Webonomics

Webonomics

by Evan I. Schwartz
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Overview

Webonomics by Evan I. Schwartz

Webonomics, n: the study of the production, distribution, and consumption of goods, services, and ideas over the World Wide Web.

With tens of millions of people now on-line and Web sites springing up at the rate of one per minute, the World Wide Web has become a strategic tool for successfully growing a business. But while the new digital economy mirrors the traditional economy in some ways, it exhibits unique properties of its own, and it can cost a business thousands, even millions, of dollars if used ineffectively.

In Webonomics, Evan I. Schwartz defines the principles and strategies for maximizing the Web's potential and illustrates these lessons with numerous case studies of both successes and failures, from Web-based start-ups such as Firefly and Virtual Vineyards to large corporations such as IBM and Federal Express. At a time when only the most agile and adaptable businesses can survive, Webonomics is an essential handbook for thriving amidst the accelerating changes of the
Information Age.

Product Details

ISBN-13: 9780767901345
Publisher: Broadway Books
Publication date: 03/02/1998
Edition description: REPRINT
Pages: 272
Product dimensions: 5.52(w) x 8.23(h) x 0.84(d)

About the Author

Evan I. Schwartz is a contributing writer for Wired magazine and a former editor at Business Week, where he covered software and digital media.  He has been the featured speaker at major corporations, business schools, and conferences.  Evan lives with his family in Brookline, Massachusetts.

Read an Excerpt

Things aren't slowing down a bit. If anything, the pace of life in the world of the Web has accelerated since the initial publication of Webonomics. The browser wars have escalated to new heights. New technologies have been shot rapid-fire into the marketplace. A worldwide explosion of awareness has set off yet another huge influx of users populating the Web economy. And, of course, the pace of creation has continued unabated. Amidst all this, many of the stories told in these pages have added exciting new twists and turns, with some Web ventures going on to achieve astounding growth, and with others falling like dead trees in a silent forest.

My number one goal in writing the book was to develop principles, or strategies, for successful Web commerce that withstood the test of time and unrelenting change. The Nine Essential Principles are derived from reporting and observing, listening and watching which business models and tactics work, which don't, and why. They are also based on a dose of good old-fashioned common sense, plus a sense of market forces, such as technology's dependable drive to get more powerful and inexpensive, and the basic fact that an individual's supply of attention will remain painfully constant in the face of all that cries out for it.

Readers are the ultimate judge of whether I have succeeded or not. The overwhelming majority of the dozens or so published reviews of the book, plus the hundreds of e-mail messages from readers, were indeed positive. Yet I was surprised by the nature of the few negative ones. Since I was deliberately attacking the conventional wisdom about why the Web was important, I expected the defenders of that conventionalwisdom to take issue and argue, especially those in the advertising industry who were mistakenly treating the Web as just another television-like medium. But I got almost none of that. Instead, several readers told me not that the principles were wrong, but that some of them were obvious. In any case, I fully welcome the criticism I did receive. But if the principles are obvious, then why are the vast majority of Web sites still failing to take advantage of them?

Actually, more and more are getting it. A sizable minority of Web entrepreneurs are learning that success in the Web economy is a combination of hard work and dropping preconceived notions developed from decades of doing business elsewhere. People are also waking up to the fact that paid advertisements on the most popular search engines and news sites aren't the driving force of the Web economy. Transactions are where it's at. Advertising on the Web is indeed an opportunity worth hundreds of millions of dollars. But electronic commerce, including consumer purchasing and the business-to-business market, is well on its way toward becoming an opportunity worth hundreds of billions of dollars. To focus on advertising alone is to miss a mother of a big picture.

And the picture that's emerging is bigger than just about everyone predicted. As recently as 1996, one major research firm predicted that sales of goods and services over the Web would amount to about $1 billion in 1997. Around the same time, another firm, ActivMedia Inc., predicted that overall Web-enabled sales would reach $13 billion. According to ActivMedia, the real number came in at about $25 billion. The firm forecasts that e-commerce will, in a few short years, account for about 5 percent of the gross domestic product in the world's top 25 economies. Clearly, the Web economy is no small thing.

Still, not a day goes by when I don't hear or read someone asking: When is e-commerce going to catch on? When will people start shopping on the Web? When will consumers begin to feel comfortable using their credit cards online? For the fast-growing segment of the population who are spending more and more time on the Web, those questions have already been answered. These things are happening right under our noses.


