The growth of VOIP and the threat it poses to the trillion dollar telephone industry is attracting well justified attention and creating lessons in Internet strategy no one can ignore. But the performance of the established telecoms demonstrates that while there’s never a good time to dissatisfy a customer, a “cable guy” approach to customer service is particularly ill timed now that alternative technology is available.

Web guru Tim O’Reilly forecasts that VOIP’s participatory technological model will disrupt the established telephone players. The father of disruptive innovation, Clayton Christensen, cites VOIP as an excellent example of why all industries should evaluate the opportunity or threat created by the radical business models it exemplifies.

Another theory, enthusiastically articulated by a friend of mine who has chosen VOIP over her landline, is: don’t piss off your customers.

While not grounded in the same academic rigour as O’Reilly or Christensen, her experience provides a case study of what happens when an industry facing intense competition fails to provide even basic customer satisfaction: she eradicates them from her life.

The growth of VOIP is remarkable. Japan already has over 8 million subscribers today andIDC predicts that the number of residential VOIP subscribers in America will grow from 3 million at the end of 2005 to 27 million by the end of 2009.

Such growth inevitably captures the attention of the business press, such as The Economist which produced an in-depth report on telecoms and the Internet. It provides startling evidence that the telecom industry will be devastated by VOIP.

The report holds up Skype as a leading example of a disruptive agent terrifying the incumbents, and not because of its current business performance. The three year old company will only make US$60 million in revenue this year and will likely not be profitable.

Skype earns attention because of the credentials of its founders who clearly grasp the participatory, collaborative nature of Internet technology. Niklas Zennstrom and Janus Friis also founded KaZaA, and its their combination of of philosophical insight and business acumen that has drawn the attention of Tim O’Reilly, an influential proponent of Internet-enabled collaboration.

Skype is also a poster child for Christensen’s theory of disruptive innovation, a player that can take out entrenched incumbents by kneecapping them with superior pricing tactics. Consider Skype’s model:

§         It can add 150,000 users a day without spending anything on new equipment or marketing.

§         With no marginal cost, Skype can thus afford to maximise the number of its users, knowing that if only some of them start buying its fee-based services—such as SkypeOut, SkypeIn and voicemail—Skype will make money.

§         As a result, according to Zennstrom: “We want to make as little money as possible per user. We don't have any cost per user, but we want a lot of them.”

§         This is the exact opposite of the traditional business model in the telecom industry, which is based on maximising the average revenue per user.

Not only does the Skype business model have experts like Rich Tehrani, the founder of Internet Telephony, predicting that in the future all voice communication will be free, recently released statistics demonstrate that VOIP may completely eliminate traditional phone service.

According to the Telephia Emerging Personal Communications Options (EPCO) survey of high-tech households, Internet-based telephone service (or Internet telephony) is replacing traditional landline phone service among those who have chosen VOIP.

§         53 percent of high-tech households subscribing to Internet telephony have completely replaced and disconnected their landline phones. (High-tech households are identified as those who currently subscribe to at least three bundled or emerging services—e.g., wireless data, video-on-demand, Internet-based telephony, satellite radio, broadband, DVR, etc.—or expressed an intent to purchase four or more services.)

When asked what the primary reasons were for subscribing or having interest in Internet-based telephone service, the high-tech households responded with explanations that strongly reinforce the pricing model implemented by Skype:

• 59 percent said savings on calls within the United States was the top factor in making the switch.
• Among those who showed interest in adopting Internet telephony, but have not subscribed to a service, 30 percent said that bundled package deals were a key reason for their interest.
• For these “intenders,” 17 percent said interconnectivity across different communication services was important.
• 15 percent cited the ability to switch between telephone networks.
• 11 percent mentioned caller ID on TV as a reason for interest.

Which brings us back to my friend. An executive with a multi-national software manufacturer, she and her husband fit comfortably into the high-tech household category. But she never mentioned the factors above when telling us why they have removed their landline and are now exclusively using VOIP and cell phones for their voice communications.

She chose to disrupt her telephone provider after it was unable to resolve a technical problem after seven service calls (all of which required her to be at home and not all of which resulted in the appearance of a service technician) and long-winded explanations from CSRs about how she might not actually have a problem with her phone line.

There are few industries in which the stakes are as high as telecommunications and the differences in business models between disruptors and incumbents are as stark. Nonetheless, everyone evaluating an Internet strategy must be following the developments in the industry because of the important lessons it provides.

But one can only hope that we don’t need to read the work of business and web theorists to understand that forcing a customer to endure seven service calls to not resolve a problem will motivate them to switch the moment an alternative is available.

Paid search gets a lot of press because it’s making a big bang. However, many advertisers and web managers are still confused about this hotly evolving science (or art depending on your perspective).

Paid search allows an advertiser to pay for small text ads, that sometimes look like they are regular search result listings or they are offset from the regular listings as small promotional boxes, and are served up alongside regular search result listings. For example, do a search for “intranet consulting” and you will produce the following:

The paid ads are those that are highlighted by a red box (the red boxes are strictly for illustrative purposes). The regular search result listings appear as they normally do in the center of the page.

