ORGANIZING TODAY FOR THE DIGITAL

MARKETING OF TOMORROW

Andrew Parsons
Michael Zeisser
Robert Waitman

ANDREW PARSONS is a Director

at McKinsey & Company, New York.
The rapid development of new interactive media such as on-line
services and the World Wide Web has taken most consumer market-
ers by surprise (Figure 1). Many are struggling to ‘‘guesstimate’’ the
likely impact of interactive media on consumer marketing, wonder-
ing what they should do and how they should go about doing it.
Those who move forward do so with mixed success. Our recent
analysis of nearly a hundred web sites of Fortune 500 consumer
marketing companies shows that most of today’s interactive media
marketing applications are uninspiring and, we would argue, fall far
short of the potential of interactive media (Figure 2). Yet there is
emerging evidence that new media represent both a tremendous MICHAEL ZEISSER is a Principal at
opportunity and a serious threat for marketers today. McKinsey & Company, New York.
To address this apparent gap, we have developed an integrated
perspective on leveraging interactive media for marketing, which
we refer to as digital marketing. Our perspective on digital market-
ing is articulated around four key issues: for whom does digital
marketing represent an important opportunity, what elements
should be included in the digital marketing program, and how
should the digital marketing organization be designed?

q 1998 John Wiley & Sons, Inc. and

Direct Marketing Educational Foundation, Inc. ROBERT WAITMAN is an
CCC 1094-9968/98/010031-16 Engagement Manager at
■ McKinsey & Company, New York.

The authors would like to thank

JOURNAL OF INTERACTIVE MARKETING
their McKinsey colleagues, Alexa
VOLUME 12 / NUMBER 1 / WINTER 1998 Kierzkowski, Andrew Kofman, and
Shayne McQuade, for their
contributions to the thinking
reflected in this article.

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 JOURNAL OF INTERACTIVE MARKETING
First, however, it is important to define what
we mean by digital marketing. By digital market-
ing, we mean two activities: first, leveraging the
unique capabilities of new interactive media
(e.g., World Wide Web, on-line services, propri-
etary dial-up services) to create new forms of
interactions and transactions between consum-
ers and marketers; and second, integrating in-
teractive media with the other elements of the
marketing mix.
IS DIGITAL MARKETING AN IMPORTANT
OPPORTUNITY?
Interactive media marketing applications pres-
ent substantial opportunities for marketers for
two reasons. Not only does intuition suggest that
a highly attractive consumer market space is
emerging, but marketing itself is inexorably
evolving into a direction in which interactive
media could play a key role (Figure 3). As a
result, an attractive vision for interactive market-
ing emerges:
1. An attractive market space is emerging, with
consumers and businesses. In the consumer
world, users of many popular branded
products subscribe today to interactive me-
dia (e.g., on-line services, internet access)
at rates two to three times the national
average. By 2000, there will be between 30
FIGURE 1
Digital marketing era analysis
JOURNAL OF INTERACTIVE MARKETING j VOLUME 12 / NUMBER 1 / WINTER 1998
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and 40 million of such ‘‘digital’’ consum-
ers, most of whom will likely be attractive
in terms of demographics and shopping
behavior. Similarly, in the business world,
an estimated 10–20 million small busi-
nesses in the U.S. are increasingly using
interactive media as a way to do business.
2. Technological barriers are expected to fall. Over
50% of these consumers will access inter-
active media at speeds 5 to 500 times faster
than they do today.
3. Interactive media feature a unique combination
of powerful capabilities for marketers. Digital
marketing is likely to become an integrated
part of the marketing mix for consumer
marketers in the not-so-distant future, as it
enables entirely new forms of interactions
between consumers and marketers (e.g.,
two-way interactivity, seamless transactions,
addressability, on-demand availability, cus-
tomization) leading to deeper relationships
and greater personalization of goods and
services. In different ways interactive media
will also substantially change business-to-
business sales and marketing practices as
electronic commerce becomes established.
Several broad types of attractive digital mar-
keting opportunities already exist. In fact, ag-
gressive players are already starting to make
money with them. While these opportunities are
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 DIGITAL MARKETING OF TOMORROW

FIGURE 2
Existing Applications Not Leveraging Capabilities

by no means mutually exclusive, it helps to look prospects, enhance loyalty by providing

at them individually to develop a better under-
standing for the potential of digital marketing.
We believe there are three such opportunities
today:
1. The information-delivery opportunity. Market-
ers can use interactive media to provide
higher service and lower cost by delivering
information about products or services.
Examples of marketers pursuing this op-
portunity are FedEx, UPS, and Sun Com-
puters.
2. The relationship-building opportunity. Mar-
keters can leverage interactive media to
identify attractive self-selected users/
value-added services, use what they learn
about their customers to customize ex-
isting or dross-sell new products and ser-
vices. Examples include Volvo, Zima, Hy-
att, Fidelity, Citibank Direct, HotHotHot,
and many others.
3. The channel/(dis)intermediation opportunity.
Marketers can use interactive media as a
new channel and either go direct to elimi-
nate traditional intermediaries or establish
an entirely new role as a value-added inter-
mediary. Examples include United Air-
lines, Amazon, Quicken, and Shoppers
Advantage.

