JSM Lockett and Blackman 2001

Strategies for building a customer base on theInternet: symbiotic marketing

ANDY LOCKETTNottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham

NG8 1BB, UK

IAN BLACKMANFieba, Korns House, 6 8 Colne Road, Twickenham TW1 4JR, UK

The advent of the Internet is leading a re-evaluation of existing business practice as

the m ethods em ployed in a non-vir tual world m ay not necessar ily be as effective in a

virtual environm ent. The present paper exam ines the different strateg ic options facing

organiz ations as they attem pt to build a custom er base on the Internet. The traditional

s ite-centr ic approach of directing traf c to a central Internet s ite suffers from the

problem s of the increasing costs and decreasing effectiveness of Internet adver tis ing.

An alternative strategy is the sym biotic approach which is based on the concept of

mutuality. A strategy of symbiotic m arketing involves one organization providing

functionality for another organization s Internet site. In exchange for the provision of

functionality for another Internet s ite the provider bene ts from a increased m arket

coverage and reach. Although the strategy of sym biotic marketing may initia lly appear

counter-intuitive, the following paper highlights the potentia l advantages for a company

pursuing such a strategy. The case demonstrates such a strategy exits as a low cost method

of developing a custom er base on the Internet. Finally, the potentia l scope of symbiotic

m arketing is discussed.

KEYWORDS: Marketing strategy; Internet; customer bases; symbiotic marketing

INTRODUCTION

The impact of the introduction of the Internet on business practice has received disproportion-

ately little attention in the literature when compared to its perceived importance. In particular,

the strategic implications of the introduction of the new medium do not appear to be fully

appreciated. Although the Internet may appear to provide numerous potential advantages to

marketers in terms of reducing costs and time horizons and increasing an organizations reach,

it is important to view the potential of the new medium in a greater strategic context. For

example, it appears that the costs of embracing a new channel of distribution in conjunction

with existing channels may actually lead to an overall increase in an organizations cost base.

However, the lack of empirical support for a link between spending on information technology

(IT) and increases in productivity should not be taken as the de nitive answer on the matter.

JOURNAL OF STRATEGIC MARKETING 9 4768 (2001)

Journal of Strategic Marketing ISSN 0965 254X print/ISSN 1466 4488 online 2001 Taylor & Francis Ltdhttp://www.tandf.co.uk/journals

DOI: 10.1080/09652540010011475

http://www.tandf.co.uk/journals

Rather, it appears as though government-aggregated statistics used to examine shifts in produc-

tivity overlook the potential impact of IT in terms of increasing quality, variety, timeliness and

levels of customer service (Brynjolfsson and Hitt, 1996).

Corporations launching Internet-based services are making a considerable effort to under-

stand how best to use the bene ts of the Internet when transferring their product or service to

the new medium. However, merely transferring content to the Internet is not suf cient to

guarantee a viable Internet-based product/service. This becomes an even greater problem for

companies that are purely Internet based as they do not have customers via non-virtual

distribution channels. A necessary condition of success is the attraction of customers and

the assembly of a customer base. Watson and Zinkhan (1997) argued that one of the six

key questions of an electronic commerce strategy is that of how does an organization develop

a web site that attracts customers? However, phrasing the question in such a way appears to

suggest that a companys website is the only important factor in in uencing the size of a

companys customer base. The following paper argues that it is not only the companys web-

site that in uences the size of its customer base, it is also the way in which it uses and distributes

the content of its own website on the sites of other companies that may be important.

The dominant approach to building a customer base on the Internet has been to imitate

existing strategies employed in a non-virtual environment. However, the most cost-effective

means of attracting existing and new customers to the newly developed Internet-based service

may not necessarily appear to be initially intuitive. The present paper outlines the different

methodological approaches to attracting customers to an Internet service, including both

traditional perspectives (site-centric models) and the novel approach of symbiotic marketing.

The approach of marketing through symbiosis is one that has been borrowed from the biol-

ogy literature and refers to the harmonious living together of dissimilar organisms in a

mutually bene cial relationship (Adler, 1966). The issues arising from the different approaches

will be discussed with reference to case data gathered on an Internet-based organization.

The paper concludes by arguing that a corporations approach to Internet-based promo-

tion should be primarily determined by the structure of their existing market(s) and position(s)

within it.

MARKETING AND THE INTERNET

The impact of the introduction of IT on business has been both dramatic and well-documented.

However, the introduction of the Internet is considered to have potentially far greater con-

sequences for business than just those of increasing spend on IT and the resulting changes

of increasing technical sophistication (Dutta et al., 1998). Examples of the innovative applications

of IT to business are the virtual organization (Handy, 1995; Scott Morton, 1995; Lockett and

Holland, 1996) and Internet-based marketing (Bianco, 1997; Loebbecke and Jelassi, 1997). There

are an increasing number of marketing success stories of organizations which have embraced the

Internet as a medium of business. For example, see the cases of Dell (http://www.dell.com/)

(Magretta, 1998; Naud and Holland, 1998), Schwab (http://www.schwab.com/) (Naud andHolland, 1998), Netscape (Yof e and Cusumano, 1999) and American Express (http://

www.americanexpress.com/) (Berry, 1994).

In addition to changes to existing marketing practice, the introduction of the Internet is

arguably heralding the development of a new era of marketing theory (Dutta et al., 1998; Naudand Holland, 1998). Existing research has highlighted the impact of the Internet on speci c

marketing activities such as marketing research (Quelch and Klein, 1996; Lockett et al., 1999)

48 LOCKETT AND BLACKMAN

http://www.americanexpress.com/http://www.dell.com/http://www.schwab.com/http://www.americanexpress.com/

and new product development (Lockett et al., 1998). Furthermore, Buttler and Peppard (1998)

highlighted the Internet s importance in facilitating dyadic information ows between supplier

and customer and that the inverse relationship between the richness and reach of information no

longer holds. As a result the Internet has the potential to encourage simultaneous two-way ow

of information between large numbers of customers and suppliers.

One of the biggest implications for marketing theory and practice is the shift from a non-

virtual market-place to a market-space, the implication of which is that industry players do

not have to have a physical presence as with traditional industries (Rayport and Sviokla, 1995).

