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Why are more businesses turning to mapping? The software is becoming easier to use and less expensive. Mapping software is designed to link information from a company’s back-end databases and to display data such as sales patterns, results of marketing campaigns, or concentrations of potential clients. Many programs are now meant for sales or marketing employees rather than techies. The Internet is also playing a role, allowing for more users at a lower cost.

Territory alignment has always been mapping’s most classic use. In their basic forms, mapping programs help managers decide the most effective deployment of their sales and service forces to balance account loads and achieve the biggest profits. They can also help managers recommend which accounts a salesperson should try to cover each day, ensure territories are geographically compact, and estimate driving time associated with servicing an account.

“When you think about it, the majority of all data that companies collect can be tied back to a physical address and can be displayed on a map,” says Jim Brown, vice president of TerrAlign, a Reston, Virginia-based company that specializes in sales and marketing consulting and mapping software. “So it isn’t surprising that mapping can be a powerful tool for understanding a business, its markets, and its customers.”

But before executives invest in a tool, they have to know how to choose the right one.

CLAIMING YOUR TERRITORY

Geerlings & Wade, a direct marketer of wine, needed to know the purchasing behaviors of its customers, such as if they only bought wine around the holidays or during special promotions, and what kinds of wine customers typically bought. So executives of the company, based in Canton, Massachusetts, decided to invest in a mapping application. They had to sort through all of the technology and product offerings to find out what they really needed, instead of buying just the coolest–or most costly–solution.

The company wanted something that was user-friendly, could provide graphical information, and could link with back-end databases. So, in the hunt for the right software, Geerlings & Wade searched for applications that not only filled these specifications, but were easily adapted to its current system.

Vince Ficcaglia, vice president of marketing, says they chose Lifetime RealTime Behavior Mapping by Boston-based Verbind Inc. because it allows marketers to view individuals’ buying behavior. Because it maps the behavior of customers on a one-to-one basis, Geerlings & Wade can send special offers at the right time, with relevant content.

“It was the only [application] that has the full breadth of capabilities” Ficcaglia says. “Marketers are nontechnical users, and this works for them.”

It all sounds simple enough (and some programs are), but it’s also easy to get lost in the technology. Howard Millman, a consultant at Databases Services in Croton, New York, suggests executives seriously consider the return on investment before picking one program, adding that the tool only has value to somebody willing to analyze the data. “A business can increase its competitiveness by adopting [a mapping program]” Millman says. “But there are a lot of variables.”

Brown agrees, adding that, “at times, people forget that the map is a tool and not a solution. Investors in mapping technology should ask themselves, `What business problem am I trying to solve?’ If the answer isn’t tied back to a fundamental business objective, it should raise a red flag.”

Of course one big variable is the cost associated with implementing a mapping program. Businesses can spend anywhere from $1,200 for basic versions to more than $20,000 for advanced programs. Brown says TerrAlign’s clients spend between $100 and $1,000 per salesperson. “It’s a bad idea to spend $2,000 with no projected benefit,” he says. “It’s a good idea to spend $2 million if it will increase profits by $20 million over the next year, whether that comes from increased sales, reduced expenses, or both.”

By taking the time to choose the right software, Geerlings & Wade is saving money on mailings. Since the mapping tool shows marketers who should be getting a special offer at what time, the company’s mail volume has gone down, Ficcaglia says, adding that the mapping application also indicates how and when individual customer behavior is changing. “We’re moving away from sending out the same offers at the same frequency,” he says. “Now we have a more tailored way of contacting individual customers.”

THE DIRECTION OF MAPPING

While there was a time when GIS systems were used primarily for carving up territories, the explosion in the industry isn’t so much about the map anymore. It’s about the demographic information sales and marketing forces can use to target customers.

Bruce Jenkins, vice president at Daratech, says because mapping software is widely available (some systems are sold prepackaged off the shelf instead of custom-built), it has helped to propel further uses of the systems. “The industry is exploding,” he says. “Over the last half decade the applications of GIS technology have broadened dramatically.”

Almost any company can use information that shows where hot markets are hiding, where a warehouse should be located, or how sales territories are best divided. York Group Inc., a $180 million supplier of metal and hardwood caskets and casket components, has found an advantage with mapping. Before implementing the system, me company didn’t know where new sales opportunities were located and used a paper-based market analysis system. Beyond those challenges, York was starting to use a combination of company-owned and independent distributors, creating unhealthy competition for the same customers.

“We needed to build distribution agreements and decide who would be accountable for what area,” says Fred Turner, senior vice president of sales and marketing. “Mapping is a vehicle to communicate overlapping territories. It made the process so much clearer.”

York, which also uses BusinessMAP, extracted the Federal Government’s annual death statistics for every U.S. county, demographic information about 22,000 funeral homes, and created maps by plotting casket sales by county. Now executives can quickly target areas with higher than average death rates for sales growth and market penetration, which is important in a market that is expected to remain relatively flat until 2016, when Baby Boomers start entering their 70s.