FIGURE 3
The Changing Direction of Marketing and Implications for the Internet

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 JOURNAL OF INTERACTIVE MARKETING
FIGURE 4
Many Categories Potentially Attractive
In summary, we believe that digital marketing
is an attractive proposition for many more con-
sumer product or service categories than is typi-
cally assumed. Some categories of products or
services, such as software or travel, are natural
fits with interactive media: for example, they are
information intensive; transactions can be made
on-line; and current interactive media users are
heavy users. Other categories such as automo-
tive are well suited for digital marketing because
they are attractive for relationship—as opposed
to mass—marketing. The combination of both
of these factors, a category’s fit with interactive
media and its attractiveness for marketing-ori-
ented relationship building, suggests a breadth
of opportunity for digital marketing across
many more categories than common wisdom
would suggest (Figure 4).
WHAT ELEMENTS SHOULD BE INCLUDED
IN A DIGITAL MARKETING PROGRAM?
Our survey results show that many consumer
marketers approach interactive media the same
way they might approach traditional media like
television, magazines, or even direct marketing
channels. Yet there are fundamental differences
between the two. Firstly, traditional media in-
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volve one-way communication from the mar-
keter to the customer, while interactive media
allow marketers to establish a dialogue. Sec-
ondly, marketing through traditional media
takes place in a mass-market environment, while
interactive media allow marketers to reach (and
interact) with individual consumers.
How to do it?
What this means for consumer marketers is that
they must build a new model for marketing in
new media environments, one that is built
around five elements which we believe to be
essential factors for success in digital marketing:
1. attracting users,
2. engaging users’ interest and participation,
3. retaining users and ensuring they return
to an application,
4. learning about their preferences, and
5. relating back to them to provide the sort
of customized interactions that represent
the true ‘‘value bubble’’ of digital market-
ing (Figure 5).
Each of the five success factors suggests a
number of issues that marketers must address.
While the answers to many of these issues will be
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 DIGITAL MARKETING OF TOMORROW
FIGURE 5
Digital Marketing Framework and Levers
specific to a given marketer, we are beginning to
identify best practices that may guide companies
in getting more from their digital marketing ef-
forts. We’ll now discuss each of these five digital
marketing elements, highlighting why they are
important, what issues they present, and how
marketers are beginning to apply them:
Attract. Unlike direct and traditional mass
marketing, where the interaction is essentially
imposed on the consumer, digital marketing re-
quires consumers to voluntarily visit an inter-
active application, such as a world wide web site,
or to choose to use a dial-up airline reservation
service such as United Connection. Since the
current clutter on the internet virtually ensures
that the ‘‘build it and they will come’’ model is
insufficient to draw consumers, marketers need
to actively attract users. Hence, the need to ac-
tively attract users in the first place. Typically,
this is achieved by billboard advertisements and
links from other sites, listings on the ‘‘what’s
cool’’ services, and leveraging existing market-
ing communications such as advertising or
product packaging.
Two issues merit particular consideration:
first, the issue of branding, or what to call the
application. This becomes even more important
due to the need to build digital marketing appli-
cations into the marketing mix, which means
using the same name for the interactive applica-
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tion as for the product or service that is being
promoted. Since issues of name availability and
copyright are already beginning to surface, all
emerging and aspiring digital marketers should
take steps now to ensure the availability of their
brand name on the internet.
The second issue relates to the economics of
attracting users. Simply put, attracting users can
quickly become unjustifiably expensive relative
to the economic value that the digital marketing
application is likely to generate in the short
term. Marketers should validate the economics
of their promotional activities against their ef-
fectiveness, challenging for example whether
the right types of users are attracted to the digi-
tal marketing application, and whether there
are more optimal marketing vehicles that the
marketer should experiment with. For example,
piggyback marketing, which involves leveraging
existing marketing efforts to draw traffic to a
site, is becoming increasingly prevalent.
Engage. Having attracted users to a digital
marketing application, it is imperative that mar-
keters engage users’ interest and participation
to achieve an interaction or a transaction—that
is, after all, a major point of creating the applica-
tion in the first place. This engagement stage is
where too many digital marketing applications
fall short. For some applications, the exhibited
content is uninspiring, trivial, or poorly pre-
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sented, while for other applications it is so so-
phisticated or graphic that it is simply too time
consuming to browse given the constraints on
bandwidth of most internet connections today.
The key to engaging users is twofold: mas-
tering creative programming for interactive me-
