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What's C|Net Been (gun)Smoking?
Jun 24, 1997 :: Michael Sippey

This medium seems to evolve at a breakneck pace. Catch phrases and buzzwords fly in and out of fashion with each passing week. First, content was king. Then it was community. And then it was leveraging that community to do collaborative filtering. And then, of course, it was over everything else.

Most of these buzzwords have some sort of technology behind them, whether it's threaded discussion and chat for community building, or SMTP or Castanet for push. But as web ventures start drowning in red ink, the industry's new buzzwords are bound to come not from the tech side of the house, but the business side.

Witness yesterday's long-awaited announcement by C|Net of their newest Web Venture, Snap! Online. Known only by the code name "Gunsmoke" for the past few months, Snap will a web-based consumer online service, offering a database of around 75,000 site reviews handily categorized into (surprise) content-specific channels. In terms of actual substance, the announcement was underwhelming: the company will chew up 110 people and spend a reported $9 million to compete with entrenched competitors like Yahoo, Excite and AOL. C|Net investors, who were kept in the dark regarding an unclassified $2.2 million expenditure on the service in Q1, must be scratching their chins and wondering what all the hoopla is about.

Ahhh, but as C|Net chief Halsey Minor would probably be the first to tell you, the hoopla is not in the content itself. It's in the business model...

"Snap! Online is also a breakthrough in Internet marketing," the web site declares breathlessly. "It's designed to be branded and distributed by PC manufacturers, consumer products marketers and other licensees. It can carry your brand and your daily messages right to your customers -- every time they use the Internet." If I hadn't known better, I'd have guessed that this was some sort of hack perpetrated by the creator of Placing.

The "breakthrough" strategy C|Net is talking about is simply OEMing their HTML. C|Net builds the content, packages it up on CDROM, and lines up a bevy of business partners to distribute it to new customers. Thanks to either some savvy negotiating or a whopper of a deal (or both), C|Net has managed to land some heavy-hitting partners: AT&T, Bell South, Mindspring, MCI and Sprint, for starters. While the relationships aren't exclusive, these partners will hawk the Snap CDROM to their end customers in exchange for customized branding and prime advertising real estate.

In some web businesses, an OEM strategy works quite nicely. Specialized content providers can focus on their niche market, while reaching wide audiences through other high-traffic sites. Classifieds 2000, who is the back-end classified ad engine for Lycos, Excite and Hotmail among others, is a perfect example of how an all-out OEM strategy can add value not only to the supplier, but to the distributor as well. And while it was too little too late, Electric Minds was also moving to an OEM strategy, building and promoting ephemeral, event-centric communities for corporate customers like IBM. When deployed correctly, an OEM strategy can enable a small content provider to find a nice little segment to exploit and hitch a ride on the backs of the larger players. If you're successful, the worst that can happen is acquisition by one of your large distributors. (Voila -- instant exit strategy.)

But to me, C|Net's OEM strategy looks flawed from the beginning. First, while going for an "everyone, everywhere" approach to signing up distributors, they're not leaving enough room for anyone along the value chain to actually ad value. Distributors like to feel special, especially when Snap will be the first thing their customer sees when logging on to the Internet. If the only thing that's different between MCI's version of Snap and Sprint's version of Snap is the logo along the left hand side of the screen, it makes it entirely too easy for Sprint or MCI to drop Snap for a competing product. C|Net, by lowering the barrier to entry for partners, has essentially lowered the often overlooked barrier to exit.

This situation will most likely be compounded by the fact that C|Net continues to burn cash. Even with 110 people working on the new service, they'll be strapped to devote the resources necessary to create highly customized versions of Snap that essentially lock in distributors.

Finally, and most importantly, by placing such an enormous emphasis on the "breakthrough" business model, C|Net risks taking their eye off the one, true ball. Companies that have successfully practiced OEM strategies know that even though the partners appear to pay the bills, the end users still drive the revenue stream. Can C|Net compete with AOL without controlling their own network infrastructure? Do users really need another newbie online service? How important are bite-sized site reviews, anyway? Come September, we may start getting some answers to these questions. But one things certain -- buzzword business model or not, without paying attention to the end user C|Net could at best tarnish a brand, and at worst sink the company.



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