gian@gandalf.it

Are big advertisers interested in this debate? Not really. On March 4 UPA (the Italian advertisers’ association) presented its annual analysis of "the future of advertising", carried out by two major research companies, Astra-Intermatrix and Nielsen. They are much more optimistic about advertising investment than they were a couple of years ago. Here are the data and projections (millions of U.S. Dollars:)

Internet? Not considered. I the 160-page document distributed at the end of the presentation the word "internet" is mentioned only three times. The first is a short comment "en passant":

The other two are just vague mentions of "an internet address" as one of many possible tools for traditional direct marketing. The word "web" is never mentioned.

It’s very clear: large advertisers, and the research companies they employ, don’t think the internet is (or will be in the next two or three years) a relevant tool for advertising. I think they are right.

The problem is that they don’t even think the net is a tool for marketing, or in any other way for the development of their business. If anything, they may consider it as a small part of traditional direct response communication; a discipline that has always been weak in our country and is going through a difficult phase for several reasons, including the complexity of cumbersome and inefficient rules and regulations on privacy.

Small companies? Even worse. A (still unpublished) research commissioned by the European Union found only 117 companies with some online selling in an area that has 40 percent of the population. On a national scale, they could not have found more that 300. A really small number if we consider that the national census counts 3 million "small and medium enterprises" in Italy.

Less than 40 percent of those companies are reachable by accessing their sites, and even fewer say that they have encouraging results.

Some people are very disappointed. Here is a message I received a few days ago:

Does this person live in some little lost village? No. It’s a busy town in one of the most dynamic business areas in our country. Is this an isolated episode? No. I’ve being comparing notes with other people that write about the net. We all receive mail from students, asking for help, and we all share the same perception. Most professors know less than their pupils; students are quite lost in trying to understand the subject, and tend to concentrate on the obvious (e-commerce) with no other reference than what is being published in the United States... quite oblivious of the basic differences between the American market and most of Europe. It’s no surprise that when they graduate they have a hard time finding a job.

Entrepreneurs and managers have every right to be suspicious. As I wrote in an article that will soon appear in print, they are often offered the equivalent of a railway ticket to Mars. Most companies don’ buy it, and are left with the sort of impression that someone reported rather bluntly to that young graduate. A few but the ticket, and the result is even worse.

The "cultural smog" that prevents companies from a clear view of problems and opportunities is beginning to fade, but there are still too many people beating up more dust.

The next thing we are going to see is an advertising war (in traditional media) to sell internet connection. Telecom Italia, our local telephone company, wants to dominate that market. A few of the large ISPs will have to fight back. We may not see as large as investment as the 70 million dollars spent last year in advertising for cellular telephones. But Telecom has lots of money to throw around. We shall see... but a few facts are already clear.

• From what I’ve seen of the advertising, it looks pretty awful. It won’t help to build any real understanding of the values of net communication.

• The dominant resources of one company (financial, technical and political) are likely to prevail, creating hegemony of not a monopoly (even before the media war started, some good ISPs are already in trouble.) That is never a good idea.

But...

• On the other hand... there is a natural trend, stronger that in the past, that is making more people interested in the net. Advertising can’t "create" a trend; but once it’s there it can accelerate it. This is one of several reasons why I believe that there will be relevant growth in the number of internet "users" in Italy in 1998.

The quality of results will not be determined by the competitive efforts of ISPs. It will be generated by the behavior of users, old and new; and by our ability to produce valuable content.

But even if we don’t consider short-term changes the Italian hostcount remains below the October-November level; the percentage of total European hosts is 4.4, while it was over 5 for nine months in 1997.

The picture remains quite dismal, as shown in this chart:

Italy has 10-11 percent of Europe’s telephones and television sets, 12 percent of gross national (or should I say "regional"?) product, 14 percent of motorcars, over 16 percent of cellular phones... but just over 4 percent of the net.

Here is the situation in some European countries if we compare the latest data with three months earlier:

Internet hosts in 18 countries (Europe and Mediterranean)
(18 countries with over 50,000 host – of 52 considered by RIPE Réseaux IP Européens)

No major changes in the general picture; Germany and the UK still have nearly 40 percent of the European hostcount, and Scandinavian countries maintain their superiority (Norway is getting closer to Finland, that shows s decrease in this period but holds its worldwide leadership). Switzerland and the Netherlands remain strong, Belgium is growing. France is beginning to improve, probably because of a shift from the minitel to the internet.