The company also found it easier to realign independent distributors because of mapping technology, Turner says. “In Illinois we had a lot of overlapping–two sales organizations were passing each other on the road,” he says. “Because there are emotions involved, it’s easier to factually and visually show the traveling area. It decreases internal competition.”

While mapping has decreased internal strife for York, it has brought a new meaning to “scooping the competition” for Thomson Newspapers, based in Stamford, Connecticut, where it’s not just an expression used by ink-stained editors and reporters. The fever is running high outside the news room, in the offices where marketers and salespeople at the company’s 60 newspapers are trying to draw in more advertisers and readers and are using new mapping software to do it.

Warwick Brindle, senior vice president of marketing at Thomson, knew more than a year ago that Internet-based mapping held the answer to his problems. At that time, advertising reps were having difficulty putting together demographic information on their readers, such as income level, interests, and age, to present to potential advertisers. Most of Thomson’s papers had only one person trained in using mapping and the rest of the research was being done by using manuals and phone books that were sometimes outdated. The process was slow.

In only five months Thomson implemented Access Connections Live, an intranet program that opens up market research information based on geography to all departments within Thomson. Built by Orange, California-based Spatial Re-Engineering Consultants (SRC), which designs and builds demographic and market analysis tools, the application is in place at each Thomson newspaper in the U.S., incorporating subscriber and advertising information and matching it with third party statistics. Brindle says it allows more employees to access the data at a reduced cost. “Our plan is that within one year, nearly one thousand staff at [Thomson] will be able to use, access, or at least know what it available in the database,” he says.

Dean Stoecker, president of SRC, says Thomson is a good example of how mapping is evolving–most of the employees were trained to use it in a few hours and the cost of implementing GIS was substantially lower due to the use of the Internet. “Going to five hundred users with a custom Web-based application, the [single-user] cost is as low as a few hundred dollars each,” he says. “Thomson spent five times more than they were previously spending, but they are delivering results to 500 times the number of people.”

Using an intranet to access the mapping application and data has also allowed employees to make better decisions more rapidly, Brindle adds, such as assessing a new publication opportunity within a few hours, instead of weeks or months. “We need to see down to street level how we are performing, and a visual map not only does this, but creates a set of data that determines our tactical sales approach and planning cycles,” he says. “The benefits are being seen in all areas of the business–advertising, circulation, editorial, and marketing services.”

As more systems are Web-based, more companies will be able to put control in the hands of sales and marketing people. As the accessibility grows, so will the demand by a variety of industries. For Thomson, the tool is already proving a greater advantage because more people can use it whenever they need to. “Now hundreds more people are involved in looking at the data–no longer is it the domain of the data freak,” Brindle says. “People actually use this stuff at home in the evenings and on weekends.”

at a recent gathering of venture capitalists and other pious alumni of HIT brought together by Technology Review magazine in Mountain View, Bob Metcalfe–the inventor of Ethernet, founder of 3Com, high profile tech pundit and MIT alumnus in his own right–put the state of the YC world in fast perspective. “At one time, the venture capital community was a cartel,” he said in the night’s featured presentation. “But I believe that cartel has been broken. Competition has intensified and now the VCs are slitting each other’s throats–and that can only be good for everybody.”

The comment had stopping power not only because Metcalfe spoke pointedly to his audience, but because he spoke the truth. Today more than ever, VC firms face intense competition, because–in the words of Mohr, Davidow general partner George Zachary, “Much as anyone with a keyboard can call himself a journalist, anyone with a checkbook these days calls himself a venture capitalist.”

To be sure, there’s a lot of cash to go around. Old-line Silicon Valley firms have their checkbooks at the ready; upstart East Coast companies try to beat them to the quick. Software and hardware companies are squarely in the ring–treating VC investments as the ’90s version of R&D. Investment bankers struggle to keep up. Each works to identify a niche and articulate a message in the quest to fund the highest flyers.

For one of the highest flying VC firms of the day, Andover, Mass.-based CMGI, that niche is marketing. An unlikely niche, considering that VCs have historically cared little about the discipline, but not surprising, given CMGI’s roots.

Until four years ago, CMGI toiled in the obscurity of providing direct marketing and fulfillment services. Then in 1995, management saw the Internet coming and set up a VC unit to fund Net startups. Microsoft and Intel, seeing the potential, backed the fund. And CMGI’s @Ventures Internet unit was born. Four years, 41 investments and four successful IPOs later, the company is the toast of both the Street and the Valley.

The financial types and techies may hog the glory for the rise of the Net, but thanks in part to CMGI, marketing is winning the day. True, the general partners are the mix of software gurus and Harvard MBAs you’d expect to find at a VC firm. But the company’s marketing roots shape the way @Ventures does business and the help it offers member companies.

While other tech VCs tend to have a broad spectrum of investments–software, hardware, resellers, etc.–CMGI @Ventures focuses exclusively on dotcoms.Jon Callaghan–one of nine general partners and by the firm’s own account, one of its most astute marketers–claims that CMGI’s DM roots have served the firm above all else. “There are so many new sites coming online every day, but only the ones that understand their customer[s] and know how to reach [them] will survive,” he says.”Gaining an understanding of the customer is critical and that [concept] has its roots in direct marketing and database marketing technologies.”

