Broadcast TV bombards us with images and
concepts to implant brands in our brains, charging on a cost per thousand, CPM,
basis. When we do finally go to the
market, we impulsively grab for that brand. IV, on the other hand, is impulsive in its own right, and has the
ability to close the sale on-line. IV is
the transaction facilitator. Slam the
gavel. Sold to the man with his finger
on the mouse.
The
more things change, the more they stay the same: EPILIT
Why do you watch TV? To be entertained and/or access perishable
information like the news, weather or sports scores. We accept the advertising/branding process in
exchange for the free programming.
Why do you read the newspaper? To access perishable information like news,
and to be editorialized. Editorials on
politics, but also movie reviews, restaurant reviews, etc. We glance as ads in exchange for a cheap
paper.
Why do you read magazines? The weeklies are just upscale newspapers, so
the catch is the same. The narrowcast
mags are read for editorial (product reviews), information (topical
announcements) and maybe even entertainment. The ads are slicker, and harder to miss.
You may actually watch/read for the ads, but if
that's the case the ads are very often full of information and editorial
(although certainly biased views). AT&T actually tells you how to dial the phone (1+0+ATT+0).
Unfortunately, the medium for these indirect
markets (maybe better thought of as influence markets) are broadcast only. The transaction is elsewhere.
I call this (since life is full of acronyms, I
figured I would add another), EPILIT, Editorial (or entertainment) and
Perishable Information Leading Indirectly to a Transaction.
Interactive video is two way by definition, and
thus the potential for on-line markets. Interactive video can provide entertainment, perishable information,
editorial, basically all the basic features of traditional medium. The difference, and oh what a difference, is
that advertising can not only be narrowcast and therefore direct its influence
at likely purchasers, but can stimulate and facilitate an impulse
transaction. I want it and I want it
now.
There are two advertisers dreams here:
1. the ability to narrowcast, thus lowering the
CPM, or cost per thousand to reach the intended market
2. impulse facilitation
Don't get me wrong, I'm not so naive to suggest
we will all be ordering soap on line, but instead, higher priced or value added
goods and services have the potential to be peddled in this new virtual market
place, again the economic model will dictate what can be sold on line.
Markets already on line
stocks, bonds and currency (Reuters, Dow
Jones)
airline reservations (Sabre, Jaguar)
Markets close to being on line
catalogs (BeanBauer etc.)
mail order PCs (Dell, Gateway)
home shopping channels (QVC, Home Shopping
Network)
This is not another piece pitching the Internet
as a direct marketers dream, far from it. Nor am I suggesting that slapping video on a server solves provides
instant productivity. Instead, I’m
trying to stimulate some thoughts on how best to deploy video and information
technology dollars productively, to get and keep real, revenue producing
customers. Next time, a look at what to
put in your customer’s face leverage their impulse nature and influence their
transactions.
The
medium is the market
Last time we looked at interactive video
On line securities trading and even airline
reservations make economic sense, dollar volumes are high enough to justify the
expense of the on-line system. There are
at most 100,000 trading screens in the world, and maybe 200,000 airline
reservation terminals. The person in
front of the screen is a professional, an agent for those requiring the
transaction, thus the systems are focused on the transaction itself, not
getting people in front of the screen.
media/information/transaction
1. suck customer in
2. get information
3. link participants
4. facilitate transaction collecting fees from
both parties
5. use information gathered to attract next
customers
Media, in the trading case is stock and bond
quotes which pull users into the system. Information about existing trading keeps them there. Once on line, the system links participants
and facilitates the transaction. Then,
the information from that transaction is fed back in to the system and provided
as information to help link the next set of participants, etc.
In TV-land, this is all indirect. The media side is obvious, news, sports and
sitcoms, peppered with ads. Ratings
determine (on a sampled basis) who is watching what show and how often, Participants are linked later (go to the
drugstore for toothpaste) and the transaction is facilitated. That creates sales data, which is coupled
with focus groups to determine the effectiveness of the advertising.
As I'll show next, on-line, the linking and
feedback loops are instantaneous giving advertisers justification for their
costs.
