Merely grinding out market-share gains doesn't cut it for marketers with a future

October 25, 1999

BY MICHAEL KRAUSS

DAs a marketer, when was the last time you thought about American Online's market capitalization? It's $100.8 billion, which compared nicely recently to $49.2 billion for General Motors Corp. Surprised?

Then you should find out about Yahoo!, which has fallen off a bit lately to a mere $33.3 billion. Or know that Amazon.com is valued at $21.5 billion, eBay at $18.1 billion, Priceline.com at $8.3 billion, eToys at $6.7 billion, Ariba at $6.1 billion and E*Trade at $5.5 billion, at least on the day that I wrote this column.

But is this the investment bankers' concern or yours?

Once upon a short time ago, for every E*Trade, eToys and Netscape, there was a Merrill Lynch, a Toys 'R' Us and a Microsoft on the sidelines-major market leaders that should have captured the market value that Yahoo!, Amazon and other firms capture but didn't innovate quickly enough. Even today, most marketers are preoccupied with using interactive technology simply to make their business go faster, better or cheaper. That's necessary but not sufficient; to win today, you need to establish breakthrough new businesses.

But is that the entrepreneur's job or yours?

I heard a funny line in Silicon Valley a few weeks back: "All these new competitors are spoiling the game." The comment was attributed to a senior executive at eBay, not a traditional retailer like Toys 'R' Us. And later of course, Microsoft, Dell and Lycos teamed up to establish FairMarket, Inc., another competitive auction site, and knocked 7.1% off of eBay's market capitalization in one day.

My, how times have changed. Whereas the hot Internet start-ups once looked invincible, they now are facing the same competitive challenges that have plagued companies since commerce was invented.

But is that the high-tech marketer's concern or yours?

It's yours, of course. Your job definition has changed drastically, and if your job description hasn't changed as well, you could find yourself in long-term career trouble, even in this tight job market. You should be thinking like an investment banker, an entrepreneur and marketer whose business is threatened by technologies and competitors not even invented yet.

Are you thinking. "All this talk about market cap-I thought marketers were supposed to deliver operating profits. I thought my role was to whip the competition, grind out share points and deliver sales volume, revenue and net profit month-in and month-out"?

Well, that's what I thought, too, as a brand manager at Esmark Corp. in the late 1970s. I thought my job was to build existing brands like Butterball, Peter Pan and Soup Starter and operate them profitably. I was a starry-eyed kid who thought running a brand's P&L was the ultimate experience. And I thought I was learning to run a business. Little did I know.

Don Kelly, Esmark's CEO, was playing on a much broader chessboard. He wasn't into operating businesses; he was into brokering brands. I watched him drive the Esmark share price from a low of $25 per share to $75 per share and ultimately sell the business altogether. Much to my youthful chagrin and enthusiasm for operating brands, Kelly's approach benefited the shareholders nicely.

Today's marketer can't afford to miss this lesson. The perceived balance sheet counts more than the actual profit-and-loss statement. Wall Street assigns market valuations to Internet start-ups despite their losses-in light of the expected future benefits arising from their assets-whether the assets are Jerry Yang's collection of URLs at Yahoo! or Steve Case's subscribers at AOL.

Keep in mind that the game is far from over; the Fortune 1,000 companies have assets, data, relationships and industry expertise. The opportunity for everyone else is to harness assets and act before it's too late-mobilize your bulk and innovate at scale. Yes, that's risky, but it's even riskier not to innovate.

The problem is simple: New e-ventures often cannibalize the host company that sired them and you can't expect the "lunch" to invite in the cannibals. So you have to be a leader in your company, convincing management to invest in a series of experimental Internet start-ups that well may cannibalize your current core business. But if you don't, off-the-board competitors may well eat you for lunch.

Don't be an apologist for the established companies. Some big-league CIOs like to say the reason God could create the world in six days was because he didn't have an installed base, making the point that, because Internet companies started with a green field, they could innovate more nimbly and successfully. Not only is that blasphemous, it's misleading. The problem is a lack of appetite for innovation and an insufficient ability to take risks because of the need to deliver regular, orderly profits.

Here's a more-appealing story for the traditional companies that I heard also on my West Coast trip, which shows the Internet start-ups are fallible: One of the leading search engines, Alta Vista, was planning to be the TV Guide of the Internet. Over one weekend, it became the largest search engine in the world. A couple of Alta Vista executives went over to a dorm room at Stanford where a pair of students, avoiding completing their doctoral degrees, were dreaming up a different kind of search engine. They talked the students into coming together with Alta Vista.

But when they got back to their office, the two Alta Vista executives were roundly criticized for their efforts, the deal was rejected and one of the two was demoted two levels. The Ph. D. candidates, meanwhile, went on to form Yahoo!.

The bottom line: The Internet start-ups are sharp but not insurmountable. Competition is entering their turf, too, and traditional marketers understand how to compete. But don't just use Internet technology to make marketing efforts faster, better or cheaper. Use the technology to innovate and create whole new e-ventures.

If you don't, you may find yourself working for a group of 20-something Stanford dropouts.

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