This market-space is conceptualized by the ICDT (information space, communication space,

distribution space and transactional space) model which comprises four different virtual business

spaces, which are new spaces of opportunities for businesses: virtual information space (VIS),

virtual communication space (VCS), virtual transaction space (VTS) and virtual distribution

space (VDS) (Angehrn, 1997). However, in order to capture the opportunities provided by

each of these spaces it is necessary that rms have a website. The dominant theme in much

of the electronic commerce literature is that the introduction of the Internet presents great

opportunities for smaller companies to enter markets that were previously characterized by high

barriers to entry, such as the traditional requirement for a physical presence in retail markets.

The problem is that the creation of a website does little more than establish contact, it does not

in itself create interest (Angehrn, 1997).

The above perspective views the advent of the Internet as reducing such barriers to entry

and, therefore, when coupled with the potential accessibility of information in reducing

customers search costs, will lead to new market entrants, increasing price competition and

the development of electronic markets (see Malone et al., 1987, 1989; Daniel and Klimis,

1998). However, this perspective has been challenged by empirical studies of both the imple-

mentation of electronic data interchange (EDI) (Holland et al., 1992) and, more recently,

of Internet market structures and what drives the differences in traf c across sites (Ennew et al.,

2000). The study by Ennew et al. (2000) found that traf c across the top sites in a range of

market sectors was highly skewed, with nearly all traf c being concentrated on only a small

number of sites. This nding provides evidence for challenging the orthodoxy that the intro-

duction of the Internet will lead to the development of electronic markets. Although

companies are able to establish web sites, Angehrns (1997) statement that the creation of an

Internet site establishes contact with customers may be challenged as the existence of a web-

site does not mean that the site will be visited by a meaningful number of people. Therefore,

the authors feel that the opportunities of the new market-space are even more dif cult for

companies to capitalize on as the creation of a website does not necessarily equate to making

contact with customers and potential customers. In reality many websites have very small traf c

with over 90% of Internet traf c owing through less than 10% of the most popular sites

(Ennew et al., 2000).

Therefore, if websites exist in a market-space that is so vast that their existence is not a

suf cient condition for gaining traf c and the development of a viable Internet venture

requires customers, the building of a customer base becomes a key component of any com-

panys marketing strategy towards the Internet. In addition, the development of a customer base

facilitates other stages in the marketing process such as market research and new product/service

development/testing of the development (Lockett et al., 1998, 1999). Therefore, the develop-

ment of an Internet customer base is a strategic priority for all Internet companies. The next

section proceeds to outline the range of different methodologies that companies may employ

in attempting to build a customer base on the Internet.

BUILDING A CUSTOMER BASE ON THE INTERNET 49

STRATEGIES FOR BUILDING A CUSTOMER BASE ON THE INTERNET

In addition to the potential advantages that may be associated with the introduction of

electronic commerce (e-commerce), the introduction of the Internet has led to a re-examination

of the economics of business transactions. The new medium has the potential to reduce the

average costs associated with a transaction as a signi cant portion of the costs of maintaining and

developing an Internet service are xed. However, variable costs traditionally include those

involved in attracting customers to an Internet site and usually vary in direct relation to the

number of potential customers attracted.

There appears to be two distinct methodological approaches to building a customer base on

the Internet.

(1) The site-centric model involves a range of techniques that can be used to attract

customers to a central site offering a particular product or service. This strategy involves

a signi cant investment being incurred in the building of a Internet-enabled product

or service, advertising the service to attract a user base and then using feedback to adapt

the site to speci c target market(s) needs. This is the dominant method for building

a customer base on the Internet, a strategy that has been pursued by the vast majority

of companies, for example, Ebay (http://www.ebay.com/), and Yahoo (http://

www.yahoo.com/).

(2) The second model is best described as the symbiotic marketing model and is unique to the

Internet. With symbiotic marketing the processing required for a service is centralized but

other sites are encouraged to incorporate the input and output of the service within their

own site. The service is effectively taken to the site the customer wants to use rather than

the customer having to go to the service provider s central site. The most high pro le

company to employ a symbiotic strategy is the book and CD retailer Amazon (http://

www.amazon.com/). Amazon encourages third party Internet sites to become associates

and to provide Amazon services on their websites through a number of different arrange-

ments. Companies can either link directly to the Amazon home page, link to an Amazon

associates search box or link to individual products. A large number of different Internet

sites have joined the Amazon associates programme for which the associate receives a 5%

referral fee for each item purchased. An example of an Amazon associate is America

Online Inc. (http://www.aol.com/). Approximately 200 000 websites have enrolled on

the Amazon associates programme (http://www.amazon.com/). Examples include Excite

Inc. (http://www.excite.com/), Microsoft (http://www.microsoft.com/) and Netscape

Communications Corporation (http://www.netscape.com). The symbiotic strategy has

the advantage that, by delivering content to third party web sites, Amazon is able to raise

its pro le on the Internet, therefore attracting more customers. (Information regarding

links into any web site may be obtained from the altavista search engine (http://

www.atavista.com/), both in terms of the number of links and to which sites a particular

web site is linked).

Although the two approaches have been presented as polar opposites this is not to say that a

company cannot pursue a hybrid of the two models. For example, although Amazon pursues

a symbiotic strategy through its associates programme, it still advertises heavily. The current

section now continues to outline the different methodological approaches to building a

customer base on the Internet and examines the different substrategies involved in the different

approaches.


http://www.ebay.com/http://www.amazon.com/http://www.altavista.com/http://www.ebay.com/http://www.yahoo.com/http://www.amazon.com/http://www.aol.com/http://www.amazon.com/http://www.excite.com/http://www.microsoft.com/http://www.netscape.comhttp://www.altavista.com/

The site-centr ic m odel

The site-centric model has clear parallels with traditional forms of retailing where customers are

attracted to a particular institutions brand in order to meet their broad requirements. The organ-

ization invests in building a high degree of content on the companys own Internet site and

seeks to protect the content it has developed, as it perceives it to be a valuable resource of the

rm. (The notion of a rm-speci c resource dates back to the seminal text of Penrose (1959)

and, more recently, Wernefelt (1984) who viewed a resource as anything that can be considered

to be a strength or weakness of the rm.) In being naturally protective of its own services the

strategy becomes one of attracting and retaining customers within the central site. However, in

order to do this it is usually necessary for the organization to develop strong brand recognition.