The commercial, mainstream transaction systems
must find a way get eyeballs in front of their screens. This is exactly where programming(TV) meets
programming(computer). I again call it
EPILIT. This time, however, it stands
for Editorial (or entertainment) and Perishable Information Leading to an Impulse Transaction. Interactive facilitates impulse.
EPILIT with the last I standing for impulse does
exist today, although carrying through on the impulse is still a hassle. 800 numbers are the classic impulse, read an
ad, watch an infomercial (CherHairCare) and then rush to the phone and call to
fulfill your impulsiveness. The phone
call can be for more information, but increasingly it is to order a product or
service. (Who in the NY area can ever
forget, Gimbel's custom reupholstery "call Murray Hill seven, oh seven
hundred, operators are standing by, call NOW!!" ) The
227 catalogs that arrive in your mail box are designed for impulse purchases,
facilitated by an 800 number and a
QVC and Home Shopping Network turned this into a
24 hour a day cable channel which to many is a form of entertainment. Maybe
more importantly, the gem that Barry Diller and his partners Liberty Media and
Comcast have bought into is an automated back end that eases and automates the
transaction once the phone call is made. The majority of calls are answered by machines, which prompt for the
callers membership number and the rest of the information is already on line.
Canal Plus in Europe
uses EPILIT to sell pay TV. They offer
free programming for a few hours a day, with lots of promos for pay movies and
events on their channel. Then the movie
starts, and after 5 minutes, unless you had called up in advance, the signal
becomes scrambled. Folks at Canal Plus
speak highly of another type of scrambling, to the phone, to call up and order
the movie, very often in progress. My
point is that free programming leads to impulsive purchases.
Putting
the impulse into catalogs
Let's take a look at the $50 billion catalog
business, which is dangerously close to being digital and on line already. If you are a product company, chances are
there already exists a catalog, maybe its for internal use only, but somewhere
are great descriptions of your products. If you are a service company, I’ll get to you soon enough (next issue
OK?)
The L.L. Bean catalog arrives in the mail (two
terribly analog parts, a paper catalog and a snappily dressed government
employee delivery). You scan through the
pages, a very interactive exercise. You
are most likely prompted to flip through the catalog because you are
predisposed to purchase something in the first place, I'll get back to
this. You find something you like. Impulsively, you dial the 800 number (now we
are starting to get digital!). A
friendly voice at the other end walks you through the transaction, entering
information into a PC, asking where to deliver the goods (via heavily digitized
Fed Ex or UPS) and how to charge you (financial services and credit card
transactions are a completely digital system). You may also receive notice of items out of stock, maybe even specials
not in the catalog.
The trick is cutting out the analog pieces, and
in effect, tie the digital version of the catalog, (before its printed), and
the digital back end, (order entry, delivery and finance), directly to the
customers PC. I’m not talking about a
consumer sitting at home, but a customer sitting at a desktop PC.
If you think this is hard to implement, think
again. Existing on-line services, from America
On-Line
to Compuserve can facilitate these transactions. So can your own internal MIS department,
using your internal machines connected to the Internet, for example. Still not convinced, Microsoft’s new on-line
service appears structured specifically to connect businesses to their
customers.
As you can see, video (albeit computer generated
and interactive) will merely expand its existing usage...selling.
Next, we’ll look at the economic model behind In
Your Face.
In the last two columns, I have tried to define
a new media influenced business model for the burgeoning interactive media
market, one based on the notion of EPILIT, or entertainment and perishable
information leading to an impulse transaction. While this is a natural extension of the classic influence peddling
magazine and television advertising models, the economics couldn’t be more
different. While traditional media,
which influence transactions, maybe even stimulate them, do it indirectly, you
must go to a store to fulfill your desires. Thus the economic model for advertising is based on how many eyeballs or
impressions are created, and typically vendors will pay 1/10th of a cent for
each pair of eyeballs (they usually come in two’s) impressed with their
message. Since no one but stock brokers
deal in fractions anymore, the common fees are calculate in cost per thousands,
or CPM (roman influence here), and a buck is a good central number per
thousand.
