Why Internet bubble 1.0 isn’t like the current market from a PR perspective

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VC and pundit Andy Kessler apparently said that ‘history doesn’t repeat, it rhymes’ and for most PR agency people this time the current crop of web start-ups are a discordant verse of haiku.

  • There isn’t a belief that the laws of economic gravity have been suspended (though you could argue this one, with sites like Tape It Off The Internet (TIOTI) not coming under the cosh of big media). The bootstrap mentality of most of these organisations
  • There are no longer incubators like Jelly Works and Oxygen throwing out a raft of businesses (most of which were delivered stillborn), instead the cost of implementation is a lot cheaper and the business may not require external funding until it seeks to go international or needs to scale to match success. However, MyBlogLog with its purchase some five months or so after it was launched does have some incubation traits
  • With the exception of some notable examples like Jobster, start ups are looking to get funding well below 10 million USD The role of venture capitalists have changed from being the money man to being super connectors. I even heard one VC say that allowing his firm in on a deal would give ‘companies all the PR they need’ by nature of being involved with their high-profile firm
  • Conversations that I have had with a number of start-ups have indicated that they are unlikely to use PR as part of their marketing mix
  • Sarbanes Oxley means that for most investors an IPO isn’t an exit strategy, so companies only need enough visibility to get on the radar of the corp. dev. teams at Google, Yahoo! or Microsoft
  • You can register with TechCrunch to give them the skinny on your business without using PRs as an intemediary and the self-confidence of entrepreneurs will allow them to believe the awareness will suddenly come from their blog

With the exception of bandwidth and pizza-box servers there isn’t the same financial feeding frenzy that accompanied the last bubble, management consultants are left to sharpen their pencils as these start-ups follow what is effectively a fast-failure model. Players like Sun have had to rearchitect their offering to an even lower price in order to engage with this new breed of internet entrepreneurs and Amazon’s S3 service allow with Yahoo’s UI API library have allowed entrepreneurs to treat infrastructure as a utility. The media that really matters is not a sophisticated business magazine like The Industry Standard or Red Herring, but micro media often ran by individuals like John Battelle or Michael Arrington.

Venture capitalists are still searching for places to throw their funds under management (whether its viable or not) because the demand from the web is not enough, hence the new focus on green energy and the biosciences: both of which are much more capital intensive.

What does all this mean for PRs?

Well, we will make money as we (and our current clientbase) adapt to the new web realities of a super fragmented media and real-time direct customer interaction, there may even be incremental budget increases to somewhat compensate for the frozen budgets and billing rates that haven’t increased in a decade.

However we are likely to be fought every foot fo the way by advertising agencies and marketing agencies eager to claim this ground for themselves. Soon, probably sooner than many people think an evolution in PR will happen, rather like the way PR adapted to the move from sending out press releases by post to fax blasts and on to email.

There will be few opportunities for working with web 2.0 companies in general, though this may change if they require crisis communications.

I personally think that real opportunity for PR over the next decade will be in brand communications. We have marketing money being poured into transactional marketing, this is based on price. The price of Google Adwords and the price of getting pace on shelf or on web page. With transactional marketing comes less perceived differentiation and lower margins.

Online communications, alongside product and packaging design allows customers to build up a rapport with a brand unencumbered by the media and reduces cognitive dissonance by providing consumers to build their own ’support networks’ through a community of like-minded users. I already have access to this, through the support forums that Apple and Nokia host when I go and look for support information on my MacBook Pro, or my Nokia e61. Companies seem to see things that way themselves with IT directors emphasising the role of web 2.0 as a way of interacting with customers and providing automation. It’s going to be an interesting time.