimately lead far more balanced lives than their parents did. Not only do many boast extraordinary work experience, but they are developing a maturity far beyond their years.

In the early days of running his start-up, Small World Media's Mr. Jacobstein says, "I was working too hard. I couldn't remember whether it was Monday or Tuesday. I didn't know if it was fall. I would look up and the trees were yellow." Recently, though, he has tried to get distance, both for himself and his staff. Employees are given gym discounts and offered swing and tango lessons to encourage them to unwind. Meanwhile, Mr. Jacobstein tries to limit himself to only four to six hours of work on the weekend and makes an effort to head home by 7 p.m.

Likewise, Ms. Raz took some time before choosing her next employer. Right after leaving the health Internet company, she did once unthinkable tasks, such as cooking her boyfriend dinner or going to a museum in the middle of the week. "At the end of the day, you wake up at 26 and start thinking about putting all this into a career and being a mom doesn't sound so bad."

And yet, it's not that simple. Despite all her soul-searching and visions of settling down, Ms. Raz still finds herself drawn to the dream of phenomenal success. She currently has two job offers on the table -- both at Internet pharmaceutical companies. "You hear of these people succeeding," in magazines and newspapers, she says, "and you want to be them -- to be the next story of the person who created exactly what they want and have a huge smile on their face."

-- Suein Hwang contributed to this article.

Write to Wendy Bounds at wendy.bounds@wsj.com and Rachel Emma Silverman at rachel.silverman@wsj.com

2000-11-14T08:10:00.000-05:00

Web Guru: It's the User, Stupid!
by Peter Catapano

NEW YORK -- Jakob Nielsen doesn't like the current state of Web design, and he isn't afraid to say so.

"If you are going to go and buy something on a new website, you will fail. If you go to a new website, you will not be able to use it.

"That's the average user experience," said Nielsen, one of the four "usability gurus" who make up the core of the Nielsen Group, a collective of forward-thinking tech experts that kicked off a 12-city international tour in New York on Monday.

Not only that, Nielsen said. You're taking a significant risk.

Most consumers know a site like Amazon.com is fairly reliable. But, Nielsen said, if you go to almost any other website, "You can't trust them. They're blatantly lying half the time. They say they are going to ship in three days, but they're not. Or they ship the wrong product."

Nielsen and his cohorts are on a crusade. At each stop, the group will hold two days of tutorials, plus a full-day "main event," which offers presentations by Nielsen and the three other top gurus: Don Norman, Bruce "Tog" Tognazzini and Brenda Laurel. Future stops include cities throughout the United States, Europe, Asia and Australia.

None of this wisdom comes cheap. Barring company deals and discounts, an "early bird" special gets you a ticket at $680 a day, while showing up at the door will cost $800. Companies looking for a private audience with one of the gurus outside the conference will have to part with $15,000 to $20,000 for a four-hour visit.

Nielsen has no problem distinguishing himself from, say, an "expert," who might be more affordable.

"A guru is a super-expert who defines the field and sets the next direction," he said. "And that's what I view my mission as: not be satisfied with the current state of affairs, but rather, 'where do we go from here.'"

Whatever constitutes a guru, Nielsen seems to have it down. At his presentation on Tuesday, he delivered a fast-paced, biting one-and-three-quarter-hour stream of criticisms and insights that seemed to please the crowd of several hundred.

Born in Denmark, Nielsen began his career in the United States in 1990 at Bell Communications Research in New Jersey. He later became a "distinguished engineer" at Sun Microsystems, where, he said, "the IQ points were dripping off the wall."

In 1998, he teamed with Norman -- professor emeritus at the University of California, San Diego, and a former executive at Apple and Hewlett Packard -- to start the group.

Nielsen is also the author of several books, and maintains a website called Alertbox, where he posts his columns.

The group preaches the concept of simple, effective Web design based on an even simpler concept.

"Never listen to what people say. You have to observe what people do," Nielsen said.