Since interactive media is based on a network of
compute devices, impressions are relatively meaningless, since they will pale
in comparison to mass media for quite some time. The worse watched show on the big three
networks has 10 million viewers in a half and hour. The best Web site on the internet has 1
million hits per day, and that may be overcounting users by one or two orders
of magnitute.
Thus the economic model for interactive media is
not mass advertising, but direct advertising. On its own, without the help of a technology driven media, direct
advertising has steadily grown in overall advertising market share. My guess is that what is now close to a third
will be the dominant for of advertising as new technology driven media are
created over the next 3-5 years.
So let’s study the direct advertising
economics. First, direct advertising is
a name much like sanitation engineering, the real direct market is mostly known
as junk mail. Having said that, the best
description is by example. Years ago, a
gentleman came to my office with the intent on learning what technology can
offer. He pumped me for 15 minutes or so
on the virtues of PCs and CD-ROMs, with the main questions centered on what he
could learn about the user of these products, specifically if he could discern a
users preferences or tastes or even choices by how they used the PC, what they
clicked on , etc. My response made him
happy, as I suggested that a correctly set up application can leave a paper
trail (or mouse droppings as I like to think about it) of every choice made
during the programs use. He said thanks,
and then got up to leave.
“Whoa, sit down, its my term to ask a few
questions now, first off, who the heck are you and why do you want to know all
this stuff?” He proceeded to explain,
which I later correctly verified, that he invented affinity credit cards, the
ones with corporate logos or airline frequent flier mile tie ins, etc.
In
Your Face - Part III
In the last two columns, I have tried to define
a new media influenced business model for the burgeoning interactive media
market, one based on the notion of EPILIT, or entertainment and perishable
information leading to an impulse transaction. While this is a natural extension of the classic influence peddling magazine
and television advertising models, the economics couldn’t be more
different. While traditional media,
which influence transactions, maybe even stimulate them, do it indirectly, you
must go to a store to fulfill your desires. Thus the economic model for advertising is based on how many eyeballs or
impressions are created, and typically vendors will pay 1/10th of a cent for
each pair of eyeballs (they usually come in two’s) impressed with their
message. Since no one but stock brokers
deal in fractions anymore, the common fees are calculate in cost per thousands,
or CPM (roman influence here), and a buck is a good central number per
thousand.Since interactive media is based on a network of
compute devices, impressions are relatively meaningless, since they will pale
in comparison to mass media for quite some time. The worse watched show on the big three
networks has 10 million viewers in a half and hour. The best Web site on the internet has 1
million hits per day, and that may be overcounting users by one or two orders
of magnitute.Thus the economic model for interactive media is
not mass advertising, but direct advertising. On its own, without the help of a technology driven media, direct
advertising has steadily grown in overall advertising market share. My guess is that what is now close to a third
will be the dominant for of advertising as new technology driven media are
created over the next 3-5 years.So let’s study the direct advertising
economics. First, direct advertising is
a name much like sanitation engineering, the real direct market is mostly known
as junk mail. Having said that, the best
description is by example. Years ago, a
gentleman came to my office with the intent on learning what technology can
offer. He pumped me for 15 minutes or so
on the virtues of PCs and CD-ROMs, with the main questions centered on what he
could learn about the user of these products, specifically if he could discern
a users preferences or tastes or even choices by how they used the PC, what
they clicked on , etc. My response made
him happy, as I suggested that a correctly set up application can leave a paper
trail (or mouse droppings as I like to think about it) of every choice made
during the programs use. He said thanks,
and then got up to leave.“Whoa, sit down, its my term to ask a few
questions now, first off, who the heck are you and why do you want to know all
this stuff?” He proceeded to explain,
which I later correctly verified, that he invented affinity credit cards, the
ones with corporate logos or airline frequent flier mile tie ins, etc. Turns out this gentleman was in the junk mail
business, which he went on to explain is driven not by CPM, but by hit
rates. The typical $400 cost per
thousand mailings, would break even if 2% or 20 of the receivers bought a
product with a $20 net profit. Any