This strategy towards the Internet is one that large marketing and advertising rms are familiar

with from a non-virtual context.

The site-centric approach may be viewed as an umbrella strategy that encompasses a range of

different, non-mutually exclusive techniques. The common theme running through all of the

techniques is the need to concentrate on attracting customers to the companys own speci c

Internet site (see Fig. 1). The range of different site-centric approaches is outlined below.

Portal sites

A portal Internet site is either the rst site a user sees when logging on to the Internet or

a central site (search engine) used to identify other sites. The log-in screen is often pre-set by the

Internet service provider (ISP) of access to the Internet (e.g. AOL) or the provider of the soft-

ware browser (e.g. Netscape and Microsoft). A second category of portal sites is the search

engines used to nd appropriate sites (e.g. Yahoo, Excite and Infoseek).

FIGURE 1. The site-centric model: attracting customers to a central site.


Both the portal forms, i.e. ISPs and search engines, have been attempting to enhance their

Internet presence by offering an increasing range of complementary services. A number of

portal sites have begun to offer complementary e-mail services as a means of attracting

customers to their site, for example Yahoo (Yahoo Mail) and Microsoft (Hotmail). (Microsoft

acquired the existing Hotmail service for approximately US$400 million. This may be viewed as

a payment for acquiring the functionality and brand name; however, it was anticipated that the

existing customer base of Hotmail was the most attractive resource possessed by the company.)

In addition, the larger search sites such as Yahoo have been successful in simplifying the search

process by suggesting sites that have been reviewed by their own staff in addition to providing a

listing of the sites identi ed. The portal sites have an advantage in recognizing the key interests

of the users of their sites. By using this information the sites are able to provide value-added

services to meet the identi ed customer needs or, in cooperation with content providers

on a co-branded basis, to retain the customers within their own site. An example of this strategy

is the development of Excite s personal nance site by Intuit and the Financial Times (http://

www.quicken.excite.com/).

However, the strategy of developing a portal site has become increasingly dif cult to follow,

particularly in the form of a search engine portal. Evidence of this is the attempt by Northern

Lights (http://www.northernlight.com/) to become one of the main search engine portals by

offering an improved search engine platform. Although the search engine platform was initially

acknowledged to be an improvement on the competition, to date Northern Lights has yet to

build a customer base to challenge the top ve search engines. Therefore, it appears as though

the cost to the largest portal sites of matching a short-term technological advantage is sig-

ni cantly less than the cost to the new entrants of building a recognizable brand and signi cant

user base.

In the UK, a number of companies (e.g. the food retailer Tesco (http://www.tesco.com/),

the building society Nationwide (http://www.nationwide.com/) and the electronics retailer

Dixons (http://www.freeserve.com/) have attempted to build their own ISP portal sites through

providing free Internet access to their own customers. The approach appears to be one of cross-

selling to an established customer base while reducing the likelihood for the customers viewing

the products/services of a competitor.

Purchase links to a portal site

In addition to developing their own portal sites, companies are able to purchase prominent links

in existing key portal sites. AOL has been particularly active and successful in selling links

on its information pages. An example is the willingness of three online discount stock brokers to

pay US$75 million to be the sole brokers linked to AOL personal nance site for 3 years. The

cost of acquiring a key position on a portal site appears to be growing with Citigroup agreeing

to pay Netscape US$40 million to provide the personal nance content for the Netscape

Personal Finance site. The option of purchasing links will continue to become increasingly

expensive as Internet traf c increases and demand for such links grows.

Purchase advertising

The strategy of advertising on the Internet is somewhat similar to that of acquiring a portal link

because of the ability to link an advertisement directly to the advertisers own site. Where the

customer can purchase the product/service from the Internet site a direct and instantaneous


http://www.quicken.excite.com/http://www.quicken.excite.com/http://www.northernlight.com/http://www.tesco.com/http://www.nationwide.com/http://www.freeserve.com/

link is provided between the advertisement and the point of purchase. However, the rate of

people clicking on advertisements appears to be declining with an average of approximately

one click-through per 200 views stated as the norm in industry newsletters. In addition to the

ineffective nature of Internet advertisements, the high prices charged for advertisement

space does not make the economic model for Internet advertising compelling (Lockett et al.,

2000). (For a comprehensive discussion of advertising on the Internet see Novak and Hoffman

(1996).)

The large portal sites have exploited key advantages in selling targeted advertisements, in

particular the following.

(1) Keywords can be used to select an appropriate banner advertisement.

(2) Advertisements can be presented on Internet pages with related topics.

(3) Regional-speci c advertising can be provided on regional-speci c search engines.

(4) Detailed information can be collected in order to assist buyers determine the success of

speci c banner advertisements.

The portal sites appear to have been successful in maintaining a premium price for their

targeted advertising space, with Yahoo being prominent in not discounting its space (Lockett

et al., 2000). As a result, a number of intermediaries are attempting to duplicate the bene ts of

the portal sites by delivering banner advertisements to groups of second tier Internet sites;

however, the price of the advertising space here is much lower.

Direct e-mail: registered users or subscribers to e-mail services

Customers can be encouraged to register their interest in receiving details of new product

launches by e-mail or register for regular news or information updates. On the basis of e-mail

lists messages can be targeted with advertisements included in the e-mail or the customers

contacted with speci c product updates. For example, the companies Ad-Online (http://

www.a-o.com/) and NUA (http://www.nua.ie/) disseminate weekly e-mails to subscribers

informing them of their latest products and research. However, the problem still exists that traf c

has to be initially directed to a central site in order that the customer may register for the

service. Therefore, although e-mail may be a quick, low cost alternative to postal mail (Mehta

and Sivadas, 1995), the strategy still requires the identi cation and compilation of a list of

potential customers to contact.