Nielsen contends these are two distinctly different things -- and one of them is practically useless to Web designers.
Having people express their preferences in focus groups, he said, produces "completely bogus information."

On the other hand, tracking user actions, right down to where and when they click, can give Web designers a "direct brain dump" -- real information to guide their designs for sites that will work for actual people.

From their research, the group has determined some of what users don't want. They don't want ads, clutter and laborious search and navigation functions. Helping companies translate that into "human-centered" design is what Nielsen calls the group's "evangelical mission."

Nielsen believes the industry's refusal to heed the calls of usability proponents directly affected the steep Internet market drop. Many of the recently dead dot-coms, he said -- especially in e-commerce -- made the fundamental mistake of drawing users to their sites with expensive promotions, then losing them forever with ineffective design or subpar services.

Part of last year's over-valuation of Internet stocks, he said, was rooted in these promotions, and the resulting huge unique visitor numbers. Companies trumpeted those high-traffic numbers as a measure of success -- a concept that makes Nielsen almost irate.

"Unique visitors should be banned from any coverage of the Internet," he said. All that number means, he said, "is that a lot of people have taken a look at my homepage and left."

Though a handful of technology thinkers have been stressing usability for years, few have made it a priority. But why?

"It's not so much resistance," he said, "as it is complete cluelessness, and a lack of awareness that it even exists."

But with so many Internet businesses going under, Nielsen sees a new opportunity to get his message across.

"It seems to be the case that people have to fail. They have to taste the bitter medicine of a failed project before they will listen," he said.

Those who are ready to see the light and mend their ways can download a series of reports for a fee from the Nielsen Group website. The reports contain the group's 222 rules for usability improvement.

This leads to the question, do any existing websites satisfy the exacting usability standards they've laid out?

It seems about the only one to comfortably pass muster is Amazon, which, according to a study done by the group, far surpassed any other site on the usability scale. Yahoo, AOL, and Google got some praise from Nielsen for their design.

The idea of a world tour might seem a bit grand to some, but to Nielsen, it makes perfect sense. The goals, he said, are to be "worldwide in our mission" and to "put user-centered design on the agenda in the new economy." And for anyone uncertain whether the guru believes his own message, Nielsen offered a prediction.

"In the future, first of all, websites will be designed by my guidelines ... for the simple reason that if they don't, they are dead."

Wired News

2000-11-14T07:45:00.000-05:00

Negroponte: Third World Will Rock
Reuters
7:00 a.m. Nov. 13, 2000 PST

SINGAPORE -- Developing countries will soon dominate Internet usage, with wireless technology -- along with the right policy and cultural mix -- speeding the process, MIT Media Lab director Nicholas Negroponte said on Monday.

An exodus of software programmers from India and the ability of a hacker from the Philippines to wreak havoc by spreading the "Love Bug" virus worldwide show that rich countries have no lock on high-tech know-how, he told a seminar on future trends.

"Demographics of the Internet will change, where the dominant player on the Internet will be the developing nations," the author of Being Digital and co-founder of the Media Lab at the Massachusetts Institute of Technology said.

Negroponte's seminal 1995 book -- published before Netscape Communcations existed as a company -- sketched out a future that has unfolded nearly as he predicted.

Negroponte said he would invest in Latin American countries where cultural forces such as a healthy disrespect for authority were strong and there were large numbers of young people.

Costa Rica, where output of integrated circuits has exceeded agricultural exports, was an example of a country with a manageable-sized population and good leadership, he said.

Negroponte said in a wide-ranging speech that India and China were Asian nations with vast Internet potential.

India was further along the path with its government firmly behind development of its own Silicon Valley in Bangalore, he said, while China underestimated the impact of the Internet.

"In the coming years, the Internet will generate momentum for change and development to unprecedented degrees in China," Negroponte said.

Asked whether the current sell-down in Internet-related companies in global stock markets spelled disillusionment, he said it was merely a setback and that the world could still expect an "absolute boom."

