The Web is taking your customers for Itself

June 8, 1998

BY MICHAEL KRAUSS

In a blinding flash of the obvious I said to a colleague, "Marketing on the Web is all about segmentation."

Recovering from my faux pas I restated the premise, "Marketing on the Web is all about watching others use segmentation strategy to take away your best customers without you realizing they're disappearing."

Take newspapers as a prime example. Paid advertising, not subscription fees or newsstand sales are the major source of revenue for most local newspapers. Three critical sources of advertising revenue for newspapers are real estate ads, help wanted ads, and automotive ads. Now look at three web sites: Realtor.com, The Monster Board, and AutoSite.

Using venues like these, customers can search more effectively for goods and services. And the Web can pour sight, sound, and the intoxication of multimedia into the experience. Increasingly, these sites are being customized. They will gain a certain amount of knowledge about you as a customer and your unique interests. Who's going to want to sit in Yonkers paging through the The New York Times classifieds and get ink all over their hands when the Web offers a superior experience.

For newspaper publishers or marketing generalists who think that safety lies with ignorance - roughly translated as "It will be years before these web sites can pick up the broad customer awareness they need to threaten my entrenched market - think again. You don't need to know about these sites ahead of time in order to use them. Surfing the Web is intuitive, and a typical search engine will point consumers to these sites pretty quickly. Just type the words "real estate," "jobs," and "cars" into your search engine and watch what happens.

Next, look at sites like AdQuest Classifieds, Classifieds 2,000, or AmericaNet.Com Classified Ads. Without buying the newspaper, you can conveniently search a broad range of classified ads and keep your hands clean in the process.

The marketing and business impact of all of this for the newspapers is initially subtle but ultimately life-threatening. Someone is slicing away at the tasty center pieces of their cake. Instead of cutting the cake the old-fashioned way, like we do at a birthday party, the new competition of the 90's is cutting it crosswise.

A brisk movement of the Internet marketing stiletto and real estate ads are reduced. Another cut and automotive ads fall off. Then the help wanted. In the short term, these reductions won't hurt; there's still plenty of cake and icing to go around. But, in the longer run, the cuts will hurt. The cake will crumble as too many thin layers are cut away. That's the segmentation risk factor that established marketers need to be alert to in the age of Internet marketing.

Of course, the core competency of newspapers is gathering news and writing features about local entertainment. I enjoy reading the Tempo section of the Tribune here in Chicago, and I think Gene Siskel is a brilliant film critic. But, take a stroll to Microsoft Sidewalk. I travel to Denver frequently. I can get the review on-line, find the local theater and movie start times, plus check out restaurant reviews from my laptop in the hotel room.

Why buy the Denver Post or the Rocky Mountain News? There goes another horizontal slice of the newspaper cake. To get my dose of Siskel and Ebert, I'll record their television program. Better still, I'll visit them at the Buena Vista television Web site (just type Siskel & Ebert into your search engine).

As slices of the newspaper's cake get eaten by competitors, can local newspapers survive? The answer is probably "yes." The question is, what will their quality of life be in the future?

Does the Denver Post want to simply be the front-end gatherer of news for on-line services like Microsoft Sidewalk? Or would the Boston Globe simply want to use its advertising department to be the seller and data collector for classified advertising distributed over the Internet? Maybe. The scenarios aren't clear just yet. What is clear is that there will be a shift in organizational power and control, and the destiny of these corporations - and maybe your own - is in jeopardy.

Corporate survival could rest upon the ability of these organizations to negotiate deals effectively with the network of on-line providers. That negotiation skill may prove more important than the ability to collect content, which might come as a shock to today's newsroom editors and reporters. This shift brings to mind the situation facing factory workers a generation ago when plant automation hit them.

Newspapers will survive; many will even thrive. Some are taking equity positions in the new competitors as the Tribune Company has done with AOL and Excite. Others are building their own national vehicles to try to meet the competition head on. Watch for the Washington Post and Knight-Ridder to potentially attack in this vein. Some are digging into their foxholes and trying to own their own local markets.

The question marketers should ask themselves is: Can your business survive if nontraditional, previously off-the-radar-screen competitors like powerhouse Microsoft begin slicing away at segments of your customers? It's one of the most important questions in the realm of Internet marketing.

Michael Krauss is a partner with Diamond Technology Partners in Chicago.
He can be reached at news@ama.org.