Webonomics Essay, Research Paper

Introduction

Webonomics, by Evan I. Schwartz, is a practical, strategic tool for positioning and growing your business in the today?s exploding World Wide Web economy. Schwartz addresses the unique problems and rewards businesses can expect to encounter when conducting business in cyberspace. He also dispels some of the most common misconceptions about doing business on the Web. More importantly, Schwartz targets the key to business success on the Web: understanding consumer behaviors and expectations.

From scores of case studies, Schwartz has formulated nine guidelines for growing your business on the Web. Schwartz?s analysis of these cases clearly explains why some businesses thrive and others fail miserably on the Web. To illustrate Schwartz?s nine principles of Webonomics, this synopsis includes only a handful of his case studies.

To apply his nine principles, Schwartz warns that we must first understand the motivations behind four main groups involved in the Web economy: The consumers, the content creators, the marketers, and the infrastructure companies (3). The consumers are in the driver?s seat. They expect to make the Web a place of their own, a place of customized information and relationships. The content creators are those ventures that inhabit the Web and attempt to inform and amuse visitors. Content creators attempt to enhance their brand image and somehow make their Web sites profitable ventures. The marketers represent the thousands of companies that are promoting and selling products and services. The marketers who use a traditional approach to advertise, market, and sell their product on the Web will fall short of success. Finally, the infrastructure companies are selling the tools (hardware and software) to reach this digital landscape. Keeping these four main groups in mind, we now examine Schwartz?s nine principles of Webonomics.

Principle 1: Quality of Experience, Not Quantity of Visitors

Web surfers base the quality of their experience on the total experience of visiting a Web site. The visitor to a site wants a place where he or she can identify and communicate with others who have similar interests. Schwartz refers to this as ?community.? The goal is to offer something that causes visitors to return repeatedly to your site; something that grabs and keeps their attention.

One of the most common misconceptions about the Web is that sheer numbers are proof that your site is successful ? that all you have to do is run up big numbers, then sell advertising space on your site to marketers who want to reach your audience (36). But reliance on sheer audience size is a recipe for success on television (mass media), not the Web. For content creators, the top priority must be to form a lasting bond with individual consumers and making sure that they are satisfied enough to return again and again. If consumers pay a subscription fee for some of your content, this serves as tangible proof that you are providing a quality Web experience. The Wall Street Journal is one of the few content sites on the Web that actually manages to do both ? attract a large audience and provide a high-quality, interactive experience to a core group of consumers.

To illustrate the importance of a quality experience, Schwartz contrasts two adult Web sites: Playboy and Bianca?s Smut Shack. Given its well-known brand name, it is easy to understand how Playboy?s site has as many as 100,000 visitors daily. In contrast, Smut Shack attracts only a quarter of the number of daily visitors experienced by Playboy?s site. But numbers do not necessarily equate to success or quality!

Here are some of the reasons: The average Playboy visitor spends eight to ten minutes at the site, while the average Smut Shack visitor returns ten times per month and spends an average of an hour each time (25). However, it is unknown how many of Playboy?s daily hits are repeat visitors because of information not disclosed by Playboy Enterprises. Essentially, Playboy?s site has very few interactive features that allow visitor participation and the site is only updated an average of twice monthly. The Website, which allows visitors to view a few photos from its magazine, is mainly an advertisement for its print edition.

On the other hand, Smut Shack is built around the ability to let people interact and contribute to the ambiance through its many interactive features (26). Visitors choose an online name and can become part of the intimate activities in different ?rooms? on the site. Visitors have an opportunity to actively participate in ongoing bulletin board discussions and chat sessions with other people hanging out there at that moment (24). Unlike Playboy?s site, Smut Shack?s site is constantly changing, which enhances the total experience and induces people to return to the site.

One of the main draws that attract people to the Web on a daily basis is news (27). Because news is an ?easy-to-come-by commodity? on the Web, news groups must do something more to attract Web surfers? attention (27). Adding value to news is essential. To illustrate this point, Schwartz contrasts USA Today and San Jose Mercury News. The first mistake made by USA Today was charging a subscription fee. Even after removing subscription fees, they were unable to add enough value to the basic news, therefore falling short of what Schwartz describes as a quality experience.