In publishing the ads, you choose the keywords that you want your ad associated with. In the example above, advertisers are paying to have their name associated with the term “intranet consulting.” The advertiser only pays only when someone clicks on the ad. This rate, called Cost Per Click (CPC), is determined by how often users search out that phrase or word, how often they click, and how big the competition is for advertising with that phrase.

The big players in this space are Google and Yahoo! (which bought Overture) with Google still leading the way. MSN recently broke into the space and others offer it but have miniscule audiences in comparison.

Paid search also allows you to track exactly how you’re doing: how many times people are seeing your ad, how many are clicking through, and what is the exact cost to you the advertiser.

However, paid search is part art and part science. You may want to have your ad associated with keywords and phrases, but you will have competition. And getting the top spot is not yet determined solely by price but my algorithm. However, MSN, Yahoo! and Ask Jeeves are all moving to a highest bidder model.

Bidding on keywords can be very expensive if you have rivals jockeying for position. Alternatively, you can bid on more obscure keyword phrases that no other advertiser is using where you can assure yourself the number one ad placement, but you won’t get as much traffic as more popular search phrases.

To determine what keywords to associate with your ad, there are a couple of tools:

·     Hitwise's search term analysis – type a phrase and it will list the sites that receive the most traffic and their percentage share of the total traffic generated by the phrase.

·     WordTracker – competitive analysis tool to seek out the best keywords based on over 300 million keyword phrases.

·     Pay Per Click Galaxy - generates thousands of keyword phrases to consider and experiment.

·     Google link analysis – type in your URL and find out what websites link to your website. 

While traditional online display advertising (banner, spatials, etc.) accounts for 45% of all online advertising, paid search advertising accounts for 34% of the marketing (JupiterResearch) and is growing at a massive clip. In fact it won’t be long until paid search advertising passes all other forms of online advertising. The study forecasts paid search to exceed banner ads by 2010. At the same time, the cost-per-click is anticipated to grow from $.39 in 2004 to $.58 by 2010.

Despite the increase in cost, paid search clearly is good bang for the buck. Forty-two percent of the study respondents that classify themselves as sophisticated marketers plan to increase their paid search budget next year.

RELATED FEATURES:

Web marketing (Part I): search engine optimization

The Amazon Lesson

One always has to be careful when using the word “never,” but I can say with confidence that our clients never initiate an Internet strategy without considering how they will manage the groups of people who will be affected by the initiative, particularly the team developing the plan and the users of the sites.

Given the wealth of information about the role people play in developing the Internet—notably usability studies and the detailed metrics generated by all sites—everyone understands the need to factor the human element into their Web strategy. Likewise, books like The HR Scorecard: Linking People, Strategy and Performance have ensured that very few organizations undertake any critical strategic process without incorporating people into the equation.

But while all organizations think about managing groups, the Internet is increasing the need to think about managing individuals. Organizations must be aware that a single customer can spark a raging customer service firestorm with one well-written blog. They must also challenge and engage each knowledge worker, who works on a computer linking her to the addictive wonders of the Internet or, even worse, job search sites.

Whenever we talk about individuals, of course, we have to start with ourselves, which Peter Drucker did when he wrote his excellent article on managing oneself. In it, he puts the Internet into humbling context for those of us who make our living by singing its praises.

“In a few hundred years, when the history of our time will be written from a long-term perspective, it is likely that the most important event historians will see is not technology, not the Internet, not e-commerce. It is an unprecedented change in the human condition. For the first time—literally—substantial and rapidly growing numbers of people have choices. For the first time, they will have to manage themselves. And society is totally unprepared for it.”

After frightening us in the opening lines, Drucker offers reassurance by providing insights into how to become prepared for the challenge. And interestingly, one piece of advice forms a strong backbone for initiating an Internet strategy, because it describes how to combine both the effective management of human resources with the opportunity to challenge smart people with the phenomenal appeal of Internet technology.

“Effective organizations put people in jobs in which they can do the most good,” writes Drucker. “They place people—and allow people to place themselves—according to their strengths. The historic shift to self-management offers organizations four ways to best develop and motivate knowledge workers:

• Know people’s strengths.
• Place them where they can make the greatest contributions.
• Treat them as associates.
• Expose them to challenges.”

Like most great business advice, this is simple to say and hard to do. But we can only hope that after receiving this counsel, organizations never initiate an Internet strategy without considering how they will manage the groups of people who will be affected by the initiative, but also understanding how best to follow Drucker’s four tips for developing and motivating knowledge workers when creating the plan.

HALIFAX, NS - If you’re taking the time to read this then I need not remind you of the power of the web. But just in case you’ve recently come back down from the mountain or emerged from a getaway in a cave here are some of the latest numbers, for the record:

·         Almost 80% of North Americans have Internet access

·         More than 50% have made online purchases (Ipsos-Reid)

·         A majority use the Internet as a decision-making tool

·         The Internet cited as the most influence on luxury purchasing (cited by 44% of affluent purchasers) (IAB)

·         39% of North Americans use online banking (Ipsos-Reid)

·         73.5% of e-commerce sites estimate sales growth of 15-35% this year (35.5% estimate growth of 35% or more) (Internet Retailer)

·         60% of chain retailers estimate web sales growth of 25-200% (21.7% expect growth of at least 100-200%) (Internet Retailer)

·         Time spent online by adult Canadians has increased 50% since 2002 and Internet use is ready to overtake watching television (Ipsos-Reid)

The power is present, significant and growing. For those that seek to further harness their this power there are a number of marketing practices worth noting. In the first of a three part series, I will examine one of the most important Internet marketing disciplines, search engine optimization (SEO) – a requisite for maximizing the value of your website.

