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Issue 2001-12 Tuesday, October 22, 2001








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  Crisis of the Internet values, crisis of confidence, crisis full stop: how long and how deep?  

It was obvious, and I often wrote about it in this newsletter in the last two years, that transforming the Stock market into a super casino dedicated to technological values could only lead to the deep drop that can presently be observed.

And this Stock market crisis hit almost everybody in a very painful way, from venture capitalists to private individuals, not to mention the people employed in the Internet sector. This is how a Lastminute employee who bought 823 Euros worth of shares of its own company at the price it was sold at the time of the IPO is now left with… 38 Euros.

This is how it is; we all know it and as things are not ready to change just now, let's not dwell on the subject.

What matters now is the future of the Internet economy.

Basic data

First basic fact: most Internet companies are not able, even when they are making a profit, to support their growth without any external funds.

Second basic fact: the necessary funds can only come from the …offline economy.

A whole catalogue of consequences

However, helped by the tragic events of September 11, the American economy, which had already slowed down, has suddenly gotten weaker, and the aeronautic sector is the most obvious example with consequences that go much further than the United-States.

Its consequences can now be felt in almost every sector, more or less strongly.


It was not difficult to foresee that the advertising sector would be one of the sectors most hardly hit.

As a proof of how strong this impact proved to be: at this time of year, French TV channels usually have an order book for the holiday season filled up to 75%.

But today the total amount of registered orders would be twice and maybe even three times lower than the usual rate!

The offline crisis will determine the length and the intensity of the Internet crisis

All this to say that the crisis that just started no longer has anything to do with the Internet one; it is an offline crisis that is now looming on the horizon, and that comes along with the lowest consumer confidence we have seen in months, and maybe even in years, not only in the States but also in Europe.

To prove this last point, the University of Michigan's latest survey of consumer confidence published last Thursday showed the lowest level in…eight years.

Knowing all this, how could we possibly imagine that venture capitalists, banks or even traditional companies might, in the short run, care about anything but themselves?

The brutal drop in communication spending is only due, for the most part, to the beginning of the offline economy crisis.

What this means is that the length and depth of the Internet economy crisis will depend on the one that will take place offline.

The Internet crisis started long before the offline one and prosperity on the Internet will only come when the offline economy crisis has come to an end.

The Internet trumps to counter the trend

Nevertheless, I remain confident as far as the Internet economy is concerned, by applying a basic principle of mathematics:

  • The number of Internet users keeps on increasing.

  • Internet users prove more and more mature, and the consequence of all this is that mature users are the ones who shop online and what is more, the volume of online transactions per user keeps on increasing steadily.

All this tends to indicate that whatever may happen on the general economic level, Internet not only constitutes an ever-expanding market but also a market within which the "quality" of the users keeps on increasing "mechanically" as time passes by.

In conclusion, we can say that: if, in a market that evolves positively, you reduce at the same time the number of providers, the actors who remain active should then become more valuable on a mechanical level, and generate more business…

It is this mathematic logic of a market expansion faced with a simultaneous reduction of the number of its providers that makes me hope for a more positive and faster issue than what classical indicators seem to foresee.

Understanding users' behaviour has become essential

But what is obvious, and this is the good point in all crises, this is no longer the time to make marketing attempts. Indeed, more than ever companies with an Internet display need to give themselves real tools to analyse their users' behaviour.

There is no need to waste huge amounts of money in marketing spending if the company's communication strategy does not prove able to generate a "qualified" traffic.

For those of you who receive the eSector of the day, you can notice, through the analysis of many Internet sectors, that in 90% of the cases, web sites manage to double their Internet traffic in a month or two but almost always find themselves back to the exact level they used to be "before" their communication campaign...

This type of marketing approach can be compared to someone who hands out leaflets on a street corner to… God knows who!

Internet users' qualification

What you need if you want to succeed online is to qualify your visitors on the Internet:

  • On which sites should we recruit the users who show the highest affinity with my own site and who, as a result, might be customised?

  • On which sites do users who visit my site also go, and how do "my" users behave on these sites (number of pages viewed, time spent…) so that I can create an efficient partnership policy…

Sites that do not prove able to answer these questions on a daily basis can only navigate at a rough guess and…die.

In my opinion, there is still hope for those able to fully understand who their users really are and the motivations they have throughout their surf: you cannot cut a user in slices, he has a "global" behaviour and it is only this global understanding that will prove able to save the best sites.

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