In contrast to USA Today, Mercury News adds value in several ways. First, this newspaper has the natural advantage of being the local paper in a region that the global high-tech industry calls home (31). Second, because the printed edition is not circulated nationally, readers can only get the news online. But on the Web, those readers can feel a part of that community, getting news and the inside poop on an industry that interests them (31). Third, Mercury News also offers a subscription service ($4.95/month), called NewsHound, which customizes the news to readers? specific topics of interest. NewsHound, a news-filtering program, then searches thousands of stories from the paper and wire services, selecting the stories that meet the subscriber?s criteria. Every hour, the NewsHound sends whatever it fetches right to the subscriber?s electronic mail address. That is adding value ? something with which USA Today is still struggling. Even though USA Today attracts ten times the Web audience of Mercury, Mercury?s smaller audience has a better browsing experience. Editor & Publisher, an industry magazine, selected the Mercury Center as the best newspaper Web site. And NewsHound won the award for best original feature on a Web site (32).

Principle 2: Marketers Shouldn?t Be on the Web for Exposure, but for Results

Contrary to what some people believe, the Web is not a mass medium. Unlike network television during prime time, you will never find a significant number of the tens of millions of people surfing the Web in any given place (27). The Web will never enable marketers to achieve the kind of exposure they have achieved with mass media (50). Therefore, marketers must throw conventional marketing practices ?out the window? and harness an interactive approach that appeals to a target market.

According to Rich Everett, manager of interactive communications for Chrysler Corporation, there are four steps to landing a customer ? tell, sell, link, and think. A traditional ad, he says, will ?tell? you that a product exists and ?sell? you on its benefits. The Web must pick up where traditional advertising leaves off. If the company does its job right on the Web, it will ?link? qualified and interested buyers into a room and give them enough information and interactive tools to ?think? whether they are actually going to purchase the product or service (51).

Many marketers believe that a banner ad will get the same results as a TV ad. In reality, banner ads typically entice only about two to five percent of the people who see them to click on them. However, a Web surfer who spends time returning to his or her favorite content site again and again is going to be more receptive than someone who visits just once and never returns. These repeat customers will be more likely to click through to promotional sites (56). We can understand why establishing a bond with individuals becomes crucial, especially for marketers.

The relationship between marketer and consumer gets reversed on the Web. Web surfers have complete control over what messages they choose to interact with and how they interact with those messages (57). Ads as we know them do not exist in the Web economy. Old media pushes messages at us an average of 3,000 advertising messages per day. In the new media, consumers pull the information and choose what messages they want to hear or see. Because the new generation of consumers is more sophisticated, marketers are unable to manipulate them as easily (58). Marketers have a new goal of identifying and responding to consumer needs. Consumers finally regain control!

Mass marketing will never go away, but its dominance is declining. The Web is accelerating this trend dramatically. Schwartz sites four main reasons for the declining dominance of mass marketing. He calls it the four C?s: clutter, clicking, cynicism, and competition (60). With the onslaught of 3,000 advertising messages per day, there is clutter. Therefore, each additional message has minimal impact on the consumer. This forces marketers to create ads that are more outrageous and have to be run more often. This is a textbook example of the law of diminishing returns. Since the arrival of TV remote control, people have been clicking around channels during commercials to escape the ads. Of course, not everyone channel surfs. It?s safe to say that some people are avoiding some commercials some of the time (60). Hence, mass marketing becomes marginally less effective than it once was. Commercialism has finally taken its toll on those who have grown up immersed in it. Consumers now see it for what it is and no longer believe advertising claims. The result is consumers demonstrating high levels of cynicism. This rings true not just for mass media and advertising, but also for the political process and the judicial system. Finally, the mass marketing impact is diminished by competition. The direct-marketing industry diverted the attention of millions of consumers away from mass marketing. Cable TV hacked away at the dominance of network TV ratings. Now the Web is proving to be a more powerful competitor, pulling consumers away from TV altogether. In fact, children with PCs are spending as much or more time on their computers than they are watching TV.