Direct e-mail: junk mail or spam-mail

In addition to solicited e-mail, junk mail or spam-mail e-mail is the Internet s version of

unsolicited direct mail. There are a number of techniques available for building very large e-mail

lists. In addition, the cost of distributing the e-mail is very low. The spammer often uses the

unprotected servers of other companies in distributing the e-mail, avoiding the cost of dis-

tributing the mail. The person who receives the e-mail then effectively pays to receive the junk

mail in the time taken online to delete or download the mail. Complaining to the junk mailer is

generally not a good idea as it con rms that you have read the mail and that your e-mail

account is active, thus attracting further mail. Spammers are generally regarded as the marketing

low life of the Internet, whose business model is based on abusing the open structure of the

Internet in order to use other companies resources.


http://www.a-o.com/http://www.a-o.com/http://www.nua.ie/

In summary, leaving the strategy of junk mail/spam-mail aside, the common problem that

is common to all site-centric strategies is the increasing costs that have become associated

with attracting traf c to a central site and building a customer base. Symbiotic marketing may

be viewed as a response to some of the problems associated with the site-centric approach to

building a customer base on the Internet.

Sym biotic m arketing

The term symbiosis , as borrowed from biology, refers to the living together in intimate

association of two dissimilar organisms for mutual bene t (Street, 1975). The existence of such

mutualistic interactions has been widely reported from a wide range of taxa and include many

different types of relationships in the biological sciences (Boucher, 1985). The driving force

behind the formation of the symbiotic relationship must be that the mutualism should lead to an

increase in tness of both participants (Poulin and Vickery, 1995). Adler (1966) highlighted

the case of the African buffalo bird that lives on the back of the rhinoceros. In return for a free

mobile home and a free food supply of insects off the hosts back the bird provides a valuable

service. The bird, with its nely tuned sensory equipment, is able to detect danger at an early

stage and, thus, is able to squawk and y off the back of its host thereby providing an early

warning of any potential danger.

Adlers (1966) article was the rst to explore the concept of symbiosis in marketing. Although

the concept has become one that is highly applicable in the context of business practice it is one

that has been largely under-researched in the academic world (Varadarajan and Rajaratnam,

1986). Symbiotic marketing is an alliance between two or more independent organizations

which is designed to increase the market potential of each (Adler, 1966, p. 60). This de nition

only refers to organizations that remain distinct and excludes the traditional marketer marketing

intermediary relationship (Varadarajan and Rajaratnam, 1986). The present paper applies the con-

cept of symbiotic marketing to the case of Internet marketing and, in particular, to the develop-

ment of a customer base. As with Adler s (1966) example of the buffalo bird and the rhinoceros,

the basis of this symbiotic marketing relationship is the concept of mutuality, i.e. both parties

derive a bene t from the relationship. The services provided will bene t the host site, which will

form the incentive to include the services on their site. In addition, the service is delivered to

the site that the customer would prefer to use rather than the customer being directed to the site

the supplier would prefer they used. In addition, by forming a symbiotic relationship with the

host site an organization can easily provide its services to a wider audience than they could

otherwise do if they only existed on their own site. The development of symbiotic relationships

in the market-space is manifested through electronic links between organizations websites. The

willingness to link to different rms websites is in effect the provision of a seal of approval for

that website; however, the link relationship is very different from the concept of a relationship

that we think of in the context of strategic alliances between organizations. In the case of

a symbiotic strategy such a link may be implemented by a rm without the consent of the

content-providing link partner. The easy implementation of links is an important element in a

symbiotic strategy as an organization will want to link to as many other websites as quickly as

possible. However, although symbiotic relationships are characterized by no interpersonal contact

between rms this is not to understate their potential importance. Recent research by Ennew et

al. (2000) examined the importance of links in determining the level of traf c on an Internet

site and found that links were overwhelmingly the most important determinant of site traf c

with elasticities of approximately 0.75 across a range of different market sectors.


On initial examination this strategy may appear to be counter-intuitive because, under the

site-centric model, companies protect their functionality and attract customers to their central

site. However, the service industry does not enjoy the same legal protection of intellectual

property as the manufacturing industry. Although companies are able to protect intellectual

property in the form of trademarks and brand names they are less able to protect ideas. An

extreme example of this is the nancial services industry where it is not possible to patent

an actual service concept/idea (Naslund, 1986). Therefore, if it is not possible to protect the

intellectual property rights of a service, the actual functionality of an Internet page becomes a

rm-speci c resource that cannot be fully protected. This has interesting implications for how

rms approach their strategy towards marketing on the Internet.

As discussed earlier, the building of a customer base is considered to be key in developing a

viable Internet-based organization. However, the traditional approach of the site-centric strategy

is becoming increasingly costly and one that is not an option for rms with small advertising/

promotion budgets (Lockett et al., 2000). The strategy of symbiotic marketing builds on the idea

that it is not possible to protect content and, therefore, concentrates on what is the best way

to build and defend a customer base. The case below demonstrates that, rather then protecting

content, in certain instances the best strategy may be one of providing content to whichever

Internet page the customer requires. However, the important distinction to make is that giving

away content is not the same as losing customers. The customers of the service will remain

with the company, as it is the original company that provides the service. The only difference is

that the port of entry for the client is not always the service provider s own Internet site. The

strategy of symbiotic marketing is represented diagrammatically in Fig. 2.

The symbiotic strategy has the advantage that, by making the service available on as many

sites as possible, the chances of a new customer nding the service are increased. The technique

appears to be particularly appropriate for the business-to-business market where the most

important site for a service to be referenced is their own companys Intranet site or access page

FIGURE 2. The symbiotic marketing approach.


to the Internet. In addition, through the development of its links the company is effectively

building itself an electronic presence in the market-space. Not only does each link raise the

visibility of an organization and, therefore, drive more traf c to a site, the possession of a link has

the added advantage of depriving a direct competitor of building the same link (Ennew et al.,

2000). The strategy is explored using case data in the following section.

RESEARCH METHOD

The present research employed a case study-based method based on those of Eisenhardt (1989)

and Yin (1994). The decision to use a case-based methodology was based on two main con-

siderations. First, the number of companies that are following a symbiotic strategy in developing

their customer base appears to be very small and only three were identi ed during the course of

the research: Xenon Laboratories, Google and Amazon. In addition, as the strategy of symbiotic

marketing in the case of the Internet has not been explored before, the case study method pro-

vides an important vehicle for the development of theory generation. This was considered to be

an appropriate approach when focusing upon this novel research area. The information sources

used in the development of the case included interviews with board-level employees of Xenon

Laboratories, information collated from the Xenon servers that host their website and additional

data that is publicly available from web monitoring companies, the best of which is considered

to be Alexa (http://www.alexa.com/). (The data provided by Alexa.com is publicly available and

provides measures of site traf c, links into a site and a number of different site-level data relating

to factors such as the speed, freshness and content of a web site. For a fuller discussion of

the data see Ennew et al. (2000).) The motive for employing a range of different data sources

was that such an approach would facilitate the triangulation of evidence (Deshpande, 1983). A

case approach involving the use of multiple sources of data is particularly useful in areas where

existing theoretical and conceptual frameworks are not applicable and, thus, the research pursues

the less common direction of moving from data to theory.

