"All that is old and already formed can continue to live only if it allows within itself the conditions of a new beginning."
Adman Claims E-business Largely An Investment Rip-off
MINNEAPOLIS, MINNESOTA, 22 Feb 2000 (NB) -- From where he sits, a key Minneapolis marketing wizard sees online business as, in large measure, little more than a Ponzi scheme. That's the popular name for an investment swindle in which an upstart company promises high profits from fictitious sources, while early investors are paid off with funds raised from subsequent small investors.
Bill Hillsman, a partner in the ad firm North Woods Advertising, is an adman who likes to jump on bandwagons. By his own reckoning, in a 25-plus-year career, he has helped transform the marketing strategies of the banking industry, hospitals, shopping centers, HMOs, even professional sports teams. He's about to market, for the first time, a law firm on the national scale. And he's most famous for helping Minnesota Gov. Jesse Ventura and US Sen. Paul Wellstone win elected office by reshaping the tone and content of political advertising, giving them populist appeal by making them quirky, odd and funny.
You'd think a guy like that would be among the first to leap aboard the dot-com bandwagon. But search carefully, and you won't find him there. And that, he insists, is a matter of conscience.
"I've seen at least a half-dozen [dot-com companies] in and out of our office," said Hillsman. "Quite frankly, they've all kind of had the same problem; they all want to do something fast, they want to generate interest in the site, they want to be able to launch an IPO [initial public offering]."
And, Hillsman said, they will do that, essentially, on the backs of small investors who naively believe the pitch of companies that either have no intention of growing into long-term businesses, or are themselves too naive to realize their businesses are doomed to fail in the Darwinian digital marketplace.
"They want to be able to get rich off this thing in the short term, they want to get their venture capitalists their money back," Hillsman said. "The question I always have is, 'Show me the backend business plan, show me how this thing works because I foresee a lot of problems.' I've yet to have any single one of them answer that question in a way that I found persuasive enough to go to work for them."
Hillsman said, "They all have an explanation - they have to put together an IPO. But when you start poking holes in it, and you start asking hard questions about how exactly does this plan work, they're just fraught with inconsistencies. And there's so much speculation about them, I just don't think they work. There's too much smoke and mirrors, I think."
His big, bottom-line concern is that a lot of people are going to get rich in the short term, but far more of them will get burned, and those who get hurt will be small investors.
Hillsman's Jesse Ventura "Action Figure" and "The Thinker" ads in Minnesota attracted the attention of presidential candidates Steve Forbes, John Kasich and Gary Bauer, though he never went to work for any of them. He has also helped conduct a number of other candidate marketing blitzes in Minnesota, some successful, others not. All that has led him to conclude that most dot-com ad campaigns have essentially the same purpose as his election-campaign spots.
"This is very similar to a political campaign," Hillsman said. "They're throwing a lot of money in a short period of time in an attempt to ramp up awareness of their business or their site - getting people onto their site so they can then put up a persuasive argument to their investors, and put together a persuasive IPO."
The problem doesn't just affect online retail businesses, the adman said. He says he received a pitch from a business-to-business company that wanted to create a distributorship. "(It) was going to distribute to both big retailers and also small retail shops," Hillsman said, while declining to name the company. "They were going to solve the problems that these distributors have working with small retail shops. They were going to impose an order system on these small businesses that would make the distributorship a lot more efficient."
The problem, Hillsman said, is that the company executives' revenue plans relied on creating a database of names they would build, that they in turn would sell to other businesses. "I said to them, 'You know, your long-term business depends on the goodwill of those customers,'" Hillsman said. "'How exactly do you think that's going to work?' It had evidently never occurred to them."
It is not as though there is no business model to follow, Hillsman says. If companies would look closely, he suggests, they would realize their dot-com companies resemble nothing so much as catalogue mail-order businesses. The difference, he says, is that in the past, brick-and-mortar retailers like Montgomery Ward got their physical retail business going first, and went into catalogues later. Online companies can do the same thing, only backwards, he suggests.
"The way to be a long-term player in this is not to be strictly an e-commerce business," Hillsman said. "My advice to the companies that really want to get into this is to make sure that they have a (physical) retail presence, as well an e-commerce presence. I think you do need to have that. The reason why I think Barnes and Noble will ultimately eat Amazon's lunch is that, if they can do everything that Amazon can do on the e-commerce side - which they're pretty close to being able to do - and then have got the retail presence as well, I think (they) win in the long run."
Hillsman acknowledges his concerns may be misguided, that he may be wrong. And in the long-term, it may not matter that much. In each retail or B2B category, he says, the market will soon shake out winners and losers, and there will likely be only one big company standing in most of those spaces.
But still, he sounds a warning. "The warning I would give is to investors that are getting in after the fact," he said, "because I think if you aren't one of the people who are in the IPO, you'd better look real hard at the business down the line, to make sure that these things are going to work. In most of these product categories, only one of them is going to survive, so the washout rate is going to be huge."
He said, "You'd better have your money on the right pony."
Reported by Newsbytes.com, http://www.newsbytes.com .
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Kevin Featherly, a former managing editor at Washington Post Newsweek Interactive, is a Minnesota journalist who covers politics and technology. He has authored or contributed to five previous books, Guide to Building a Newsroom Web Site (1998), The Wired Journalist (1999), Elements of Language (2001), Pop Music and the Press (2002) and Encyclopedia of New Media (2003). His byline has appeared in Editor & Publisher, the San Francisco Chronicle, the St. Paul Pioneer Press, Online Journalism Review and Minnesota Law and Politics, among other publications. In 2000, he was a media coordinator for Web, White & Blue, the first online presidential debates.
Copyright 2004, by Kevin Featherly