Barnesandnoble.com unveiled a new weapon this week in its come-from-behind battle against Amazon.com: viral marketing.
In the short term, its new program "MybnLink" is likely to swell the number of customers at the bookseller's Web site, which is the whole game now for companies on the Internet. Over a broader horizon, however, Bn.com might find that, just like in the real world, viruses are impossible to predict and control.
Here's how MybnLink works: You send your mother an e-mail telling her you just read Thomas Harris's new novel, "Hannibal," and that she'd love it, too. You include a link on your e-mail to the Bn.com Web site. If Mom follows the link and buys the book, you get a 5 percent commission. If she buys anything else while she's there, you get 5 percent of that, too.
It's called viral marketing because the e-mail is doing the work of advertising for the bookseller, spreading with the ease of a virus. Perhaps your mother will e-mail others with recommended books, who will in turn e-mail dozens more. Meanwhile, Bn.com keeps track of how much commission everyone is making, and will cut you a check every quarter--or directly donate it to one of five charities instead.
MybnLink would cut seriously into Bn.com's profit margins, assuming it was making a profit. That copy of "Hannibal" is already selling for only about 50 percent of the list price, a level that was reached during the last skirmish in the online bookstore battle. But the book cost Bn.com about 52 percent of the list price. MybnLink widens the loss.
For the moment, however, that's considered irrelevant. What counts is "customer acquisition."
" 'Hannibal' is $14. Five percent is 70 cents. So our cost of acquiring your mother is 70 cents," says Bn.com chief executive Jonathan Bulkeley. "We just got a new customer, and we'll try to make her a long-term customer who will buy other books, and not just those at 50 percent off."
But maybe Mom really likes saving that extra 5 percent. If so, as Bulkeley is the first to admit, the system is open to manipulation.
"I'll point out the dark side," he says. "You can e-mail yourself and get the discounts yourself. The purpose of the program is not that, but if it allows us to keep you as a long-term customer, that may not be a bad thing."
Amazon, whose book sales exceed Bn.com's by at least 8 to 1 and which has traditionally been the first to offer innovations in this marketplace, didn't return a call for comment.
The most famous example of viral marketing in the Internet's brief history--indeed, the firm that gave birth to the term--is Hotmail, an e-mail service that was started three years ago and had 12 million subscribers with 18 months.
That's faster than any publication ever, online or off, all due to one simple sentence at the bottom of every e-mail sent by every Hotmail user: "Get Your Private, Free Email at http://www.hotmail.com." Hotmail was sold to Microsoft Corp. for $400 million at the beginning of last year.
The concept came first; the name came later. Tim Draper, one of the venture capitalists behind Hotmail, brainstormed the term with his partner Steve Jurvetson. "Viruses always had this bad connotation," Draper says. "We thought this was a good virus."
Almost as soon as viral marketing was widely publicized as a concept--Harvard Business School professor Jeff Rayport, writing in late 1996 in the magazine Fast Company, gets the honors here--it was denounced.
"Alas, the only trend here is new terminology, and a new medium in which to apply it," wrote Michael Sippey in an online critique. "V-Marketing has been around in one form or another for ages. Some social scientists call it memetics. But in most traditional marketing circles it is called simply 'word of mouth.' "
Agrees Draper: "There's really no difference between word of mouth and viral marketing. But this spreads faster than word of mouth. I can make 30 phone calls in a day, but I can send 200 e-mails."
Draper and Jurvetson funded other companies that use the viral approach, including Net Zero, a company that provides free Internet access, and Third Voice, which allows users to post comments on Web sites.
"The business model is pay to get the customers, because once they're customers, you can hold them and create a lot more value later," Draper says. "Given there are maybe 150 million people on the Web but 6 billion people in the world, you want to be a market-share leader as the Web starts to evolve."
The downside, he says, is "You can give away too much. That's where you play around with your spreadsheets. Figure out how much you can give away, and give away just short of that."
MybnLink may be on the wrong side of the line, says Forrester Research analyst David Cooperstein. "It's a good idea, but they've overblown it. This is viral marketing at its worst, because everyone gets a little payment--the 5 percent discount--for spreading the word. Viral marketing is not something a company should pay for. That's the whole beauty of it."
For the moment, Bn.com is willing to pay that price. And in the long term, if the customer gains, because he gets books a little cheaper, and Bn.com gains, because it increases its revenues, who loses?
Ultimately, investors do, suggests San Francisco Web consultant Larry Shafer. "Barnes & Noble management is saying, 'We'll give you as much discount as possible to make a sale happen, because we're being judged on revenue. We have to keep our growth so we don't look silly compared to Amazon. So we're going to sell books at cost.' But eventually the bubble will burst, and Wall Street will demand these companies stop losing so much money."
So far, Wall Street has been underwhelmed by MybnLink. Yesterday Barnesandnoble.com closed at $18.81 1/4, up 75 cents.