Promise of TV, Internet

THE CHANGES sweeping through the electronic communications will transform the world's economics, politics and societies, but they will first transform companies. They will alter the ways companies reach their customers, affecting advertising, shopping, distribution and so on; they will create new businesses and will change the way companies communicate with one another and with their staff.

In addition, the changes in communication chime with other trends in the corporate world and will reinforce them. One such factor is globalisation, with world trade and investment accounting for a rising share of total economic activity. Another is the booming market for ideas. Increasingly, creativity and the ability to process information will be key competitive tools.

Adept use of communications will clearly become an important, perhaps the most important, competitive advantage for businesses. It offers a chance to create new business models and to find entirely new ways of doing things, and it provides opportunities for building new relationships with existing customers and for tapping markets that were previously hard to reach.

Advertising attracts consumer attention and communication has always been at the centre of the industry. The introduction of television advertising 50 years ago brought about a revolution in advertising. Suddenly, companies could reach customers in their homes, simultaneously and nationally, and more vividly than had been possible with the printed page or the radio. The effect was to transform retailing and to boost the power of brands.

More information on customers

But communications are changing again, in ways that will reshape advertising and hence advertisers. The multiplication of television channels fragments audiences, and the Internet offers new advertising models, although its audiences are still small. Overall, advertisers will have many more choices of outlets for advertising, but the audiences in each outlet will be more specialised. Advertisers will have more potential for global branding, but the markets will remain culturally distinct. Changes in communications will help companies know more about their customers, fragment the advertising market, and turn company relations with customers from passive to active.

The communications industry in particular knows more and more about its users. Companies with Internet sites know who visited and what they wanted to look at rather than just how many people stopped by. In future, one of the main roles of communications companies will be managing the information they collect on the transactions and behaviour patterns of their customers. Where communications companies bill customers, they have a particularly powerful tool for reaching and understanding their market.

All these electronic tracks delight advertisers, to whom they convey the means for analysing customer data from every conceivable view point. Once advertisers learn how to manage the deluge of data, they will find that targeting individual customers precisely will become or should become much easier. The result will be a growth of ``below-the-line advertising direct mail and its electronic equivalent, telemarketing and e-mail. The new ``push'' techniques of Internet broadcasting offer a perfect platform.

Indeed, Internet allows companies to target individual customers more precisely than has been possible in the past. Customers who search for information on buying a can or a CD can be led seamlessly and with increasing precision to an advertiser's site or to a list of possible purchases. And companies will be able to measure, more accurately than ever before, how many people are sufficiently interested in their advertisement to follow it up.

Fallout of cable TV

As television channels proliferate and web sites multiply, large audiences become harder to find. The declining share of mass- market television means declining opportunities for mass-market advertisers. This fragmentation has many effects, such as highlighting well-known brand names and boosting demand for celebrities with mass appeal to help sell products.

Potential of Internet

On the Internet, large audiences are particularly difficult to reach. World wide web seems, at first glance, an advertiser's dream: allowing access to a web site costs much less than printing and distributing a brochure; updating or customising is quick and simple; and many million well-heeled and literate shoppers may look at it.

For the moment, these advantages remain largely theoretical. Well into the first decade of this century, the Internet will have a diminutive slice of the total advertising revenue. In 1998, global spending was around $5,260 million, a flea-bite compared with the total of $173 billion spent on advertising in the U.S. in that year.

But that will change. Some advertisers already see the Internet as an inexpensive place to experiment. London International, a British company that makes condoms, is using its web site to experiment with advertising pitches before transferring them to print and television, in the hope of avoiding expensive mistakes.

In future, companies may well find that the task of reaching niche markets becomes easier than reaching mass audiences. The result will be a growth in niche players and products. That will chime in with a trend in the market at large: the desire of consumers for more customised goods and services.

Internet users are constantly offered access to desirable information (such as a newspaper library or a sports service) in exchange for giving their names and addresses and information about their income and tastes.

Classified advertising is an electronic natural. Users will find it easier to hunt for a second-hand car or a new job or apartment by clicking a mouse than by turning the pages of a newspaper, and advertisers may be willing to pay extra to have their ads in both newspapers and on-line. Customers can search ads from individual newspapers and from national databases created by aggregating certain categories of ads. The idea is that customers still buy newspapers to read news, but advertisers willingly pay more to have both the print and the on-line display.

In the struggle to attract attention, advertisers will find it easier to target individuals but harder to find mass audiences. But one of the most important innovations of the Internet may be to allow companies to extend brands by creating a sense of community among customers using them.

Customised marketing

The basic idea is to build links with customers, using the Internet's networking power. For instance, anybody who owns a Maruti car can register as part of an extended family of Maruti owners and know the names of other Maruti owners living nearby. Other companies can create bulletin boards on which customers can tell each other what they love or hate about a particular product or service.

This marketing tactic has many advantages. Turning one's customers into a virtual community offers a way to use the powerful economics of a network to reach like-minded customers - to build a brand, get feedback on products from users, and extend the corporate culture to include the customer.

Most important, the Internet has become a powerful driver of innovation. Because of its open, flexible protocol, thousands of small companies, promoted by highly educated entrepreneurs, are making (or, periodically losing) huge sums of money developing new ways of using the Internet.

The result has been partly to change the structure of the communications industry shifting the focus of innovation away from the old giants towards these young hot-houses. But even more importantly, it has been to drive forward communication technology at a formidable pace. Through the Internet, new products can be relatively inexpensively developed and launched; potential customers and investors can be targeted; and markets can be quickly identified and tested. No other industry has such instant links between inventors and customers.

That, above all, is why the Internet matters: it makes the market system - since the collapse of communism, the dominant method of allocating resources around the world - work better. Those parts of the world that embrace the Internet will find themselves better able to compete than those that lag behind.

S. Venu

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Section  : Business
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