TIME EUROPE
June 12, 2000 VOL. 155 NO. 23
The Game of the Name
The struggle for Web dominance shows that brands matter just as much in the new economy as in the old
By THOMAS K. GROSE London
In a world already crowded with Internet service providers, chello broadband is trying to become a global player. That's a tough, though understandable, goal because global brands are likely to dominate the Web. And Amsterdam-based chello has more going for it than just a clever monicker. It's among the first European isps to offer superfast broadband connections via cable TV lines. As well as being quick, Broadband greatly enhances a computer's ability to download images, music and video. But if chello is to succeed, it may end up relying more on its cute name than its technological prowess, because brand building, and the marketing behind it, are essential to online success.
"Branding is just about the be-all and end-all at this stage of the Internet's development," says Ken Olisa, chief executive of Interregnum, a London IT marketing specialist. Chello certainly seems to think so. It's expected to float 10% of the company in an initial public offering this month, and its prospectus calls the creation of a strong brand "a key element of our strategy." Indeed, it spent $32.8 million in 1999 on marketing and sales, or nearly five times its earnings of $6.8 million.
That spending worries Philip Scholte, a telecoms analyst at Van der Hoop Effektenbank, an Amsterdam brokerage, but he understands the rationale behind it. So far chello has 180,000 subscribers in Europe, Australia, New Zealand and Chile, but it forecasts more than a million by the end of 2001. "It has to add a lot of customers and quickly," Scholte says. "There's a lot of competition out there and branding is important." Swedish management consultant Kjell Nordström explains why: "In the virtual world ... brands are uncertainty reducers. People will pay a lot to reduce the uncertainty in their lives. And there is no part of society where brands can play a bigger role than on the Internet, because the Net has so many unknowns."
The good news for fledgling European e-brands is that research by London consultant E-Insight Group shows that Net brands that become household names, like Freeserve and Yahoo!, quickly gain consumer trust. The bad news is, building brand recognition is costly and difficult — and becoming more so. One problem for European business-to-consumer e-brands is that important areas of online real estate are already occupied by American trademarks. "Everyone knows Amazon.com, but who is second?" asks Alexander Drobik, vice president for e-business transformations at consultant Gartner.
Moreover, too many European competitors think too narrowly, in national terms, boxing themselves in by language and culture. Katia Verresen, a Frenchwoman who heads the London office for American venture capitalists Garage.com, says she sees "people [in the U.K.] who want to go pan-European, but use an English name" that is meaningless in other countries. "And the French and Germans and Dutch all do the same," by using names that don't translate well. That reduces a site's ability to win good word-of-mouth universally, an important element in brand building.
Internet companies have become popular brand names in a matter of months thanks in large part to overexcited media coverage. British travel-entertainment service lastminute.com came out of nowhere in late 1998 to become a headline hog. It's now one of Europe's best-known websites. But, says Vic Morris, a partner at Atlas Ventures, "It's incredibly difficult to do that now. You're not only competing with other start-ups, but with competitors that already have brands." As Europe's e-economy heats up, overnight sensations will become rarer as media ennui and public skepticism increase.
Near-instant branding can still be done, but at great cost. In the U.S., top names spend up to $100 million on marketing, and Europe is becoming just as dear. Moreover, fame can quickly become infamy. Lastminute.com's share price has sunk around 65% from its offering price, while investor apprehension over the profit potential of many dotcoms has brought turmoil to the entire tech sector.
Many dotcoms want to grab as much market share as possible now, before traditional brand powerhouses become more Net-savvy. Analysts believe that if top retailers — like Tesco and Ikea and Porsche — figure out how to use the medium, they may yet muscle their way into online superstardom, leveraging their already large and loyal customer bases. That's especially true in Europe, Morris says, where older brands "have the advantage of having seen what mistakes their counterparts in the U.S. made" in fending off dotcoms. Still it won't be easy. Traditional companies must learn to meet Internet customer demands for faster, efficient deliveries and value-pricing, while becoming more nimble decision makers. No doubt, global names will rule in cyberspace. But old or new, those brands that become online kings will be enthroned because of hard work and skill, not divine right.
Click here for more technology news from Europe, the Middle East and Africa. And watch for TIME's E-Europe special report next week
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June 12, 2000
SPECIAL REPORT
French Connected
Despite a legacy of state control, and an archaic political leadership, France is thriving — and modernizing — in the face of global competition
EUROPE
The Victory Lap?
Europe toasts Clinton one more time, but the Atlantic relationship is showing strain
Soft Power Politics
Europe and the U.S. must seek a world beyond winners and losers
Battle of the Basques
Political inertia combines with disunity and distrust among Spain's national and regional security forces to play into the hands of the terrorist group ETA
Expensive Exposure
Hanover hopes Expo 2000 will put it on the map. It surely will, but the price of publicity will be high
Lights, Camera, Shoot!
Police disguised as a TV crew trick a man to free children and teachers held hostage in Luxembourg
AFRICA
Reliving Apartheid Horrors
The trial of a South African cardiologist accused of murder reopens old wounds
BUSINESS
Ad Land Goes Cyber
Virtual agencies are using the Web to create campaigns in record time, and without the bureaucracy
The Game of the Name
The struggle for Web dominance shows that brands matter just as much in the new economy as in the old
The Wide Blue Yonder
Giant airships could become commercially viable again six decades after the Hindenburg disaster
Battle Below the Belt
Designer Calvin Klein goes to court claiming a business partner is destroying his brand's image
SOCIETY
Tangled Webs for Sale
Planning a tryst or a day at the races away from the boss? A Scottish firm can cover your tracks — for a fee
THE ARTS
Recreating a Jewel
Egypt has built an updated version of the fabled Bibliotheca Alexandrina, but its commitment to intellectual freedom remains an open question
Thandie Makes It Possible
Her mission: to help make M:I-2 the hottest movie of the season. But first she tells you about Hollywood stupidity (and Tom's unusual sense of humor)
The Daily Courage
Journalist Benjamin Pogrund let the facts speak for themselves, no easy task in apartheid South Africa
DEPARTMENTS
Essay
To Our Readers
World Watch
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