Who is able to complete this discussion question?

Chapter 15

Keegan, W. J., & Green, M. C. (2020). Global marketing (10th ed.). Retrieved from https://www.vitalsource.com

15 Global Marketing and the Digital Revolution

Learning Objectives

15-1 List the major innovations and trends that contributed to the digital revolution.

15-2 Define “convergence” and give an example.

15-3 Define value network and explain the differences between sustaining technologies and disruptive technologies.

15-4 Identify current trends in global e-commerce and explain how global companies are expanding their presence on the Web.

15-5 Explain the key issues facing a global company when designing and implementing a Web site.

15-6 Identify the most important new products and services that have been introduced in the past decade.

Case 15-1 How Do You Like Your Reality? Virtual? ­Augmented? Mixed?

Every January, tens of thousands of tech enthusiasts and journalists converge in Las Vegas for a trade show known as International CES. There, attendees test out the hottest tech gadgets and get briefed about the latest industry trends. For the past few years, virtual reality (VR) headsets and software have been among the most buzz-worthy new products on display. (Artificial intelligence [AI] has also generated a lot of buzz at CES.)

Many different companies, including well-known tech giants, have showcased their wares at CES. For example, Facebook demonstrated the $600 Oculus Rift at the show. Sony’s VR entry was the PlayStation VR ($400); Samsung’s offering was Gear VR. Among lesser-known brands, the HTC Vive ($800) and VR units from Tsinghua Tongfang have also been introduced at CES.

To fully appreciate the VR experience, users don goggles and hold a set of handles. Then, in an area equipped with laser sensors, they are immersed in a 360-degree virtual world (see Exhibit 15-1). That world can be anything from the bottom of the Indian Ocean, where a person might come face-to-face with a shark, to the top of Mount Everest.

Advocates believe that a new user interface is on the horizon, and that VR and augmented reality (AR) have the potential to replace our phones, our TVs, and our desktop computers. But there’s more! Have you heard of “mixed reality” (MR)? Some industry experts have even started using terms such as “personal reality” and “preferred reality” (PR) to describe this new experiential world. To find out more about the opportunities and challenges facing companies marketing and activating immersive technologies and the potential uses of VR, AR, and variants such as MR, turn to the continuation of Case 15-1 at the end of the chapter.

VR and AR are just two examples of the way that the digital revolution is driving the creation of new companies, industries, and markets. It is also contributing to the transformation—and, in some cases, the destruction—of companies, industries, and markets. In short, this revolution is dramatically transforming the world in which we live. As the digital revolution gains traction and picks up speed, global marketers will be forced to adapt to an evolutionary world in which cell phone tablets and other mobile devices play an important role.

This chapter appears after the five-chapter sequence devoted to the marketing mix. Why? Because all the elements of the marketing mix—the four Ps—converge in the world of Internet connectivity and commerce. For example, the product (P) includes Facebook, Google, Pinterest, Snapchat, Twitter, Wikipedia, and the myriad other Web sites that can be accessed worldwide. The Web also functions as a distribution channel, and a very efficient one at that. Case in point: iTunes, Pandora, Spotify, and YouTube are rewriting the rules of music and video distribution.

The Internet has also become a key communication platform. Today, almost every company and organization has a presence in the online space. The Internet can be used as an advertising channel, as a public relations (PR) tool, as a means for running a contest or sales promotion, and as support for the personal selling effort.

Finally, there is price. Comparison-shopping Web sites make it easy to check and compare prices for products and services. Moreover, the marginal cost of storing and distributing digitized products—music files, for example—is practically nothing. This has led to some interesting pricing strategy experiments. For example, Radiohead, the innovative rock band from Oxford, England, was one of the first to harness the efficiency of the Web by offering free downloads of its 2007 album In Rainbows.

We begin by briefly reviewing the key innovations that served as precursors to the digital revolution. In the next two sections, convergence and the disruptive nature of Internet technology, and their effects on global companies, are discussed. Key e-commerce issues that face global marketers are then examined. The discussion continues with an overview of Web site design issues as they pertain to global marketing. The final section of the chapter examines some of the products and service innovations that are driving the digital revolution.

15-1 The Digital Revolution: A Brief History

15-1 List the major innovations and trends that contributed to the digital revolution.

The digital revolution is a paradigm shift resulting from technological advances that allow for the digitization (i.e., conversion to binary code) of analog sources of information, sounds, and images. The origins of the digital revolution can be traced back to the mid-twentieth century. Over a five-year period between 1937 and 1942, John Vincent Atanasoff and Clifford Berry developed the world’s first electromechanical digital computer at Iowa State University. The Atanasoff–Berry Computer (ABC) incorporated several major innovations in computing, including the use of binary arithmetic, regenerative memory, parallel processing, and separation of the memory and computing functions.

In 1947, William Shockley and two colleagues at AT&T’s Bell Laboratories invented a “solid state amplifier,” or transistor (the term was coined by information theorist John R. Pierce). This was a critical innovation, because the vacuum tubes used in computers and electronics products at that time were large, consumed a large amount of power, and generated a great deal of heat. Shockley and his collaborators John Bardeen and William Brattain were awarded the Nobel Prize in physics in 1956 for their invention.