higher hit rate than 2% and you are into some serious money. The more you know about the potential
customer, the more you can focus the mailings to help bump up the hit
rate. This is why companies buy mailing
lists. So to make a long story short,
this guy went to a credit card company and asked if he could get a better rate
for a large group, and if he could get the groups logo on the credit card. Hearing yes, he then went to the Teacher’s Union
, and horse traded the ability to get their logo on
a card in exchange for an up to date membership list. He then spent his own money and sent out tens
of thousands of offers, figuring instead of the typical 2% hit rate, he would
see 3 or even 4%. The actual number was
closer to 30%, and that was it, he retired.Back to interactive media, networked PCs
provides two benefits to a direct marketing approach. First, the media cost can be a lot lower than
$400 per thousand, it’s just bits being shippped around, after all, lowering
the break even hit rate. More
importantly, by carefully analysing users click trail, my so called mouse
droppings, a direct marketing program can be very tightly focused on users with
a propensity to buy a specific product, therefore raising the potential hit
rate. Lower costs, higher productivity,
means being able to price goods and services below others, raising the
potential hit rate even further. This is
the business model that will drive interactive media’s rollout. Don’t be spooked by the thought of electronic
junk mail overtaking our lives, quite the contrary. Go back to the EPILIT model, which says that
it is clever programming and information access that pulls customers into the
medium, its just the payoff and economics are a lot different than the current
mass media model.And don’t think its toothepaste or razors that
will be sold. History shows that new
products and services are created to take advantage of a new mediums selling
power. Nike probably doesn’t exist
without television, nor do half the brands at P&G. Look for a whole new set of companies to
arise who understand the power of this new medium, and its ability to sell
directly, whether it be cars or car insurance, the economics will drive what is
in your face.Al runs the general store on Main Street
, took over the business from
the old man, Big Al. Like his dad, he
didn’t understand technology beyond refrigeration, didn’t like it, and figured
it didn’t affect his life. This computer
stuff was for kids.Al didn’t know what hit him when WalMart moved
to town. He wrote editorials in the
local paper on predatory pricing by big bad Sam Walton, but in reality, he got
nailed by a technology oiled distribution system. And you, no matter what business you are in,
are about to be nailed by the next wave of distribution upheavel.Commerce has always been a one to one
experience. Buy my wares, try on my
suit, let me paint your house, eat my tastefully prepared cheeseburger. Oh yeah, and have a nice day.
The advent of the mass media has changed all
that, from a local one to one experience to a one to many. Michael Jordan suggests your sneakers, not
the funny guy in the referee costume at the Foot Locker.
Tehnology has a funny way of turning things
upside down, and inside out. No one
believes the 1984 big brother scenario anymore, the centralized power
controlling all compute cycles. Distributed PCs have taken care of that and created little cousins vs
big brother. We are all related when
interconnected. But it is exactly that
installed base of 100 million or more PCs, networkable (able, but not yet
networked) that form the basis of a new distribution system.
Technology has permanently transformed the
landscape of business. Up until now, it
has all been “inside” companies. First,
the back office was automated with mainframes and minicomputers, removing
legions of clerks and low skilled workers, allowing pricing leverage on
products and services. Now, front office
white collar tasks are being automated via desktop computers, local area networks
and client-server applications, at the expense of middle level, do nothing
management. This has caused major
eruptions in the financial service, insurance, even legal industries.
That is all child’s play compared to what is
about to take place as video moves onto a compute platform. More than the corner grocery store will be
affected. The explosion of demand, the
sales productivity from disintermediation and major corporate restructuring
will redistribute wealth to those with the vision of how to harness this
technological transformation. Those with
the vision of using technology to acquire customers, not just service them will
be the elite of tomorrow.
Video on computers, on-line networks and the
Internet fabric are all combining to create a new interactive medium, one that
transforms how businesses deal with each other, or how businesses actually
reach consumers. Compute based video is
finally real in 1995. Go buy a copy of
the CD-ROM “The 11th Hour” from Trilobyte. Besides a great game, you will see full screen, full motion video coming
off of your average PC, yeah, that same PC that last week only played postage
stamp size video. Software is a
wonderful thing.