dia (the form), and providing content that is
valuable to consumers (the substance).
A clear lesson on form is that simply trans-
ferring content from traditional media such
as catalogs or coopting direct marketing copy
usually does not work because it often fails to
create interaction. On the substance side mar-
keters are seeking opportunities for unique
transactions like the airline seat auctions or
attempting to engage users by allowing them
to communicate with others like them, creat-
ing virtual communities of interest. In these
users themselves create the valued content
through their own interactions (for example,
Saturn car owners). Finally, substance can be
provided by more convenient access to infor-
mation (for example, Schwabs’ electronic ac-
cess to financial records).
Retain. Once you’ve drawn consumers to your
site in the first place, and then have engaged
them with suitably interactive and valued con-
tent, making sure that they keep returning to
your site over time becomes the next critical
focus. Maintaining ongoing contact is essential
to developing relationships with consumers. Re-
taining users emphasizes the need for marketers
to recognize that digital marketing is not a one-
time project, but requires continued resource
commitments over time.
Arguably, digital marketers who are capable
of truly engaging users may be well on their
way to retaining them. However, there are some
subtle differences worth highlighting between
engaging and retaining. The first is the emerg-
ing evidence that suggests that while consumers
may visit a site once, they will not return without
a reason. At a minimum, this implies that mar-
keters must keep their sites ‘‘fresh’’ by continu-
ously renewing the content they offer consum-
ers and/or by providing content that is inher-
ently changing on an ongoing basis, such as
stock quotes or weather reports. Many market-
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ers have treated on-line marketing like tradi-
tional advertising—i.e., by developing an appli-
cation, launching it, and then stepping back
from it. However, the efforts required to main-
tain a vibrant digital marketing application do
not stop at launch. As a result, some marketers
have significantly underestimated ongoing con-
tent maintenance resource requirements.
The second difference between engaging and
retaining has to do with a unique—yet often
overlooked—opportunity for marketers: the
creation of switching costs for users as a means
to retain them. This occurs as users invest their
own time and energy in the interaction with a
digital marketing application, therefore creat-
ing an important disincentive to repeat that in-
vestment with another application. Quicken,
the financial management software, presents a
good example of how the more consumers in-
put their own financial information into the
software, the more they actually raise their own
switching costs.
The lesson is that digital marketers must ex-
plicitly think about how to build switching costs
as they define their strategy to retain users of
their digital marketing application.
Learn. Due to their very nature, interactive
media open up unprecedented opportunities
for marketers to learn about consumer demo-
graphics, attitudes, and behaviors. Demo-
graphic and attitudinal information may come
in the form of e-mail communications to mar-
keters, opinions volunteered on bulletin boards
or information gathered in surveys, question-
naires, or registration processes. Behavioral in-
formation may be gleaned from transaction re-
cords or click-streams, which track how users be-
have in a site. Marketers will need to define what
type of information may be most valuable to
them, what that information is worth, and how
to best leverage their digital marketing applica-
tion to obtain it.
Relate. Relating is one of the most important
value creation opportunities of digital market-
ing. In essence, it represents the opportunity to
customize the interaction and tailor either the
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 DIGITAL MARKETING OF TOMORROW
product or the marketing effort one consumer
at a time.
Interactive media allow for unprecedented
opportunities for a marketer to relate to a con-
sumer. This is due to the fact that as a two-way,
addressable communication and distribution
channel, interactive media allow a marketer two
important opportunities: to learn about an indi-
vidual consumer in the course of continued in-
teraction, and to deliver either a personalized
service or product or a communication about
the availability of such a personalized service or
product. Current examples include the on-line
Wall Street Journal and Amazon virtual book-
store on the world wide web.
Relating, of course, presents many challenges
for marketers. This may explain why there are
only few truly personalized digital marketing ex-
amples available. One reason is that relating re-
quires marketers to push their thinking about
the full potential of interactive media in their
specific service or product category. To do so
they must consider how to make the digital mar-
keting initiative an integral part of the existing
business system, as it fundamentally affects the
nature of the product or service provided by the
marketer to consumers. This presents important
internal and external issues—particularly for
large, established marketers—such as how to
integrate digital marketing initiatives with ex-
isting marketing programs or information sys-
tems.
HOW SHOULD A DIGITAL MARKETING
ORGANIZATION BE DESIGNED?
An important consideration for how to do digi-
tal marketing relates to organization. Many mar-
keters have found it more difficult than they
expected to launch interactive initiatives, as they
have discovered that those initiatives require