In 1948, a Bell Labs researcher named Claude Shannon wrote a technical report titled “A Mathematical Theory of Communication” in which he proposed that all information media could be encoded in binary digits, or bits. Eight years earlier, in 1940, Shannon had argued in his doctoral dissertation that the logical values “true” and “false” could be denoted by “1” and “0,” respectively, and that streams of 1s and 0s could transmit media over a wire. Thanks to his pioneering work, Shannon is regarded as the inventor of information theory.

In the early 1950s, Sony licensed the transistor from Bell Labs; Sony engineers boosted the yield of the transistor and created the market for transistor radios. The sound was “lo-fi” but the devices were portable and stylish, which is what consumers—especially teenagers—wanted. Also during the 1950s, Robert Noyce and Jack Kilby independently invented the silicon chip, also known as the integrated circuit (IC).1 In essence, the IC put the various parts of an electrical circuit—including resistors, diodes, and capacitors—on a single piece of material. The IC gave the transistor its modern form and allowed its power to be harnessed in a reliable, low-cost way.

The IC and the concept of binary code permitted the development of the personal computer (PC), a compact, affordable device whose advent marked the next phase of the digital revolution. Pivotal events and people associated with this era have become the stuff of legend. Seminal research in the early 1970s by Robert Taylor and Alan Kay at the Xerox Palo Alto Research Center (PARC) in California permitted the development of the first PCs. Taylor led a team that created a prototype PC called the Alto. Kay, the director of the Learning Research Group, developed software based on a “desktop metaphor” that used graphical icons.2

Taylor and Kay’s breakthroughs at Xerox PARC had a strong impact on Steve Jobs, who, with partner Steve Wozniak, started Apple Computer in a garage in the late 1970s. The company’s Apple II is widely regarded as the first “true” PC; the Apple II’s popularity received a big boost in 1979 when a spreadsheet program known as VisiCalc was introduced. A computer spreadsheet is an electronic ledger that automatically calculates the effect of a change to one number on other entries across rows and down columns; previously, these changes had to be done manually. Although such powerful, time-saving functionality is taken for granted today, VisiCalc was a true milestone in the digital revolution.3

IBM brought its first PC to market in 1981; Bill Gates initially declined an offer to create an operating system—the software code that provides basic instructions—for IBM’s new machine. Gates later changed his mind and developed the Microsoft Disk Operating System (MS-DOS). In 1984, Apple introduced the revolutionary Macintosh, with its user-friendly graphical interface and point-and-click mouse. A few years later, Microsoft replaced MS-DOS with Windows. ­Meanwhile, component manufacturers were innovating as well; Intel began marketing the 286 microprocessor in 1982. This chip was followed in quick succession by the 386 and 486 versions; in 1993, Intel unveiled the Pentium processor.

The rise of the Internet and the World Wide Web marks the next phase of the digital revolution. The Internet’s origins can be traced back to an initiative by the Defense Advanced Research Projects Agency (DARPA), which created a computer network that could maintain lines of communication in the event of a war. Robert Taylor, whose work at Xerox PARC has already been mentioned, was director of the Information Processing Techniques Office at the Pentagon in 1966. It was Taylor who secured the funding to create a single computer network that could connect separate computer research projects. In 1969, the ARPANET was unveiled; this network linked computer research centers at colleges and universities. E-mail within a computer network was made possible by the creation of a file-transfer program in 1972.

There was a problem, however: It was not possible to send e-mail that was created on one network to a computer on a different network. This problem was solved the following year when Vinton Cerf and Robert Kahn created a software framework known as TCP/IP (Transmission Control Protocol/Internet Protocol) (see Exhibit 15-2). Launched in 1973, this cross-network ­protocol was the extended architecture that paved the way for a “network of networks.” In ­December 1974, the term “Internet transmission control” appeared in a technical paper for the first time, and the Internet was born.

The ability to exchange e-mail messages on the Internet had a revolutionary impact on society, as technology guru Stewart Brand noted in the late 1980s:

Marshall McLuhan used to remark, “Gutenberg made everybody a reader. Xerox made everybody a publisher.” Personal computers are making everybody an author. E-mail, word processing programs that make revising as easy as thinking, and laser printers collapse the whole writing–publishing–distributing process into one event controlled entirely by the individual. If, as alleged, the only real freedom of the press is to own one, the fullest realization of the First Amendment is being accomplished by technology, not politics.4

Of course, the Internet revolution did not end with the advent of e-mail. More hardware and software innovations were yet to come. As America Online (AOL) cofounder Steve Case has noted, the “first wave” of the Internet revolution began in the mid-1980s as companies such as Cisco Systems and Xilinx created the core technologies (e.g., routers) that were the infrastructure or “on ramps” to the Internet.5

In 1990, a software consultant named Tim Berners-Lee invented the Uniform Resource Locator (URL), an Internet site’s address on the World Wide Web; Hypertext Markup ­Language (HTML), a format language that controls the appearance of Web pages; and Hypertext Transfer Protocol (HTTP), which enables hypertext files to be transferred across the Internet.6 These innovations allowed Web sites to be linked and visually rich content to be posted and accessed. In short, Berners-Lee is the father of the World Wide Web.