This breakthrough is critical because for
interactive media to take hold, the key ingredient is video. Why? Because video sells. It sells cars, toothpaste and disposable
douches. A $120 billion advertising
industry exists to influence purchases by getting in consumers faces. The natural progression of print, radio, then
TV; an interactive medium is next. Not just toys for geeks, it is clear the
professionals on Madison Avenue are coming. The sheer power of influencial video selling and network computing form
an unstoppable combination that will be IN
YOUR FACE, and have you reaching for your wallet in nanoseconds.
Old view (circa 1993): Multimedia or interactive media is about
CD-ROM publishing, video on deman, interactive encyclopedias, data superhighways,
broadband full service networks, home shopping, new video game standards,...,
ad naseum. In other words, multimedia is
an adjective that gets attached to just about anything and everything to
increase its value to either raise capital (3DO, Broadband, Starsight Telecast,
Time Warner) or to sell outright (TCI).
New view (circa 1996-7): Interactive media is an evolutionary form of
traditional media (TV, radio, newspaper, magazine, yellow pages) that derives
its revenues not from branded advertising, but direct advertising. Traditional media is about entertainment,
editorial and perishable information sucking in eyeballs, facilitating a
branding process to sell goods and services. The sale is done in the media, the transaction takes place elsewhere, in
retail shops, restaurants, bars, auto dealers, over phone lines, etc. The economics of traditional media are based
on cost per thousand impressions, the more impressions, the more money the
medium makes. Note, with maturity, it
has been the media players that makes most of the money, not the provider of
entertainment, editorial, etc.
Interactive media begins to fill the same role,
providing entertainment, editorial, and perishable information, yet because the
medium is interactive, can facilitate an impulse transaction, and thus the
economics are very different. Revenues
are based on costs per sale, impressions don't count unless they create a sale.
The limited view that interactive media affects
traditional media is wrong, instead its effects will be felt in traditional
goods and service distribution channels, as interactive media is looked on as a distribution channel. The analogy is that catalogs affected retail,
not magazines.
Wall Street will do tumbersaults in the next
several years when they figure this out, after than the dust will settle. New companies will emerge that create
interactive media channels. Developers,
service companies and enabling technology companies will all prosper, with huge
multiples on real earnings, not hoped for earnings. As importantly, Wall Street will focus on
existing industries, retail, insurance, auto, any and all consumer durable and
non-durable on how they prosper/faulter with the existance of new lower costs
means of distribution. Either you take
advantage of the new media, or you fight it, unfortunately, the real answer
won't be known until the dust settles, much as the mainframe/PC confusion took
years to settle. Fortunes were made and
lost in the mainframe/PC argument, but it was more than technology companies
that won or lost market share, real businesses made good and bad decisions that
affected their 10 year performance, not just quarterly earnings, Walmart the
obvious winner in a "loser"
industries.
In Your Face - The Final Edition
So In Your Face, the idea of digital networks as
a marketing and distribution medium, is starting to crawl under your skin. Don’t fret, it’s not all bad. Certainly the availability of a digital
technology in the form of 100’s of millions of PC forming a new distribution
channel, conveniently placed in the hands of professional marketers with a
profit motive is scary. Heck,
commercial television is In Your Face enough, who needs this stuff invading
your computer screens. Turns out there
may be some pretty interesting consumer benefits that should not be overlooked.
Subsidization - Today, our video entertainment
is free, or close to free on television. Consumers merely pay a premium for early access to high budget items
like feature films or prize fights. Everything is eventually available gratis over network television. It may take years, but if there is demand, it
will attract advertising and hence subsidization for free access to
consumers. The same scenario is bound to
play out on digital networks, with high value items available for a fee, but
items of lower entertainment value, or even better perishible information like
weather, sports scores available in a digital medium for free or near free,
with sponsorship. My view is that
sponsor ship will be in the form of direct marketing, that is, pull you into a
site with the intent of closing a transaction, as you’ll see in a second, the
programming to pull you in will be as or more important than the price of the
transaction.
