Version 2/13/06
Support Material: Hackers Hits and Chats

Keyterms: aggregated news reader, auction pricing, banner advertisement, blogs, bookmark, business model, call to action, captive market, click fraud, collaborative filtering, cookie file, digital product, discussion boards, hypertext, industrial revolution, keyword, lifetime value, marginal consumers, marginal cost, marketing vehicle, market segmentation, medium, negative cycle, networked economy, online advertising, PPC, portable, relationship marketing, RSS feed, scalable, search engine, search engine marketing, search engine optimization, spam, target market, viral marketing, VoIP, web, web 2.0

Background and History

Evolution of the Internet

In order to have a good understanding of the future, it is important to understand from where we have come. The major developments that have led to the establishment of the internet include the development of the PC, development of hypertext and the development of communications. The following resources look at the relevant evolutions: You should plan to review at least a couple of these resources (they are also pretty interesting)!

Blog Topic: Identify and discuss the key developments that have been essential in the development of the Internet.

Evolution of the Marketing Concept

The Internet is clearly impacting the field of business and traditional marketing. This has helped tip the balance further in favor of the consumer, in terms of competition in the marketplace and the ability for companies to target an individual's needs. This is part of a broader evolution that developed from the advent of the Industrial revolution and the Production era. The following are the key aspects of each era:
  1. Production Concept
    Demand for goods and services > Supply ... therefore consumers gladly purchased what was being produced. Producers had a captive market. Dollars spent on increasing the efficiencies of production had the greatest impact on company profitability. Thus smart businesses focused on increasing productivity, rather than understanding the consumer. Henry Ford's quote: "The customer can have any color car as long as it is black" illustrates this era! The production concept is appropriate for developing countries, with economies that are not yet as mature as the United States and other Western countries.

  2. Sales Concept
    Demand = Supply ... therefore producers had to persuade consumers to purchase their products. Focus of business investment starts shifting towards developing a robust sales mechanism in order to communicate with consumers. The sales concept is also relevant for products consumers do not seek out ordinarily, such as life insurance, burial plots and dental treatment.

  3. Marketing Concept
    Supply > Demand ... therefore producers need to first understand what consumers want, then produce those products, then persuade consumers to purchase those products. Target marketing and market segmentation became the new tools to increase company profitability.

  4. One 2 One (Relationship) Marketing Concept
    The Marketing has evolved and producers further segment their markets, targeting smaller groups of consumers within those markets. With the potential unleashed by the microprocessor and information technology, we are seeing targeting down to the individual, one to one. A commonly cited example is Amazon. Notice, if you make a purchase from this site (or similar) when you return to the site, you will receive recommendations based on your previous purchases. This presentation is based not only on your prior purchases (data stored on the server-side, while the client-side cookie file signals who you are), but on purchases of others who have bought the same book and similar books (use of collaborative filtering and an example of behavioural segmentation). This one-to-one relationship marketing focuses on extending focus away from the individual transaction to the life time value of the customer. From focusing on market share (of the product) to share of customer (relationship of the customer).

  5. Viral Marketing
    An interesting shift is occuring, as we are now in a networked economy. Our consumers are able to "talk" to each other and serve as an extended sales force. This lateral communication and / or transaction between customers and non-customers can serve as an opportunity for companies to leverage. The pioneer of viral marketing was Hotmail. This Wired article HotMale discusses this marketing "accident." Another good example is Since the receiver of the e-card has to visit the site to access the card, this visit serves to promote the service to the receiver.

    Viral marketing also occurs through customer interactions via discussion boards and blogs. Customers now have a simple means for sharing information with each other. This is an opportunity for marketers that understand this, and a distinct threat for those that do not.

**Blog Topic: Can you identify other examples of viral markering at play.

Evolution of the Communications Model

Over the years companies have used various media to target their audiences with their marketing messages. The following table outlines the key attributes of each medium, and compares each of them to the web. It is interesting to note how the web is clearly stronger in most areas!