SEO

A new report from Nielsen/NetRatings adds to the quantifiable impact of blogging, in this case the ancilliary benefits generated by blogs. The organization reports that traffic to image hosting Web sites has skyrocketed due to the massive rise in blogging activity this year.

• As a category, image hosting sites have grown 406 percent to more than 14.7 million unique users since January 2005, accounting for nearly 10 percent of active U.S. Internet users.
• In July 2005, 20 percent of active Web users, or 29.3 million people, accessed blogging or blog-related Web sites, growing 31 percent since the beginning of the year.

While no business people (especially ones who derive revenue from digital images) would ignore these stats, they might question the applicability to business strategy when they learn that female teens between the ages of 12 to 17 years indexed the highest out of the age groups broken down by gender.

There’s an easy explanation for this demographic trend—social circles have moved on-line, web journals provide a great means for getting to know someone and teenage girls like to meet people—but companies that look beyond those demographic fine points will see the inherent power of the Internet as a social media and refine their Internet strategy appropriately.

The same social impulse that draws teenage girls to blogs sparks the mass collaboration that is capturing business interest and rewarding companies that learn to harness its power.

In a comprehensive article on the topic, Business Week, provides a number of statistics on how on-line collaboration impacts various industries, including:

• Telecom: More than 41 million people use Skype software to share processing power and bandwidth, allowing them to call each other for free over the Internet. Partly as a result, combined 2005 revenues of AT&T and MCI are expected to fall by $7.4 billion, or 15%.
• Media: Reversing the traditional broadcast model, more than 53 million Americans have contributed material to the Net, such as product reviews and blog postings. At least 10 million blogs, some drawing more visitors than mainstream news sites, are now read by 32 million Americans.
• Advertising: Search engine Google instantly polls millions of people and businesses whose Web sites link to each other, producing an entirely new ad venue that grossed $3.2 billion last year, up 118%. That compares with an 8% increase in TV ad spending and 5% in newspapers and magazines.

Mass collaboration challenges numerous business principles, notably the command-and-control structure instituted by most corporations. Not surprisingly, then, the early winners have been upstarts rather than established businesses.

Nonetheless, companies like Hewlett-Packard and Proctor & Gamble have tapped into the power of mass collaboration, learned to manage the social impulses of their customers and employees and generated solid business results through their efforts.

It’s a trend that all organizations will need to watch. Just like  teenage girls are discovering that image-intensive web journals are a great way to meet people, organizations that harness the power of mass collaboration are becoming very popular in their own social scene.

The Internet has taught us the value of permission-based marketing, but it has also demonstrated the importance of customer permission: what and how will your customers permit you to sell to them?

The Internet spawned exciting new companies like Amazon and Ebay which found innovative ways to communicate with and sell to customers. It also rewarded existing players that grasped how to reengineer themselves while still delivering a consistent brand experience. Dell provides a great example of the latter case, famously incorporating an Internet strategy—disintermediating the channel—into its brand with its “be direct” slogan.

Recent statistics on e-commerce transactions and an announcement in a shift in strategy from Dell demonstrate yet again that customer permission remains a critical consideration when contemplating a web strategy.

In its assessment of best selling product categories for July’s top 10 e-commerce sites, Nielsen/NetRatings reported that EBay led the pack in total purchases with 26.4 million in July, followed by Amazon and Symantec  with 4.6 million and 1.1 million purchases, respectively.

It’s interesting to see what their customers are buying from the companies, notably that a brick-and-mortar company, Wal-Mart, has succeeded in winning customer permission to offer a new product, while Internet players like Ebay and Amazon remain constrained, to varying degrees, in the product categories in which they started:

• Photo services accounted for 52 percent of online purchases at Wal-Mart.com, with photo pick up at brick and mortar Wal-Mart locations.
• Ebay’s top selling product category was Toys, Games & Hobbies, the company's original product offering.  But this category only accounted for 29 percent of its customers’' purchases.
• Amazon continued to rely heavily on book sales, which constituted 57 percent of purchases on that site.

On the Dell front, the company has announced a new higher-price line of consumer PCs. Marketed under the existing “XPS” name, the new machines, Dell says, combine “the ultimate in performance, experience, and service.” While it still sells machines for as low as US$299 after rebates, the company is hoping this fundamental shift to move into a higher priced product will reverse poor sales trends  by delivering a higher average selling price.

By doing so, Dell will be testing its customer permission, not just what product it will be permitted to sell, but also at what price point. More significant, it will also be testing how it will be permitted to support the new product. Dell’s service has become a mini-Internet phenomenon, which has prompted the company to announce a beefed up service offering for the XPS machines.