A CASE EXAMPLE OF SYMBIOTIC MARKETING

The objective of the case is to present a real life example of how a strategy of symbiotic

marketing may be used in order to build a customer base on the Internet. One company that has

pursued such a strategy is the Canadian Internet nancial service provider Xenon Laboratories

(http://www.xe.net/). (A corporate overview of Xenon Laboratories may be obtained from its

web site at (http://www.xe.net/xenon/brief.htm). Xenon Laboratories states that it aims to

work in partnership with nancial institutions in order to develop and deliver Internet-based

international nancial services for their corporate customer base.) Xenon Laboratories has

followed a symbiotic approach to building a customer base as it attempts to enter the nancial

services market in order to support cross-border business-to-business trade. However, as the case

demonstrates, the strategy of symbiotic marketing may not be considered to be initially intuitive.

Instead, Xenon Laboratories symbiotic strategy has been one that has emerged over time, the

logic of which has become increasingly apparent.

The market for international payment services is highly fragmented, with basic services pro-

vided by over 4000 different banks and the introduction of high value-added services dominated

by the large international banks, including Citibank, Bank of America, Chase and ABN AMRO.

Xenon Laboratories strategy in entering the market has been to build a customer base of

importers and exporters by providing free information tools. This was the rst stage as, once


http://www.alexa.com/%29.http://www.xe.net/%29.http://www.xe.net/xenon/brief.htm%29.

a customer base has been developed, it is then possible to contact customers in order to test

product concepts and develop enhanced information products that prompt the purchase of a

nancial product. By employing such a strategy Xenon Laboratories has been able to circumvent

the large expense of the traditional site-centric model of attracting hits to a central site. In

addition, the cost of developing a fully functional service can be postponed until after the

product concept has been tested with a signi cant customer base.

Attracting a custom er base of im por ters and exporters

In April 1995, Xenon Laboratories launched a simple foreign exchange calculator on the Inter-

net, the Universal Currency ConverterTM (http://www.xe.net/currency). This is a free service

that enables users to calculate a value in a second currency. In addition, a free daily e-mail

delivery of a foreign exchange table expressed in the currency of the customers choice was

provided. The e-mail service was not advertised, with the bulk of registrations obtained from

users clicking on a link on the output page of the Universal Currency ConverterTM. The

registration procedure for each of the services provided a suf cient level of information such

that Xenon Laboratories was able to determine that the users of the converter were split

between two main segments.

(1) Business-to-business: importers and exporters using the service to price transactions in

their trading partners currency.

(2) Retail users: converting prices for holidays.

(The level of data collected from the registration procedures for each of the services

included capturing information regarding (1) the respondents name, address and personal

details, (2) company information, where necessary, (3) reasons for using the Xenon Labora-

tories services, (4) users of level awareness of other Xenon Laboratories services, (5) how

users became aware of the Xenon Laboratories services and (6), potential service

improvements.)

In August 1996 the customer base of the Currency Update Service was large enough to

test an initial product concept with only just over 300 registered customers. The initial product

concept tested was the Exporter Pricing ServiceTM, a service aimed at reducing the risk

facing exporters when pricing sales in their customer s currency (see Naud et al., 1998). As a rst stage in the new service development process e-mails were forwarded to 300 customers

requesting their input on the product idea. The e-mail contained the address of a simple

questionnaire placed on Xenon Laboratories site. Within 24 h of sending the e-mails over 15%

of the sample had completed the questionnaire on the site.

The purchasing of advertising was not an option in growing the user base for two main

reasons. First, Xenon Laboratories did not possess the required nancial resources and,

second, there are a limited number of high use exporter- and importer-speci c sites on which to

advertise. In addition, Xenon Laboratories faced the problem that, during 1995 and 1996, there

was a limited number of companies who entered the market offering a similar service. However,

during this time the site did receive considerable coverage in the press and a large number of

links from other sites.

In the rst year of use it was found that other sites were creating their own input pages

and sending the calculations to the Xenon Laboratories server; the result was then returned as

the Xenon Laboratories output page. While the actual page views of the Xenon Laboratories

site were reducing relative to the number of calculations, the likelihood of an importer or


http://www.xe.net/currency

exporter using the Xenon Laboratories service and, therefore, seeing the links to the Currency

Update registration form increased. Therefore, it was decided that rather than blocking the use

of Xenon Laboratories services that did not originate on the Xenon Laboratories site, Xenon

Laboratories would actually encourage it. In order to do this, in late 1997 instructions were

provided in order to help customers produce their own customized versions of the Universal

Currency ConverterTM (http://www.xe.net/cus/customize.htm). However, customers who

established their own customized versions of the service were still requested to register

and, as a user, were asked why they were using the converter. In early 1998 an average of

10 customized versions of the Universal Currency ConverterTM were being registered per

day. The daily average signi cantly increased in March 1999 when the process for setting up

the input pages was simpli ed by providing a downloadable le. The growth in the number

of monthly new registrations for customizing the converter over the last 12 months is shown

in Fig. 3.

The large number of customized versions of the Universal Currency ConverterTM greatly

increased its coverage on the Internet and, thus, the probability of an Internet user nding the

service. In addition, the large number of sites listed with the Universal Currency ConverterTM

also resulted in the Universal Currency ConverterTM taking a large portion of listings when a

search was made for a currency converter on the main search engines. As a result, the growth

of the service has continued to date with usage increasing approximately 8% compound per

month. Fig. 4 shows the increased usage of the converter over the period March 1997 to

November 1999.

As a defensive measure Xenon Laboratories also provided co-branded versions of their

converter for use by the large portal sites (e.g. eBay, AT&T, Go and Virgin) where the site

owner s prime objective was to retain customers on their own site. Again, the main bene t in

providing functionality to a non-Xenon Laboratories site was that a link was shown to Xenon

Laboratories additional services in order to build the database of customers for testing product

concepts.