Comparing www with other mass media
Media Cont. Int. Comm. model Linear Obtrusive Control Presentation Reach Flex. Scalable Transactional Community Business Apps. Publishability Spam
Billboard N 1 to many L Y N P S N N N A Marketer N
Newspaper N 1 to many L Y Y P Q N N N A Media, Marketer N
Magazines N 1 to many L Y Y P Q N N N A Media, Marketer N
Direct Mail N 1 to many L Y Y P Q N N N A Marketer Y
Radio N 1 to many L Y N A S N N N A Media, Marketer N
T.V. N 1 to many L Y N AV Q N N N A Media, Marketer N
WWW Y 1 to 1, many to many N N Y MM F Y Y Y A, CS, PR, TR Media, Marketer, Consumer Y
Table key:
Cont. Int.: N (no interactivity) Y (interactivity)
Refers to the interactivity of the content delivered by the medium, not interactivity between medium and user.
Comm. Model: 1 to many (mass marketing), 1 to 1 (mass customization)
Comm. Model refers to the communications model.
Linear: L (Linear), N (Non Linear)
This refers to the method/flow in which the user can process the information.
Obtrusive: N (unobtrusive) Y (obtrusive)
Refers to whether the medium pushes (obtrusive) the message to the consumer, or the consumer pulls (unobtrusive) the information.
Control: N (no consumer control) Y (consumer control)
Presentation: P (Print), A (Audio), V (Video), MM (Multi-media---includes A, V and P and is interactive)
This refers to the media available to represent the information.
Reach Flex.: S (no flexiblilty) Q (moderate flexibility) F (determined by customer)
This refers to the ability to use the medium to cover breadths of marketplaces (i.e., local, regional, national and/or international, simultaneously).
Scalable: Y (yes), N (no)
Scalable refers to the marginal cost and ability of increasing the audience size that is exposed to the message.
Transactional: Y (yes), N (no)
This refers to the ability to use the media to execute transactions directly.
Community: Y (yes), N (no)
This refers to the ability of the medium to foster community.
Business Apps. A (Advertising), CS (Customer Service), PR (Public Relations), TR (Transactions)
This refers to the ability of the media to perform business goals.
Publishability Media, Marketer, Consumer
This refers to who is able to publish information via each type of medium. Consumer publishing is increasing on WWW via blogs.
Spam: Y (yes), N (no)
This refers to the medium's exposure to spam. Note, spam is a distinct problem with e-mail at this time, this can be overcome by the use of RSS feeds (organizations distributing dynamic content directly to subscribers via their aggregated news program).

Traditional Communications Model
The following illustrates the basic communications model of traditional media. Note the indirect feedback loop, and an assumption of reaching the right audience.

------------------------->Communication flow

Marketer--------Medium----------Target Audience
   ^                                  |
   |                                  |
   |                                  |
   |          Feedback                |

<-------------------------Communication flow

With the above model, marketers had to make assumptions in terms of who was actually being exposed to the message they were communicating, and who was purchasing the products. For example, a major marketer, launching a new brand, may determine that the type of consumer who would purchase such a brand is the same type of consumer who watches CNN. The marketer may therefore run TV commercials on CNN in the hope of reaching the right audience. Technology (credit cards and toll-free numbers) has made this process a little more effective, in trying to understand who is being exposed to which marketing messages, and the response from those messages. Thus if an advertisement is run on CNN, with a 1-800 # call to action, and after the advertisement is run, the phone rings, one can ASSUME the caller saw the advertisement. This is still not an exact science. It is not uncommon that an advertisement is run that reaches areas where the consumer cannot actually purchase the product!

There is an often used quote:
"50% of my marketing budget is wasted, but I am not certain which 50%"
This summarizes the above dilemma.

WWW Communications Model
The following is the communications model that is emerging with the web. Note consumers each have direct interactivity with the company and the web, and EACH other (supporting the viral behavior, via e-mail, discussion boards and blogs).

                       ---->---<----Customer C-->
                      /             |           |
                     /              |           |
Marketer-->---<-----WWW---->---<----Customer A  | 
                     \              |           |
                      \             |           | 
                       ---->---<----Customer B-->

Communication flow is from:
  • Marketer to WWW
  • Customer to WWW
  • Customer to Marketer (via Email)
  • Marketer to Customer
  • Customer to Customer
  • With the above model, marketers can present their information on their web-site, and 'push' it through the RSS subscription model. Consumers can interact with this information, making their own decisions with respect to their navigation path, to satisfy their own information needs. Thus each consumer has a unique presentation, once she/he begins the navigation. Each consumer may also have a unique presentation based on previous visits. (Again refer to Amazon for an example.) The display is based on information stored in the consumer's cookie file, in the server-side databases, and collaborative filtering employed to match purchasing behaviour with similar customers. Consumers can interact directly with the company, via e-mail etc. Consumers can also interact with each other, either within the web-site of the marketer (if the marketer is smart!) or on outside discussion boards and chat rooms or via blogs.

    How Companies Sponsor, Listen in and learn from Chat Rooms

    **Blog Topic: Discuss how YOU have been influenced to make (or not) a purchase decision because of other customers' experiences that you were able to discover via the internet.

    Media Convergence / Integration ?

    Given the flexibility of the web, we need to consider how it will impact the sustainability of traditional media (TV, radio, newspapers, magazines) and other communications tools (telephone and fax) as separate media and devices.

    Each medium that has evolved (print, then radio, then TV) has not had the expected negative impact on the growth of the existing media. This is due to the niche areas that each medium serves (example: radio is good for people traveling by car). For the first time, with the internet, this comes under scrutiny. If we consider the attributes of each medium and the business models of each medium, can they be sustained with the evolution of the web ?