In the Mediterranean area, Portugal has modest growth (3 percent) with a 4.4 density; Greece is static and way behind all other European Union countries (density 2.5). Little Slovenia has fair growth (5.5 percent) and density (10.1) over the European average. Ukraine has strong growth (22 percent) but not as fast as Russia; and low density (0.3). Egypt has a remarkable 47 percent growth, but on very small numbers (density 0.04). Turkey has 18 percent growth (density 0.6).

• There are too many different criteria in defining who is a "user".

• There are conflicting data and figures for different countries can’t be compared.

• Before the end of the year, I think, there will be new and more reliable data.

• Above all... it’s not relevant. The internet will never be a "mass market" or something that can be used (or measured) effectively with the criteria of traditional media.

However... I am continuing to look into this subject, comparing data from different sources; the analysis is complex... I hope to be able to publish something relevant in a future issue of this newsletter.

In the meantime, here is some information that may be interesting.

According to surveys by Eurisko, the number of people that have access to the internet in Italy (or "say" they have) increased approximately 30 percent in six months (November 1996 - June 1997) and 7 percent in the following half year. A 40 percent increase in a year is, I think, believable.

The increase was 70 percent in home use while the (larger) number of people with an office connection increased only 20 percent. 10 percent of users have both office and home connection.

How many? As I said, that needs more work... but at this stage 800,000 seems a reasonable figure. It’s almost impossible to know how many of those people are active and frequent "navigators", but around 100,000 is an acceptable "guesstimate". A very small figure, but much larger that it was a few years ago.

I don’t believe in forecasts, but it’s pretty clear that interest in net use is spreading. A 50 percent (or more) growth in 1998 is quote likely. Over a million people will probably be online some time this year. As we have seen, the trend is there and may be accelerated by an increase of promotional and advertising activity by ISPs.

Eurisko research provides also an interesting breakdown of internet "users" by five demographic criteria.

There is a high concentration in the North-West, where there many large companies have their headquarters; this is also the area where there are more people using the net from their office. The North-East is the home of many successful "small and medium companies"; lower net usage in that area (especially from work) confirms that those entrepreneurs have not yet discovered the values of the net - as we know also from other sources.

Now let’s look at the size of places where "netizens" live.

Concentration in the larger urban areas was to be expected, but it’s another symptom of immaturity. "Home" use is relatively higher in the smaller places and lower in the big cities.

This is the picture by age:

There is a problem at both ends of the spectrum. Young people are slightly more present on the net than as a percentage of population, but not as much as they should. The absence of older people is not surprising, but this is one more indication of a social disease: the number of older people is increasing, and their isolation from new communication tools is unhealthy.

The next analysis is by level of education:

(Definitions in English are deliberately vague, as school systems and levels vary in different countries)

Not surprising... but this again confirms that we are far removed from the "popular" use of the net that is beginning to spread in the United States and in a few other countries.

Another implication of this fact is that internet users generally have better education, a more active life and a more critical attitude than average. They are busy, they have no time to waste, they are demanding and they are not easily satisfied. Not "easy" customers. They need to be treated with care and respect. I should say "we". I’m one of them, and quite hard to please.

These are the percentages by income:

Again... no surprise. It may seem appealing to marketers that want wealthy customers, but I think it’s disappointing. There are too many barriers that keep young people, or generally people with a not-so-high income, away from communication resources that could help them to find a job or improve their situation. There is a big educational task ahead of us. People need to understand that the net is not just "a toy for the rich"; and that to be online they don’t need expensive equipment or high technical expertise.

Does this mean that it’s totally hopeless? I don’t think so. But also in this area we need a bit of a Copernican revolution, to start with realities and build from there.

I think we should, to begin with, look at the behavior of people online. In the beginning they may do a bit of "navigating" just for the sake of testing their new toy. But over time they settle into patterns: each person has a distinct individual way of using the net. Some people concentrate on e-mail, some on mailing lists and newsgroups, or on their personal short-list of preferred sites, or on specific areas related to their work, study, research or hobbies. Each person tends to create his or her own net, and get into a set of habits. None of those habits, normally, is buying things online; with a few possible exceptions such as visiting an online bookstore to see what’s new.