“There are certain limitations that are part of the network, and we are struggling with that. We’re worried that in the zeal to address localization that people will not be able to communicate any more. If someone gives you a ­business card with the e-mail address in Chinese, what are you to do?”7

Vinton G. Cerf, Internet pioneer, former chairman of ICANN, and Chief Internet Evangelist, Google

In 1992, the U.S. government authorized the use of the Internet for commercial purposes. At the time, it was believed that programmers and scientists would be the heaviest users of this network. In the mid-1990s, however, a computer scientist at the University of Illinois named Marc Andreessen developed a Web browser; called Mosaic, it combined images and words together on the same screen and allowed users to search for and view resources on the Web. Andreessen joined forces with Jim Clark, one of the founders of Silicon Graphics, to form Mosaic Communications. Renamed Netscape Communications, the company became one of the brightest stars in the ­dot-com era, as commercial demand for the Netscape browser software exploded. As Thomas L. Friedman notes, “Marc Andreessen did not invent the Internet, but he did as much as any single person to bring it alive and popularize it.”8

Within five years of the Web’s debut, the user base had increased from 600,000 users to 40 million. Although computer makers were slow to add modems to PCs, fledgling online services such as America Online were exhibiting robust subscriber growth. Thanks in part to a direct-mail marketing campaign in which millions of software discs were sent to prospective customers, AOL grew from 5 million subscribers in 1996 to 20 million subscribers in 1999. And, of course, the company’s iconic sign-on greeting, “You’ve got mail,” became a part of popular culture.

During the second wave of the Internet revolution, which Case describes as running from 2000 to 2014, the focus shifted from building the Internet to building on top of it. Search engines such as Yahoo! and Google emerged, and encryption and security features were built into the Web. Social media companies, including Facebook, YouTube, and Twitter, exploded onto the scene, and the iPhone launched the “app economy.”

Case envisions the third wave as a time when the Internet is seamlessly integrated into ­everyday life. He also anticipates a period of reinvention and disruption in key economic sectors, including major changes in health care, education, financial services, and transportation. Some of this integration and disruption is already occurring, as evidenced by the popularity of ride-sharing services such as Uber and Lyft. And, as the impact of Uber, Lyft, and other ride-sharing services on traditional industry sectors such as auto manufacturing demonstrates, the third wave is likely to be characterized by an ongoing dialog between attackers and defenders of disruption and revolution.

Case foresees four trends during the third wave. Case describes the first trend as “capital for all,” with global crowdfunding sites such GoFundMe, Indiegogo, and Kickstarter growing in importance. The second trend is the reemergence of partnerships; whether in health care or education, who a company partners with will be just as important as what the company does. A third trend is the launch of social enterprises that link profit and purpose. Warby Parker, Tesla, and TOMS are three examples (see Exhibit 15-3). Case dubs the fourth trend the “rise of the rest,” as the globalization of entrepreneurship gains traction on a regional basis, far from startup hotbeds such as Silicon Valley.

Today, almost 3 billion people—nearly half of the world’s population—use the Internet. As noted in Chapter 10, because residents in developing countries lag in terms of Internet access, Google is working to build wireless networks in those areas, especially outside large cities, that are beyond the reach of wired networks.9

Despite the promise embodied by the digital revolution, the technology’s powerful capabilities and increasing importance have also resulted in a backlash that has manifested itself in various ways. For example, the Chinese government, alarmed by the free flow of information across the Internet, closely monitors the content on Web sites that its citizens access. Facebook, Twitter, and numerous other social media sites are blocked in China.

Who controls the Internet? Good question! The first Internet Governance Forum (IGF) was held in Athens, Greece, in 2006. The IGF was charged with guiding “the development and application by governments, the private sector, and civil society, in their respective roles, of shared principles, norms, rules, decision-making procedures, and programs that shape the evolution and use of the Internet.” Some people in the global Internet community are concerned about the inclusion of the word “governments” in this statement.

The nonprofit Internet Corporation for Assigned Names and Numbers (ICANN) is based in Marina del Ray, California. ICANN maintains a database of Web addresses, approves new ­suffixes for Web addresses (e.g., .info and .tv), and performs other behind-the-scenes ­procedures that are critical for keeping the Internet functioning properly. ICANN’s advisory body includes ­international members, but the U.S. Department of Commerce retains veto power over all ­decisions. For example, after ICANN tentatively approved the domain name .xxx for pornography sites, the U.S. Department of Commerce blocked the decision.

Policymakers in some countries are concerned about U.S. control of the Internet. For ­example, China, India, Brazil, and the European Union (EU) have taken the position that, because the ­Internet is global, no single country should be in control of it. Accordingly, these nations have sought to have the United Nations assume a role in Internet governance.10

Privacy is another issue. As Amazon, Facebook, Google, and myriad other companies continue to exploit “conversation commerce” by using the Internet to gather vast amounts of information about customers, privacy issues are becoming a focal point of concern among policymakers and the general public. For example, Russia and China have new cyber-security laws requiring that all data about customers in their respective countries be stored on in-country servers. More than 2,000 U.S. companies have pledged to comply with European data protection standards by signing Privacy Shield, an agreement between the United States and the EU. Moreover, effective in 2018, the General Data Protection Regulation (GPDR) requires all companies conducting business in the EU to comply with strict guidelines for gathering, storing, and using data provided by customers.11

15-2 Convergence

15-2 Define “convergence” and give an example.