sometimes significant and profound changes to
their organization.
Many of these challenges are not new. Mar-
keters have faced them as they integrated other
marketing innovations (e.g., direct response
marketing, direct mail, 800 services). However,
digital marketing compounds these typical chal-
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lenges because of its more profound potential
impact on the relationship between marketers
and consumers, and therefore on the business
system of marketing companies.
While the world of digital marketing is still
too young to have yielded definite answers on
what works and what doesn’t in terms of organi-
zation, many marketers are facing similar issues,
and some patterns are beginning to emerge in
how they address them. Based on research with
12 Fortune 500 consumer goods/services com-
panies with a presence in interactive media, we
have begun to form a perspective about why it
is desirable to create a digital marketing organi-
zation and an empirical point of view on how
to do it based on the lessons of the pioneers.
WHY A DIGITAL MARKETING
ORGANIZATION?
There are two reasons to believe that the emer-
gence of digital marketing might call for
changes in existing organizations. The first rea-
son is that a number of characteristics funda-
mentally distinguish digital marketing from
other marketing innovations, and that these
characteristics have immediate organization im-
plications. The second reason is that digital mar-
keting holds the potential to fundamentally
transform today’s organizations in affecting
their structure and management processes.
Immediate implications. Four characteristics
of digital marketing hold immediate organiza-
tional implications, and suggest that a dedicated
organizational focus may be warranted, at least
in the early stages of development.
j The high uncertainty relative to the end-
game of technologies, consumer behavior,
and service providers requires dedicated or-
ganizational focus and resources to manage
multiple ‘‘bets’’ in the face of industry un-
certainty and to keep abreast of what’s hap-
pening in the marketplace. The unprece-
dented rate of change calls for an entrepre-
neurial mindset to spot the opportunities
and rapidly adapt to change.
j The novelty of the form of consumer interac-
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 JOURNAL OF INTERACTIVE MARKETING
tions enabled by digital network-based media
mandates the development of entirely new
skills in a whole range of areas such as cre-
ative programming, information capture,
and user-generated content management.
j Digital market will supplement or even re-
place some traditional marketing tools used
in the core business, for example, direct
advertising and selling or roles traditionally
played by distribution channels. There is
potential for conflict between the new and
old demands that, at least in the early stages
of development, the digital marketing ini-
tiative requires sufficient independence to
be ‘‘shielded’’ from the core business. At
the same time, the digital marketing organi-
zation has to be sufficiently aligned with
the rest of the organization so that existing
brand relationships and other privileged
assets are preserved.
Transformational implications. Over time, we
believe that digital marketing holds the poten-
tial to accelerate some potentially ‘‘transforma-
tional’’ organizational changes as continuous
consumer–customer interaction replaces the
traditional world of limited, mass-oriented and
intermittent communication. Two potential
changes stand out particularly:
j Broader interactivity with consumers may
accelerate the need to shift from managing
functionally to managing linked processes.
This shift occurs because interacting with
consumers on a continuous and individual
basis requires constant and simultaneous
involvement across traditional functional
boundaries. As a result, companies will feel
even more pressure than they already do to
structure themselves around core processes
that are aligned with how they actually in-
teract with consumers, from designing new
products to explaining and servicing them.
j The dispersion of information within compa-
nies may lead to the emergence of entirely
new forms of organizations. The emergence
of network-based technologies such as the
internet for consumer marketing, com-
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pounded with the rapid development of in-
ternal networks called intranets (which use
similar protocols and standards as the in-
ternet within a company), will result in more
information being available to more manag-
ers than ever before. This change is likely to
have a profound impact on how companies
make decisions and organize themselves to
capture the value from more information-
based knowledge. It is likely that decision-
making will become much more decentral-
ized, and some observers suggest may cause
the emergence of a new, knowledge-based
organizational layer. This new organizational
layer would archive and disseminate all of
an institution’s knowledge, thus feeding the
traditional layers of organizational structure
and processes. This would likely accelerate
the process whereby marketing becomes the
task of the entire organization, rather than
just a functional responsibility.
From either a short- or long-term perspective
the potentialities offered by digital marketing
suggest that senior managers need to consider
carefully where and how to build these capabili-
ties in their organization.
WHAT HAVE THE EARLY DIGITAL
MARKETERS DONE AND LEARNED?
What have the pioneers learned about the orga-
nizational implications of digital marketing?
Based on research with 12 Fortune 500 con-
sumer goods/services companies with a pres-