With all of these forces against marketers, how do they tell the world about their Web site? Schwartz states four main ways to promote a Web site. First, mention the Web site in newspapers, magazines, TV ads, brochures, mailings, and other promotional materials. This invites consumers who are already receiving your marketing message to interact further with your company. Second, try to get attention in the press. If you cannot catch the media?s attention, hire a PR firm to spread the word. Third, you could trade hyperlinks with other sites on the Web. If someone from the other site really likes your Website, they may place your hyperlink on their site without asking for anything in return. The fourth, and most complicated, is purchasing banner advertising and hyperlinks on the most popular sites. In the early days of the Web, this was a popular means of advertising a Website, but is now considered only one of the many promotional tools available to marketers. Like a human salesperson, a marketer?s web site must achieve results?by learning about a customer?s preferences, providing service, retaining loyalty, and ultimately landing future sales (71).

Principle 3: Consumers Must Be Compensated for Disclosing Data About Themselves

Tens of millions of people worldwide are searching the Web in search of surprises, cheap thrills, knowledge and entertainment, timesaving services, plus information on products that they hope will enhance their lives (20). These people, consumers, are the focus of the third and fourth principles of Webonomics. These two principles put the consumer in the driver?s seat, and steer them to find benefits and information on the Web.

The third principle focuses on the idea that a consumer is not going to disclose information about themselves unless there is a great benefit in return. Web surfers run across millions of sites that ask for registration of personal information that ranges from: name, address, gender, phone number, interests and the like. The chance of consumers actually taking the time to disclose this information for nothing in return is highly unlikely. By requiring consumers to disclose their data as the price for entry into a site, you put up a barrier that causes some consumers to take a detour around the site. The key to this point for web sites is to provide enough value in return for information so that consumers gladly enter into the bargain. Some of the benefits that are suggested to provide value are the use of coupons in which Ragu partakes, free online time in exchange for data, discounts on products, paying consumers money and gearing sites to the interest of the consumer. The benefits must outweigh the cost of providing information. Consumers know that their personal information is valuable, so marketers must make the benefits rich in value.

Another concern about disclosing information on the Web is to acknowledge the actual use of the information. Some companies use the information to help develop their sites into a user-friendlier environment, yet others sell the information to marketers. In order to make sure that consumers information is handled correctly CASIE, an industry coalition formed in 1994, has specified how to handle personal data. CASIE states that if a marketer seeks personal information that they should do two things: inform the consumer whether the information will be shared with others, and give the consumer the option to request that their personal information not be shared (89). Under these rules, consumers can feel safe about disclosing their information. As long as consumers are compensated for disclosing their data, as long as they are properly informed about how such data will be used, consumers can decide for themselves what information to give out and to whom (91).

Principle 4: Consumers Will Shop Online Only for Information-Rich Products

Not only do consumers choose whom to give their personal information to, but they also choose what information they receive from the Web. Many consumers will look on the Web for what is called information-rich products, ones that are wrapped in sheaves of facts, news, knowledge, wisdom, and advice (92). Some of the products that are considered information-rich include: music, books, computers, cars, software, travel packages, houses, and gift items. When consumers are debating on buying an information-rich product they will go to many links to seek out the best buy. Some of the ways that consumers get help in making a decision are to ask advice, research the product and ask friends for recommendations; all of which can be done on the Web. In order for companies to entice consumers to buy products on the Web, they must supply consumers with sites that have facts, news, knowledge, and advice about products (116).

Many companies that are following this route are seeing an increase in the usage of their sites. One example is Virtual Vineyards, an online wine store. The site contains valuable information on the quality, taste, ratings, reviews, and recommendations of good wine (97). The site is successful because of its ability to convey specialized information. Once consumers discover and trust the value of the information that they are receiving, they will become a return visitor. Thus showing that information-rich sites do have an impact on the consumer-to-company relationship.

The idea of shopping the Web for information-rich products will never replace the experience of in-person shopping. Instead, it will force stores to add entertainment to the whole shopping experience. Adding entertainment to stores is an attractive way of distinguishing themselves from online shopping (105). Physical stores and virtual stores do not have to be split they can work off of each other. By the two working in tandem and supporting each other through the process of winning over customers, ringing up sales, and maintaining brand loyalty they can help compensate for the weakness of the other (105)

Principle 5: Self-Service Provides for the Highest Level of Customer Comfort

Self-service is becoming mandatory in many industries?as consumers demand increased comfort, control, and convenience (137). A bank that builds a user-friendly, graphical user interface on the Web can invite millions of consumers and business clients to help themselves to a wide array of financial services. A bank that fails to design such an interface will not be in business for very long. Like the Web itself, the bank of the future will know no borders in the global ?marketspace?. Yet, such an entity can forge intimate relationships with individuals, reaching into your home and taking your money with the nicest smile that software can simulate.