Because anyone can offer money, CMGI offers a package to its member companies. CMGI @Ventures gives companies the nurturing and marketing advice they need to build successful–or since this is the Internet, potentially successful–businesses. That, of course, makes member firms more prized in the eyes of Wall Street, which increases CMGI’s own valuation. Which allows CMGI to make deals like the recent $2.3 billion acquisition of AltaVista and its sister sites.

The AltaVista acquisition is expected to give CMGI a distribution network for its properties, further raising their profiles and traffic. AltaVista has nearly 7.5m unique visitors a month and generates nearly 150m page views–far more than any of CMGI’s existing properties, according to Nielsen/NetRatings. The idea is, then, that this single acquisition can shine a halo over all of CMGI’s investments, and pay off when it comes time for them to IPO.

And while the successful implementation of that plan will have players like Callaghan rolling in spoils, it will more importantly foster a success story behind the company itself–giving CMGI an advantage against other leading VCs in the battle for the next big thing.

“AltaVista twill be] a tremendous asset in attracting the best and brightest entrepreneurs,” Callaghan says. “No other venture player has a controlling stake in something like AltaVista.”

Even before the AltaVista deal, CMGI almost always made an entrepreneur’s short list. First Albany Securities analyst Ullas Naik mentions CMGI in the same breath as Silicon Valley VC pioneers Kleiner Perkins Caufield & Byers, and Benchmark Capital. “Each have a fair claim to leadership in the Internet venture capital space,” he says.

That’s a long way to come in five years. What’s put CMGI @Ventures on the map? Two words: Lycos and GeoCities. CMGI made an initial investment of just $2m into search engine-turned portal Lycos in 1995. That gave it an 80 percent share of the company. Over time, CMGI would invest another $1.8m in Lycos. A successful IPO early in 1996 and strong performance of the stock since then makes CMGI’s current 18 percent share worth $700m-$800m, depending on market fluctuations. (For further discussion of Lycos, see “A Marriage of Convenience,” p. 12).

With GeoCities, which sold to Yahoo! earlier this year for $2.87 billion, the firm’s ROI was even more staggering. CMGI’s $4. I m investment in 1996 is worth $1.2 billion today. Other, less notable successes also returned huge margins–e.g., IPOs for Critical Path and Silknet, and several transactions such as the sale of Reel.com to Hollywood Video.

Such a track record interested Bernard Louvat. When Louvat took his business-to-business e-commerce site, BizBuyer, to the Valley earlier this year shopping for VC funding, he met with CMGI (@Ventures has an office in Menlo Park), Kleiner, Benchmark, Idealab Capital Partners and Brentwood Capital. Louvat says CMGI was in his top three to begin with, and it quickly came to light that CMGI was the best fit. BizBuyer became one of CMGI’s newest investments, joining the @Ventures portfolio in June.

“We perceived them as partners who could help us grow successfully, based on their track record with Lycos and GeoCities and the fact that they’re focused solely on Internet investments. It’s what they do every day. They’ve built an excellent knowledge of the industry and what it takes to build a success story.”

Louvat says BizBuyer hopes to leverage both CMGI’s operations knowledge as well as its investment knowledge. “We want to grow fast and build a successful business,” he says. “It’s beneficial to have them as a partner because they’ve been where we’re headed.”

Louvat’s enthusiasm is shared by other affiliates. “They ye helped us in a number of tactical and strategic ways,” says Bruce Milligan, vp of marketing at Koz.com, an @Ventures affiliate that helps media outlets develop community sites. “They’re sort of a Good Housekeeping Seal of Approval for the Internet, A lot of people don’t know who we are or what we’re all about. But once we say we’re a CMGI company, there’s an immediate sense of a value. That would be hard to generate on our own.”

“We handpicked CMGI as our VC partner of choice,” adds a spokeswoman for Ancestry. com, in which CMGI took out a 30 percent stake last fall. “They immediately got the concept of what we were about better than the others did.”

Ancestry.com is @Ventures’ most popular web property, with more than 1.8m unique visitors a month, according to the most recent Nielsen/NetRatings report. Because of the nature of the property, that number figures to be considerably higher the next time that report comes out. Ancestry, like many of the Net properties CMGI invests in, employs a viral marketing model that helps the site build traffic organically–as each user’s interaction brings in several more users.

Ancestry.com is devoted to genealogical research, by itself a pretty hot interest these days. It also has a sister site, MyFamily.com, where users can post their family trees, which theoretically, they could research and develop at the Ancestry.com site. Ancestry’s third site, FamilyHistory.com, bills itself as an “online genealogy community,” hosting 50,000-plus genealogy message boards devoted to family history research.

Callaghan calls Ancestry. com’s strategy, “genetic marketing.” “Every new user brings, on average, six to eight additional users,” he notes.