ence in interactive media, we have synthesized
some valuable lessons on how these pioneers
developed their digital marketing organizations
over time, and to what they have learned while
doing it.
Stages of organizational development. Typi-
cally, companies go through four key stages in
the development of their digital marketing orga-
nization (Figure 6).
1. Ad-hoc activity (Figure 7). In this first stage,
companies establish a basic on-line pres-
ence. However, there is no formal organi-
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 DIGITAL MARKETING OF TOMORROW
FIGURE 6
Digital Marketing Organization Stages
zation dedicated to the effort, which is of-
ten led by self-selected individuals. There
are no dedicated skills in place.
At one major commercial bank, for ex-
ample, a group of 20 interested individuals
began meeting every few weeks on a volun-
teer basis (i.e., outside their regular re-
sponsibilities). Their mission was to ex-
change ideas and to move the bank toward
establishing an on-line presence. The
group consisted mainly of technical ex-
perts, but included representatives of mar-
keting and corporate affairs as well.
FIGURE 7
Commercial Bank Example: Ad-Hoc Activity Stage
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Early on, the goal of the group was to
create and maintain a web site. Because
many believed ‘‘if we build it, the custom-
ers will come,’’ the first site was merely a
repackaging of standard company market-
ing brochures. But the group quickly real-
ized that customers wanted much more
from a bank than marketing brochures:
for example, account information and
maintenance, loan applications, and in-
vestment rates—which required much
greater investment and senior-level leader-
ship to achieve.
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As this was happening, the group’s size
was interfering with its ability to be effec-
tive. Attendance at meetings had in-
creased to 50, which was too large for
open, democratic discussions. A single dis-
senter could derail the productivity of the
entire group.
Despite these issues, the group was suc-
cessful in generating a great deal of inter-
est at the bank and in identifying potential
senior leadership and ownership for the
effort. Having achieved this, the group
stopped meeting and became more of a
‘‘distribution list’’ for updates and infor-
mation about the various on-line activities.
2. Focusing the effort. During this phase, the
organization recognizes the effort as a
learning experiment. Typically, a cross-
functional steering committee led by a se-
nior executive develops a set of policies/
principles for how the company will ‘‘go
digital.’’ A small number of resources, 5
to 10 people, are dedicated to the digital
marketing effort, although its reporting
structure is still considered temporary.
At one packaged goods company, the
steering committee set the boundaries by
deciding which on-line activities (e.g.,
tracking on-line user preferences/activi-
ties, responding to customer comments,
establishing communities of interest, par-
ticipating in electronic malls, advertising)
the company would pursue and which it
would not. In addition, the steering com-
mittee oversaw the small (five people)
full-time technical staff which established
and maintained the internet site. Mem-
bers of the steering committee included
marketing representatives from each of
the company’s major brands, as well as
legal and information technology experts
(Figure 8).
While the committee did not have a
clear vision of how the company would
benefit from digital marketing, it did have
a desire to experiment until a successful
approach could be found. Among the ac-
tivities pursued were soliciting customer
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feedback on company products, setting up
on-line contests, creating a virtual city
(with brand marketing) to tour, and estab-
lishing the internet as a distribution chan-
nel for hard-to-get products. Because of
the need to ‘‘sell’’ the effort internally, the
committee felt it was critical to justify these
experiments with some intermediate value
obtained from them. For example, an on-
line focus group could save consumer re-
search costs.
Everyone recognized that this commit-
tee organizational structure was tempo-
rary, and that the specific brands would
ultimately own their digital marketing ac-
tivities once the value proposition became
more clear.
3. Formalization. At this stage, the digital mar-
keting organization has found a long-term
home within the business. It focuses now
on improving its digital marketing efforts.
The organization grows to 10 to 50 people
and begins to develop its own structure,
typically separating the technology-related
from the marketing-related digital market-
ing activities.
One leading newspaper formalized its
digital marketing organization by creating
a separate ‘‘on-line edition’’ which mir-
rored the structure of its traditional print
editions. Rather than merely being an ad-
junct of the print editions, the goal of the
on-line edition was to succeed as a stand-
alone business, with its own subscriptions,
advertising, and staff. The on-line manag-
ing editor was responsible for the edition
overall and had dedicated editorial, busi-
ness, and technical staff—just as the print
editions did. The editorial department
worked very closely with the print editors,
and followed the same processes as the
print editors with respect to gathering, ed-
iting, and publishing news and photo-
graphs (Figure 9).
With a clear business proposition in
place, the on-line edition could proceed
to recruiting the best personnel to work
in the area. Finding the right people was
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FIGURE 8
Packaged Goods Example: Focusing the Effort Stage