FIGURE 3. Registration of customized versions of the Universal CurrencyConverterTM.


http://www.xe.net/cus/customize.htm

Initially it was anticipated that, by following the symbiotic strategy, the bulk of calculations

would be delivered by sites that had placed the input page within their own site with custom-

ized versions of the calculator, with the majority of calculations coming from the key portal sites

using co-branded versions of the service. However, during April 1998 it was found that 85%

of calculations were entered into the calculator on the actual Xenon Laboratories site and that

10% were from free customized versions and only 5% from the prominent portal sites.

Following the analysis, Xenon Laboratories concentrated on simplifying the process for

smaller sites in order to implement the free customized versions within their own site rather

trying to convince the large portal sites to implement tailored co-brands within their sites. In

order to illustrate the bias towards the Xenon Laboratories site, the ratio of page views for the

Universal Currency ConverterTM to the number of calculations is shown in Fig. 5. Although

the proportion of calculations that come through the Xenon Laboratories web site appears

to be lower than in April 1998 the proportion is holding relatively stable at around 65%. This

proportion has been achieved despite a strong growth in the number of input pages installed

within other sites.

The reason why only a low and stable proportion of calculations are being performed on the

prominent portal sites or co-branded sites is not yet fully understood. The low proportion of

calculations generated by the portal and other sites may re ect their low share of the business-

to-business market on the Internet. The peak load on the Xenon Laboratories service is at the

start of the working day on the West Coast of America with a large portion of the calculations

generated from corporate Intranet sites. The portal site for the business users is their companys

home page when the employees are accessing services from the company Intranet or from links

on their companys home page (both are effectively the portal site for the organization).

It appears that a strategy of assisting business customers in either inserting links or the input

pages for Xenon Laboratories services on their own Internet and Intranet sites is an effective

approach to generating a virtual portal site or business-to-business marketing.

FIGURE 4. Usage of the Universal Currency ConverterTM over the last 18 months.


As with the portal sites the reason why usage of the converter from customized sites may

be far less than rst anticipated is not fully understood. One potential explanation is that users

of the customized site typically bookmark the output page (on Xenon Laboratories site) rather

than the input page used to make the calculation on the customizer s site. If the customer

does this then they will automatically go to the Xenon Laboratories central site each time rather

than the customized company site. Other websites may be linking to the Xenon Laboratories

site rather than the site that has implemented their own input page to the Xenon Laboratories

service. Xenon Laboratories encourages this by providing simple instructions on how to

implement the link.

Com par ison of Xenon Laborator ies with com petitor s

The above case outlines how Xenon Laboratories has been successful in growing its own

customer base by using a strategy of symbiosis. In order to determine the success of Xenon

Laboratories relative to its competitors two public sources of data were used. The search engine

Google (http://www.google.com/) was used to provide a list of the 10 most popular currency

converters. Google ranks websites according to the number and/quality of links to a website.

(The Google ranking takes into account the quality of links directing traf c to a site. A rms

ranking is computed using a complex algorithm which attributes a weight according to the

popularity of a site.) The second source of data used was that provided by one of the range of

web monitoring services that currently exist. Rather like the omnibus consumer surveys which

operate in conventional markets, web monitoring surveys collect data on the Internet activities

of consumers registered with the particular service. Of the range of monitoring services avail-

able, Alexa (www.alexa.com) was identi ed as probably the most comprehensive. Alexa is a page

FIGURE 5. Ratio of Universal Currency ConverterTM calculations to page views.


http://www.google.com/http://www.alexa.com

counter site which has one of the widest reaches in terms of both sites covered and number

of users (estimated at approximately 0.5 million users). For the user, it appears as a toolbar once

a web browser has been invoked. It provides the user with background information on the

sites visited. When a user visits a site, Alexa recognizes the location, identi es any related links

and gives the user the opportunity to comment. The number of visits recorded is based on the

number of Alexa users who have visited the site in the previous 6 months. Every time an Alex

user visits the site, it counts as a visit and the number of visits is recorded on a daily basis. The

ten most popular currency converters identi ed by Google and their volume of Alexa traf c are

presented in Table 1.

Table 1 indicates that Xenon Laboratories had the largest customer base (as measured by

Alexa data) of the websites providing currency converters. The market for currency converters

appears to be highly concentrated with most of the traf c going to Xenon Laboratories and its

main competitor Oanda, which it appears has also adopted a symbiotic approach to marketing

its services. The importance of the symbiotic strategy is demonstrated by the fact that four of

the top 10 web pages listed by Google are linked to the Xenon Laboratories converter and one

other is linked to the Oanda converter. The high degree of market concentration between the

two companies demonstrates the potential of a symbiotic strategy for reducing competition by

creating barriers to entry for new entrants. The ndings are consistent with those found across a

range of different market segments including books, CDs, retail broking, retail banking and travel

agency services (Ennew et al., 2000).

The va lue of links

The symbiotic approach appears to be successful in building a customer base on the Internet and

reducing the likelihood of competitors entering the market. However, such an approach does

require a considerable amount of time in order to build up a network of links and a client base

(5 years for the present case). The site-centric approach offers a much quicker strategic option

for rms wishing to build a customer base which may be pursued through the use of advertising

in order to purchase temporary links from other sites as banner adds. An estimate of the number

of banner advertisements required to generate the equivalent page views as the output page

of Xenon Laboratories converter should give an indication of the value of the symbiotic

process used by Xenon Laboratories. An attempt to calculate the value of the symbiotic strategy

is presented in Table 2. During December 1999, Xenon Laboratories Universal Currency

ConverterTM was processing an average of approximately 95 000 calculations daily. The pro-

portion of these calculations that came through links to the Xenon Laboratories web page was

approximately 35%. Therefore, in order for banner advertising to generate the same volume

of page views as do links it would be necessary for banner advertisements to result in 33 250

calculations per day. The click-through rate for banner advertisements is estimated at 0.5%

and, thus, Xenon Laboratories would have to purchase the equivalent of 6 650 000 banner

views in order to drive the same level of calculations. If the cost per thousand impressions

(CPM) is taken as $6, then the total value of Xenon Laboratories links in driving calculations

on the converter is $39 900 per day (the gures for the click-through rates and CPM are both

conservative industry standards).