The Foundation of Webonomics

New sites on the World Wide Web have been cropping up at the rate of one per minute. As it expands at this astounding pace, it's clear that the Web's colorful entanglement of words, pictures, sound, and motion is briskly becoming more than just the most important new communication medium since television. The Web is more like a parallel universe that mirrors the physical world in some ways but exhibits entirely unique properties in others. And if you hang out there long enough, you will slowly discover that there's nothing less than an entirely new economy taking shape on this digital terrain--and a new way of looking at the way this marketplace of information and ideas works. Call it Webonomics.

Many of the businesses now piling onto the Web may totally misunderstand what this new medium is all about. They may end up losing millions of dollars and eventually decide that the Web isn't living up to its hype. Other businesses may totally ignore the Web and get left behind. Their competitors, meanwhile, will use the Web as a tool to literally steal their best customers away. Averting such scenarios will only come with a keen understanding of Webonomics.

Traditional economics is based on the notion of scarcity--that human desires will always exceed available resources such as food, clothing, and shelter. It was Thomas Malthus, the English economist, who first postulated that populations will always increase faster than the food supply. This pessimistic focus on the allocation of scarce resources is what earned economics the reputation as "the dismal science."

Webonomics is anything but dismal. On the Web, precisely the reverse is true. Since the Web is a fast-growing world of intellectual property that can be copied and downloaded ad infinitum, its supply of resources will continue to soar past human demand for these resources. Instead of a scarcity of supply, the Web economy exhibits a scarcity of demand. Indeed, one of the main complaints about the Web is that it's "mind-boggling" and "too overloaded" with information. On the Web, the main commodity in limited supply is the attention of the busy people using it. The underlying battle in the Web economy is the ability to command and sustain that attention.

As such, growth of the Web economy has everything to do with the quality of the information there--how interesting and engaging it is, how it is presented, and how it takes advantage of the unique attributes of the medium. As more and more people continue to enjoy the Web, as they find it worthy of their attention, the Web will continue to grow at its frenetic pace. Unlike a national economy with limited resources, there are no physical limits on this growth. Unlike real estate, steel, or even paper, computing power and computer storage is cheap and getting cheaper. There's an infinite number of bits in the universe and a virtually bottomless hunger for valuable information and knowledge.

The Web is also a world without borders in which the physical location of a company doing business there is of little importance. Despite efforts to do so, the Web economy will resist efforts by national governments to control or regulate it. It will be up to each citizen of the world to choose what they see and do. In this sense, a totally free-market economy had been considered to be only theoretically possible in the past; the Web makes it practically possible for the first time.

The nature of this beast is both good and bad. Because of the abundant choices available, the combat among companies is, in the words of Sun Microsystems CEO Scott McNealy, one of "fierce Darwinism." To succeed, businesses on the Web must invent new ways to market themselves, new ways to learn what customers want, new ways to forge lasting relationships with them.


Marketers Shouldn't Be on the Web for Exposure, but for Results

Brochure-Ware

Mass marketing won't work on the World Wide Web. The idea that marketers can burnish a brand image in the minds of millions is fine for a TV advertisement or a print campaign. But it's an unrealistic fantasy in this new medium. What the Web can accomplish for marketers is potentially even more powerful. Still, countless marketers have ignored what the Web can do well and mistakenly tried to use their Web site to do what they have always been doing--simultaneously shipping the same message to the masses.

Consider the case of Volvo. In the fall of 1994, Volvo Cars of North America became the first automaker to establish a Web presence and one of the first advertisers on popular content sites. In those early days of the Web, the most popular content creators, such as Hotwired, Time Warner's Pathfinder, ESPN SportsZone, and Playboy's site, all began charging between $30,000 and $100,000 for a three-month placement of a logo or banner on their digital pages. These ads are also known as "links." Click on one of these buttons and your eyes are transported, or linked, to a promotional Web site running on some other computer somewhere else. After interacting with that advertisement, you will presumably link right back to where you were.

In buying banner advertisements on the Web, Volvo was hoping to enhance its brand image. And by attracting Web surfers to its site, the Swedish automaker also wanted to give people in the market for a luxury car a new information tool that would make them consider a Volvo more seriously, says Bob Austin, Volvo's director of U.S. marketing. He notes that only about 6 percent of the adult population has the money and inclination to buy an automobile costing at least $30,000. He saw those people as having a high overlap with the early Web surfers. "We know that our potential buyers are well-off and tend to be early adopters--people who enjoy technology," Austin says. So the company spent about $100,000 developing and advertising what started out as essentially just an electronic brochure.