Volume discounts - The computer industry has
already taken advantage of advances in consumer electronics. The video monitor is an obvious beneficiary
of 50 years of TV production. CD-ROM
players benefited from the volumes of audio CD players sold. CD-ROMs themselves are manufacturable for
$0.65 each at the same plants that crank out million selling Paula Abdul
albums. With 100 million networked PCs
in sight, I think consumers will see the benefit of computer and digital
communications in “real life.” As data
communications drives higher volumes on fiber optic links, even regulated
tariffs can come down quicker with more revenue to offset a rather fixed, er
static, fixed cost infrastructure. Already, consumer devices like phone answering machines are cheaper
based on semiconductor advances. What
the real benefit may be is the lower distribution costs of goods and services
to consumers, and the inevitable passing along of these lower costs to consumers. Budweiser won’t get cheaper because you still
have to haul kegs to bars, but if I can get access to life insurace without the
multiple markups through an agent channel, or sweaters without a retailers markup,
my price as a consumer is bound to drop. Catalogers started this trend, but still have high physical costs, paper
and postage, that go away in a digital medium. Economists all laugh, but the lowering of inflation or outright
deflation at the consumer level of a large networked economy is tough to
analyse but means great things for all players.
Perfect information - Unlike the 3 or 4
television networks, or 1 or 2 local newspapers, a digital media, especially
one that is Internet based is as big and distributed and multifaceted as the
last computer that attaches itself to it. Thus there is the ability for consumers to generate perfect
information. Search engines, Web
crawlers that visit any site, or even the elusive intelligent agent technology
can easily gather as much information as is stored on networks. Pricing information, as an example, is always
up to date, and on-line markets quicky adjust to the most desirable price. For example, if ten companies are on the
Internet selling best selling books, if one charges more than the others, his
sales will certainly deteriorate as customers shop for the best price. In this case, shopping does not necessarily
mean browsing through all ten sites and picking the best price, but sending a
relatively simple piece of software out to poll all the sites and report
back. This perfect information means
that competition will be based on other factors.
Increasingly sophisticated visuals - Today,
on-line networks offer text and graphics, and just the smallest amount of audio
and lousy video. Certainly no match for
network televisions televisual appeal. While this will change over time, the truth is that compute platforms
are not very good at video, which is large amounts of dumb data, and
computations needed to compress or decompress this stream of bits. Computers are actually better at creating
imagery, with the ability to do lots of computations in a small amount of time,
and manipulate these graphics images. Even more interestingly, these images can be even higher resolution than
broadcast TV. Computer graphics of 640
by 480 pixels (VGA) blows away the best and most expensive TV images.
So what is funny is that the biggest users of
digital imagery today is not computer delivered product, but is commercial
television. I should correct that, its
commercials for television, not so much broadcast. Brandon Tartikoff, long time NBC programmer
and now at the helm of New World Communcations, laments that programming for TV
is still stuck in the 70’s, in terms of technical innovation, while commercials
have advanced into the ‘90’s.
I would venture that close to 90% of commercials
today use digital techniques to enhance their message. It can be as simple as flying logos, to as
complex as Paula Abdul dancing with Gene Kelly or Shell gas pumps that dance
(couldn’t get on Paula’s dance card). The benefit of all this is that lots of talent is already working in
digital media, and those people, databases, engines and techniques are much
easier to transfer to a networked medium than sitcoms. Tony the Tiger in digital form can pitch
cereal on TV, and pitch baseballs on computers. The data is the same.
Just as TV is not all bad, just watch a little
PBS why doncha. Networks of computers
will form a powerful medium for profit, but some good will emerge as well. The Internet do-goodies living off of
university grants who are offended that “their safe haven” is being
commercialized, are already seeing free access disappearing, and should look
forward to a day of much cheaper access. In addition, we as consumers MAY benefit from access to near perfect
information, when we aren’t hypnotically entranced by ever sophisticated In
Your Face visuals. If you’re not
careful, it’s during this hypnosis that your wallet will be picked, but you’ll
have a smile on our face. Don’t say that
I did not warn you.
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