The digital revolution is causing dramatic, disruptive changes in industry structures. Writing in The New York Times at the beginning of 2010, columnist Jon Pareles summarized some of these changes as follows:

The 2000s were the broadband decade, the disintermediation decade, the file-sharing decade, the digital recording (and image) decade, the iPod decade, the long-tail decade, the blog decade, the user-generated decade, the on-demand decade, the all-access decade. Inaugurating the new millennium, the Internet swallowed culture whole and delivered it back—cheaper, faster, and smaller—to everyone who can get online.12

“I think there will be an increasing convergence between content and commerce, that it will be about following consumers instead of making consumers come to you, and I am especially excited about the various platforms that will allow more and more access to customers.”13

Natalie Massenet, founder, Net-a-Porter

Convergence is a term that refers to the coming together of previously separate industries and product categories (see Figure 15-1). New technologies often affect the business sector(s) in which a company competes. Which business is Sony in? Originally, Sony was a consumer electronics company best known for innovative products such as transistor radios, Trinitron televisions, VCRs, stereo components, and the Walkman line of personal music players. Then, Sony entered new businesses by acquiring CBS Records and Columbia Motion Pictures. These acquisitions themselves did not represent convergence because they occurred in the early days of the digital revolution, when motion pictures, recorded music, and consumer electronics were still separate industries. Today, however, Sony is in the “bits” business: Its core businesses incorporate digital technology and involve digitizing and distributing sound, images, and data. Now, Sony’s competitors include Apple (music players, smartphones), Dell (computers), Canon (cameras), and Nokia (smartphones).

Which kinds of challenges does convergence present? Consider the case of Kodak, the undisputed leader in photography-related products for more than a century. The company struggled to remake its business model as its sales of digital-related products grew from zero to $1 ­billion in five years. Through convergence, Kodak’s competitors came to include companies such as Dell and Hewlett-Packard. Moreover, Kodak’s core businesses—film, photographic paper, and chemicals—were disrupted. Competition for Kodak also came from the telecommunications industry. The cell phone camera was invented in 1997; a key benefit of this innovation was the ability to download digital photos from the camera and post them on the Web or e-mail them to friends. Motorola, a key player in the cell phone business, could have been one of the first companies to market a cell phone camera, but its management’s attention was distracted by the ill-fated launch of the Iridium satellite phone. Instead, inventor Philippe Kahn took his idea to Japan, where the first cell phone cameras were introduced in 1999.14 In 2010, annual sales of camera-equipped phones passed the 1-billion-unit mark.

15-3 Value Networks and Disruptive Technologies

15-3 Define value network and explain the differences between sustaining technologies and ­disruptive technologies.

As noted in the chapter introduction, the digital revolution has created both opportunities and threats.15 Dell, IBM, Kodak, Motorola, Xerox, and Sony are just a few examples of global companies that have struggled to remake their businesses in the face of technological innovation. IBM missed out on the minicomputer market, in part because the company’s management believed minicomputers promised lower profit margins and represented a smaller market opportunity. DEC, Data General, and Prime created the minicomputer market, but these companies then missed the PC revolution. This time, however, IBM’s executive team demonstrated that it had learned its lesson: It set up an independent organizational unit to create the company’s first PC. However, IBM subsequently was slow to recognize the growing market demand for laptops; new entrants included Apple, Dell, Toshiba, Sharp, and Zenith. Recently, IBM exited the PC market altogether.

How is it that the managers at so many companies fail to respond to change in a timely ­manner? According to Harvard professor Clayton Christensen, the problem is that executives become so committed to a current, profitable technology that they fail to provide adequate levels of investment in new, apparently riskier technologies. Indeed, companies may fall into this trap precisely because they adhere too closely to the prevailing marketing orthodoxy—that is, they listen to and respond to the needs of established customers, rather than seeking out new opportunities. Christensen calls this situation the innovator’s dilemma.

In every industry, companies are embedded in a value network. Each value network has a cost structure associated with it that dictates the margins needed to achieve profitability. The boundaries of the network are defined, in part, by the unique rank ordering of the importance of various product performance attributes. Parallel value networks, each built around a different definition of what makes a product valuable, may exist within the same broadly defined industry. Each network has its own “metrics of value.” For example, for laptop computers, the metrics are small size, low weight, minimal power consumption, and rugged design. During the 1980s, ­customers who bought portable computers were willing to pay a premium for smaller size; buyers of mainframe computers did not value this attribute. Conversely, mainframe buyers valued (i.e., were willing to pay more for) memory capacity as measured by megabytes; portable computer buyers placed less value on this attribute. In short, the value networks for mainframe computers and portable computers are different.

As firms gain experience within a given network, they are likely to develop capabilities, ­organizational structures, and cultures tailored to the distinctive requirements of their respective value networks. The industry’s dominant firms—typically those with reputations as “well-managed” firms—lead in developing and/or adopting sustaining technologies, which comprise incremental or radical innovations that improve product performance. According to Christensen, most new technologies developed by established companies are sustaining in nature; indeed, the vast majority of innovations are of this type.

