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Getting the Dirt
Find out what rival companies are up to


The Industry Standard
by Ubarak Dahir

Drugstore.com's Andy Cargile had to react fast. It was August 1999, and his competitor, PlanetRx.com (PLRX) , had just put up a convenient shopping tool for its online customers.

The feature, which executive producer Cargile describes as a "pervasive shopping bag," lets customers drop items into an online shopping bag without having to return to a shopping-cart page with every selection. The shopping-bag icon remains on the screen wherever a visitor goes.

Developing something like this had been on Cargile's to-do list for months, but he was busy with higher-priority items. When PlanetRx beat Drugstore.com to the punch, the shopping bag catapulted to the top of Cargile's list of must-dos.

He knew it could take weeks and a truckload of money to develop a prototype from scratch. Even then, testing might show a bunch of flaws. And shoppers might not care for the thing, after all. So before Cargile sank any resources into the tool, he decided to find out how his competitors at PlanetRx were faring. From that information, he would make a critical set of decisions about how Drugstore.com should proceed ñ whether it was worthwhile to put up PlanetRx's own shopping bag, and if so, how it should work.

Cargile had a lot more options for getting competitor data than companies had before the rise of the Internet. How information is collected, how much is accessible and how fast you can get your hands on it have all been revolutionized. The stakes are now amplified by the lightning pace of e-commerce, where business decisions that can spell survival or downfall for a dot-com are made in record time. To meet the demand, a wave of companies are touting "competitive intelligence" services that collect information on rivals, to help companies make decisions about their own businesses.

Cargile turned to Vividence, a San Mateo, Calif., firm that specializes in getting the skinny on what competitor Web sites are doing, and what their customers think about it.

From a reserve of 125,000 testers, Vividence unleashed 200 people on PlanetRx's site. Each visitor used a 300KB analysis program provided by Vividence. The program included pop-up windows that gave instructions on what tasks should be done on the PlanetRx site.

A special browser let Vividence "see" and record each move the 200 testers made. As visitors maneuvered through the site, the program asked questions about why they made certain choices, and how they felt about PlanetRx's shopping bag. Vividence calls its testers volunteers, but frequently it offers thank-you gifts for their efforts.

"Vividence brings you the world of your competitor through the customers' eyes," says Artie Wu, CEO and cofounder of Vividence, which was named to reflect its goal of gathering "vivid evidence" on the opposition. "We glean valuable information, then whisper it back into our clients' ears."

Here is what Vividence murmured to Cargile: Customers loved PlanetRx's shopping bag. But they wished they could tell not only what they had in the bag at any given time, but how much it cost, too. And some of the graphics and instructions about the shopping bag were confusing.

Armed with this information, Cargile quickly built what he says is a better shopping bag on Drugstore.com. "We found out the benefits and flaws without blindly following the competition," he says.

Wu of Vividence says analyzing a competitor's Web site could cost from $20,000 to $40,000 per investigation. Cargile declined to say how much Drugstore.com spent looking at PlanetRx's shopping bag, except to say it was "much cheaper" than Wu's quoted estimate because Drugstore.com has a contract with Vividence for 22 investigations. Cargile also wouldn't divulge the return on investment from the Vividence testing, but said his calculations show it "pays off." He says the company is now using Vividence to study the online drug-interaction checker of several major competitors. Drugstore.com will develop its own checker based on those findings.

Cargile also noted that Vividence is only one of about 10 research tools Drugstore.com uses to keep up on the competition. Dozens of such options are available to help dig up everything from what people are typing in chat rooms to the divorce records of a rival company's CEO. It's a $100 billion industry, estimates Leonard Fuld, president of Fuld & Co., a Cambridge, Mass., firm that teaches companies how to set up their own competitive intelligence units. He counts more than 150 competitive intelligence software packages and services, ranging from free to hundreds of thousands of dollars per year.

SPIES FOR HIRE

The variety of options for gathering data on rivals is best illustrated by the different experiences of four companies: Blinn PR, DigitalWork.com, EarthLink and InterWorld (INTW) . Stephen Blinn, principal of Blinn PR in New York, uses Lexis-Nexis to get three reports each day on his clients' competitors. The cost is a total of $107 per month.

If he wants to know whether a PR client's rival CEO is divorced, he pays $4.95 to get the record. Or if a client is curious to find out whether its competitor has any pending lawsuits, Blinn shells out $6.95. These tidbits are easily found on KnowX, a pay-as-you-use online service that gives Blinn ñ and everyone else ñ access to public records. "These services are incredibly cheap for the information they put at your fingertips," Blinn says.

Atlanta-based EarthLink pays about $1,500 per week to NetCurrents (NTCS) of Burlingame, Calif., to monitor what customers, investors and competitors are saying about EarthLink in chat rooms and on message boards. "These are places where passionate, heated discussions occur," says Kirsten Hamling, EarthLink's VP of investor relations. She says the information culled from NetCurrents' weekly reports has aided in quashing rumors and in making decisions about mergers and acquisitions.

"It's so hard to calculate the economic impact of an unchecked rumor that could ruin your company's reputation," says Rebecca Callan, NetCurrents' VP of sales. The cost for NetCurrents services can range from $2,500 to $15,000 per month.