"We're in a situation where we are overcompensating," Negroponte said. "It's a great time to be a contrarian ... right now if you are liquid."

The business-to-consumer revenue model had cooled somewhat but consumer-to-consumer opportunities such as auction sites were still to be fully tapped, he added.

Other experts, such as Strategic Intelligence chief strategist Yuwa Hedrick-Wong, said Asia's e-commerce future would be defined by the pace of developments in mobile services.

Innovative examples included Amazon.com using 7-11 stores in Japan as purchase pick-up and payment centers, he said.

"Over half of Asia's 500 million mobile subscribers will be broadband enabled in five years," Hedrick-Wong said. "Asian markets will be 3G (third generation) implementation leaders."

Negroponte said Singapore's move to auction licenses for 3G mobile services was a mistake as it would raise costs and impede its rollout.

Singapore will auction four new licenses for the 3G mobile spectrum -- a technology that provides mobile telephone systems with high-speed access to the Internet so that users can conduct business and even video conferencing through their handsets.

Market sources estimate that Singpaore's auction could raise between $1.1 billion and $2.3 billion for the four licenses.

Negroponte said convergence between technology and consumer products would become more commonplace, such as washing machines that could read instructions coded into clothes.

Copyright © 2000 Reuters Limited.

2000-11-14T07:38:00.000-05:00

Cisco Will Tap Into Travel Needs
With Net Offices in Airports, Hotels

Dow Jones Newswires

LAS VEGAS -- Cisco Systems Inc. said it will team up with software companies and systems integrators on a service that allows traveling business people to connect to their corporate computer network throughout the U.S., via wireless technology or broadband connections.

The initiative unveiled Monday, dubbed the Cisco Internet Mobile Office, currently has 300 locations in the U.S. -- mostly hotels and airport lounges -- identified for the service, said Charles Giancarlo, senior vice president at Cisco. The locations will be fitted with all the gear and wiring needed to let traveling employees connect quickly and securely to the Internet -- to check e-mail or download corporate files -- at high transfer speeds.

Mr. Giancarlo said Cisco hopes to have several thousand locations up and running within 12 months.

He declined to give details on how much Cisco plans to spend on the project or how much revenue the company expects it will generate. "We think it will be big, but we don't know how big," Mr. Giancarlo said.

But Cisco is confident it will boost demand for wireless networking and Ethernet wiring of hotels and other locales, thereby generating demand for the routers and switches Cisco sells.

Mr. Giancarlo said the cost would vary depending on how frequently employees travel and how often they connect to the Internet or corporate network. He estimated a road warrior could pay around $100 or $200 a month, while a less active traveler maybe less than $30 a month.

The initial network service partners -- the firms providing the service -- include Global Digital Media, MobileStar, Wayport and CAIS Internet Inc., which Cisco recently agreed to acquire. Also participating in the initiative are Electronic Data Systems Corp. and Dell Computer Corp.

In his keynote address at the Comdex trade show, Michael Dell said the new Internet service, much like today's cellular phones, would provide "a seamless experience for customers, universal roaming, security and billing."

2000-11-14T07:32:00.000-05:00

New Web Sites Seek to Shape
The Public's Taste in Music
By DON CLARK
Staff Reporter of THE WALL STREET JOURNAL

The Human Genome Project may improve people's health. Could the Music Genome Project do the same for the music industry?

That's the hope of a group of entrepreneurs and music buffs in Oakland, Calif., who are painstakingly analyzing recordings by their fundamental elements to create a database for recommending songs to consumers. Savage Beast Technologies Inc., the company behind the project, is the latest in a growing group of start-ups that are using the Internet to try to shape the public's musical taste.

It's an idealistic, uphill struggle, applying heavy-duty computer science and accumulated opinions of experts and consumers. Most of these young companies are trying to license their services to record retailers and other music-industry players, since it has become so difficult to start new consumer businesses on the Web.