In contrast, new entrants to an industry lead in developing disruptive technologies that redefine performance. The benefits associated with disruptive technologies go beyond enhancing product performance—these technologies enable something to be done that was previously deemed impossible. Disruptive technologies typically enable new markets to emerge. As Christensen explains, “An innovation that is disrupting to one firm can be sustaining to another firm. The Internet was sustaining technology to Dell, which already sold PCs via direct marketing channels. But it was disruptive technology to Compaq, whose major distribution channel was retailers.”17

To help managers recognize the innovator’s dilemma and develop appropriate responses to environmental change, Christensen has developed five principles of disruptive innovations:

Companies depend on customers and investors for resources. As management guru ­Rosabeth Moss Kanter points out, the best innovations are user driven; paradoxically, ­however, if management listens to established customers, opportunities for disruptive ­innovation may be missed.18

Small markets don’t solve the growth needs of large companies. Small organizations can most easily respond to the opportunities for growth in a small market. This fact may require large organizations to create independent units to pursue new technologies, as IBM did in developing its PC.

Markets that don’t exist can’t be analyzed. Christensen recommends that companies embrace agnostic marketing. This is the explicit assumption that no one—not company personnel, not the company’s customers—can know whether, how, or in what quantities a disruptive product can or will be used before they have experienced using it.

An organization’s capabilities define its disabilities. For example, Microsoft was once an industry trendsetter. Today, while it remains firmly committed to its Windows operating system, Microsoft lags behind new industry entrants in high-growth, consumer-oriented areas such as search and social networking.19

Technology supply may not equal market demand. Some products offer a greater degree of sophistication than the market requires. For example, developers of accounting software for small businesses overshot the functionality required by the market, creating an opportunity for a disruptive software technology that provided adequate, not superior, functionality and was simple and more convenient to use. This was the opportunity seized by Scott Cook, developer of Quicken and QuickBooks.

15-4 Global E-Commerce

15-4 Identify current trends in global e-commerce and explain how global companies are expanding their presence on the Web.

The term e-commerce refers to the general exchange of goods and services using the Internet or a similar online network as a marketing channel. Global e-commerce sales surpassed $1.3 trillion in 2014, the same year that China surpassed the United States as the world’s largest e-commerce market. Hundreds of millions of Chinese consumers are shopping online with greater frequency as smartphone penetration ramps up. The U.S. Census Bureau reported that U.S. online retail sales revenues totaled $390 billion in 2016, a figure that represents a 100 percent increase since 2011. By comparison, Chinese online retail transactions in 2016 were an estimated $750 billion—almost twice the U.S. figure.

Internet penetration in some world regions is in the low single digits; this is especially true in Africa. For example, penetration is less than 10 percent in Eritrea, Burundi, Sierra Leone, ­Somalia, and other low-income countries. By contrast, in several countries, including South Korea, the Netherlands, Greenland, the United Arab Emirates, Bahrain, and Qatar, more than 90 percent of the population is online. Consider the following statistics:

Between 2003 and 2014, the number of Internet users in China increased from 68 ­million to 640 million. More than 600 million Chinese people shop online, making China the world’s largest e-commerce market. Local companies such as Alibaba and JD.Com ­dominate the market.

According to Forrester Research, online retail in Western Europe will grow at a compound annual rate of 11.3 percent between 2017 and 2022. Eighty-five percent of surveyed ­European mobile phone owners access the Internet at least weekly on a mobile phone.21

E-commerce activities can be divided into three broad categories: business-to-consumer (B2C or b-to-c), business-to-business (B2B or b-to-b), and consumer-to-consumer (peer-to-peer: P2P or p-to-p). People often associate e-commerce with well-known consumer-oriented sites such as Amazon.com, Apple’s iTunes Store, and eBay.

As noted in Chapter 14, Germany’s Otto Group is the world’s second-largest B2C e-­commerce retailer. Indeed, according to Forrester Research, Germany, France and the United ­Kingdom together account for more than two-thirds of online retail sales in Western Europe (see ­Figure ­­15-2). More recently, consumers in Italy and Spain have begun to embrace online ­shopping, contributing to rapid growth in those countries. Overall, online purchases of clothing outpace other types of purchases by a two-to-one ratio. However, online sales of consumer electronics, watches, and jewelry are growing as well.

In general, B2B commerce constitutes the biggest share of the Internet economy and will likely continue to do so for the foreseeable future. Industry forecasts call for global B2B revenues to reach $6.7 trillion by 2020, at which point B2C is expected to be $3.2 trillion.23

Web sites can be classified by purpose: Promotion sites provide marketing communications about a company’s goods or services, content sites provide news and entertainment and support a company’s PR efforts, and transaction sites are online retail operations that allow customers to purchase goods and services. Typically, Web sites combine the three functions.

Web sites can also be categorized in terms of content and audience focus. For example, international students at your college or university may have learned about your school via the Internet, even though home-country prospective students constitute the primary target audience for the Web site.

Similarly, Pandora, the online music service, serves only American listeners; Deezer, the French online music-streaming company, is operational in 160 countries. Prior to 2015, Deezer was not available in the United States. Why? For one thing, international copyright laws make it difficult to license performance rights for songs. However, in 2015, Deezer launched a ­partnership with hi-fi marketers Sonos and Bose, making Deezer Elite available for U.S. customers. As former Pandora CEO Joe Kennedy once remarked, “The good news is that the Internet is global, but the bad news is that copyright law is country by country.”24 Apple’s iTunes Store began as a U.S.-only retailer. During the next decade, the service was rolled out in dozens of countries. Netflix, the online movie distributor, has evolved from domestic to international in a similar way.