    Newspapers as an example
    Newspapers satisfy the need to print timely information, to their readers, on a regular basis (daily). The medium is also portable. The business model for a newspaper is typically comprised of a per unit charge, heavily subsidized by advertising which includes classified advertisements. Lets assume that there is some revenue loss for the newspapers, as the classified advertisements use the more flexible medium of the web. This will occur as classified advertisements take advantage of the auction style pricing system. This is more useful for the seller, who is now able to get the right price for the good, and does not have to estimate that price (potentially leaving money on the table). Thus, with this source of revenue diminishing, newspapers will either need to raise their price, sell more traditional advertisements, or sell more units. If we assume the marketer was already selling as many units as possible, then the third option is unlikely. Either of the first two options makes the newspaper less attractive to all consumers, so some marginal consumers will start to gather their information from other sources. Concurrent to this, the web will become more portable, with wireless access (this in itself will no doubt establish a revolution of new business ideas and opportunities). While increasing portability is an issue, the web is already a good medium for satisfying all other user needs that newspapers satisfy (timely, printable etc.) and improving with services like GoogleNews and RSS subscriptions from various sources. Thus newspapers will not only lose a source of revenue from the loss of classified advertisements, but also from the erosion of its customer base. This negative cycle may spiral and therefore fundamentally alter the current value proposition and business model of the newspaper.

    Similar examples can be developed for radio programming as it is traditionally distributed. (I can now listen to my own english football team each saturday morning --- here on the east coast of the U.S. --- how are the advertising people considering this?)

    We are already seeing telephone use over the internet (voice over IP). How this plays out will no doubt fundamentally change the business models for the telephone industry. The fax machine has certainly lost its position as the sole medium for transmitting digital documents.

    As more information becomes digitized, we will see more information flow from one medium to another, and media will begin to converge. As data compression technology becomes more robust, we will see increasing amounts of data flowing through each medium.

    **Blog Topic: How will the media landscape evolve?

    Evolution of Web Design

    The first era of the web saw companies place their brochure material online: brochureware! As we started to understand the capabilities of the web, we placed more indepth material with the brochure material. The web therefore became a significant information repository/marketing resource.

    The next phase (after 2-3 years) companies began to recognize the transactional capabilities of the web and its potential role in customer service (especially its 24/7 nature).

    We are now seeing a third shift as companies explore its community building capabilities. Since customers are already talking to each other on the web, in discussion boards and chat rooms, and using web 2.0 technologies like blogs, we need to leverage this by hosting these conversations. By getting involved in these conversations, we are more likely to understand our customer's needs. More information regarding this shift is highlighted by the Cluetrain Manifesto. You can use and see how your favourite web sites have changed since the early days.

    In conjunction with this third shift in design is the emergence of the field of search engine optimization. Thus as designers design their web content for visual appeal and community development, they also need to design for the search engine in order to maximize discovery. This has been taken to such an extent that sometimes designers overstep the mark, as is in the recent case where BMW Germany was eliminated from google for a short period of time.

    **Blog Topic: Highlight a web site of good design, and explain how it facilitates transactions, community and marketing in general.

    Evolution of Search

    The web is only useful if you can find things. Search engines are the tools used by web seekers to find information. WebCrawler was the first keyword-based engine launched in 1994. (It is now a meta engine, collecting results from different search engines). AltaVista became a popular engine in the late 1990s, basing its results on the relavancy of keywords included in the search. Search engines were prone to spam as site designers quickly learned tricks to get their sites at the top of search results. Google's engine, which is the more recent entrant, and now clearly the preferred engine of web users, created the PageRank algorithm that not only looked at keywords, but also inbound links to the page (again, prone to spamming, but less so). Google also provides results for other sites such as AOL search. Yahoo!, which began as a directory, is the second most popular search site. Microsoft's offering, MSN search is also a well used engine.

    Search engine innovation still has a long way to go, although it helps that we have decent competition in this 'space'. Time-based search is important, but not yet developed fully. For instance, if you want to go to a search engine and ask it what is happening in your local town today it would be hard pressed to give you a complete answer. Blog search engines do produce their results based on time (top result is the most recent entry associated with the keyword phrase of the user). Local search is also an area of importance, the opportunity to truly replace the yellow pages. Google and Yahoo! are looking at this, in conjunction with their respective map services.

    **Blog Topic: Describe a good example of search engine innovation that you have experienced.

    Evolution of Advertising on the Web

    The first banner advertisement appeared on Wired in 1994. This was met with some trepidation, as to that point the internet had a non-commercial culture. Subsequent to this event banner advertisements and other forms of internet advertisements have become a popular business model for marketing vehicles and an important means for business to reach out to their consumers. More recently PPC search engine advertising programs have become very popular, and the PPC model is likely to become the preferred business model for hosting advertisements. Clearly it is more reflective of the interactive nature of the medium (versus CPM, a hold over from more traditional media) but is prone to click fraud. Internet advertising is predicted to double over the next five years.

    **Blog Topic: Describe how internet advertising has impacted your web experience.

    Evolution from 1.0 to 2.0

    The web is beginning to transform to a more participatory medium. In its early evolution sites were designed for companies and few people had their own homepages. Most of these sites were fairly static and there was no easy means for a browser to know when content was updated, unless alerted via another channel (e-mail). To browse the web a user needed to seek out content, and 'bookmark' content to which he / she wanted to return, and return in a somewhat random fashion.

    Web 2.0 technologies are now enabling a shift in web behaviour. Users can now subscribe to content via a RSS feed, use news readers to manage their subscriptions and reading of the content at their own time, and use blogs to publish their content.