But the music-recommendation start-ups believe their work one day could be more important than Napster Inc. in challenging industry conventions. "We think this has the potential to change the entire way that people discover music," says Jon Kraft, Savage Beast's chief executive officer.

Among other efforts, Music Buddha Inc. has developed an unusual service that graphically displays scores of musical subgenres and plays samples as a cursor passes over them. After consumers indicate whether each selection is more or less their style, the San Francisco-based service, which goes by the nickname Mubu, suggests several CDs that reflect those ratings.

GigaBeat Inc., of Palo Alto, Calif., offers a search service that displays songs or artists in a kind of spiral pattern that illustrates musical relationships among them. San Francisco-based MoodLogic Inc. lets users search by characteristics such as "romantic R&B songs from the 1970s," and visualize them graphically with elements called "mood magnets."

Underlying these efforts is a belief that today's music hit-making system is seriously flawed. Radio, once programmed by disk jockeys who introduced new music regularly, has given way to centralized programming by companies that are worried that changing play lists will cause consumers to change stations. And music labels increasingly focus their promotion and development dollars on fewer artists who are demonstrated money makers.

"The roots of our music -- jazz, blues, any small niche market -- you can't make money doing it," says David Benjamin, a veteran music-industry lawyer who co-founded a PC-based radio service called ClickRadio Inc. "We as a society are being hurt."

The Internet can help, allowing music groups to inexpensively duplicate and distribute recordings anywhere. But getting noticed among millions of computerized tracks is not easy. Napster, for example, only helps consumers if they already know what they are looking for.

The creators of music-recommendation technology, distributed either on Web sites or installed in music-store kiosks, hope to emulate the advice of a well-informed friend.

"It's like the mix tape that the boyfriend gives the girlfriend," says John Adams, Mubu's chief executive officer. "That is the oh-wow moment we are trying to replicate."

Some companies, such as Alliance Entertainment Corp.'s All Music Guide and San Francisco-based Listen.com, employ large staffs of editors who review music and suggest similar artists to those a user calls up using search tools. Some others use collaborative filtering, a process of measuring behavior of many users and then making suggestions based on it. Amazon.com Inc., for example, displays a list of other recordings that buyers of a particular CD also have purchased.

Some services rely on databases that classify songs by specific attributes, using machines or people to do the grunt work of classification. For example, CantaMetrix, of Bellevue, Wash., relies on digital signal-processing technology that automatically picks out such traits as tempo, energy and density of sound. Such machine-based systems categorize music quickly, but can struggle with such qualitative aspects as whether a vocalist is male or female.

MoodLogic, by contrast, uses thousands of consumers, who log on to an affiliated site called Jaboom and earn gift certificates for classifying songs according to a large list of attributes.

Mubu and Savage Beast rely on expert listeners. The latter's Music Genome Project, for example, employs 30 music aficionados who spend much of their day listening on headphones and giving numerical rankings to songs according to 180 attributes, which the company dubs genes.

So what are the results of these efforts like? In a word, mixed.

When MoodLogic's database was searched for all songs with the mood "aggressive," for example, the system comes up with relatively mild fare, starting with the Rolling Stones' "Paint It Black," "It's Late," by Queen and "Crazy Love" by the Allman Brothers. CantaMetrix, which is only offering private demonstrations of its technology to potential corporate users, responded to the same word with snarling tracks by Black Sabbath and System of a Down.

But when asked to find songs similar to Eric Clapton's recording of "Hoochie Coochie Man," CantaMetrix suggested a sweet song called "Only God Knows" by some female gospel singers called the Martins, and the country classic "I Saw the Light" by Hank Williams.

MongoMusic Inc., a Redwood City, Calif., company recently purchased by Microsoft Corp., combines human and computer-based classification. It responded to a request to match the Clapton recording with 20 similar blues recordings from various artists.

Savage Beast, which specializes in searches based on reference songs, also pulled up a variety of similar-sounding tracks to "Hoochie Coochie Man." It then lets users branch off, refining searches to emphasize traits such as the harmonica or shuffle beat of the reference song.