Companies such as FedEx and Gucci are global in scope, and the Internet constitutes a powerful, cost-effective communication tool for these firms. Similarly, the interactive marketing staff at Unilever understands that the Web represents an important low-cost medium for promoting products. Unilever’s vast archive of TV commercials has been digitized; Web surfers can download the videos for products such as Salon Selectives shampoo and watch them anytime. A decade ago Unilever launched a 12-week series on Yahoo! Food titled In Search of Real Food. Hosted by Food Network TV star David Lieberman, the show was created around Hellman’s mayonnaise. As Doug Scott, executive director of entertainment at the Ogilvy & Mather ad agency explained, “Content for broadband costs significantly less than TV productions and it allows you to distribute to a much larger audience.”25

Companies can also seek e-commerce transactions with customers on a worldwide basis. Amazon.com is the most successful example of this transaction business model. Online book shoppers can choose from millions of book titles on its Web site; many carry discounted prices. And, of course, today Amazon offers a vast range of products.

In the mid-1990s, after assessing a number of potential products in terms of their suitability for online sales, company founder Jeffrey Bezos settled on books for two reasons. First, there were too many titles for any one “brick-and-mortar” store to carry. The second reason was related to industry structure: The publishing industry is highly fragmented, with thousands of publishers found in the United States alone. As a consequence, no single publisher has a high degree of supplier power. Bezos’s instincts proved sound: Sales exploded after Amazon’s Web site became operational in mid-1995. Within a year, orders were coming in from dozens of countries.

Today, Amazon.com is the world’s largest online retail site, with hundreds of millions of annual visitors. The company’s 12 international sites generate between 40 percent and 50 percent of its total sales, with Germany, Japan, and the United Kingdom being Amazon’s three biggest markets outside the United States. The company employees more than 500,000 people, and Bezos is the world’s richest person, with an estimated net worth of $100 billion.

Online retail in the United States passed the $400 billion mark in 2017, including orders from abroad. Abercrombie & Fitch, Aéropostale, J. Crew, Macy’s, Timberland, and Saks Fifth Avenue are just some of the U.S. retailers targeting foreign buyers by adding international shipping services to their Web sites. The dollar’s strength, which translates into higher prices for shoppers paying in euros or other currencies, has prompted more U.S. consumers to order from abroad. Delivery giants FedEx, UPS, and DHL are making key acquisitions and partnering with other firms to help ensure seamless, frictionless ordering and delivery experiences for online shoppers.26

Some products are inherently not suitable candidates for sale via the Internet; for example, McDonald’s doesn’t sell hamburgers from its Web site. In addition, some global marketers make the strategic decision to establish a presence on the Web without offering transaction opportunities, even though the product could be sold that way. Instead, such companies limit their Web activities to promotion and information in support of offline retail distribution channels.

Companies may pursue this strategy for several reasons. First, they may lack the infrastructure necessary to process orders from individual customers. Second, it can cost anywhere from $20 million to $30 million to establish a fully functioning e-commerce site. Other, product-specific factors may also underlie the decision to forgo Web-based sales. The Web site for Godin Guitars, for example, provides a great deal of product information and a directory of the company’s worldwide dealer network. But company founder Robert Godin believes that the best way for a person to select a guitar is to play one, and that requires a visit to a music store.

For consumer products giant Procter & Gamble (P&G), the Internet represents a global promotion and information channel that is an integral part of its brand strategy. For example, Pampers is P&G’s number 1 brand, with annual global sales of $10 billion. Pampers’ online presence at www.pampers.com represents a new conceptualization of the brand. Previously, brand managers viewed Pampers disposable diapers as a way of keeping babies happy; the new view is that the Pampers brand is a child development aid. Visitors to the Pampers Village online community can read advice from the Pampers Parenting Institute as well as tips from mothers. Discount coupons are also available.

P&G launched www.thankyoumom.com to position P&G as “a proud sponsor of moms.” In 2010, P&G used the site to award $100,000 in travel vouchers to help mothers reunite with their families. P&G has also launched a retail Web site to sell Pantene shampoo, Pampers baby products, and other brands to consumers. This online strategy change brings P&G into direct competition with Walmart, Target, and other retailers that complement brick-and-mortar stores with Internet selling.27

Until recently, visitors to the Web sites for most luxury goods purveyors were not given the opportunity to buy. The reason is simple: Top design houses strive to create an overall retail shopping experience that enhances the brand. This objective is basically at odds with e-commerce. As Forrester Research analyst Sucharita Mulpuru explained, “There was a belief that there was no way you could communicate your brand essence online.”28 This belief is now changing, and some luxury goods marketers have developed smartphone and iPad apps to help consumers shop. Burberry, Chanel, Coach, Gucci, and other luxury brands are cultivating official online communities on Facebook. According to Reggie Bradord, CEO of a social media management company, they are doing the right thing. He says, “Luxury brands should be thinking about ‘how can we create a dialogue and get consumers connecting with our brand?’”29

As the Internet has developed into a crucial global communication tool, decision makers in virtually all organizations are realizing that they must include this new medium in their communications planning. Many companies purchase banner ads on popular Web sites; the ads are linked to the company’s home page or product- or brand-related sites. Advertisers pay when users click the link. Although creative possibilities are limited with banner ads and click-through rates—the percentage of users who click on an advertisement that has been presented—are typically low, the number of companies that use the Web as a medium for global advertising is expected to increase dramatically over the next few years.

