The Genius of Electronic Marketing
- Serendipity At Work -
by John Petrillo
AT&T Executive Vice President
Strategy and Service Innovation

It's not widely known, but AT&T invented electronic marketing. Unfortunately, at the time, we didn't have a clue as to what we were doing. Like many great inventions, it was pure serendipity.

Almost thirty years ago one of my colleagues, Roy Weber, who is now a key executive at AT&T Labs, was trying to find a way to reduce the cost of operator handled calls. Roy and his fellow researchers invented and patented a way to have the telephone network automatically reverse the charges, i.e., to bill the party being called, rather than the person making the call. Thus, was invented the 800 number.

The 800 number certainly reduced operating expenses for the telephone companies, but it was their customers who thought of great new ways to exploit the new capability of "toll free calling." Over the years, merchants, advertising agencies and entrepreneurs worked with us to develop new features and, in the process, 800 service transformed their marketing and customer care operations. Today, 800 service truly is the way America shops -- to the tune of more than $100 billion a year. It's also the way American businesses care for their customers; 800 numbers are featured not only in ads, but on packaging, instruction booklets, and even on the side of trucks.

New Forms of Electronic Commerce

In the pages that follow, creative marketers tell the story of how they are continuing to develop new forms of electronic marketing and commerce. The merger of the communications and computing industries has created an electronic platform on which marketers can create new value for their businesses. Indeed, it has created a new "mega industry" which is transforming the way the world works, sells, gets its information and plays.

Some have called this a revolution, but I think it is more evolution at a rapidly escalating rate of change. I personally find it ironic that the mainspring of much of this change was not created in the laboratories of this mega industry. Rather, the phenomenon we call the Internet is the creation of all the individuals who use it. Through their very use of the Internet, users have legitimized a set of standards that has become the underpinning of a new wave of innovation that is transforming our society.

The Internet offers a special advantage which eluded all of the movers and shakers in our industry -- it's a democratic set of standards that was developed and agreed upon by its very users.

By contrast, standard-setting for more "mainstream" data networks has been like dancing in a full body cast. Further, the Internet -- because it is a global network of networks -- provides a very attractive worldwide platform for new forms of electronic commerce and other applications.

Kevin Kelly, executive editor of Wired Magazine, calls this phenomena the "hive mind," a collective wisdom that exceeds the capabilities of the individuals. In his book, Out of Control, Kelly suggests that the Internet has become biological, both because it has a growth rate that is analogous to growth in living organisms, and because it has developed the ability to sustain itself.

The Internet has clearly reached critical mass. It already contains more than 70,000 interconnected networks. Monthly user growth rates are in the double digits. And many analysts are predicting a billion users by the end of the century.

But there are really two Internets -- the physical Internet and the virtual Internet. The physical Internet consists of those 70,000 networks, the backbone routers, the domain name servers and the backbone that interconnects them.

The virtual Internet consists of the Internet's 40 million or more TCP/IP addresses. I submit that the physical Internet will become less and less important, and so will the well-known business limitations that we associate with the physical Internet -- such as holdup times, navigation, reliability and security. That's because AT&T and other carriers are building networks with access to both the Internet and to each other. So the virtual Internet becomes a sophisticated superset of networks linked by a set of open standards.

As the virtual Internet grows, it will be less and less necessary for a packet to traverse the Internet backbone to reach its destination. It will become more and more common for packets to go from, say, one access provider to another without ever going over the Internet's physical backbone, proving Metcalfe's law that the value of a communications system is proportional to the number of end points that it can use.

Building a New Market

A recent survey of MIS managers estimated that over 60 percent of businesses will be using Internet access services within a year. Almost 46% of the respondents plan to market products or services over the Internet.

But for all its growth, as I write this, the Internet is used primarily by technically proficient individuals who tend to access it mostly from work. For example, roughly 33% of American homes have PCs and almost 75% of those home PCs have modems. That means one quarter of all US families have the electronic equipment (and likely the disposable income) to access online services or the Internet if they chose to. Yet only about 6% of these families do. And usually only one member of the household goes online. Although the mix is changing, 70% of Internet users are men between the ages of 25 and 39.

People equipped with PCs and modems who do not use the Internet or online services explain that they find the experience of accessing these services overwhelming. They are not sure how to get started. They find the process of going online laborious. Once they are online, finding content of any significant interest to them is a challenge. Fear that their credit card will be used without authorization makes them reluctant to participate in electronic commerce transactions. They wonder about the privacy of their Internet usage, and many are concerned about some of the content that could find its way into their homes.

There is a tremendous opportunity to expand the Internet's reach by making it easier for new users to get online in the first place and by giving them compelling reasons to go online at work, at home and on the road.

Simply put, that's AT&T's goal -- to make the Internet as universally accessible and as easy to use as the telephone, and to make the Internet as useful for commerce as 800 service.

Global Marketing to a Segment of One

All this technology boils down to an exciting new business capability. Today, with a relatively simple web site, even the smallest business can have a global presence. More important, it can do what the biggest companies have had difficulty doing -- it can customize its offerings to a market segment of one.

The CCTC group, for example, discovered that a lot of women are happy to pay more for jeans that really fit. They've developed free-standing kiosks for retail clothing stores which allow women to order custom jeans. By using the kiosk, a customer can look at the various styles of jeans available, input measurements, provide payment information, and complete the transaction electronically.

CCTC is a virtual corporation that uses a network application to link retailers, customers and suppliers. In a very real sense, the network is its business. It enables the company to deliver a custom product for just 10 dollars more than off the rack. And since it eliminates a lot of costs, such as carrying an inventory of finished goods, margins are very healthy.

Today, CCTC uses a combination of networks, but in the future, similar applications could be developed entirely on the Internet. In fact, I predict we will see many such examples as intelligent agents deliver individualized information and services to users. New forms of "digital money" will make transactions on the net easier and more secure. Competition will spur those of us providing access services to upgrade our network infrastructure to improve reliability and -- because this is now an industry driven by users -- to fill screens faster and to support such bandWIDTH-eating applications as desk-top video.

The creativity of the 'net will spawn services we haven't even imagined yet. They will become the global malls, marketplaces and communities of the future. Boundary-less colleges and universities, for example, will push the limits of learning. But, most of all, we will have an opportunity to collaborate in creating a world that is richer and more fulfilling for all of us.


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