Opportunity Remains Even As Consolidation Continues

0

Opportunity Remains Even As Consolidation Continues





In late 1999, Mark Goldston was sitting atop the free Internet world. As chairman and chief executive of NetZero Inc. Goldston presided over the No. 1 Internet service provider free or pay in Los Angeles County. Since then things have changed mightily in the online world. As the dot-com buildup crumbled, Goldston capped free usage and merged with New York-based Juno Online Services Inc. to form United Online Inc. The deal closed in September 2001, and with 5.6 million subscribers, United Online now is one of the nation’s Top 5 ISPs.

Having survived the Internet shake out, Goldston said United Online is on the path to profitability. The company reported a net loss of $16 million in the second quarter ended Dec. 31, compared with a loss of $43.3 million in the like year-earlier period. Goldston expects to announce on May 9 third quarter earnings before interest, taxes, depreciation and amortization, or EBITDA, of better than $3 million, and a further trimming of the net loss, to $9 million. United Online added more than 100,000 subscribers to the pay models in the first quarter of 2002.

Christopher Keough

Question: There’s a poster in your office that says “Free unlimited access to the Internet and free e-mail. Forever.” What happened?

Answer: That was an old poster. When we first started out, you have to remember, it was a different world. It was a 5000 Nasdaq world and the notion of having advertising and e-commerce support your cost structure made a lot of sense.

Q: Recent studies have shown that the amount of time people spend online is decreasing. Are people tired of the Internet?

A: I don’t think so. Remember, early adopters in any category are always going to be the heaviest users. As this market continues to grow the late entrants, logically, will be lighter users. The early people are typically more tech savvy. The laggards who come in late to a category typically always exhibit lower usage habits.

Q: Are the days of crazy spending on dot-com marketing over?

A: The dot-coms don’t have the market cornered on crazy spending. There’s a lot of crazy spending that goes on in the field of marketing every day. CMGI spent ($120 million) to sponsor the New England Patriots stadium, but so did Enron (spend $100 million) in Houston. The question is not how much you spend, it’s how you spend it. There’s no substitute for being smart and being strategic. I think you will continue to see excessive spending on stunts and shock value marketing by people who really don’t understand strategic marketing.

Q: Are we going to continue to see consolidation in the ISP world?

A: You almost have to. There are 7,000 ISPs in the United States. AOL has probably 35 percent of the dialup market. Then if you take MSN and United Online and EarthLink together, you probably have another 17 percent. You’re talking about 52 percent of the market represented by the top four or five brands. The rest of the market is all these fragmented players who, ultimately, need scale to survive. Either they’ll go out of business or they’ll get sold to one of us.

Q: E-mail is the most popular use of the Internet today. Will that always be the case?

A: I don’t really think we’re going to find the day when 100 million Americans are looking at their computer screen watching “Top Gun” rather than using a DVD, satellite, whatever. There may be other rich features you can use on the Internet, but if the capital markets don’t open up, how will those companies get developed?

Q: Out of 3,000 or so Internet companies, only a handful including United Online are projecting positive EBITDA in the next couple of years. Why is it so hard to reach real profitability?

A: These companies went out to raise capital to build a business and the model they had built was dependent upon huge amounts of capital continuing to flow in. Then when the spigot dried up their business model couldn’t be executed. We didn’t do that. Once the ad market started to implode, we knew we had to change our business model. We knew exactly what we needed to do get into the pay business and we knew we had to keep the infrastructure of the free business to leverage the pay business.

Q: As free access to the Internet dries up, will free content on the Internet also go away?

A: I think so. That’s the billion-dollar question. We tried it for free. The advertising community was fertile, but not fertile enough to support this as a completely free medium. Now the consumer has to say, OK, if I really want all these features and all this content I have to pay for it. If I’m not willing to pay for it, then I really didn’t want it that much. The test is going to really be in the hands of the consumer.

Q: Is peer-to-peer going to be a big factor in the future of the Internet?

A: You have to be able to monetize it.

Q: Is the emerging pay-per-click search model the way of the future?