Yahoo! makes billions – but not from original content. Yahoo! makes money from other’s content by providing access to it – either by linking or aggregating.

Yet Yahoo! is hiring writers and correspondents to develop original content. Hot on the heals of hiring a roving war correspondent (see Content is king), Yahoo! announced the hiring of 10 financial news columnist

Why start hiring writers? Yahoo! is doing quite well thank you very much, but they know that content is king and are investing because that’s what we want. 66% of Americans with Internet access read online news on a regular basis. Purchases of pure content (think Wall Street Journal Online and others) is expected to top US$2 billion this year.

People love news. News is now the most read content on the Internet. Fueling the need for news is the news junkie’s heroin – RSS.

To review for those that still haven’t sampled the drug,  stands for Really Simple Syndication. A script that allows users to "subscribe" to content within a client – such as as My Yahoo! or Feedster – that aggregates RSS content feeds. RSS is often most associated with blogs, podcasts and news sites. This blog of course has RSS subscription options as well. With the number of blogs at 15 million and growing at a rate o 80,000 per day then it’s a good think we have something to help us keep track of all of it.

RSS is now being used by most major news sites and publishers including CNN, CBC, BBC, NYTimes.com, Amazon, etc. Even Microsoft is getting in on the game with plans to incorporate RSS in the next generation of Windows.

Surprisingly, most don’t even know that they are using it. A Nielsen/NetRatings survey this month of 2,129 online U.S. panelists showed that 83 percent of RSS users didn't realize they are using RSS. Nielsen speculates that people are likely signing up for customization services such as My Yahoo! without realizing that such features are powered by RSS.

Advertisers are now also heavily tapping into RSS. There are networks of blogs where an advertiser can buy a single ad appearing in numerous blogs. Ad-supported RSS feeds are now being offered by Yahoo! and WashingtonPost.com with marketers like American Express, Continental Airlines and Verizon. Just a few weeks ago Washingtonpost.com started putting ads in its RSS feeds.

Could advertising agencies be facing the same fate as blue jean manufacturers? It’s a possibility raised in a recent Wired News article about a new site called Adcandy, which allows the public to contribute their original advertising ideas. In doing so, the sites’s founder, Per Hoffman, wants to tap into one of the great strengths of the Internet: it’s power as a collaborative tool that unleashes the creativity of so-called amateurs. “People want to participate in all forms of culture, so why not commercials, for better or for worse?” says Hoffman.

Contributors can win cash prizes from $50 to $500 for their phrases or campaign ideas, which prompts Carrie McLaren of Stay Free Magazine to suggest another power of the Internet: it’s ability to demolish the economics of long-standing business models. “It’s safe to say that $50 for a winning idea would be comparable to sweatshop labor in the advertising world,” observes McLaren.

The challenges facing advertising agencies in the Internet age are well documented. Their business model, evolved over the last century, is to develop creative for brands with big budgets. Their primary revenue stream has become the fees they tie to a percentage of a media buy, which principally means television. With brands and budgets in flux, and new media both challenging television and offering skinnier percentages for media buys, could agencies be vulnerable to the transformative economics of “sweat shop” labour that have ravished other industries?

Before envisioning hordes of black turtlenecks on street corners with (elegantly designed and hip) signs reading “killer creative for food,” you may want to check out Alan Deutschman’s article in Fast Company about Wenda Harris Millard, Yahoo’s chief sales officer, who’s responsible for bringing big-brand advertisers to the Web site.

Deutschman leads with the statement that: “traditional advertising is in deep trouble,” but goes on to observe that: “The Web always had the potential for reinventing and reinvigorating advertising. With its unique ability for measurement — tracking who clicked on an ad and how they interacted with it — the Net promised to solve the classic problem stated by department-store pioneer John Wanamaker: ‘Half the money I spend on advertising is wasted; the trouble is, I don't know which half.’ But in its early years in the 1990s, the Web couldn’t deliver the mass audiences needed by national consumer brands. Lately, though, Millard has been instrumental in showing Madison Avenue that the Internet has developed the audience reach, the technology, and even the creative ferment to realize its great potential.”

Whew, it looks like the agency model is safe. Or we could discover that shouting “wassup” really is as easy as it looks.

With all the talk about usability, technology and killer applications there is still one thing that stands above all others: content. Content is still king.

“Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting,” said Bill Gates in his infamous 1996 article, Content is King – nine years ago.

In reality, most of the money is still being made on transactions. But content is delivering the transactions. The Wall Street Journal Online sells the content directly. Giants such as Google and Yahoo! sell targeted advertising based on content. Amazon sells goods but uses content to drive those goods.

But we’re not all in agreement here...

“Content has never been king, it is not king now, and is unlikely to ever be king,” wrote Andrew Odlyzko, Head of the Mathematics and Cryptography Research Departments at AT&T Labs, in his article Content is Not King. Odlyzko argues that a massive portion of the traffic and transactions on the Internet is still represented by e-mail, corporate intranets and other non-content related transactions including instant messaging and electronic data interchange (EDI).

“The Internet has done quite well without content, and can continue to flourish without it. Content will have a place on the Internet, possibly a substantial place. However, its place will likely be subordinate to that of business and personal communication.”