But people do get out of habits if they have a strong enough incentive. If any one of us found out that there is a really attractive offer online, for something in which we are really interested, we may be tempted to switch on our computer and our modem just for that purpose. Even people that don’t have an internet connection may use what’s available in their workplace, or ask a friend to go and take a look.

What can make an offer so strong as to get people out of their habits? Price, of course. But there can be other reasons. There can be goods or services that are not easily found in our neighborhood. There can be ways of checking and comparing without driving around to different stores. There can be quality and service values, based on effective use of interactive communication, that make the offer attractive.

A few intelligent and imaginative "pioneers" could open the way. If a behavior, that was not a habit, brings good results, we will be more willing to try again.

Who and how? We shall learn that from facts; but some areas seem more promising. Before we take a look at sectors that could be the "icebreakers", let’s consider three factors that may help to change the attitudes of internet users.

• Obviously, downloading software. Most internet users, especially "newbies", don’t even know that it’s there. They use whatever they find installed on their computer, or buy software in stores: generally paying more, and with much less of a choice than they would find online. Our first move, if we want to bring people closer to the idea of buying online, should be to spread the knowledge of how much freeware and shareware can be found online. That may not please the producers and retailers of major commercial software; but it’s in the best interest of all companies that want online business to grow.

• The second is buying from abroad. Some American, or generally international, online traders offer excellent service. We should not be "jealous". The more people discover the quality of those services, the more open they will be to what will be offered in their home market.

• The third is export. Only a few Italian companies are selling online to the United States and other countries. Many more could learn to do so. By selling in those markets, where e-commerce is a reality, they could gain knowledge and build resources; over time, that would help them to develop the home market. The net is global... a satisfied customer in Baltimore could tell a friend in Venice...

Now let’s look at the "icebreakers" that could open a path for e-commerce in our home market. For instance:

Software

Quite obvious, but not irrelevant. I don’t mean only downloading freeware or shareware. Also selling and buying more or less specialized software. Of course it’s being done, but there is room for much more activity in this area.

Hardware

Some people are already selling computers and accessories online; and even if they are not widely known they’re making money. But a lot more can be done, with better quality, more choice to fit individual needs and more effective service.

Books and music

I wrote about that in the February 9 issue of this newsletter.

Services

That’s a wide category, with many interesting possibilities. Travel, tourism, vacation, professional updating... and many other. Banking and insurance... good long-term potential, but the biggest hindrance is the attitude of our financial institutions.

Business-to-business

Of course. But not easy. There are some successful operations, but most of them are just a technical upgrade of what was being done by phone or fax. They are also quite cagey about what they are doing; they don’t want to "share their secrets". Their concern is to keep competitors in the dark rather than help to spread knowledge.

Someone will surprise us

Reality always exceeds imagination. Something unexpected is bound to happen. We should be ready to learn from surprises, that can come from where we least expect them.

Even in our small net community, more users are coming online. Are we ready to meet them with valuable services, help them to find their way, offer what they really want? I don’t think so.

This is not just an Italian problem. A new survey from Shelley Taylor & Associates, reported by The Economist on March 4, reveals that corporate websites don’t provide good service to visitors. Few companies have any clear idea as to what a website can and should do. Most companies are using their website for humdrum tasks and pay little attention to the value of content on site and the ease with which one should be able to access information and navigate about the site. Other companies overburden the site with the latest graphics and animations, to the extent that a visitor has to download software before the site can even be viewed. As a result, visitors get irritated and leave with a bad impression of the company. Of the one hundred sites surveyed, only three managed to serve their customers, investors and potential clients alike.

Where most companies don’t know how to use the net properly, there’s a big opportunity for those that are willing to learn and improve. As in most new environments, the driving forces will be the companies, large or small, that find the road to success; the "icebreakers" that open the market. Those innovators and potential leaders should not be too selfish. They should understand the value of community; sharing information and knowledge can be more much effective than holding on to "trade secrets".