Table 2 indicates that, if Xenon Laboratories did not have any links and required maintaining

its current level of calculations through its site via banner advertising, then it would face costs

of around $39 900 per day. Therefore, the symbiotic approach can be seen to have saved Xenon

Laboratories a substantial amount of money as it has not incurred the costs of accessing a


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customer base via banner advertising (or any other form of advertising). The costs identi ed in

Table 2 highlight the prohibitive costs of building a customer base that any potential entrant

faces in any Internet market. In addition, the value of the links to Xenon Laboratories may be

considered to be greater than in the case provided above because of the non-temporary nature

of the links. Unlike banner advertisement which are only visible as long as a company continues

to pay, the link will remain until it is removed by the company. Therefore, the link also provides

a form of barrier to entry for companies as they would have to displace existing links before

creating their own.

Case discussion

The case demonstrates that Xenon Laboratories, by actually encouraging companies to

incorporate their own content into their own Internet sites, have built a customer base. This

has been achieved without having to incur the costs generally involved in a more traditional

site-centric approach. However, it must be acknowledged that the strategy of symbiosis was not

initially intuitive to Xenon Laboratories. The emergence of the symbiotic strategy was due to

the realization that other websites were linking into the Xenon Laboratories site and that, by

doing this, Xenon Laboratories would be gaining rather than losing customers. In addition to

not stopping customers from embedding Xenon Laboratories functionality in their own web-

sites, Xenon Laboratories actually saw the potential bene ts from making the process as simple

as possible in order to encourage this behaviour. An additional bene t that has accrued to

Xenon Laboratories and one that the management of Xenon Laboratories do not fully under-

stand is why over 50% of all calculations are input on the Xenon Laboratories site. It appears as

though even when the Xenon Laboratories input pages are embedded in third party websites,

that customers overwhelmingly prefer to use the actual Xenon Laboratories site for inputting

their calculations. This has interesting implications for the symbiotic strategy as it means that, not

only can the symbiotic strategy lead to low cost development of a customer base, but also that

these customers may choose to make either a bookmark or link their site to a source provider of

the functionality.

The lessons that may be drawn from the case are that it appears as though it is more import-

ant to be the rst to promote the symbiotic approach for the service by other sites than the rst

to produce the solution. The important aspect of the strategy is that the content of the service is

delivered to as many different Internet sites as possible and as quickly as possible. The greater the

TABLE 2. The value of Xenon Laboratories links interms of banner advertising

Number of daily calculationsProportion of calculations from links %Number of views of outputs page linksClick-through rate from banner adds %Number of banner views required to achieve

comparable level of page viewsCPM ($)Cost per day ($)

95 00035

33 2500.5

6 650 000

6.0039 900


Internet coverage of the service, i.e. the more Internet sites it is embedded in, the more dif cult

it becomes for the competition to remove it. Evidence of this is Amazons strategy of associate

companies and the more than 200 000 associate members it has on the Internet. This makes it

increasingly dif cult for other book retailers to erode Amazons position as Internet users are

more likely to be directed to the Amazon site than a competitors. The recommendation of

the service by another web site may increase the likelihood of a customer using the service as

this could raise the perception of trust in the service. A comparison on the effectiveness of the

approach versus purchased advertising banners is an area for future research.

THE POTENTIAL SCOPE OF SYMBIOTIC MARKETING

Although the case above demonstrated the advantages of employing a strategy of symbiotic

marketing for Xenon Laboratories this is not to say that it will be universally applicable. The

following section attempts to examine which factors will in uence an organizations strategy

towards building a customer base on the Internet. This is a similar approach to the one taken by

Holland et al. (1992) in their paper on the implementation of EDI strategies. It is anticipated

that a number of factors will in uence on organizations decision as to the strategy they

will follow in building a customer base. It is anticipated that building a customer base using a

symbiotic marketing strategy will be best suited to services where (1) the service is based on

changing data, i.e. that there is a requirement for an enquiry to be sent to the central server and

a results page to be returned, (2) the service is viewed as adding value to the host site and not

seen as competitive threat, (3) the service is simple for other sites to implement and (4) the

feedback from clients can be immediately used to enhance the service.

In addition to the characteristics of the service, the nature of the market the service is targeted

at may in uence the choice of strategy in building a customer base. It is anticipated that the

strategy will be best suited to the following cases.

(1) Where markets are fragmented and, thus, there are no big established dominant players

in the industry. In addition, this will be related to a large number of small Internet

sites serving a particular market segment, on which the functionality of the service can be

placed.

(2) Where market segments have had traditionally long product development cycles. This is

important as it provides a suf ciently long time period to build a large enough customer

base before competitors react.

(3) Where the customer base is in a business-to-business rather than a consumer context. This is

considered important as it is anticipated that there will be less need for a highly established

and visible brand name than with consumer marketing. In addition, the big portal sites are

perceived to be less important and companies own portal sites more important in this

market.

It is anticipated that highly concentrated Internet markets are least suited to the symbiotic

approach. For example, the Internet-based book retailing industry is dominated by Amazon

(http://www.amazon.com/) which has been particularly aggressive in implementing a combined

advertising campaign (site-centric) and symbiotic approach. Here, tailored Amazon bookstores

are offered by other (non-Amazon) sites who receive a share of the revenue from the books sold.

It is anticipated that, to displace Amazon from the sites which they are already receiving a

revenue share from, will be a dif cult and costly exercise. This is exempli ed by Barnes and

Noble (http://www.barnesandnoble.com/) who are currently working with Bertelsmann (http:/


http://www.bertelsmen.de/http://www.amazon.com/http://www.barnesandnoble.com/

/www.bertelsmen.de/) of Germany in order to attempt to displace Amazon. The companies

have stated that they intend to spend several hundred million US dollars in order to develop and

promote their alternative service.

A related issue is what role links may play in the competitive dynamics of a market-space.

The work of Ennew et al. (2000) highlighted the fact that links are the most important

determinant factor in driving traf c to Internet sites. Although the dominant theme in the

literature is that the advent of the Internet will lead to the creation of electronic markets

as the Internet reduces barriers to entry (Malone et al., 1987, 1989), barriers to entry exist

in part due to the large budgets needed to advertise in order to drive traf c to a site and links

may be another way in which companies may begin to erect barriers to entry. Once the

links are put in place then it seems likely that the site is not going to replace the link with

another if the services being offered are as good as any other in the market, i.e. there has to

be some positive net bene t to offset the costs associated with switching services. Therefore,

if links are relatively stable then there is obviously a rst mover advantage to developing them

because every link you have developed is an additional link that a competitor is unlikely

to capture. The building of links may be viewed as a method of erecting barriers to entry for

competition.