And yet companies continue to invest huge sums into content on their respective websites. Yahoo! is a prefect case in point. Yahoo! is investing in news. The portal has hired a roving war correspondent, CNN and NBC veteran journalist Kevin Sites. Sites will spend the next year traveling to 36 war zones around the world, reporting on those ‘hot spots’ and what is transpiring.

Why is a portal company that earns billions on aggregating other organization’s original content now starting to invest in original content? Because content pays. Users want to read it; advertisers want to pay to reach those users.

Outside the free content that advertisers support, consumers are also paying directly for content. In 2002 consumers paid more than $1 billion on pure content and the expenditure is growing at a huge clip. Total consumer e-commerce purchases on the Internet this year are expected to surpass $13 billion. And of those that aren’t purchasing online, many are using the Internet to research their purchase.

A Unity Marketing survey of affluent consumers found that the Internet is the media that has the most influence on luxury purchasing. The Internet was cited by 44% of luxury consumers as very or somewhat important in influencing their purchasing. Articles and reviews are second, with 42% reporting being influenced by editorial matter. Traditional advertising is well behind: newspaper ads (31%); television programs and commercials (28%); and magazine advertising (24%).

Internet authors and pundits will continue to dominate popular discourse with talk of usability, technology and applications – all of which are less important to consumers and are merely princes to King Content.

This past season, fans of Entourage, the HBO comedy about a young rising star in Hollywood and his three best friends, were provided with some fictionalized but real-world insights into the power that internet journalists and bloggers can wield in making or breaking the success of big-money ventures. Students of Internet strategy would have also picked up on the lessons to be learned from managing a nuanced relationship with an online community.

In one episode, the lead character, Vincent Chase, attends the San Diego ComicCon to promote his upcoming movie, Aquaman (“It’s like Spider-Man…but underwater!” says Vincent’s overbearing agent).  When Vincent blows a promotional interview and antagonizes an influential internet geek and blogger (loosely based on Harry Knowles, the founder of Ain’t It Cool News.com) Vincent's manager has to find a way to pacify the blogger so he won't turn his fan base against the Aquaman project and sink it before it's even started shooting. The episode tore a page from the reality of “geek media” sites and the impact that their online editorial opinions can have.

When the first drafts of a Catwoman movie script began circulating around the Web in 2001, readers of Ain’t It Cool News (AICN) were able to follow the development of a movie that had piqued interest since the release of Batman Returns in 1992.  But news leaked and rumours spread about the low quality of the scripts, the limited budget, and the constantly shifting cast and crew attached to the movie. Readers who frequented the AICN site began the low (online) rumble of discontent. 

Fans barely had time to digest the casting of Halle Berry in the lead role before a torrent of online vitriol was spewed at the revelation of a costume design that was, even by comic book movie standards, considered ridiculous. (Taking a swipe at this in Entourage, Vincent almost walks away from Aquaman when he sees a prototype of the horrendous costume, prompting demands for “costume approval” rights.) It also didn’t help that staff writers at AICN had less-than-kind words to say about the Catwoman project from Day One.

Ultimately we all know how much of a bomb Catwoman became (worldwide gross of $74 million versus a production budget—not including marketing—of $100 million). That really should have come as no surprise, given a full three years of negative commentary and speculation.  The studio and producers responsible for the mess either ignored or dismissed the vocal opinions of a rabid online fan base—which, ironically, constituted a majority of the very audience the project was targeting in the first place.

We’ve all seen them: Annoying banner ads and pop-ups which implore you to smack a duck in the head for a free iPod, or answer an absurdly simple question for your very own chance to become part of the latest multi-level marketing scam.  While they may be dubious in their content and frustrating in their execution, these simple games take advantage of a marketing and advertising opportunity available to the internet which no other media can claim: Interaction.

For an excellent example of this, consider Pizza Hut’s partnership with Sony’s online computer game Everquest II.  The game, one which demands constant vigilance from players in 7 – 10 hour spans as they run through dark and dangerous dungeons, certainly seems a ripe market for convenient, fast and deliverable food.  Couple that with a hardcore gaming subculture which doesn’t traditionally stress soy milk or pilates, and advertising in-game should send players running for their telephones.

Pizza Hut, however, saw that and upped the ante –  Instead of having players phone for delivery, (telephones are so 1876) they literally put the ordering feature in the game.  All you do is hit the enter key as if you were going to say something, type ‘/pizza’ and a browser window automatically opens up into Pizza Hut’s online delivery system.  With a few simple clicks, and even fewer once you have an account, your pizza is on its way and your character in the game is still alive and well – this sort of thing matters when dying can cost you hours of what many gamers consider to be work.  

If you were killed, of course, perhaps it was not by a monster but rather by another player – and if you saw that they were in the infamous players guild “The Syndicate”, then you’d probably know that they only beat you because their guild is sponsored by Thunderbox PC, and that you only lost to them because they had such an amazing computer.

