painsneweconomy 300x188 - Growing Pains For The New Economy


If the internet revolution was slow off the blocks, by the end of the 20th century it had reached a headlong sprint. At the beginning of 2000, there were over 1 billion pages on the World Wide Web. Internet millionaires were being made by the minute, and any would-be entrepreneur with half an idea was welcome to join the party.

The e-commerce boom had begun, and venture capitalists were falling over themselves to provide the finance. The airwaves crackled with advertising for dotcoms, and advertisements on billboards, buses and in the broadsheets were reinforcing the messages. Technology stocks soared on Wall Street, and adland rubbed its hands together as the money rolled in. Amazon’s value peaked at $39.4 billion and Yahoo!, the world’s biggest portal, reached a dizzying $125 billion. Elsewhere, a rash of new entrains replaced some of the traditional bricks-and-mortar bluechip occupants of the UK’s FTSE 100 index.

In the UK, with its narrow choice of mass communication channels, media owners found that competition for limited airtime and outdoor space meant they could sell to the highest bidder. There was even talk of secret higher rates being offered to the more gullible dotcoms. The cost proved unsustainable, and investors either wised up or lost their nerve.

The skeptics were slow to find their voices, but tales of bad management, naive business plans, overstaffing and massive overspending gradually began to filter through.  Suddenly, those previously hailed as heroes of the new economy were being viewed with suspicion by the markets.


Boom to Bust


By 2001 the revolution seemed to have run itself ragged. The new-media press became increasingly doom-laden as more startups folded. In the first quarter of 2001,, a research group, reported a record 147 dot com closures, compared with 122 failures during the whole of 2000. And reported that the amount spent on buying dotcom companies slumped during the period to $ 2.2 billion, compared with $52 billion in the same period in 2000. Business-to-consumer operations were, as many predicted, finding life very tough indeed. Some analysts still question whether this kind of operation has a future at all.

Much of the blame for the demise of the high-profile dotcoms was attributed to massive overspending on above-the-line advertising, to the detriment of more fundamental necessities. It is unlikely that such rash attempts to build a brand overnight, before having a company that can actually deliver the promise, will ever happen again.

The dotcom boom was a huge boost to the advertising industry, but by 2001 it was busy revising its revenue forecasts downwards. Some big new-media clients continued to spend, but others had either cut back or disappeared altogether – and replacing them was suddenly looking tricky. The same marketers who had recommended big-budget TV campaigns to their youthful clients were beginning to reassess the relative benefits of different marketing activities.

The dot-com gold rash may have ended, but there was little doubt that the Internet, with its wealth of new communication possibilities, was here to stay and was important. More and more companies were building their own websites. Advertising on the web, in the form of banners, interstitials, and links to specially produced micro-sites, was becoming part of the media schedules of most major advertisers. this led to the rise of specialist agencies dealing exclusively with web-based advertising.

In response, many so-called “traditional” advertising and direct marketing agencies began to build and integrate their own specialist divisions, or simply to buy or merge with one of the new generation of agencies. Unfamiliar, job titles, such as “senior digital strategist”, began to appear in ad agencies, the bearers of which were often treated with great reverence by their offline, analog colleagues.

The e-mail revolution


Most marketers agree that the single biggest revolution was that of e-mail. It has taken over everyday business life to such an extent that it is now at least as important as the telephone – a situation unimaginable 20 years ago. Huge promotions can be built using viral marketing techniques, reaching consumers quickly and cost-effectively with a single e-mail sent to a carefully selected target group. Online loyalty programmes also rely on e-mail to maintain relationships with customers. The principles behind them are no different from the traditional techniques of direct marketing, but again they have proved to be cheap, effective and reliable.

However, research by Lowe Live, a Brtish relationship marketing specialist, has suggested that existing e-mail users may be experiencing marketing fatigue. It highlighted a significant fall in the number of people who continue to forward viral e-mails as well a more sophisticated use of e-mail.

Many people keep up to six different e-mail addresses, of which perhaps only four are in use. They then guard a couple of addresses, releasing them only to trusted people or organizations. where there is a risk of receiving unwanted messages, a “lower-grade” e-mail account, such as a Hotmail address, will be used. Banner advertising is also losing favor, with many questioning its effectiveness.

Elsewhere, more consumers are becoming comfortable with shopping online, although complaints about service and order fulfillment are still common. Security also remains a thorny issue, with fear of fraud making people cautious about shopping online. Nevertheless, online transactions are increasing and services such as online banking are growing.


The next big thing?


There is a feeling that the Internet and, in turn, e-marketing are waiting for the “next big thing”. There have been false dawns: the introduction of the mobile Internet, in the form of WAP (Wireless Application Protocol), has had a mixed reception, with most people agreeing that the technology needs work before it can be truly useful for both consumers and marketers. Likewise, the roll-out of broadband has stuttered, and, for many people, the Internet is still frustratingly slow to use.

For all the excitement, activity and investment that the Internet has generated, the fact remains that personal computer penetration in the United States is only 50%, and in the UK it is nearer 30%.  These figures give heart to those who believe that, for consumers at least, the future is probably sitting in the corner of living rooms around the world. viewing web pages and sending e-mail via television is developing fast. As digital TV penetrates more homes it brings the potential for easily accessible Internet services, which should stand a greater chance of appealing to consumers deterred by the perceived complexity of getting online with PC. Again, however, the technology needs to develop. Viewing web pages on a normal TV screen, which has fewer pixels than a computer monitor, is not a particularly rewarding experience. E-mail, however, is less dependent on smart visuals, so through the TV, it may be the vehicle to open up the world of the internet to the uninitiated.

Realising that many people want reassurance and familiarity when shopping online, bricks-and-mortar companies are now moving more assuredly into e-commerce. these so-called “clicks-and-mortar” operations, with their traditional expertise in areas such as customers relations or mail-order fulfillment and with a brand that is well-established and trusted, have a clear advantage over new Internet-only competitors.

All this leads to the conclusion that the future, with our old friend the TV set and cozily familiar brand names at its center, maybe more like the present than we thought.



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