It’s a phenomenon most CMGI sites have in common. OneList is a network of topical email lists. Users can subscribe to email lists on just about any topic–or start their own list. They spread the word around to others they know with similar interests and voile, viral marketing.

The idea, of course, is to let the customers do the marketing–a much cheaper alternative to prime time television campaigns. “OneList is a happy partner in viral marketing” says Callaghan. “It works so well for them that they’ve had to spend very little on any kind of marketing campaign”

OneList has 4.4m registered users and handles 20m emails a day from its 170,000 lists. Not bad for a company that wasn’t even a company until CMGI discovered it about 18 months ago. Prior to that, founder Mark Fletcher ran the lists from the basement of his home, while maintaining his day job as a computer programmer.

How long do such funding arrangements take? As Callaghan recounts, initial contact was made with Fletcher the Monday of Thanksgiving week, 1997. By the weekend, OneList was a part of the CMGI @Ventures family and Fletcher had quit his day job. OneList was incubated at CMGI’s Menlo Park offices for three months before it was turned out on its own. But it’s still enjoying the vast support system that CMGI provides. “There are some amazing synergies that come from being part of an extended family of Internet companies,” says Joe Gillach, OneList’s vp of marketing. “All the other companies have faced similar challenges and there’s no competition between any of them.”

The @Ventures companies can turn to each other as well as form relations with the companies in CMGI’s Internet division, most of which are wholly owned by CMGI. Adsmart, for example, can find online advertisers for the @Ventures sites; Engage Technologies can provide site visitor profiling; and NaviSite can provide site hosting and management services.

Of course, the companies CMGI invests in need a foundation to build on. Callaghan says 1,000 business plans a month wash across the desks of the general partners. So, naturally, with only 30 companies currently in the portfolio, few make the cut. “We look for companies that can grow extremely quickly and have understood their marketing challenges,” he says. “Companies with rapidly growing applications and top-tier management and technical talent. People are the first criteria.”

CMGI @Ventures properties tend to focus on one or all of the three Cs: content, community and commerce. Raging Bull provides news and discussion groups on the stock market, with the CMGI forum being one of its most popular. MotherNature.com sells vitamins and other food supplements, while providing information and discussion groups about them. Asimba features information and online communities for fitness enthusiasts, including online personal training regimens. All require users to register.

So as viral marketing increases site traffic, the sites have a ready supply of demographics for advertisers, such as gender, age and geographic location. “The Internet has proven a great enabler of communities,” says Callaghan. “We have some broad, but very specific communities in our portfolio.”

There’s no shortage of marketing assistance that the company provides affiliates once on board. “We mentor and sit on the boards of the companies we fund. We stay involved,” says Fiona Wilson, CMGI’s director of marketing. As CMGI’s profile grows–try to find a business magazine that hasn’t written about them in the last three months–the firm intends to lift its affiliate companies with it. At this fall’s Internet World in New York, CMGI will showcase 10 of its @Ventures affiliates at its booth. “It’s a really powerful venue to help some of our smaller, less well-known companies benefit from our name and build a much bigger presence,” Wilson says. “There will be 40,000 people there who by definition are heavy web users.”

CMGI has already held summits for the CEOs and CTOs of its affiliates, giving company executives a chance to exchange ideas and best practices. In January, CMGI will conduct its first “marketing summit,” giving marketing execs a chance to do the same.

“There’s a lot of sharing and learning between our companies,” says Wilson. “We only add companies to our family who will be in complementary situations as opposed to competitive with each other.”

CMGIers describe the networked relationship between the @Ventures companies and the other divisions in Zen terms like “keiretsu” (Japanese for corporate affiliation) and “virtuous circle” Such terms may be overused in the business world today, particularly among VCs, but there’s no question CMGI is having success with the model.

“The level of value-add in the CMGI model is really powerful,” says OneList’s Gillach. “Other VCs are trying to emulate them. They remind me of Berkshire-Hathaway, the way companies they invest in speak so glowingly about them”

On paper, CMGI looks like an unstoppable jugger-naut, poised to dominate every Internet sweet spot. But Internet venture capitalism is not a segment so easily conquered. Naik, though highly complimentary of the shop, will only go so far as to put the firm on a level with Kleiner and Benchmark. “It’s a little blurry,” the First Albany analyst says. “You can’t really put one ahead of the other two. They’ve all had enormous hits.”

Steve Harmon knows the volatile world of Internet investments as well as anyone. Harmon is a senior investment analyst for Internetcom, the author of the Internet Stock Report and the creator of the Internet Stock Index. To him, Kleiner is still the team to beat. He points to Kleiner’s building the @Home Network (now Excite@Home) from scratch into a $10 billion entity, something, he says, no other VC firm could pull off. “Kleiner is definitely the gorilla. Benchmark is aggressive but they haven’t proven it beyond eBay. Kleiner has Netscape, Amazon, Halcyon. Nobody’s come out with as many winners. With Kleiner you’re talking about at least six. With CMGI, you’re talking about two, Lycos and GeoCities. With Benchmark, you’re talking about eBay. Kleiner’s in a league of its own. Half of Silicon Valley has come through Kleiner Perkins”

So while CMGI has no shortage of business plans crossing partner desks, when it comes to the big ideas–the ones from the minds of proven entrepreneurs–the firm often finds itself among the also-rans along with a revolving list of the usual suspects: Kleiner, Benchmark, Softbank Technology Holdings and Paul Allen’s Vulcan Ventures.