When you compare the way people bank today with the way they used to bank, you see an enormous difference. In the olden days, consumers chose their bank based on where it was located. You had to conform to what is known as ?banker?s hours?. Now, automated teller machines (ATMs) have got the public in the habit of servicing themselves. We now see that the focus of choosing a bank has changed to the location of automated teller machines of the bank. The banks tend to view the ATMs like a blessing. ATMs reduce staff, resources, and service costs. Suddenly, local banks saw a whole new world of opportunities, while also experiencing an increase in competition.

The first bank to wholeheartedly embrace banking on the Web was Wells Fargo. The San Francisco-based bank actually jumped into the online water back in 1990, with an online banking service on Prodigy. Customers could check balances on their PC screens and transfer funds between accounts. As the growth of the Web exploded, the bank suddenly became keenly aware of the demand for such online services. By the summer of 1996, the number of Wells Fargo customers doing banking online shot up tremendously. Through consumers utilizing the Web for self-services, they establish a high level of comfort through convenience (i.e. banking after hours, banking from remote locations, and solving privacy issues).

Principle 6: ?Value-Based Currencies? Enable You to Create Your Own Monetary System

One of the biggest questions concerning electronic commerce has to do with how people will pay for whatever they purchase online. Several different electronic currency systems, known as digital cash, are being marketed as answers to this question. Most of those payment systems are doomed to failure because the U.S. Treasury, or any other country?s treasury department, for that matter, does not back these new forms of currency. They are not even legal tender for all debts public and private.

Companies of all kinds would do well to create their own monetary systems, offering loyal customers points that can later be redeemed for goods and services. The Web will be the place where such points can be earned, bought, sold, traded, and redeemed. Telephone companies have already jumped into this game. AT&T, with its True Rewards program, offers one point for every dollar spent on long-distance calls.

Digital cash, the other form of Web money, promises security and flexibility when purchasing products in cyberspace. The problem with these new forms of payment is that they are not needed. Several of these digital cash start-ups will likely go out of business in the next few years due to lack of consumer acceptance. For buying products on the Web, the current choices are just fine. Any online currency system must establish trust. Not only between banks and merchants, as today?s credit card companies do, but also between individuals, just as today?s coins and bills do. This fact means that anyone in the business of winning the trust of consumers could get into the digital cash business.

Principle 7: Trusted Brand Names Matter Even More on the Web

Brand names are not here to bombard us. They have a benefit. When you as a consumer have many choices and limited time, it pays to be loyal to brands you trust. A brand can serve as a mark of quality, of something familiar. As such, they can actually save you time and aggravation. Reach for that comfortable brand name, and you do not have to bother sorting through all the other choices, all the noise and clutter in the marketplace.

Before you can build brand equity, you have to start building brand awareness. Strong brand images are becoming more difficult and expensive to establish in the first place. TV audiences are fragmenting into smaller and smaller caps, with prices going though the roof for the rare mass audiences that do gather during the Super Bowl, the Olympics, or the very top rated TV shows. Similarly, the noise level on the Web is getting higher and higher. ?Every day it gets tougher to establish a new brand name,? says Mark Kvamme, chairman and CEO of the CKS Group, a multimedia-marketing firm in Cupertino, California (156).

A well-known brand name can serve as a beacon on the Web, in a sense casting its glow in all directions and compelling loyal customers to come toward the light. ?On the Web, brands must become technologies,? says Less Ottolenghi, director of emerging technologies for Holiday Inn. The Web is the perfect place to catapult a trusted brand name beyond the original products for which it is already known. Brand names that evoke a certain sensibility, core competency, or comfort factor can be used to sell almost anything on the Web. Ultimately, companies that establish a strong affinity with customers can establish an online community of interest around their brands.

Principle 8: Even the Smallest Business Can Compete in the Web’s Global “Marketspace”

The start-up costs associated with a new business in today’s world are exorbitant; this fact alone hinders many entrepreneurs from entering in the first place. But, with the advent of the Internet and the evolving of e-commerce from it, almost any individual can start their own company on the Web with the normal business costs either greatly reduced or eliminated completely.

