Free on the Net

While listening to the radio the other day, I heard a commercial that made me stop and think about how consumers perceive the Internet commerce industry. The two guys on the radio were pitching a home-improvement product when one said, “We’re not some dot-com company we can’t GIVE it away!”

I started to wonder if all the free and discounted products and services offered over the web are creating the expectation that we’ll be giving away products over the Internet forever. However, the more I thought about it, the more I realized that we’re on the well-worn path of technology adoption that leads to success.

The idea of giving something away for free to encourage consumers to try a product or service is a marketing technique taught in practically every college marketing course. From free food in a grocery store to web sites that give away film processing and prints, it’s a technique that works.

The problem, of course, is that it can’t be done forever. So the question is: How long does it take to move consumers from trying a new product to the point where they adopt it as a part of their everyday lives and become loyal, profitable customers?

Most new ventures are expected to take a few years to achieve profitability. Just take a look at the business plans of successful companies that venture capitalists funded several years ago. The bottom line reads “loss, loss, profit,” and then “financial riches.” However, the most innovative products that are actually adopted by the market can take several years to achieve financial success.

One example of a company that had faith, patience, and deep pockets is Gannett Co. The launch of USA Today was accompanied by promoting its use of satellite and other technologies to deliver its breakthrough approach to news. In addition to heavy reliance on technology and years of experience in the news business, Gannett Co. projected in its business plan profitability after 10 years. Fortunately, the company’s plan was close in its projection it took only 12 years to achieve profitability.

What the two fellows in the radio spot didn’t mention was that practically all new technologies go through a somewhat protracted adoption cycle, and e-commerce is no exception.

The reason is that before customers become loyal to the company, the company must demonstrate its loyalty to customers.

Giving products away or selling at deep discounts is an accepted way to entice customers to try a product a few times. As customers experience consistency in product and service quality over time, they feel more comfortable with the brand. Whether a company sells an innovative high-tech product or uses the latest technology to sell traditional products, it still takes time for the market to accept innovation.

Several things happen when innovation becomes part of the mainstream marketplace. Customers start making repeat purchases, and they tell others about the great brands they’ve found. In both cases, the cost of sales is lower than in the start-up period, which improves profitability and the chances for long-term success.

When you look at where the Internet industry is along the technology adoption life cycle, it is clear that the current dips that have occurred are to be expected. It is typical for technology to adapt to consumer needs and for consumers to adapt to changes in the way they gather information and make purchase decisions.

As my coauthors and I interview executives for our next book on one-to-one marketing, we’ve seen the Internet landscape change in the two years since the first edition came out. Instead of having to focus on new technologies, we’re finding successes that point the way to the future of Internet marketing.

This means that e-commerce, personalization, and many other Internet technologies are poised for dramatic growth over the next few years, and this will make what we’ve experienced so far look like an escalator ride.

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