Increasingly, the upstarts also see a target in CMGI. Take the freshly minted Odeon Capital Holdings, which was formed last December and has since signed seven Internet firms to a $12m portfolio. Odeon, which doesn’t invest very far from its New York base, hasn’t seen CMGI in any competitive situations yet, but partner Jeffrey Finkel says he’s ready. “They’re doing some good things, but they don’t have a patent on those ideas,” says Finkel. “Softbank started the keiretsu concept; even Kleiner Perkins before them. Many of our companies have similar attributes and collaborate with each other, share information, leverage each other’s skills for the greater good. There’s a lot of cross-collaboration between our properties, too”

To counter the big VC brands and upstarts alike, for the prize investments, CMGI is falling back on its core competency: marketing.

CMGI has succeeded wildly in the media. Troll through the firm’s press clippings and you’ll see that CMGI’s PR department has scored innumerable hits in publications as integral as Upside and The Red Herring, as well as in/on Time and CNBC. Most tech and business publications cover their every move, and CEO David Wetherell seems to be on everybody’s list of the top tech CEOs. The Industry Standard recently named him the second most influential tech investor behind only Bill Gates.

Many of the other major VC players, Kleiner and Benchmark included, are privately held companies without PR staffs. The @Ventures group is a limited partnership, like its chief competitors. But it’s part of a publicly held firm, which it leverages both in megadeals like with AltaVista and in generating PR.

Callaghan describes the Internet VC world as “extremely competitive.” He notes that having success stories like Lycos and GeoCities to tout has helped the company tremendously in signing up the hottest Internet commodities that crop up.

“The good teams are looking out for us,” he says. “That will improve the quality of the investments we make going forward. But we’re seeing a lot of competition for those investments. A lot of the old line venture firms are getting into this game, some later stage funds, some hedge funds, a lot of people that weren’t there at the early stage of the market”

But the CMGI PR and marketing machine is ready. PowerPoint slides from an internal presentation detail the company’s plans to raise the profile of and generate buzz about @Ventures and its portfolio companies. The goal, a slide asserts, is “Maintain[ing] perception as the fund of choice for emerging web companies and talented entrepreneurs.”

That’s happening now.

Advertising is next–in The Red Herring, Upside and The Industry Standard as well as The Wall Street Journal, San Jose Mercury News and The Boston Globe. The company, as much as it likes to distance itself from the Sand Hill Road clique of VCs, even touts its participation in the Sand Hill Road Rally, a charity event cum soapbox derby.

But the news hasn’t always been so good for CMGI and its @Ventures unit. In late 1996, when the company was still basking in the glow of the Lycos IPO, it had its first, and by most accounts only, major stumble: Freemark. The Freemark story is worth noting because it not only stands out as a major black mark but also shows CMGI’s clumsy handling of the dissolution. The direct marketing experience, which has otherwise served the company well, proved no help at all with Freemark. In fact, it may have been a detractor, in that CMGI didn’t acknowledge the inherent differences between DM and the Internet.

Freemark was a proprietary, free email service, similar to Juno. CMGI began investing in the startup in 1994, but it wasn’t until October of 1996 when the service became available. By Dec. 1, CMGI pulled the plug, shutting the company down after it had amassed just 50,000 subscribers, compared to its rival, Juno, which had nearly a million at the time.

Freemark had marketing deals with Citibank and several college alumni associations; it had as many as 50 advertisers lined up including The Wall Street Journal, The New York Times, Wired, Life Savers and Campbell’s Soup. But it never had the right execution.

Vin Crosbie, the former director of content development at Freemark, now runs his own new media consulting company, Digital Deliverance, in Greenwich, Conn. He says the responsibility for Freemark’s failure rests more with its own management than with CMGI. Most of its financing (of which CMGI provided half, or $8.5m) was spent in the two years it took to develop the business, he says.

Meanwhile, he says, Juno had $20m to play with and a commitment for up to $100m from its chief investment backer, D.E. Shaw. When Freemark went to CMGI looking for more money, CMGI decided to cut its losses and shut the company down. That, Crosbie says, is where CMGI went wrong.

Crosbie doesn’t blame them for not wanting to invest more money, but he claims that Freemark presented a proposal to keep the service running at a bare bones level for $25,000 a month until a buyer could be found, but CMGI wasn’t interested. Instead, it pulled the plug, thinking it could sell a list of 50,000 spurned email users after the dissolution. Of course, the 50,000 subscribers were gone for good at that point. As soon as the firm shut down, they all ran out and got new addresses.