a major challenge, since many of the jobs
required a strong publishing as well as
technical background. A key success factor
was getting a senior-level veteran of the
newspaper to head the unit. This en-
hanced the credibility of working for the
on-line edition and was instrumental in
helping the new business to get things
done efficiently in the organization.
4. Institutionalizing capability. This stage is
characterized by the development within
the digital marketing organization of dedi-
cated experts and skills, and the creation
of formal linkages to integrate digital mar-
keting to a company’s core activities.
For example, a consumer services com-
pany that had been among the first to
experiment with network-based media for
consumer marketing began to make some
important changes at this stage of its digi-
tal marketing organization’s develop-
ment. The objective of these changes was
to make digital marketing and the way it
was executed an integral part of the

FIGURE 9
Newspaper Example: Formalization Stage

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FIGURE 10
Consumer Services Example: Institutionalizing Capability Stage
company’s capabilities. This required cre-
ating some new positions and processes
within the digital marketing organization
and with the rest of the broader organiza-
tion (Figure 10).
Within the digital marketing organiza-
tion, resources were formally dedicated to
the management of external partnerships
(an activity that is not formalized in any
similar manner in the rest of the organiza-
tion). Similarly, system development activi-
ties were organized around different tech-
nology platforms (e.g., the world wide
web, on-line services, dial-up services), in
recognition of the different types of exper-
tise required to achieve best-in-class per-
formance in each technology. Finally, the
company created general manager posi-
tions for each of the various initiatives to
ensure optimal orchestration of all activi-
ties related to them.
To ensure tight integration between the
digital marketing activities and the core
business, the general managers were given
accountability for the linkage of each activ-
ity with the core business. As such, they
act as liaison with a team of managers—
also newly created—in each core business
unit that is dedicated to digital marketing
activities. As a result of these explicit link-
ages, digital marketing is increasingly well
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integrated with the existing marketing
programs, and the organization is continu-
ally nourishing the capabilities required to
make that integration tighter.
Key lessons learned. The experience base ac-
cumulated by the early pioneers yields a rich set
of down-to-earth lessons about what has worked
and what hasn’t in organizing their digital mar-
keting efforts. In attempting to synthesize our
research, we have defined a ‘‘top 5’’ list of les-
sons learned, which include:
j Getting it started is more important than making
it perfect. This is perhaps the most im-
portant lesson from our research. Learning
digital marketing comes through thought-
ful experimentation, which requires getting
‘‘skin in the game.’’ Due to the very nature
of the digital world, prelaunch research
and analysis reaches a point of diminishing
returns very rapidly, and can exhaust an
organization’s interest in digital marketing.
Conversely, actually launching a digital
marketing service was in several marketers’
experience the most powerful way to build
excitement in their organizations for their
efforts. This is not to say, of course, that
marketers should compromise their prac-
tices in the digital world. There as else-
where, every interaction will influence a
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 DIGITAL MARKETING OF TOMORROW
consumer’s perception of the company and
its brands, suggesting that it would be inap-
propriate to compromise any core market-
ing standard. On balance, however, more
of a marketer’s efforts should be focused on
relentlessly improving and enhancing the
digital marketing service after it is
launched, rather than before.
j Get necessary senior management involvement
early on. The ‘‘below the radar’’ approach,
while appropriate in some cases in the very
early stages of development, rapidly outlives
its usefulness. Senior management involve-
ment is essential in giving the digital mar-
keting initiative the legitimacy required to
obtain resources and begin to be taken seri-
ously by the rest of the organization. Senior
management input is also required to set
the policies and principles mentioned ear-
lier about how a company will ‘‘go digital.’’
So, for example, they will have to decide
how to use their core brands in a digital
environment, and what type of content
will—or will not—be developed for the
digital marketing service.
j Manage conflicts with the rest of the organizatio-
n. Every single one of the digital marketing
pioneers has experienced some form of or-
ganizational conflict in launching its initia-
tive. These conflicts emerge between func-
tional units (e.g., marketing vs. information
technologies), business units (e.g., the digi-
tal group and the core business), or with
external intermediaries (e.g., distributors,
retailers). To manage these conflicts, it is
essential to recognize the interdependenc-
ies between the digital marketing efforts
and the rest of the organization. Some com-
panies have focused on finding real value
from the digital marketing efforts for the
core business early on, for example by using
the interactive service as a marketing re-
search tool, or to generate leads for the
sales organization. Others, such as a con-
sumer product marketer, have allowed the
brand management groups to make final
decisions in designing the digital marketing
application.
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j Use external parties to bring in digital marketing
skills. The ‘‘don’t try to do this at home’’
advice is nowhere more applicable than in
digital marketing. According to the pio-
neers, it is imperative to go outside the or-
ganization for specialized digital marketing
skills such as creative programming or audi-
ence creation. The challenge is to identify
the right external partners, who often are
quite different from the traditional ones.
Further, many emerging digital marketers
have developed explicit management pro-
cesses aimed at identifying and managing
external partnerships in light of the web