One of the most interesting aspects of the digital revolution has been noted by Chris Anderson, the editor of Wired magazine and author of The Long Tail. The title of Anderson’s book refers to the use of the efficient economics of online retail to aggregate a large number of relatively slow-selling products. The Long Tail helps explain the success of eBay, Amazon.com, Netflix, and iTunes, all of which offer far more variety and choice than traditional retailers can. As Anderson explains, “The story of the Long Tail is really about the economics of abundance—what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone.” Anderson notes that “below-the-radar” products—for example, obscure books, movies, and music—are driving revenues at e-commerce merchants such as Amazon.com, Netflix, and iTunes. He says, “These millions of fringe sales are an efficient, cost-effective business. . . . For the first time in history, hits and niches are on equal economic footing.”

15-5 Web Site Design and Implementation

15-5 Explain the key issues facing a global company when designing and implementing a Web site.

To fully exploit the Internet’s potential, company executives must be willing to integrate interactive media into their marketing mixes.31 Web sites can be developed in-house, or an outside firm can be contracted to do the job. During the past few years, a new breed of interactive advertising agency has emerged to help companies globalize their Internet offerings (see Table 15-1). Some of these agencies are independent; others are affiliated with other advertising agency brands and holding companies (see Chapter 13). Whether Web development is handled in-house or by an outside agency, several issues must be addressed when setting up for global e-commerce—for example, choosing domain names, arranging payment, localizing sites, addressing privacy issues, and setting up a distribution system.

Moreover, research suggests that visitors spend more time at sites that are in their own ­language; they also tend to view more pages and make more purchases. Many people will seek information about sites on local versions of well-known search engines. For example, in France, Yahoo!’s local site is http://fr.Yahoo.com. The same principle applies to non-U.S. companies targeting the American online consumer market. For example, Waterford Wedgwood, Harrods, Johnnie Boden, and other well-known companies have acquired U.S. domain names and created sites with prices listed in dollars.32

While registering a “.com” domain name is a relatively straightforward procedure in the United States, requirements can vary elsewhere. In some countries, a company must establish a legal entity before it can register a site with a local domain-name extension. Cybersquatting—the practice of registering a particular domain name for the express purpose of reselling it to the company that should rightfully use it—is also a problem. Avon, Panasonic, and Starbucks are some of the companies that have been victims of cybersquatting.

Payment can be another problem for e-commerce transactions; in some countries, including China, credit card use is low. In such situations, e-commerce operators must arrange ­payment by bank check or postal money order; cash on delivery is also an option. Another issue is credit card fraud; Indonesia, Russia, Croatia, and Bosnia are among the countries where fraud is ­rampant. Extra identity measures may have to be taken, such as requiring buyers to fax a photo of the actual credit card they are using as well as photo IDs.33 In Japan, consumers pay for online ­purchases at convenience stores (konbini). After selecting an item online, the buyer goes to a nearby ­convenience store (e.g., a 7-Eleven) and pays cash for the item; the clerk transfers the money to the online seller’s account. However, foreign companies can’t participate in the konbini system, which means that a foreign online retailer must establish an alliance with a local company.

Ideally, each country-specific site should reflect local culture, language usage, customs, and aesthetic preferences. Logos and other elements of brand identity should be included on the site, with adjustments for color preferences and meaning differences when necessary. For example, the shopping cart icon is familiar to online shoppers in the United States and many European ­countries, but online companies must determine whether that icon is appropriate in all ­country markets. Subtle but important language differences can also occur even in English-speaking ­countries. For example, www.figleaves.com and www.figleaves.com/uk are, respectively, the American and British Web addresses for a UK-based lingerie marketer. However, the U.S. site refers to “panties,” whereas the U.K. site has a listing for “briefs.” When two or more different languages are involved, translators should be used to ensure that the copy reflects current language usage. It is also important not to “reinvent the wheel” by translating the same terms over and over again. Local translators should have access to an in-house dictionary that contains preferred translations of company-specific terms. The database system should be capable of identifying content that has already been translated and then reusing that content.

After Yao Ming joined the Houston Rockets in 2002, the NBA’s Chinese Web site was launched in conjunction with www.SOHU.com, China’s leading Internet portal. Written entirely in Chinese characters, the site is designed to capitalize on basketball’s increasing popularity in the world’s largest market. The NBA has also launched country-specific English-language sites in Africa, Australia, Canada, India, New Zealand, the Philippines, and the United Kingdom. In ­addition, sites have been developed in several other languages, including German, Greek, Hebrew, Italian, Portuguese, and Spanish.

As the NBA’s Chinese site illustrates, it is not enough to simply translate a Web site from the home-country language into other languages. Thus, another basic step is localizing a Web site in the native language and business nomenclature of the target country. From a technical point of view, Web sites designed to support English, French, German, and other languages that use the Latin alphabet store only a maximum of 256 characters in the American Standard Code for Information Interchange (ASCII) format. Even so, there are language-specific needs; for example, a ­German-language Web site requires more than double the capacity of an English-language site because German copy takes more space.34 In contrast, languages such as Japanese and Chinese require a database that supports double-ASCII. For this reason, it is wise to start with a double-ACSII platform when designing a Web site’s architecture. The site’s architecture should also be flexible enough to allow different date, currency, and money formatting. For example, to someone living in the United Kingdom, “7/10/16” means October 7, 2016. To an American, it means July 10, 2016.

