ANALYSIS: Weekly Web Watch - Internet economy saturated with brandless competition

Internet stocks have been having a hard time the past week or so, as any news program will tell you. Most of them warn ’the Internet bubble is about to burst.’ Usually it’s said with the kind of glee you will only get from 40-somethings who have spent the last few years green with envy at all those 20-something paper millionaires.

Internet stocks have been having a hard time the past week or so, as any news program will tell you. Most of them warn ’the Internet bubble is about to burst.’ Usually it’s said with the kind of glee you will only get from 40-somethings who have spent the last few years green with envy at all those 20-something paper millionaires.

Internet stocks have been having a hard time the past week or so,

as any news program will tell you. Most of them warn ’the Internet

bubble is about to burst.’ Usually it’s said with the kind of glee you

will only get from 40-somethings who have spent the last few years green

with envy at all those 20-something paper millionaires.



Only a handful of recent hi-tech and Internet IPOs have managed to

double on the offering price in their first day of trading. ’I told you

so!’ the 40-somethings crow. What they really mean is that they could

never quite bring themselves to stake their career, their home and their

kids’ college fund on a dot-com start-up. Their glee is slightly

misplaced, however. In pre-Internet days, if a stock went up 10% on the

first day it was considered a good performance.



Of course, there have been ’problems’ the past few weeks. Online grocer

Peapod, health care network drkoop.com and music retailer CDNow have all

signaled that they might not have enough cash to last out the year.



Naturally, the share price of all these companies has taken a dive.



One reason these companies, and many like them, are having problems is a

lack of differentiation within many categories, especially Internet

consumer product retailers. If you’re a music, pet food, health product,

grocery or book retailer, what is there to stop competitors doing

exactly the same thing a few cents cheaper and taking away half your

customers.



Companies like CDNow and Peapod paid very high sums to acquire

customers.



They thought that those customers would be worth the expense over the

long term. They’re finding, however, that they acquired those customers

not for themselves but for the Internet. People are not particularly

loyal to the retailers who initially persuaded them to shop online in a

category.



One reason is that those retailers lack clear differentiation. They lack

brand.



Brand is everything people associate with a product or name that is not

the product itself: a reputation for reliability, a sense that they are

good people to deal with, and a personality. Brand is what makes people

stick with a name or company even when presented with a cheaper

equivalent product. But very few Internet companies have anything

approaching that.



More and more of them are realizing that they need it, though. And guess

what else they’re realizing? PR can often be a more effective way to

build those kinds of associations around a name than advertising.

Everybody knows Pets.com’s sock puppet from those ads, but boy is that

creature doing well on the talk show circuit.



Monster.com, one of the original Super Bowl dot-com advertisers, is also

using PR as a key tool to reposition its service as ’more than just a

job board.’ Monster, the company wants you to know, is all about

fulfilling your potential in life. That’s why it is the first dot-com

Olympic sponsor, and why it is also sponsoring Jobshadow Day, which

gives young people the chance to see first-hand what different jobs and

professions are like.



Companies using communications effectively to build brand and

differentiation will in the long run be more defensible than the rest,

both as businesses and as investments. They will, when the long-awaited

’correction’ comes, be in a much better position to fend off the glee of

the 40-somethings.



Stovin Hayter is editor-in-chief of Revolution. He can be contacted at

stovin.hayter@revolutionmagazine.com.



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