Product Had Key to Profitablility, Just Lacked Customers

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The dot-com bubble was inflated by companies built to please consumers but lacking any real plan to turn a profit.

The spectacular failure of a device called the CueCat, however, proves how badly things can go when companies overcorrect for that common flaw. The creators of that Web-connected gadget carved out a clear path to profitability, but they couldn’t convince anybody to use it.

The CueCat is a plastic bar-code scanner shaped like a resting cat. After its tail-like cord is connected to a computer, the device can be used to scan special bar codes printed in magazines and newspapers and on certain consumer products. The CueCat then directs the user’s Web browser to a page chosen by whoever published the code.

The product was the brainchild of J. Jovan Philyaw, a former infomercial producer who sold several big-time companies on the prospects for CueCat and its parent company, Digital Convergence. He raised a total of $185 million from investors including Radio Shack, Coca Cola, NBC and Belo, publisher of the Dallas Morning News and other newspapers.

What won these companies over was a business plan that promised a quick way to cash in on the Internet’s marketing potential. Every time someone uses a CueCat, two things happen. First, they’re directed to the exact Web page an advertiser wants them to see, delivering the equivalent of the elusive “click-throughs” that banner ads usually fail to produce.

Next, Digital Convergence is notified of exactly which user is visiting which page through which bar code. In this way, CueCat lets companies track not only online preferences but offline behavior as well, such as the types of soda people prefer and what magazines they read.


Quicker returns promised

By targeting buyers of products that are already popular, CueCat promised quicker returns than did other companies, which hoped to build profiles of visitors to a brand new Web site. CueCat didn’t need to build its own brand, the thinking went: It could feed off the ones already in circulation. The device also promised advertisers an easy way to translate their offline success into e-marketing clout.

For Digital Convergence, meanwhile, the only real expense was breeding the CueCats themselves. The scanners cost about $6.50 a pop, and they were distributed for free to magazine subscribers and electronics store customers. But as soon as millions of gadget-loving consumers started using their new feline friends, the money would start rolling in.

By now, you’ve already guessed the punch line: Nobody used them. Because CueCat’s creators failed to consider the value their advertiser-friendly product might hold for consumers, they were the only ones who weren’t in on the joke.

The product was pitched as a way to avoid typing in long Web addresses. But Web surfers were doing a good job of avoiding those addresses anyway, since they led only to pages of advertising that nobody wanted to visit. Most people who buy a can of soda aren’t looking for information about their drink they’re just thirsty.


On a leash

The other problem is the physical distance between the real world and the Web. Even in cases where the CueCat might be useful to quickly link newspaper readers to archived stories on the same topic, for example the device isn’t particularly handy. Users must be sitting next to their computers and dialed into the Internet before the device can do any good. Cats don’t like leashes, and neither do most Net users.

These shortcomings seemed obvious to me and other critics when CueCats started fanning out through the country last year. But it took the company’s backers another year or so to figure out this cat was a real dog. Digital Convergence fired most of its staff in June, and Belo decided earlier this month to pull the bar codes out of its newspapers, effectively putting those kitties to sleep.

The whole episode should serve as a lesson to anyone who hopes to design more practical Web businesses in the new, post-bubble economy. Before you set out to build a better mousetrap, take the time to make sure that people actually want to catch mice.

To contact syndicated columnist Joe Salkowski, you can e-mail him at [email protected] or write to him c/o Tribune Media Services, Inc., 435 N. Michigan Ave., Suite 1400, Chicago, IL 60611.

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