A: It all depends on what happens to the advertising market. If the advertising market roars back and recovers, then search engines can derive revenue from the sale of advertising that could reduce the need to do that. If you don’t believe the advertising market is going to roar back, then the notion of getting paid per click is paramount. The key is generating enough traffic for those people so they can monetize those clicks and become very profitable.

Q: Will wireless Internet ever catch on?

A: Unfortunately, wireless hasn’t developed the way a lot of people thought it would. The U.S. is one of the few developed countries with multiple systems. If you go to Europe, Europe is predominantly GSM (Global System for Mobile Communications). We have all kinds of different highways. We’ll figure it out.

Q: Is there room on the Internet for entrepreneurs as well as the big players like Amazon.com?

A: If the answer in the land-based arena is yes, then the answer is even greater yes in the electronic medium. Why? Because you don’t have to travel. On the Internet, traffic, destination, time to travel, is not an issue. To the degree small business gets listed in these various search engines or pay-for-performance listings, it has just as much of a chance as anybody else. You’re not going to be as big as Amazon, but there’s no reason why you shouldn’t get shoppers. In the land-based world, the laws of traffic are going to dictate who’s going to succeed and who’s not. You don’t have that on the Internet. Everybody can have a front-row seat on the Internet.

Q: What’s the most far-fetched prediction you’ve heard regarding the Internet?

A: There have been suggestions we could become home prisoners, for lack of a better term, and ultimately education and your vocation will all be able to be done real time on the Internet. If that were ultimately to happen, you’d have all kinds of social issues because you’d be inhibiting social interaction. A big part of what makes our culture our culture is the interaction of people face-to-face, in real time.

Q: When is broadband going to catch on?

A: By the end of 2005 or ’06 it probably won’t comprise more than 20 percent of the market for a couple of reasons. No. 1, you can’t get broadband everywhere. No. 2, the cost to continue to build out broadband is very expensive and we are not in the most fertile capital markets. It will still be available to classes, but not the masses.


Check Your Site

My mother-in-law once told me that you should always sleep in your guest room at least once to see what the experience is like for visitors to your house. That advice made sense to me, and I’m sure most of us would uncover lumps in the bed, a lack of hooks on the bathroom door or some other inconvenience that guests are too polite to mention.

I was reminded of her advice recently when I was cursing a Web site that had out-of-date information, difficult navigation and an overall lack of quality. It occurred to me that I haven’t slept in our company’s “Web guest room,” namely our Web site. I haven’t visited our site regularly to see what the experience is like for customers.

Conventional business wisdom says you should shop your own stores and call your sales and technical support lines to see how customers and prospects are treated. The same goes for your Web site. A periodic visit to your business’s Web site can identify problems that have developed or that weren’t considered during site design and creation.

– Customer service. Two critical components of online customer service are responsiveness and ease of access to information. Devise a list of questions customers are likely to have, and create a “path” for all inquiries. This means that answers to common questions are posted on your site or someone is given the task of responding to customer e-mail and calls. Test e-mail addresses frequently to assess whether responses are timely.

– Ease of ordering. If you sell through your site, periodically act as a customer to test the shopping experience. Try ordering something other than your biggest seller to see if there are kinks in the process of buying less-popular items. Keep things as simple as possible for buyers, even if it means eliminating some service items. For example, while it is nice to offer many shipping options, having too many choices increases the likelihood that someone will make a mistake.

– Responsiveness. If you send order confirmations by e-mail to reassure customers that their orders have been received, test this feature to ensure that e-mails arrive in a timely manner and contain all pertinent information.

– Treatment of repeat customers. Top-notch sites automatically retrieve shipping and payment information for customers who have purchased in the past. If you offer this feature, use a current customer’s information to test how you treat customers who return to your site.

– Search function. To make sure that your search function serves customers properly, test it by searching under several terms. The problem with most sites’ search functions is that they work well for the site creators who know product names, spellings and product classifications, but not for people who are unfamiliar with your offerings.

Alice Bredin, Tribune Media Services

No posts to display