Because you, of course, are so much more skilled than they are.  If only you could have a Thunderbox PC, you’d show them all.  Or maybe they have a high-end nVidia video card, the kind you see exalted when you log in, and to which you can immediately click on to buy.  These are the other kinds of interactive internet strategies – one where people are sold to based not on what they don’t have, but rather what someone else does, where an interaction with someone else online mostly consists of their foot interacting with your behind.

All this, of course, begs the question: What’s the advantage in the first place?  To my mind, it consists of the fact that a step in the consumer process is essentially eliminated: No longer is there any delay between an impulse sparked by a marketing initiative and the decision to follow through with it.  You can reach your potential clients when their want for your product is at its genesis, its sweetest moment, the instant before any kind of reconsideration begins.  Interaction is the fusion of desire and chosen response, the ender of the moment between deciding that you want pizza and only then deciding from whom you will get it, or if you should in fact get it at all (does this computer game make me look fat?!) With interaction as part of your internet strategy, your product can go from one amongst many to residing at the forefront of a collective and cultural subconscious.

During my summer vacation this year, I enjoyed two seemingly unrelated activities that rolled into one important strategic lesson: I did a few dives in British Columbia, and re-read Larry Bossidy and Ron Charan’s outstanding book Execution. The lesson came together from a phrase that is drilled into scuba divers: “plan the dive and dive the plan.”

The slogan is important for divers to remember when entering a dangerous element in which their survival depends on a limited supply of air and the fact that the deeper they go, the faster they deplete air and the slower they need to ascend. The environment also contains numerous distractions, which can either draw you deeper than you intended or make you lose track of time. Hence the need to plan carefully—factoring in the planned depth and the number of safety of stops required on the ascent—and the discipline to stick to the plan, regardless of the interesting marine creature you might spot, 20 feet deeper than planned, when your air is running low.

The connection to Execution? The great value of their book is that Bossidy and Charan stress the importance of a rigorous strategic planning process, which must result in a clear and realistic plan, as well the corporate-wide discipline to execute the plan. In other words: plan the dive and dive the plan. The book’s sub-title is “the discipline of getting things done,” and Bossidy, the CEO of Honeywell, explains why he places a premium on accountability and the role it plays in creating a culture of discipline: “I start with the premise that your higher quality people want to be held accountable, because it gives them an opportunity to display their performance. To do that, I try to give them clear objectives and goals, so they can be measured against those objectives and goals at the end of the period, and they can demonstrate that they've been accountable.”

For divers, the pressure gauge on the air tank provides the measurable statistic and the water supplies the accountability. For business people, there is no equivalent leading indicator to a pressure gauge nor are there business penalties similar to running out of air 60-feet below the surface. The absence of such incontestable metrics and consequences may be why we’ve all experienced “deadline creep” or witnessed plans re-written mid-way through the quarter because none of the milestones have been attained.

Of course, there are consequences for companies who fail to achieve their objectives, and in Execution Bossidy and Charan point out that many organizations struggle with the gap between goals and results. They develop great ideas and bold plans, but then don’t follow through properly. In other words, they plan the dive and then don’t dive the plan.

In the author’s view, planning the dive requires a great strategy that comes together block-by-block and is in synch with the realities of the marketplace, the economy, the competition, and the company's resources. Diving the plan means creating a realistic operating plan, with specific programs and actions and clear accountability. Such a plan breaks down the long-term goals into short-term targets that will force hard decisions to be made across the organization.

In Prescient’s experience, exactly the same process and discipline applies to creating a great Internet strategy. We provide our clients with rigorous methodology to plan their site, and clear milestones to follow in order to achieve a great site. In other words, we help them plan the dive, and show them how to dive the plan. But the sites have turned out to be great because the clients had the discipline to execute the plan, despite interruptions and competing priorities. That’s important because just as a diver can’t deny that she’s out of air, a company can’t deny that its highly visible Web site is underperforming.

For anyone who likes a great story about strategic achievement, the tale behind Motorola’s Razr phone has a lot of excitement: single-minded focus on one goal, a small team of passionate innovators, timely high-level intervention, clandestine development and a product that an industry thought was impossible. It even has a great ending: sales that exceeded total lifetime projections in three months, one million units of the US$450 phone sold within six months and an iconic product that revitalized Motorola’s image.

This yarn unfolds in an insightful article in a recent Harvard Business School Newsletter describing Motorola’s strategy for producing the Razr. The article also provides a great example of how reinventing the strategic process is critical for achieving success. While not as sexy as the topics described above, managing the process intelligently is important in any strategic development, and critical when developing an Internet strategy.

Scott Anthony, the article’s author, notes that Motorola’s new product development process allowed representatives from the major sales regions to assess the concept and then develop a forecast which helped Motorola decide whether to invest in that phone. “It was a complicated dance,” writes Anthony. “If a development team ignored features that a specific region deemed critical, that region would project low sales for the phone. The lowered forecast would make it tougher to get approval to move the project forward. Design teams knew they had to appease each region or their projects would die on the vine.

“Obviously, this system has pluses and minuses. On the one hand, it ensures that products reflect some critical in-market feedback provided by the regions. But, it can force designers to develop compromised products that end up being acceptable to everyone yet delightful to no one. More distressing still, the process can systematically stamp out highly differentiated, counterintuitive innovations such as the Razr.”