Indeed, CMGI missed all the signs when it came to Freemark–exposing a great irony: While the firm had invested $5m into an email service, it knew almost nothing about the category. “They left 50,000 subscribers without email,” Crosbie says. “They came from the direct marketing world and were used to selling subscriber lists and thought they’d just be able to sell this one like all their paper lists.

“They blew it and just shut it down,” he continues. Mail.com “eventually bought the domain and brand, but the list was worthless”

Callaghan was not directly involved with Freemark and won’t comment on the specifics–but attributes the failure mostly to timing. Freemark didn’t have the right management in place and the technology was early. “We learned a few lessons from that. We didn’t have the right team and we were probably a little too early with the technology,” he says. “Market timing is important We live that everyday. And we have to be good judges of the team we have in place and the technologies required to win”

Crosbie agrees–to a certain degree. He says executive management came from the pre-packaged software world and couldn’t understand the concept of letting customers download the software. Instead, they insisted on mailing diskettes with unique registration numbers, like off-the-shelf software. Lycos and GeoCities would run banner ads for Freemark that linked back to Freemark’s site, but users still couldn’t download the software.

However, Crosbie disagrees vehemently with Callaghan’s suggestion that Freemark was early. “That’s a good way of excusing themselves, but in this industry, being first to market is the most important attribute of success” he says. “They just didn’t understand the email stuff. If it was too early, then why is Juno still here? They didn’t realize there was room for two in that market.”

Crosbie says Freemark was working on content deals that would have enabled it to deliver news, sports, weather and other information to subscribers’ inboxes, similar to what InfoBeat has done. CMGI “never understood what it had,” he laments.

Yet Crosbie concedes that this isn’t the same CMGI today. “They didn’t have as many companies in their portfolio then,” he says. “They have more support now and more cross-marketing opportunities.”

When all’s said in done, nowhere is the cult of failure stronger than in the venture capital world. Does CMGI regret Freemark? Probably not. As long as the company has learned from the experience, as Callaghan suggests, it was probably a worthwhile investment.

So where does CMGI go from here? It should make some waves when it debuts its ICast site in the fall. ICast will be CMGI’s foray into the Internet broadcasting medium, providing interactive audio and video. Judging by some of the talent CMGI has assembled for ICast, it’s going to be a serious foray.

The company is partnering with Neil Braun, the former president of NBC. Braun will be ICast’s CEO while Matt Farber was hired away from MTV to be evp and GM. Farber, an eight-year veteran of MTV, is credited with bringing MTV online and was most recently the evp of MTV Online.

Though the startup will be a part of CMGI’s Internet group, not @Ventures, it will offer further partnership and cross-collaboration opportunities for the @Ventures companies. Beyond that, look for more IPOs, sales and acquisitions involving both the @Ventures and Internet properties. The AltaVista acquisition will likely speed that process.

There will be more success stories and possibly some not so successful stories. Harmon insists there’s some dead wood in the @Ventures portfolio. One certainty is that CMGI will continue to move farther and farther away from its direct marketing origins. SalesLink, which provides online and offline marketing and fulfillment services to retail and tech companies–sexy stuff like product distribution, supply chain management, customer service and statistical reporting–is the only entity left in CMGI’s direct marketing group.

Even if CMGI becomes a 100 percent Net company, it will continue to apply the lessons learned from DM to its investments, its majority and wholly owned Net subsidiaries like AltaVista, and in positioning itself in an increasingly crowded, competitive VC market. In five years it’s gone from the sleepy world of direct marketing to becoming not only a major player in the Internet, but a driving force behind continued growth of the Net.

“I’ve been saying for so long that we’re only in the first inning of a nine-inning game. Maybe now I’ll say it’s the second inning,” says Callaghan. “In any case, we’re not too deep into it. With both our strategic and capital resources, our approach is long-term.” And it had better be. While CMGI has had its successes in the Internet investment space, success hasn’t translated into operating profits. All of the Net companies CMGI has invested in remain in the red.

The question is not whether the profitless phenomenon will change, but when. The biggest knock on CMGI’s fiercest competitor, Kleiner Perkins, is that the company is great at bringing investments public at insane valuations, but horrible at helping them become successful companies. That’s because Kleiner understands investment banks and the Street, but seems to have little knowledge of real people. Which is where CMGI’s marketing and communications expertise should help the firm compete. In the end, profits matter. But they’re impossible to achieve without a sound understanding of how to communicate in the marketplace.

Most businesses have failed to learn from all the other competitive disciplines before them. You fight one competitor at a time, and you develop a strategy that beats competitors one at a time. There is no competition – there are only competitors.

I tried to understand why so many businesses fail to build competitor-specific strategies. I believe this is based on three reasons. First is the real lack of strategy at the brand level. I believe that while strategy is widely employed in plotting the future of the firm in terms of what businesses to buy, what countries to enter or what resources to own, little strategic attention is given to how one brand will beat another brand in the market.