The concept of employing links in order to develop barriers to entry in markets has interest-

ing implications for whether or not a company pursues a strategy of being a leader in a market.

The advantage to moving rst and establishing links in the market-space has a logic in that

companies on the Internet face the problem that services cannot be patented (see Naslund,

1986) and, therefore, the content or functionality of a site is something that cannot be protected

from imitation. This problem is further exacerbated by the fact that the speed with which

services can be imitated on the Internet is very high. Therefore, rather than try and pro-

tect content, it seems logical to give the content away to build links that are a much more

protectable resource. In addition, the quicker and greater the number of links you develop as a

company the more dif cult it becomes for other companies to develop such links.

The one downside of the symbiotic approach is that the building of links requires time and,

therefore, there are time-based issues regarding whether or not such a strategy may be feasible in

all cases. In the case of Xenon Laboratories it appears as though no other market participant has

retaliated strongly to its strategy; however, retaliation is always a threat. Any company that lacks

resources and is fast building a customer base on the Internet is always facing the threat of a

larger organization committing large amounts of resources to advertising campaigns to attract

traf c and/or acquiring it whilst it is in its infancy. In addition, replicating a symbiotic strategy

whilst channelling resources towards sites to provide these links may be a hybrid strategy that

would accelerate the process considerably. A company that pursues a pre-emptive strategy of

symbiotic marketing may be able to build barriers to entry and, therefore, deter market entrants.

However, such an outcome is dependent on how long the company pursuing the symbiotic

approach is allowed to grow without retaliation. It appears as though Amazon was handed very

long lead times for developing its links and customer base before Barnes and Noble entered the

Internet book retailing market. If Barnes and Noble had responded to the Internet threat of

Amazon as a market entrant much earlier then Amazon may not have been able to build the

dominant position in the market sector.

The most dif cult issue to be tackled by large corporations is organizational, as the symbiotic

approach does not t comfortably with organizations that have developed sophisticated,

marketing push strategies. The key issues that face an organization in wishing to implement a

symbiotic strategy are due to the method having the following qualities.


http://www.bertelsmen.de/

(1) It is relatively cheap. In organizations where the size of a managers team or budget is the key

determinant of their position and status within the organizations the symbiotic approach

may offer few bene ts to the management team.

(2) It is slow to generate results. Senior managers are unlikely to be willing to sponsor

projects that are unlikely to generate results within 2 years. Key staff are also unlikely to

want to be attached to business projects that are unlikely to progress their careers in the

short term.

(3) It has potential impact on the brand value of an organization. The lack of control of the type

of site that implements a symbiotic service and the potential impact on the reputation of the

large organization could result in a large number of controls that would dramatically impact

on the value of the service. Few large corporations would be willing to have a branded

service on a pornographic site.

(4) Reluctance to assist competitors. To be effective there has to be a willingness to let a

potential competitor enhance the value of their website by implementing the symbiotic

service. This approach can be completely counter-intuitive to marketing departments in

large organizations.

Initially, large organizations could approach the technique as an investment in research

and development. The key bene ts would be the data that could be captured on the type of

customers and the popularity of Internet sites in their target market that have implemented the

symbiotic services. With smaller sites the information could be used to target acquisitions,

whereas with larger potential competitors that use the symbiotic service the technique is an

effective blocking strategy thereby reducing the likelihood of them developing a similar service.

CONCLUSION

The paper has presented an alternative marketing strategy for testing and launching Internet-

based services. While the approach of symbiotic marketing is a relatively low cost strategy it does

have the downside of the need for long lead times and may require more persistence than would

be tolerated within a large organization. The advantages of successfully adopting a strategy of

symbiotic marketing are that it simultaneously reduces the need to purchase advertising through

enhancing Internet coverage and leads to the development of a targeted customer base.

Symbiotic marketing presents companies with a strategy for the possibility of developing a

presence on the key portal sites in the business-to-business market through giving away content.

This approach of developing useful content and giving it away appears to be counter-intuitive to

larger corporations and is most probably the greatest barrier to the adoption of such a strategy

by large corporations. However, the authors do not suggest that such a strategy will be optimal

for all companies; rather, it may be applicable in certain instances. It is anticipated that the

strategy will be most useful in a business-to business context where market segments are highly

fragmented and there are traditionally long product development cycles and little differentiation

between products.

A large corporation willing to commit a substantial investment to advertising alternative

products could still overtake a company that has concentrated on developing a customer

base with a symbiotic approach by paying web sites to take their service. However, comparable

new entrants would nd dif culty in raising suf cient funds to mount a marketing campaign to

catch up. In addition to the bene ts of building a low cost user base, advantages exist in the

incremental approach of symbiotic marketing where the feedback from customers can be used


to enhance services. The cross-marketing of additional services to registered websites appears to

be a key bene t in reducing the lead time to building client bases for second generation services

that meet a different need for the same target markets. Companies that have implemented

a symbiotic approach should be able to accelerate their growth as they broaden their product

range. Amazons broadening of its af nity programme in order to include additional products to

books is a clear example.

The analysis used in the case study was limited due to a lack of tools for analysing the large

amounts of data involved. The current research project is ongoing and longitudinal data is being

stored in order to address a number of important future research questions that follow from the

symbiotic strategy outlined in the present paper. First, does the effectiveness of a link vary over

time, i.e. does the link become less effective the longer it has been in place. Second, how can the

effectiveness of links be enhanced? It is envisaged that there are a number of different strategies

that may in uence the effectiveness of a link such as the amount of functionality that is delivered

to a partner site. Third, if links are the most important determinant of traf c on a site then

the prohibitively high costs of banner advertising may mean that advertising should be targeted

not at end customers but rather at developing links with suitable sites that may wish to link

symbiotically. Finally, via the use of cookies it may be possible to examine whether individual

customers continue to access a web site via a link or bookmark the original site.

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Documents

JSM Lockett and Blackman 2001