Early on, the Razr development team realized that the usual process would prevent it from maintaining a singled minded focus on one goal, which was simplicity. While they respected the rules of the game that governed product development, they knew the system wouldn’t work for them. So they invented new rules, positioning the product as one that didn’t need to produce high revenue.

“We kept on playing the icon card,” explains Roger Jellicoe, a director of operations who managed the Razr development project. “This product was represented as this iconic, image-leading, low-sales-volume program. I think the Razr got by all the internal processes because it was characterized from the outset as an exception.”

A web site isn’t a product, but the Razr story offers some important lessons for developing an effective Internet strategy. First of all, successful Internet strategies require a small, committed team and visionary high-level support. They also call for the correct process. Frequently, organizations fall into one of two traps when developing an Internet strategy. The first trap is insisting that the Web team adhere closely to established processes for project development, which may impose creativity-destroying requirements on the site. The second trap is assuming that because the Web isn’t a product, it doesn’t need a process, which results in no connection to business goals and no measurable objectives for the site.

Avoiding these traps requires a process that enables the complicated dance described in the Motorola case. To be effective, an Internet strategy must include the perspectives of all stakeholders and users, link to organizational goals, incorporate best in class lessons from other Internet sites but still allow the Web team to innovate, which often means challenging long-held assumptions within their organization. For this reason, Prescient’s approach to strategic planning emphasizes process. The methodology is a collection of tools and techniques that enable each project to benefit from previous experience, successes, and leading best practices. Key advantages of our methodology include consistent terminology across projects, streamlined and repeatable processes, and most importantly, predictable results.

Of course, we love a great story about strategic achievement, and hope that if you have one you’ll share it. We like yarns in which they said it can’t be done, by the way.

We’ve come a long way since a business leader could pin a poster on the office wall displaying a picture of a lion sitting atop a line of text reading “the customer is king,” congratulate himself for creating a customer-focused culture and stroll off for a three-martini lunch.

All businesses now grasp that exceeding customer satisfaction has become the table stakes for staying in the game, and appreciate the intense effort that must go into truly understanding their customers in order to surpass expectations. They also know that the combination of sophisticated databases and web-based technology allow for unprecedented customer knowledge.

We’ve also learned that phrases like “exceeding customer satisfaction,” “table stakes,” and “unprecedented customer knowledge” have become mandatory in Internet strategies, and may occur more frequently than correct punctuation. And we also know that the powerful technology is frequently under-utilized. Despite ubiquitous statements professing the desire to know customers better, and the unprecedented technical ability to truly analyze their needs, it’s still rare to see companies which genuinely execute a web-enabled customer satisfaction strategy, and illuminating to witness the positive business improvements when they do.

A “cool” strategy

A recent case study in CIO Insight provides an excellent example of how Ben& Jerry achieve terrific results by using its site to execute a simple task: ask their customers what they want. Author Edward Cone observes that the site promotes brand consistency, important for such a “cool” brand, but in addition collects data that is critical for managing operations.

“The Web site also supports Ben & Jerry's hippie-licious brand image with prominent links to an anti-global-warming page, and another page that promises ‘50 ways to support peace,’” writes Cone. “But however altruistic the corporate culture, the site is built to sell ice cream. The Flavor Locator, which uses scanner data from Information Resources Inc. to track inventory in real time, is the most popular customer-service feature.”

The latter feature enables customers to find stores in their area that stock particular flavours, and in turn, allows the company to forecast demand for product and plan production. Anyone who has had to manage a supply chain based on the vagaries of sales forecasts will instantly appreciate the implications for cost and efficiency, and we can all relate to the customer satisfaction that results when a popular product is available. And students of Peter Drucker will recall his observation that the essence of marketing is having the right product in the warehouse at the right time.

In our experience, clients that retain Prescient Digital Media to provide strategic planning services are all seeking to link their Internet strategy to their overall business objectives, they all know that they must incorporate customers’ feedback into their plan and they know that executing the strategy requires hard work and dedication.

Because they often lack specific methodology for collecting user input on their web sites, however, they are always impressed by the detailed feedback we gather through a comprehensive heuristic evaluation of their existing sites, for example, which provides invaluable data regarding how customers rate the usability of the site.

Such strategic insight ensures that when the Internet strategy is presented internally, it contains phrases like “exceeding customer satisfaction,” “table stakes,” and “unprecedented customer knowledge,” but the phrases have genuine meaning and the strategy is supported by a thorough execution plan.

By the way, if anyone has ever had a three-martini lunch, please let me know. From my experience, they exist only in legend, along with marketing budgets too excessive to deplete and executives who don’t expect a return on their marketing investment. Of course, three-martini customer appreciation events, after official business hours, are another matter and I don’t need to hear about those.

Blogging is becoming a killer application that could rival e-mail’s impact on modern communications.

Yes, while e-mail still remains the quintessential killer application, some of its value is limited by the fact that once it’s sent and read (sometimes read) it’s often deleted and gone forever. A blog on the other hand can be archived, updated, edited, added upon and solicit and archive reader comments and additions.