Not only did the Volvo site fail to lead to many, if any, sales, but it actually caused unintended problems. The only truly interactive part of the site was the ability to send E-mail to Volvo's U.S. headquarters in New Jersey. "People would occasionally write things like: 'Nice Web site, but the sun roof on my 850 leaks,'" Austin says. Many state lemon laws require responses to such complaints within a few weeks, otherwise the manufacturer has to take the car back. Since Volvo failed to staff the site with people who were qualified to respond to such complaints, the Web site became a tool not to increase sales but a potential way to damage them. So the E-mail feature had to be shut down within a few weeks.

With that bitter experience in hand, Volvo decided to pull back all its Web advertising and simply promote the site in its own TV and print ads. Austin says he just wasn't getting value for the money spent, especially since the content sites weren't able to provide hard numbers about who exactly they were linking to his site. "I'm not comfortable throwing more money at advertising the site," he says. "We're not here to sell Web sites. Web sites should be here to sell cars."

Volvo made two crucial mistakes. The first foible was in treating consumers on the Web as a distinct demographic group in and of itself. Back then, that was understandable. It's true that the early Web surfers tended to be upscale, well-educated, techno-savvy males. Although it may always tilt to that core audience, the Web is more and more coming to resemble a cross section of the population at large. As bigger crowds of people stream into cyberspace every day, the trick for marketers will be to pluck their best and most likely customers from that pool--not indiscriminately trying in vain to reach all of them.

The second, much bigger mistake was failing to take advantage of the unique attributes of the Web. Providing potential customers with an electronic rendition of a brochure--brochure-ware--is of little value when it's faster and easier to flip through one made of paper. As a result, Volvo was not able to forge relationships with individual consumers. The only method Volvo had for trading information with consumers was the nonfunctional E-mail feature. The worst thing you can do is suggest that you're willing to communicate with customers and then not have the capacity to respond.

A New Psychology

Advertising, it has been said, is all about unleashing desire. An effective advertisement will make you yearn for something that you previously didn't know you needed. Ad men, John Kenneth Galbraith wrote in his 1958 book, The Affluent Society, "are effective only with those who...do not already know what they want. In this state alone, men are open to persuasion."

Consider cigarette ads. The FCC banned them from the airwaves in the early 1970s precisely because these commercials were able to convince people that cigarettes, although dangerous, are glamorous. Print ads for cigarettes have a similar effect, even though they may not be as potent. The Marlboro Man is still one of the world's most recognizable characters. The vision of a cowboy riding his horse through a shallow lake as the setting sun bounces off the pale mountains is alluring. The "Come to Marlboro Country" campaign works through enticement, identification, and association. The "information" in the ad--the Surgeon General's warning--can't match the power of the image.

This might be an extreme example. But almost all ads in intrusive, one-way media employ a similar psychology.

The Web calls for a new psychology, a new way of enticing people to buy things. It has to be a psychology based less on manipulation and more on peer-to-peer negotiation. Yet it is a psychology nonetheless. All marketers must keep generating new demand for their product, not just rely on the few customers who might already be predisposed to buying it.

On the Web, powerful imagery that tunnels into the subconscious of consumers doesn't work all that well. The goal shouldn't be to shout your message repeatedly in their faces but to identify and respond to their needs. Mass-media advertisements usually go too far over the line, trying to get you to want something before knowing whether you are open to such a pitch. An effective marketing site on the Web will play to the other side of the line. It all begins with the needs. So instead of extending the old psychology based on unleashing desire, marketers on the Web must get down to the more mundane chore of assessing needs and responding to them.

This is how it may work. You may need a car. But how does a marketer get you to want a Ford Taurus? Every car company has a Web site, but which car company has the best Web site to convert your need for a car into a desire for a certain car?

One site might do it by asking you about your lifestyle. If you are a young single man, and you prefer a sporty vehicle, a Honda site might suggest a Prelude rather than an Accord. By responding to your particular need, this site might have an edge over the others. A good car site should also tell you how much you can afford in monthly payments and compare leasing deals to buying.

What People are Saying About This

Martin Nisenholtz

"Schwartz has created a series of lessons that others have invested millions of dollars to discover." -- President, the New York Times Electronic Media Company

Jeff Bezos

"You'll end up hoping your competitors don't read this book." -- Founder and CEO, Amazon.com Books

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Webonomics 4 out of 5 based on 0 ratings. 2 reviews.
Guest More than 1 year ago
The internet keeps changing so quickly that any book in print tends to be outdated as soon as it hits the bookstores. The downside to this book (I read the hardcover version) is that it was published three years ago. Nonetheless, it is worth a read. The nine principles of doing business on the web which Schwartz outlines still hold today.
Guest More than 1 year ago
An excellent assessment of what works and why. The author provides well-written notes on how businesses succeed on the Web.