A drawback to such "sounds-like" approaches, of course, is that consumers need to have an existing song in mind. That's why MuBu uses song samples, rather than text, to make its recommendations. And none of the services can replicate one of the most powerful forces in picking music -- the identification with friends or other people who like a particular style.

"The whole issue of recommending is contingent upon who is recommending," notes Bob Gjerdingen, a Northwestern University associate professor who specializes in music perception and consults for MoodLogic. "The very idea of taste largely makes sense only in a social group."

But CD sellers are intrigued. Tower Records Inc., the big Sacramento, Calif.-based music retailer, says it is interested in bringing such technologies into its stores, assuming it can solve practical problems such as crowded kiosks and links to checkout systems.

"That is the next hurdle," says Stan Goman, Tower's chief operating officer and an adviser to Savage Beast. "But the potential is something else."

Finding New Tunes

A sampling of services that recommend music

AgentMusic Search service suggests similar artists and adjusts to user preferences

GigaBeat Displays related artists and songs in a visual pattern

MoodLogic Offers search by mood and other characteristics based on user ratings

Music Buddha Users rate sound clips arranged by genre

Savage Beast Search based on 'music genome' database compiled by expert listeners

Write to Don Clark at don.clark@wsj.com

2000-11-13T20:31:00.000-05:00

A Must Bookmark: Top Ten Dot-Cons

This is FTC's new Web site featuring advice to consumers on how to avoid being sucked into Web scams.

http://www.ftc.gov/bcp/conline/edcams/dotcon/

Go and explore it!

2000-11-13T20:30:00.000-05:00

Pricing Database

Strong Numbers describes itself as "the Blue Book for Everything," boasting values for a wide variety of items based on prices from more than 5 million online auctions each week.

Go explore it @ http://www.strongnumbers.com

2000-11-13T20:29:00.000-05:00

Start-Up's Idea Marketplace Draws
Attention of Coca-Cola and Others
By DON CLARK
Staff Reporter of THE WALL STREET JOURNAL

Ideas.com, a Silicon Valley start-up, launched Friday a marketplace for business ideas that has attracted the attention of Coca-Cola Co., Sears, Roebuck & Co., International Paper Co. and closely held S.C. Johnson & Son Inc.

The four big manufacturers will be the first to use Ideas.com's Web site (www.ideas.com) to solicit ideas from the public for specific products, services or improved business processes. They have agreed to pay bounties of as much as several thousand dollars for the best submissions.

In addition to running solicitations from corporations, the site will allow inventors to submit unsolicited ideas to specific companies or other potential buyers. In either case, Ideas.com, a closely held Mountain View, Calif., company, expects to get commissions in the range of 30% when ideas are purchased.

To reduce legal risks for buyers and sellers, Ideas.com has devised release forms and other processes that spell out terms for disclosing ideas.

The Web has spawned other idea-swapping ventures. But Ideas.com is unusual in directly targeting major corporations with a process that helps set legal ground rules.

"We get all sorts of unsolicited ideas that come into our organization," said Steve Kirn, a vice president for innovation and organizational development at Sears. "We are looking for a coherent single source that we could flow these ideas through."

The company, founded by Sanjay Goel, a former investment banker for Citigroup Inc., was funded by three Indian-born entrepreneurs who founded Junglee Corp., a Web comparison-shopping service sold to Amazon.com Inc. in 1997.

Besides gathering suggestions globally, Mr. Goel says he set out to help companies exploit untapped ideas within their own organizations. "I consider the Old Economy companies to be incubators many orders of magnitude greater" than most start-up concerns, he said.

The company hopes to inspire many suggestions that might not warrant a patent or generate huge sales, but might trim operating costs or bring benefits measured in thousands rather than millions of dollars. "There is no framework for the cheap ideas," noted Venky Harinarayan, a Junglee co-founder, and the company's largest investor.