If strategy is the way a brand endeavors to differentiate itself positively from its competitors, using its relative strengths to better satisfy customer needs, then the brand manager must know the strengths of each of the competitors. In many cases, brand-level activity is just planning and not strategy. Planning is specifying exactly what you intend to do next year (or for any other time period). Strategy is specifying how you intend to beat a competitor.

Most of what I have experienced at a brand review is telling the company what the brand manager intends to do and how much it will cost. I sincerely believe that the review is more for financial planning (which is critically important) than for specifying how companies will beat each competition. In many cases the plans present a “hockey stick” forecast. You know the scenario: Sales have been going down for the past five years, but next year we plan a 5 percent increase in sales by doing more of the same thing we did in the past five years.

The second reason for a lack of brand strategy is the impact of America’s downsizing efforts. The front-line marketers just don’t have the time or money to devote to determining how to win the war. They are too busy trying to win the war.

Finally, the third reason is that most brand marketers are not really trained and educated in strategy. I know that most brand managers have MBAs from leading schools, but keep in mind that an MBA is by definition a general degree.

The military and sports groups have an advantage over business. The military have the war colleges where candidates are brought in and told, “Beginning today you will no longer fight the wars, you will determine how the wars will be fought.” And sports teams have coaches. Their only duty is to decide how the game will be played, and they leave others to play the game.

The distinction is less clear in business. In fact, in business we frequently see top executives rolling up their sleeves and getting into the battle. Some executives have told me they don’t feel productive unless they are out in the field selling.

I might add that in the military, most officers start out learning how to fight a war, and in sports most coaches have been players. But in business, many brand managers actually brag that they never had to do any selling. They moved straight from their MBA to brand management, especially if they came from a well-known school.

I have also seen some really good competitive strategy. I once worked on a project for Campbell Soup Co. – during the Gordon McGovern era – where I was given the results of the past two years for CSC and the key competition. I was asked to create the plan for the next year for the competitor as I thought that company would do it. Campbell then used the possible competitor’s reactions as input into its strategy.

I also worked with another company that played war games. One side was assigned to be a competitor and was asked to develop a plan to beat the host company. No one wanted to be the enemy because it meant they had to articulate the weaknesses in the host company, which everyone is loathe to do.

To win the marketing wars, food companies must again make out-thinking the competition the path to success. Out-spending or just putting your head down and charging straight ahead will lead only to lower profits and lost opportunities from potentially successful products.

Let me make a couple of recommendations. Insist that a clear strategy exist for each brand, and write it down. Make sure everyone can recite the strategy. I once visited a Wal-Mart on a best practices tour. Before the tour the assistant store manager met us and said he wanted to share with us the Wal-Mart strategy, and then his store strategy, so that we could understand why they were doing the things they did in the store.

In another example I was at an advertising review. The senior vice president came in and said, “Let’s begin. Where’s the strategy?” The brand manager started to recite the strategy and was rudely interrupted by the vice president. “Do you have a written strategy statement?” he asked. “No,” replied the brand manager. The meeting was canceled, and the brand manager was fired shortly thereafter. The vice president could think of no action worse than planning a tactic without the strategy.

Make sure everyone spends time understanding what the competition is doing and why. Try to emulate Gen. George Patton, who said, “I have studied the enemy all my life. I have read the memoirs of his generals and leaders. I have even read his philosophers and listened to his music. I have studied in detail the account of every damned one of his battles. I know exactly how he will react under any given set of circumstances. And he hasn’t the slightest idea of what I am going to do. So when the time comes, I’m going to whip the hell out of him.”

Have regular post-mortems on past marketing programs, both winners and losers. Learn what has been successful and what has failed. Develop an analysis of the tendencies of each competitor.

Food companies must make total understanding of the competition an essential part of the brand activity. Plans must include specific statements of how the brand intends to beat a competitor – not “the competition.” Brand managers must get back to deciding how the marketing wars will be fought, and let the fighting take place in the market.

A key to understanding the power of exclusivity can be found in a statement by database marketing consultant Fred Newell in Discount Merchandiser (September 1998), “Marketers must learn to understand customers and customers’ perceptions of value.”

Collectors are willing to pay anywhere from $10 to $50 annually to “join a club” (i.e. put their names in a database), because they get something with a very high perceived value. This usually includes an exclusive “gift” – a doll, bear, or other collectible item that nonmembers can’t get – as well as newsletters, membership cards, buttons, posters, catalogs, the opportunity to purchase special “club edition” pieces, hats, T-shirts, or jewelry, and to attend special club events. These are all items and benefits that don’t cost the marketer a lot, but have a high value to the collector.

Many of the clubs benefit retailers by requiring members to redeem certificates for the club edition pieces at a retail store. This not only gives the retailer a cut of the selling price, but also brings highly qualified buyers into the store, where they will undoubtedly buy other items of similar interest. Club newsletters also provide news about store events and new merchandise. Some include reports on secondary market prices for items no longer available at retail that have held their value or appreciated, thus increasing the perceived value of current merchandise.