Katrina provides an excellent case study of this muscle. Statistics reveal that blog postings of the name Red Cross increased by 10 to 20 times the normal amount to all blogs tracked by Intelliseek’s Blogpulse tool during the height of the chaos. Similar spikes were also seen at other not-for-profit organizations providing relief along the GulfCoast.

During this time of increased blog activity Nielsen/NetRatings statistics show that traffic at RedCross.org jumped massively. On August 31, 2005, Redcross.org jumped to more than 1 million visits – more than 32 times the average daily visits prior to Katrina. As of September 2, the site had raked in online donations through the website of $110 million – representing more than half of all the donations from all channels at the time.

One blog called TruthLaidBear.com, started a donation registration program tracking donations made by bloggers themselves. As of September 2, the site had tracked $430,203 contributors referred by 1,453 blogs (for a complete list of relief organization websites who accept donations see Fecal cholera death swamp).

Estimates show that there is somewhere in the neighborhood of 20 million blogs on the Internet. Tens of millions of people are reading blogs every week – many reading them daily.

This is the power of a killer application that continues to flex its muscle on a daily basis.

Respect the Competition

Andre Agassi’s run at the U.S. Open has provided a topical reminder of a key strategic lesson: never underestimate your competition.

In an interview, Agassi recalled preparing to meet a then-19-year-old Pete Sampras in the 1990 U.S. Open Final. Having beaten Sampras easily in their previous encounters, the brash Agassi told his coach: “I feel sorry for him. I’m going to keep making him hit balls until he implodes.” As all tennis fans know, Sampras demolished Agassi to win his first of 14 Grand Slam titles. And as even casual sports fans know, Agassi has since lost that cocky attitude, along with his mane of hair, and is now an intense competitor, but one who always respects his opponent.

A Safe Little Experiment?

With Steve Jobs announcing the new iPod nano and Motorola Rokr E1 cellphone, we have another topical reminder of the same lesson, but this time from the business pages.

In a useful discussion on Apple’s strategy, Business Week On-line notes that: “When Apple unveiled its first iPod in Oct. 2001, the market was a smattering of little-known devices used mostly for playing songs illegally downloaded off file-sharing Web sites. That's one reason why the music labels agreed to CEO Steve Jobs' plan to sell their music for just 99 cents a song. Besides, with Apple's anemic 3% PC market share, few record execs figured Jobs would be able to win over anyone other than his loyal base of Mac buyers. It would be a safe little experiment, letting music execs learn about the market while Apple picked up most of the tab.”

To paraphrase Business Week: Ooops.

Apple has sold half a billion digital songs and now claims 85 percent of the world market for digital music sales. As a result the record executives are suffering from the inflexibility of the 99 cents pricing model and cheering for other players who might be able to knock Apple off its leadership perch.

It’s easy to understand how a cocky young athlete could dismiss a competitor, especially one he’s easily handled in the past. But should we be surprised that seasoned executives would make the same mistake? Not really, because it happens all the time.

In the case of the record executives, it’s easy to understand how the error happened. Apple wasn’t a traditional competitor, so they lacked the insight into the computer manufacturer that they would have regarding players in their own market. For example, they did not grasp the significance of Apple’s strong competencies in usability, elegant design and great advertising, and the impact that strength would have in a market dominated by hip, tech-savvy consumers. Instead, they took a cursory look at easily accessible data—i.e. marketshare—and dismissed Apple as a threat.

Gain the tools to evaluate competitors

Unfortunately, we constantly see examples of business leaders who either fail to analyze their competition at all, or only give them a superficial glance. It’s a surprising error, especially when developing an Internet strategy, because competitors make all the necessary information readily accessible on their own sites!

Much like the record executives who lacked the methodology and knowledge to assess thoroughly the risk posed by Apple, many companies don’t have the tools necessary to properly evaluate competitors when developing an Internet strategy.

The thorough competitive benchmarking methodology and SWOT analysis that form the basis for our strategic recommendations, for example, consistently elicit positive feedback from our clients. They not only receive valuable insight about how they stack up, they often appreciate the reminder that they need to evaluate the competition.

For example, The Ontario Realty Corporation (ORC) strategically manages one of Canada’s largest real estate portfolios: over 6,000 buildings, comprising more than 50-million square feet of space, and 95,000 acres of land on behalf of the Ontario government. ORC has moved away from providing direct services to becoming a strategic manager of services with web-enabled communications being a key enabler. Therefore, their website needed to be able to fulfill this mandate, and they retained Prescient Digital Media to assist with the strategy.

ORC saw tremendous value in our competitive benchmarking strategy, which enabled them to make improvements to their strategy and incorporate valuable enhancements to the resulting site. Their Internet strategy has played a key role in attaining their overall objective  of becoming an innovative, service-oriented and customer-focused organization; in essence, becoming a “digital enterprise.”

For organizations like the ORC, the intent came before the methodology. Unfortunately, too few organizations have the intent and, unlike Agassi, learn to respect and truly analyze their competition. This is surprising when you consider that they don’t have the option of staying fit and waiting for their nemesis to retire, an approach that has allowed Agassi to continue his remarkable career. Along with his mature respect for the player across the net, of course.