As with other online marketplaces, Ideas.com faces the chicken-and-egg problem that people with ideas won't come until there are a substantial number of buyers, and vice versa. But the corporate users feel free to experiment, since they pay nothing unless they find a useful idea.

"It doesn't seem like there is any downside," said Peter Lee, International Paper Co.'s vice president of research and development. The New York wood-products company plans to start by soliciting ideas on portable technologies to measure the internal properties of trees as they stand in the forest, and a way to form paper similar to the way plastic is formed. S.C. Johnson, which makes cleansers and other household products, will solicit ideas on cleaning and improving home environments.

Coca-Cola's initial solicitations will include ideas for beverage packaging and a healthy new drink for kids. "I think people have already been thinking about these things," said Tom LaForge, a staff member in the beverage company's innovation group. "Now they have a way to make that known to us."

Besides these four customers, DaimlerChrysler Corp. said it has signed a letter of intent about using the site, though details are still being negotiated.

Write to Don Clark at don.clark@wsj.com

2000-11-13T20:26:00.000-05:00

Dutch Record Shop Charges Per Song,
Allows Customers to Burn Own CDs
By JAMES M. DORSEY
Special to THE WALL STREET JOURNAL

ALMERE, Netherlands -- Free Record Shop BV, a unit of Free Record Shop Holding NV, wants to defy predictions that the Internet means the death of music retailers.

"Our mission is to distribute entertainment, and that's what we are determined to do," says Eric Benjamin, the unit's commercial director, standing at the entrance to one of the company's 175 Dutch retail outlets in this town east of Amsterdam.

Minutes after the shop opens on a recent weekday morning, a line forms in front of a new wall that greets visitors with the words: "Welcome to CD on Demand." Next to two computers that offer visitors free Internet access stand two screens that allow shoppers to select music according to genre, year, or the name of an artist or song.

Consumers who want to burn their own compact disks can select as many as 74 minutes of music. They are charged by the song, at a cost of as much as 1.23 euros ($1.06) a track.

Major music companies remain lukewarm to the idea of surrendering control of distribution. Free Record's CD burners currently offer a choice of just 2,500 tracks in MP3 files that are converted to WAV, or Windows Audio Volume, files when put on disk. As a result, Guus den Bouwmeester, a 17-year-old rap fan, can't find what he wants.

Nonetheless, the teen says, "this will be a good system. Ultimately, I will be able to make my own CD exclusively with songs that I like, rather than having to buy a CD that includes some songs I'm not interested in." The shortage of tracks bemoaned by Mr. Den Bouwmeester is likely to be resolved soon, because lengthy negotiations between retailers and music distributors are starting to produce results.

Dutch music concern V2 BV and Bertelsmann Music Group, a unit of Bertelsmann AG of Germany, last month agreed to allow Free Record to offer on its CD burners the latest tracks by their respective clients, two of the Netherlands's most popular performers, Doe Maar and Herman Brood, on the day of their release. "This is a breakthrough with the music companies," Mr. Benjamin says.

Together with Henri de Mildt, head of Siemens Nixdorf NV, the joint venture between German electronics giant Siemens AG and Wincor Nixdorf that developed Free Record's CD-on-demand hardware, Mr. Benjamin has made headway in persuading music companies that the system constitutes an opportunity rather than a threat.

"This concept increases demand, it expands the market," Mr. Benjamin says. EMI Group PLC recently promised that it will be the first major music company to make its repertoire available for Siemens Nixdorf's CD burners.

"We decided to take small steps at a time, first the smaller music companies and then the larger ones," Mr. De Mildt says. He and Mr. Benjamin say the concept allows music businesses to recycle their huge reserves of older music that no longer sell in volume.

"That is exactly what we have in mind. This will lead to a revival of our historical repertoire," says Frank Geerdes, controller of Red Bullet Productions BV, a producer of Dutch music groups such as Golden Earring and Shocking Blue.

