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Weekly Column

The (Super) Bowl is Half Empty: Why an Inevitable Business Transition Makesit Probably not too Smart for Internet Companies to Run Commercials During the Super Bowl

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

The more things are different, the more they stay the same. This is the thought that came to me over the weekend as I sat watching the Super Bowl. A key part of the Super Bowl experience for those of us who don't actually attend the game is watching all those spectacular TV commercials cobbled-up for the entertainment of television's biggest audience. This year, in addition to the clever beer and car ads, there was a large contingent of ads for Internet companies. Why would they do that? Why would an Internet company that hasn't made a penny of profit throw a minimum of $2 million at the chance to broadcast to one billion backs of viewers headed to the bathroom? It makes little sense to me.

The quintessential Super Bowl ad was Apple Computer's 60-second spot used to presage the Macintosh introduction in 1984. Everyone remembers this commercial, which was only shown once on network TV. Directed by Ridley Scott, it showed a woman wearing a bodysuit with a Macintosh logo on it (though nobody at the time knew it was the Mac logo) breaking a huge television screen with a sledge hammer, thus presumably releasing the world from its (IBM) bondage. Every Internet company that runs a Super Bowl ad wants that kind of impact — to have viewers recall 16 years later the only time they ever saw the spot.

How many of these Internet companies will even exist 16 years from now? Almost none. At their current burn rates, most of these outfits will be lucky to make it through the year. And that's the point. Whether the general public is aware of it or not, the Internet industry is undergoing a massive restructuring, and that restructuring is aimed precisely AWAY from the Super Bowl audience.

After years of hype and promise, this Christmas was a pretty good one for Internet retailers. Depending on who is doing the estimating, $4 to 7 billion was spent online. While this was more than people expected and three times as much as last year, when you subtract pure market enthusiasm, what's left is not a big enough business to be sustainable. This is what Internet retailers are recognizing and what is being reflected in the flat prices of formerly high-flying Internet stocks. Gravity is taking effect, as it always will.

This happens in every new technology business. Look back to 1984 at the Macintosh introduction as a prime example. The Mac was introduced with great panache and apparently great success. But if you look at sales figures, Macintosh sales were good at the introduction as all the gadget-happy early adopters bought their 128K machines, but by Christmas of 1984, Mac sales were flat and far lower than Apple hoped. The Macintosh came very close to being a commercial failure. Sustaining market growth requires that the product actually serve a need, which it can be argued a 128K Mac with only two real applications didn't do.

The trick is surviving long enough for third-party providers to recognize and support your product, and for mass consumers to accept your technology as a standard. So every time we make a major market shift that is driven by technology, the companies behind that technology eventually face a crisis of confidence. Can they hold on long enough to be embraced by the public? Can they absorb losses long enough to reach profitability?In order to survive that long leap from hype to profitability, every new technology business that is truly new does the exact same thing. They turn to vertical markets. They follow a product introduction aimed at the masses with a product push aimed at a much smaller number of quite specific customers who really need what they have to offer and have real money with which to pay for it. Desktop publishing was the vertical market that saved the Macintosh. Without the LaserWriter printer and Aldus Pagemaker, the Macintosh would not have survived.

And now the same thing is happening on the Internet. Coming out of what we were told was a terrific online Christmas, suddenly every Internet company I talk to is changing course to grab the real money to be found in business-to-business transactions. The Gartner Group says that of the dollars exchanging hands through online commerce, more than 90 percent were between businesses. IDC says the same thing. If that's where the money is — at least right now — why would Internet companies bother fighting over the remaining 10 percent? Other than to maintain a market presence for when the retail market really explodes, which it eventually will, there is no reason.

Four years ago, I was hired as a consultant by a Japanese outfit called Hypernet that wanted to give users free Internet service in exchange for having those users agree to watch ads on their browsers. Hypernet was buying blocks of users from existing Japanese ISPs. At a meeting in Tokyo, I explained to the Hypernet founders that the only way their business was sustainable was if they somehow qualified those users, accepting only those that fit in a target market that could demand higher ad rates. If they limited their users to rich consumers or even to buyers of industrial plumbing fittings, they might have a chance to make it. But accepting blind blocks of users meant that even the $30 million Hypernet had raised would not be enough to carry the company to success.

The company founder, a charismatic Ferrari driver, was furious and elected to kill the messenger. I was never paid for my work. And a year later Hypernet was not only out of business, but the Ferrari was gone and the founder was living with his parents. To his credit, he recovered by writing a best-selling book about the whole experience.

It is four years later and the U.S. Internet market is far ahead of Japan, but we still aren't at the point where many retail Internet businesses are sustainable. Yahoo and AOL can do it, but they aren't giving things away to get customers. Amazon can almost do it, but Amazon is really just a mail order business in disguise. But if you look at the inner workings of most Internet retailers, you'll see that with their big ad budgets and free shipping there is no way they can make enough money EVER to be profitable at their current average transaction size. They need customers to buy thousands of items at a time for it to work, and that means business-to-business.

Which brings us back to the Super Bowl. Why spend $1 million making a great commercial, then $2 million to show it one time to a billion people around the world when the audience you really want to reach is 40,000 purchasing managers who are all in the U.S.? It makes no sense. Three million dollars is $75 per purchasing manager — enough to send a salesperson to visit every possible customer.

All I can figure is that Super Bowl ads for Internet companies have to do with corporate ego. Or maybe the ad buys were made before someone realized in what direction the market was headed. In either case, I am willing to bet that a Ferrari was nearby.

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