There are three elements of business that have changed when making the transition from a traditional business to e-commerce. First, we no longer rely on going to the mall or department stores to fulfill our needs. This “infrastructure” of physical buildings has been replaced by cyberspace. We need only to connect to it to be able to purchase Macadamia nuts from Hawaii, coffee from Colombia, or oranges from Florida. Second, because of the computer itself, there is no need to have face-to-face contact; the computer screen has replaced this. However, many times this interaction with the computer leads to face-to-face contact. And lastly, what is being purchased has changed drastically. No longer are we just buying and selling actual goods, but we are also in the big business of selling and trading information.

The Internet has enabled all sizes and types of organizations to compete globally. In addition, the Internet allows small corporations to act large and large corporations to act as if they are small (i.e. agile, flexible, and responsive like a small company). International borders have been eliminated; tariffs, quotas, and restrictions do not apply to goods purchased over the Web. And companies like UPS, FedEx, and DHL enable businesses to ship goods across international waters to any country in the world, which eliminates any paperwork that the business has to tend with as they take care of all of the paperwork for us.

The global competition on the Web not only brings products to people, but it also brings people together. All over the world there are people from almost every country connected to the ?marketspace? of the Web. Even though these connections exist there is a huge gap in Internet penetration between industrialized nations such as United States and the developing economies of the world (189). Statistics taken from 1996 are astounding, but are nothing less than expected. There is a direct correlation to the economic status of a country and the number of citizens per host of that country. A host is a PC or mainframe of some sort that allows high-speed connections to the Internet. For example, the United States boasts 70 citizens per host while the industrialized countries of Western Europe follow behind. Looking at less industrialized countries like South and Latin America where Venezuela has 18,026 citizens per host or Nicaragua that has 29,787 citizens per host we see a huge gap. As expected, African and Middle Eastern countries have extremely poor Internet numbers. As such, South Africa leads the region with 932 citizens per host, and Uganda with 337,414 citizens per host. Yet, the countries with the highest numbers are those countries with the highest populations, such as China. China has a ratio of 500,000 citizens per host. Furthermore, India has the highest (worst) ratio with one million citizens per host.

With almost all countries competing for connections to the web another issue to look at is that of the language barrier. Today, English is the dominant language on the Web. Yet, it is imperative that we cater to those of different languages. Otherwise, we limit ourselves to where our information can go and simultaneously be understood. Many sites now are being translated into different languages, and there is also translation software available that can be plugged into Web browsers. In addition to language barriers, we must also contend with cultural barriers. As Schwartz points out, a perfect example is pizza. In the U.S., the most popular topping for pizza is pepperoni, but in Japan, it is squid and in Australia, it is eggs! We must continue to cross cultural barriers to survive and succeed in other countries economically.

Principle 9: Agility Rules – Web Sites Must Continually Adapt to the Market

In today’s complex and rapidly changing world, to succeed there is no time for web industries to rest on their laurels. It is all about being flexible, and being able to adapt quickly in such a rapidly changing environment. Today’s sites must be able to easily recognize when a particular aspect of a site is not working, and have the ability to adapt. One of the most important aspects of change in technology is how these sites react to it – can they upgrade without “threatening to shake and rattle the very ground of an industry’s competitive landscape”(193)? But, one must also constantly be on the cutting edge (or close to it) to remain competitive in this environment. This means paying attention to what consumers are looking for and are interested in. In addition, it would be wise to update your site by adding new features on a regular basis.

As we know, the Internet is geared towards information. Now technology is changing the way we receive this information for advertisements – push or pull. Traditionally it was a push environment with TV, radio, newspapers, but the Web is on the pull edge. If you see an Internet banner, for example, you have to click on that site to get or pull the advertisement information. Yet, marketers are tailoring advertising on the Web from a pull to push method.

Conclusion

These nine principles will enable any Web-based entrepreneur to succeed, if the product is deemed worthy. Current and future technologies will and do enable us as consumers to make better decisions, and demand the best products from the companies that we purchase them from. Consumers will demand even more from their Web-based companies that they purchase goods and services from. If it only takes a few minutes to do some serious cost comparisons, then business sites need to keep reinventing themselves to keep their customers satisfied with not only their products, but also the quality of interaction the customer received to get their product. This is why Schwartz?s nine principles are essential.