like nature of the internet industry.
j Adapt to a younger, more irreverent staff and let
them play. Digital marketers have learned
that human talent is both a key and scarce
resource for their efforts. Marketers have
found that the ‘‘right’’ people are often
quite different from the traditional market-
ing managers; younger, more irreverent, less
career-oriented. These differences poses
challenges in attracting talent, and also in
retaining it. A digital marketing agency, for
example, learned that it could build more
staff loyalty—and enthusiasm—by giving its
employees ‘‘time to play’’, i.e. to create pro-
prietary web applications on company time,
than by employing more traditional means,
even financial incentives.
WHAT SHOULD A FIRM DO?
Moving ahead with digital marketing presents
some significant organizational challenges, as
we have seen. However, we have identified four
dimensions that define the type of organization
it is intended to create and on which each com-
pany needs to define the position which best
fits its business needs and its capabilities and
culture.
j Formal vs. informal? In essence, this dimen-
sion defines whether digital marketing is of
sufficient actual or potential importance to
require some dedicated management focus
and resource commitment. This is contin-
gent on three primary factors, including
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whether the product/service category is at-
tractive for digital marketing (as discussed
earlier), the degree of internal readiness,
and the level of competitive activity with
regards to digital marketing. A rule of
thumb that many consumer marketers
seem to have applied holds that a formal
organization is required as soon as some-
thing with interactive capability is offered
to the consumer. The key question then
becomes one of leadership reporting rela-
tionship and funding.
j Centralized vs. decentralized? This is a hard de-
cision to make in multiproduct or multiunit
businesses, because there are compelling
reasons for either choice. Arguably, decen-
tralizing digital marketing efforts (i.e., by let-
ting each product group or unit pursue its
initiative independently) allows for more ex-
perimentation and is well worth the redun-
dancy costs of duplicating certain activities.
Conversely, centralizing efforts may not only
be more efficient, but also provide added
benefits such as security. For example, when
digital marketing efforts include giving con-
sumers access to information stored on a
company’s existing information systems, nu-
merous issues of data integrity and protec-
tion are raised that are better solved cen-
trally. An important factor in choosing be-
tween a centralized and a decentralized
digital marketing organization is the type of
activities that will be required to develop an
attractive service for consumers. So, for ex-
ample, it will be important to determine
whether an inbound telephone customer
service unit or a fulfillment operation must
be put in place. If that is the case, managers
need to determine whether these are better
centralized. To optimize this particular
trade-off, we are often seeing the emergence
of hybrid organizational models in which
certain functions, such as information man-
agement are centralized, while others, such
as application design and marketing, are de-
centralized.
j In-house vs. outsourced? For most digital mar-
keters, it becomes rapidly apparent that digi-
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44
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tal marketing requires very different skills
from those that exist in-house. These are
often skills that are currently in high de-
mand and well compensated (particularly if
they can become embedded in an IPO situa-
tion). The choice then, is a classic ‘‘build vs.
buy’’ question, and the answer depends on
the opportunity/risk investment profile and
time frame of the company.
The in-house vs. outsource trade-off also
raises the question of how large managers
want their digital marketing organization
to become. An automotive company, for ex-
ample, chose to outsource 100% of its digi-
tal marketing activities to its advertising
agency. Its rationale was to treat digital mar-
keting as completely separate from its in-
house activities since there were no perma-
nent staff with skills in that area, and that
it was important to get some experience
quickly. Conversely, a packaged goods com-
pany decided to hire a few programmers
and to keep all of its digital marketing activ-
ities in-house. That company felt that it had
the time—and the interest—to build an
in-house capability, at least for the start. A
consumer financial services company
found that outsourcing added delays and
headaches, because linkages with the inter-
nal information systems were so complex,
and brought many activities back in house.
Another consumer company found that an
outside party was unable to offer the appro-
priate level of responsiveness to user gener-
ated questions and comments because it
lacked sufficient knowledge—and perhaps
concern—about the business. Having de-
cided that its interactions with digital con-
sumers were critical, the company decided
to manage them internally.
On balance, we believe that most market-
ers will get better value by outsourcing certain
highly specialized activities, such as content
creation. These activities require truly expert
skills that are still emerging. As a result, select-
ing a partner that has accumulated at least
some experience about what works and what
doesn’t will avoid making many mistakes. It
W: Dir Mktg
 DIGITAL MARKETING OF TOMORROW
FIGURE 11
Organization Unit May Be Customer-Relationship Based
becomes essential, of course, to select the
right provider among the myriad of would-
be digital marketing experts.
j Functionally focused vs. customer focused? The
key question here is whether the new orga-
nization should be built around functional
areas (such as product management, sys-
tems development, and sales), or specific
customer groups such as frequent travelers,
small office/home office workers, or re-
mote-channel investors. Managers’ choice
on this question may also influence where
the digital marketing activities will reside in
the broader organization.
If a customer focus is deemed most appro-
priate, the digital marketing unit will often
reside within the broader marketing organi-
zation, so that its activities can be optimally