Mr. Benjamin adds, "We have demonstrated that we have good security and encryption and good quality and that we are able to honor music companies' rights while drawing customer interest."

Messrs. De Mildt and Benjamin envision music companies downloading their content to a central server that will then distribute to music retailers across the globe. Once Free Record installs CD burners in more of its Dutch shops, and perhaps in its more than 50 outlets in Belgium, Norway and France as well, Mr. De Mildt plans to market the hardware to other music retailers. He says he already has had inquiries from Free Record rivals such as Music House, as well as from retailers elsewhere in Europe and in Canada.

Siemens Nixdorf's CD burners are part of Free Record's determination to gain a competitive edge by staying ahead of the retail curve. Mr. Benjamin also is developing plans that could link his retail outlets directly to the music companies, which can then download their newest releases overnight and distribute them to his network.

"We aren't that far away from our customers also being able to burn their own CDs via the Internet" using a commercial service, Mr. Benjamin says.

2000-11-11T11:08:00.000-05:00

Gigabytes to Go
by Tania Hershman
New diminutive storage devices prove that you can, in fact, take it with you.

Four portable offerings that fit in the palm of your hand and can be used to share large files between computers will be on display at Comdex next week.

M-Systems' DiskOnKey is the size of a pen, plugs into a USB port, and requires no additional software. The devices are available in 8 MB, 16 MB and 32 MB configurations and are compatible with Windows, Mac or Linux computers.

"Our DiskOnKey is a true plug-and-play. You plug it into any USB port and it becomes your new drive within less than a second," said Dov Moran, CEO of M-Systems.

The pen shape of the DiskOnKey will entice frequent travelers, business types who want to deliver presentations, and tech-savvy school kids to carry them everywhere, Moran said.

The devices, which are password-protected and have unique IDs, could in the future be used as "personal keys" that include an individual's credit cards, Moran added.

The second gadget, ThumbDrive from Trek 2000 International, eschews the pen design for an even smaller footprint -- or fingerprint. The ThumbDrive weighs in at just 18 grams and is roughly the size of the human digit for which it was named. It plugs into the USB port, and has a capacity of up to 256 MB.

Yet, in contrast to the DiskOnKey, ThumbDrive requires a driver to be installed on Windows PCs (it is not yet Mac- or Linux-compatible). The company recommends that drivers be downloaded from the Internet for those who want to use the ThumbDrive on more than one computer.

Trek 2000 president Marcus Chung said his company would be launching several new models of the ThumbDrive at Comdex, but declined to give specifics.

For people who want to be able to back up an entire PC -- or several for that matter -- to a portable storage device, the USB Flipdisk from Amacom Technologies offers 20 GB of storage, or 40 GB when the data is compressed. This gadget incorporates a Toshiba 2.5-inch hard drive and is also available in PC card and parallel-port versions.

A fourth portable USB storage device, called Q, is made by Ei and is small enough to be put on a keychain. The Q is available in three sizes (16 MB, 32 MB and 64 MB) and several colors.

Analyst Jerel Whittingham, of the UK-based research firm Durlacher Corporation discussed the pros and cons of these new devices, saying that "mass storage is the third, neglected, key to digital functionality, along with bandwidth and processing power."

"It's key in the sense that it will enable new services and business models in both the mobile and portable domain," he said. "Obviously, mobile storage technology is more constrained for a variety of reasons as compared to devices in the home. The easy click and insertion and removal of (these kinds of) devices is attractive."

Portable storage media like floppy disks, however, can be easily stolen or swapped into a variety of environments that could increase the likelihood of their becoming infected.

ThumbDrive’s website warns that the virus threat is a real one. "ThumbDrive has been designed to become a mass storage device. Therefore, it will behave like one," the site reads, suggesting that antivirus software be used on each system.

"The same sort of security when you load a file from the Internet or from a floppy should be adhered to here," said M-Systems' Moran.

Tania Hershman is Associate Editor for Israel.internet.com