DigitalWork, a Chicago firm offering recruiting, public relations, online advertising and other services to small businesses, spends tens of thousands of dollars each year on 20 to 30 competitive intelligence tools, says Grace van Til, a research analyst at the company. Most of the tools simply collect information on competitors ñ the easy part of competitive intelligence, she says. It is harder to analyze what the information means. That's why the most important tool for DigitalWork analysts is the Strategy Software program. Van Til says it "allows us to house the hard facts we collect about our competitors, and then crunch reports that show all kinds of not-so-obvious relationships about them." Strategy Software President George Durtler prices the software between $15,000 and $20,000.

Charles Rich, director of strategy and planning at New York-based InterWorld, which sells e-commerce software, agrees that "collecting information is one thing; analyzing it is another." To help InterWorld's in-house strategists make sense of the mountains of information about competitors, the company subscribes to Current Analysis, a Sterling, Va., research service that tracks announcements and developments in the telecommunications and information technology fields. Current Analysis also offers a critique on what the moves mean. For an additional fee, individual consulting is provided. "We're getting qualitative, not quantitative, information," says Rich. "If we beat out the competitors on just one deal ñ typically worth $500,000 in software sales ñ it pays for itself."

DATA ON THE CHEAP

But some experts insist you don't have to spend a lot of money to do sophisticated competitive analysis. "I would argue you don't need to spend hundreds of thousands of dollars," says Frank Stopa, a former overseas CIA operative for 12 years and now president of Ascendancy Strategic Consulting, a Reston, Va., competitive information firm. "Especially startup dot-coms [that] don't have the money for expensive software and teams of analysts."

Most times, Stopa believes, inexpensive collection tools and software products a company may already have installed will suffice for data collection and reporting. Two of his favorites for housing competitor data are Lotus Notes and Microsoft (MSFT) Access. "Companies like glitzy, high-tech solutions to their problems, and tend to forget that the main element is the human element," Stopa says. "But if you focus on the technology and ignore people, you lose."

Fuld agrees. He says far too much money is dumped into collecting, storing and sorting information, and not enough is focused on analyzing it. "All software does is collect and collate data. It doesn't convince anybody to do anything," he says. "You need people for that."

Fuld adds that less than 10 percent of competitive information software and services on the market genuinely help companies analyze the data they collect. He, too, says gathering data via inexpensive tools such as Dow Jones Interactive or Lexis-Nexis is a good start for many companies. "They save you days of time. Plus, the Net is full of unsubstantiated rumors and information. With [the high-end] services, hundreds of people take the time to collect, classify and verify information. You'd be foolish not to invest in them."

GOOD OR BAD?

Whatever tools you end up using to amass information, experts emphasize that competitive research is not synonymous with spying. The term "intelligence" can have a cloak-and-dagger texture that conjures up all the dirty tricks of a James Bond film. But the 1996 Economic Espionage Act makes it a federal offense to steal trade secrets or obtain them through fraud.

"You don't need to resort to subterfuge or deception to do competitive intelligence," says former CIA agent Stopa. In fact, he says, 95 percent of the information you need is easily obtainable through legal means. "The other 5 percent you can deduce through good analysis."

The Society of Competitive Intelligence Professionals (www.scip.org) offers ethical guidelines, such as refraining from getting your competitor drunk to weasel the goods out of a loosened tongue, and never misrepresenting who you are to gain information.

Still, those involved say unethical behavior does happen. Blinn says every shred of information he obtains for clients is from public records. "But sometimes we worry what people are doing with this information," he adds. "Why does a client want to know about a competitor's divorce? We try to stay away from personal information."

And Rebecca Callahan, VP of sales at NetCurrents, says she has walked away from businesses that asked her to spread rumors about competitors, to artificially pump up talk to improve stock value or to bully individuals who criticize a company in public. "We don't want to help anyone be a corporate Big Brother," she says.

Stopa concedes that "ethics is a real ambiguous area. There's a lot of stuff you can do that is not illegal, but is a little sketchy." He warns companies that are tempted to dabble in dubious behavior to think about the business consequences. "As a rule of thumb, ask yourself this: If a newspaper was going to run a story about what I am about to do, how would that affect my business?" he says. "If the answer is that it would make you look bad, you probably shouldn't be doing it."

Stopa says business intelligence is not much different than government intelligence: Decide what information you need, figure out how to collect it, study it to figure out what it means, then make it available to decision-makers.

If you follow these guidelines, he says, successful competitive intelligence won't remain a mystery.

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THE LOWDOWN

The five steps to competitive intelligence:

DEFINE YOUR REQUIREMENTS
What information is needed?
Why is it needed?
When is it due?

COLLECT AND ORGANIZE
Gather the right data and put it in an ordered form.

ANALYZE
This is a crucial step. Study the data, look at the big picture and identify trends. This is the "Aha!" moment. It should result in a recommendation for a specific action.

REPORT AND INFORM
Get the meaning of your efforts to the people in your company who need to use it, from the front-line sales people to the CEO, anyone who's making strategic business decisions.

EVALUATE
Measure the impact of the intelligence you provided. Was it used? How ñ or why not? Did it result in making a deal? In saving money? In boosting the company's reputation? How can the process be fine-tuned?