orchestrated with all other, off-line initiatives
targeted at a particular customer group. A
nonfinancial consumer services company,
for example, made the decision to target its
digital marketing efforts at its existing high-
value users, thus organizing its efforts around
customers rather than each individual type
of service offered. (Figure 11) As always, the
crux of the tradeoff along this dimension is
the relative complexity of the product offer-
ing venture. The homogeneity of the cus-
tomer segment. In general we believe em-
bedding as much digital marketing capability
as possible within customer focused market-
ing groups is more likely to exploit the po-
tentialities of interactivity.
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THE CHALLENGES AHEAD
Digital marketing is still in an early stage. As
with most technological innovations, the full
marketing potential of interactive media will re-
veal itself only when consumers and marketers
identify—or fortuitously stumble upon—the
truly new things to do with this media. This sug-
gests that it is critical for marketers to look
ahead and to prepare for the challenges that
digital marketing will inevitably bring about.
The three most important challenges and their
implications for marketers include:
j Constantly enhance the consumer value proposi-
tion. As digital technology and consumer
behaviors evolve, marketers needs to contin-
uously enhance the value of their digital
marketing offering. In an interactive two-
way, addressable world, it is the consumer—
and not the marketer—who decides with
whom to interact, what to interact about,
and how to interact at all. Marketers have to
earn the right to the digital relationship, and
they have to do so by continuously enhanc-
ing the value they offer consumers. As the
early experimenters have learned, the heart
of that challenge is the fact that it is difficult
to identify the ‘‘hooks’’ for developing rela-
tionships with digital consumers. A food
manufacturer, for example, thought that
digital consumers would be most interested
in finding out about nutritional product as-
pects; consumers, however, are asking about
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 JOURNAL OF INTERACTIVE MARKETING
how to buy regional products that are not
distributed where they currently live.
j Build relationships and skills to prepare for contin-
uous change. Digital marketing will continue
to evolve extremely rapidly for the foresee-
able future. From a marketers’ perspective,
most of these developments will come from
outside the organization. Digital marketers
need to keep tabs on these development to
identify early those that might impact their
digital marketing efforts. This will require
dedicating resources to follow external devel-
opments such as the emergence of new tech-
nologies, new players, or insights about con-
sumer behavior. In addition, marketers will
need to build—internally or through rela-
tionships—some of the more specialized
skills that are emerging in digital marketing.
For example, new companies are emerging
in the field of audience creation (attracting
users to digital marketing services), such as
Cybernetics, and in intelligent agent develop-
ment (creating value-added services based on
a user’s preferences), such as AGENTS, Inc.
of Cambridge, MA. Looking ahead, digital
marketers will need to keep abreast of these
developments, and to continuously embrace
those that will allow them to improve their
services.
j Manage interdependencies—both internally and
with intermediaries. A third, and perhaps most
significant, challenge for digital marketers
will be to manage the interdependencies be-
tween their digital marketing efforts and the
rest of the organization and existing outside
partners, such as distributors and retailers.
The notion of interdependency is based on
the premise that to have meaningful impact
on the bottom line, digital marketing will
have to become an integral part of doing
business for many marketers. In many organi-
zations the potential for significant conflict
has already become apparent. Internally, for
example, marketers are finding it highly chal-
lenging to integrate their digital marketing
efforts with existing functional areas (e.g.,
marketing, customer service) and business
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units, not to mention information systems.
For example, there is much debate in sev-
eral companies about whether the digital
marketing group should be set up as an inde-
pendent or a support unit. The answer, of
course, depends on a number of factors, such
as the size of the potential commercial oppor-
tunity of digital marketing, the existing cul-
ture within the organization, and the need
for cross-functional integration. Externally,
the challenge of managing relationships with
existing intermediaries is just as important.
Sales forces, distributors, and retailers often
perceive digital marketing as a major poten-
tial threat to their ‘‘ownership’’ of consum-
ers. In automotive, for example, the chal-
lenge is to make a manufacturer’s digital mar-
keting initiatives a ‘‘win-win-win’’ proposition
for dealers and car buyers; in travel, airlines
have to manage relationships with the travel
agency community very carefully as they offer
direct booking digital marketing services to
their frequent travelers. As the potential im-
pact of digital marketing on the core business
grows, managing these interdependencies
will likely emerge as one of the most im-
portant challenges for marketers to make the
most out of their investments.
In the past, the emergence of new media
(such as broadcast), new channels of distribu-
tion (such as mass merchandisers) or new
technology (such as scanner data) has had ma-
jor impact on the nature and organization of
marketing activities in consumer companies.
We believe that over the next decade the po-
tential of digital marketing will start to be real-
ized and that profound changes will be re-
quired in the traditional brand/product man-
agement organization and marketing support
functions. In addition, the combination of in-
tranet and internet information flows will radi-
cally impact the way customer-related deci-
sions are made. Our observations of pioneer
companies suggests that it is important for
companies to think through these issues be-
fore an ad-hoc, natural selection process over-
whelms their business.
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