Making A Connection With Collectors

Collector clubs are offered by a huge variety of collectibles marketers from Beanie Babies[R] to Waterford[R] crystal. A good example is Steiff, a German company known for its high-quality, hand-sewn mohair bears and animals since the 1880s. The Steiff club has a worldwide membership of over 40,000. The $50 annual dues include a tiny 3-inch bear in a different color each year, a quarterly newsletter, a product catalog, a membership card, and certificates to redeem at their favorite Steiff retailer for special club pieces in the $300 to $500 range.

Retailers can hold Steiff events for local club members who are also encouraged to bring prospective new members. The Steiff Club president and a sales representative usually attend these events, announcing upcoming products, giving away door prizes, and offering exclusive event pieces. Collectors share pictures and information on their collections and sometimes bring older pieces for appraisal. The amount of new merchandise moved by the retailer during one of these events is staggering, especially when you consider that most Steiff animals sell for between $100 and $500.

Collectors of Bill Younger’s Harbour Lights[TM] lighthouse sculptures can join the Harbour Lights[TM] Collectors Society for $30 a year. Some 25,000 worldwide members receive a special lighthouse sculpture as a gift, a binder to hold a quarterly newsletter, a membership card and certificate, and certificates to redeem for exclusive club pieces at a retailer. Harbour Lights[TM] also conducts store events where people line up to have special event pieces and other purchases signed by Younger or his associates.

The Madame Alexander Doll Company, the only major doll maker that still manufactures most of its dolls in the U.S., has a 12,000 member collectors’ club. Though it is an independently operated club, authorized by contract with the company, it could be a lot more beneficial to the company than they seem to realize. When sales began to flag after Madame Alexander herself died in 1990, it took several years and a bankruptcy to convince the company to listen to collectors who were trying to tell them what their problems were. The company could have mailed detailed questionnaires to the 12,000 club members for the cost of bulk rate postage and conducted a highly responsive market research study.

Unfortunately, most collectibles marketers don’t fully realize the value of these clubs as marketing databases. Members often complain they don’t get their orders filled promptly, their problems handled in a cheerful and timely manner, or product announcements and other news when it’s current. Renewing memberships and receiving club gifts and newsletters is often a difficult process as most companies don’t have sufficient personnel to handle the clubs. This is strange considering that members are actually paying the costs of the program. At $50 per person, the Steiff worldwide membership of 40,000 provides a $2 million annual budget that should adequately cover the cost of the small bear, communications, and program administration.

The Harbour Lights[TM] worldwide membership of 25,000 provides a healthy annual budget of $750,000 with its $30 dues. But despite often poor service, the exclusivity factor is extremely powerful. Collectors continue to join every year, paying their dues faithfully, simply because they can’t get these benefits anywhere else.

Lifetime Advocates

What are the benefits collectors’ clubs offer collectibles marketers? First, they have a database of people who not only want to buy their products, but eagerly await the tiniest tidbit of information about them. All they have to do is announce a new product and many will say, “I want it.” They are guaranteed that a large, or at least a consistent, percentage of this database will buy.

Second, they have a ready-made market research database. They can simply ask club members what they think about current products or what new products they would like to see and members will be happy to tell them. They don’t have to recruit people or pay them to attend focus groups or return surveys. Club members are waiting to tell marketers what they like and don’t like, what they want and what they will buy.

Third, they have a group of “advocates.” People who join these clubs are always talking to their friends, family, and co-workers – even strangers who are willing to listen – about their collections. They will wear t-shirts and pins bearing the marketer’s name. And they will bring in more new customers and club members than all the advertising marketers could ever do. All for free!

Finally, the Lifetime Value of these club members is astounding. They are intensely loyal over time. Many have collections built over a lifetime and even as a continuation of a parent’s or other family member’s collection. They often spend hundreds, or even thousands, of dollars a year on their collections and even more on gifts for other collectors.

In Newell’s Discount Merchandiser article, he also pointed out that marketers don’t have to “buy” valuable customer information with discounts. In fact, none of the collectors’ clubs offers a discount on merchandise to their members! Rather, they offer something exclusive that appeals to their core customers. It’s something customers pay for, but its exclusivity gives it a greater perceived value than the monetary price they actually pay. It also makes them feel they have a special priority to the company – not just anybody can get this “exclusive” deal.

This approach can be adapted in some form for almost any business. It’s a lot like the loyalty programs that are currently popular, but emphasizing exclusivity can take it a step further. Try offering a special edition of your most popular product, a special product or service not offered to the general public, a newsletter with valuable information, password access to a special Web site, or an event that showcases exciting new products and announcements. Set up selling and servicing processes that are exclusive to and convenient for your best customers. Listen to their complaints and requests – and give them what they ask for. They will be much more likely to sign up for these exclusive benefits than to simply provide information for your database. (A cashier in a national retail chain store once asked for my phone number and when I told her I don’t give it out, she said “Don’t you want to be in our database?” With no benefit being offered, I said no.)

Exclusive benefits with a high perceived value have even been shown to outperform cash incentives or price discounts and they cost the marketer less. They might even get your customers to pay you to put their names in your database!