Another critical global e-commerce issue is privacy. The EU’s regulations related to protection of personal data are among the world’s strictest: Companies are limited in terms of how much personal information—a customer’s age, marital status, and buying patterns, for example—can be gathered and how long the information can be retained. In 2012, EU Justice Commissioner Viviane Reding announced an overhaul of the EU’s data collection rules (see Exhibit 15-5). These rules will apply to companies based outside the EU—Apple, Google, and Facebook, for example—if they offer services to EU citizens. Customers living in the EU also have the “right to be forgotten”; that is, they can request to have their personal data deleted. Moreover, EU citizens must give explicit consent before companies can share their data.35 By contrast, the U.S. government has been reluctant to issue privacy protection rules in part due to First Amendment issues and in part due to national security concerns stemming from the terrorist attacks of 2001. To help ensure compliance with privacy laws, some American companies have created a new executive-level job position: chief privacy officer.

Broadband

A broadband communication system is one that has sufficient capacity to carry multiple voice, data, or video channels simultaneously. Bandwidth determines the range of frequencies that can pass over a given transmission channel. For example, traditional telephone networks offered quite limited bandwidth compared with state-of-the-art digital telephone networks. As a result, a traditional telephone call sounds “lo-fi.” Bandwidth is measured in units of bits per second (bps); a full page of English text is approximately 16,000 bits. An old-school, 56 Kpbs dial-up modem connected to a conventional telephone line could move 16,000 bits per second; by comparison, today’s broadband Internet connections that utilize coaxial cable or DSL (digital subscriber line) technology can move data at speeds measured in gigabits per second.

South Korea currently boasts the world’s fastest average Internet speeds. However, technology upgrades currently under way will mean even higher speeds: The government intends to ensure that every Korean household has a 1-gigabit Internet connection. As Choi Gwang-gi, the engineer overseeing the project, explains, “A lot of Koreans are early adopters, and we thought we needed to be prepared for things like 3D TV, Internet Protocol TV, high-definition multimedia, gaming and videoconferencing, ultra-high definition TV, and cloud computing.”38 Consumers won’t be the only beneficiaries of the upgrade; corporations will also be able to harness gigabit Internet connections for high-definition global videoconferencing and other applications.

As South Korea and other countries forge ahead with massive investments in broadband infrastructure upgrades, politicians and union leaders in laggard countries are taking a keen interest in the issue. A recent study declared that South Korea and several other countries are “ready for tomorrow” in terms of Internet speed. A second tier of countries falls into the category “below today’s applications threshold.” The United States, Germany, and Hong Kong all fall into this category.39 U.S. President Barack Obama responded to this situation in 2011 by promising to spend tens of billions of dollars to improve America’s broadband network.

Why are policymakers following the broadband race so closely? Broadband offers multiple marketing opportunities to companies in a variety of industries. It also allows Internet users to access streaming media such as streaming audio and streaming video. Personalized radio services such as Apple Music, Pandora, Spotify, and Tidal allow users to list their favorite artists and songs; Pandora then uses a proprietary technology called the Music Genome Project to make recommendations for new music that are similar to a listener’s current favorites. Streaming media are also having a profound impact on the television industry, with Amazon.com, iTunes, Netflix, YouTube, and other services offering movie and TV show downloads and streaming as viewing options.

Streaming media represent a major market opportunity for the video game industry, which includes electronics companies (e.g., Microsoft and Sony), game publishers (e.g., Electronic Arts), and Internet portals (e.g., Google). Gamers in different locations, even different countries, can ­compete against one another using PCs or Xbox or PlayStation consoles. These shared gaming experiences are sometimes called massively multiplayer online games (MMOG); the most popular MMOG is World of Warcraft. How popular are Internet-based video games? Microsoft’s Xbox Live service has more than 48 million subscribers worldwide. Consumer interest in online gaming has been fueled by powerful next-generation game consoles such as Microsoft’s Xbox One and Sony’s PlayStation 4.

Cloud Computing

In the preceding section, cloud computing was referenced as one driver of higher broadband speeds. This term refers to next-generation computing that is performed “in the cloud.” With this approach, rather than installing software such as iTunes or Microsoft Office on a computer hard drive, such applications are delivered through a Web browser. Cloud computing means that archives—including music and movie files, photos, and documents—are stored on massive remote servers and data centers rather than on individual users’ computers. Computer files can be accessed remotely, via the Internet, from any location and from any computer.

Google’s Chrome operating system, which has been described as “a new computing paradigm,” is designed to exploit the opportunities of cloud computing. Amazon.com’s Amazon Web Services (AWS) provides cloud-computing resources for businesses. AWS is a variation on the outsourcing trend that was discussed in Chapter 8; Netflix, Foursquare, and thousands of other companies use the service instead of running their own data centers. Cloud computing is expected to grow at an annual torrid pace of 25 percent over the next several years.40