Intrigued by 'secret phenomenon' of Google, Yahoo! and eBay becoming biggest vendors to small businesses.

Esther Dyson is editor at large of CNET Networks and editor of its monthly IT-industry newsletter, Release 1.0. She recently sold her business, EDventure Holdings (including Release 1.0 and the annual PC Forum), to CNET. She is also an active investor in communications/IT start-ups in the US and Europe, including not just CNET Networks but also Dotomi, Meetup.com, Midentity and WPP Group. She sits on the boards of Meetup and WPP, among others. She is also active in policy discussions in the US and elsewhere on topics ranging from  intellectual property, freedom of speech and privacy to economic development, and was founding chairman of ICANN, the domain-name governance body. Known for her industry insight, she is also author of Release 2.0: A Design For Living In The Digital Age, published by Broadway Books in 1998.She will be speaking at  the May iMedia Summit.

iMediaConnection: First question is about the state of the union: how are brand marketers and agencies doing in using the Internet?

Dyson: Basically, not that great. And I also think there’s a lot to do on the Internet other than brand marketing -- there’s a lot of ways to deliver on the promise of a brand online.

iMediaConnection: Can you give us an example?

Dyson: Suppose you’re a drug company. You can SMS people reminders every Friday night when they have to take their once-a-week drug, or they have to change their patch or what have you. You can provide better online tech support for a product or for a car. You can create a community around some kind of product. You can deliver upgrades if it’s software. You can put different people in touch around going on vacation or something if you’re a travel site. There’s all kinds of different things you can do.

iMediaConnection: So it sounds like you’re saying that there’s a missed opportunity for relationship marketing?

Dyson: Yes. I mean, it’s not just relationship marketing, it’s basically having a relationship and then you can market into it.

iMediaConnection: What about users? What do you think they’re doing right with the Internet and what frustrates you?

Dyson: Users are both really careless with their personal information and excessively paranoid about it. But the point is, if you’re a marketer, you can’t recreate the user, you can only recreate your own offering… you have to respect them and sort of make it easy for them, not because they’re stupid, but because they’re busy.

iMediaConnection:  What do you think the Internet's next big inevitability is?

Dyson: One that I think is really interesting is the importance of local and physical. Google just announced real upgrades to their local services, as did Yahoo!. People used to search for virtual things online -- they’d search for information, and then they’d start searching for online marketers. But now they’re searching for local marketers. They’d like to know when the dry cleaner around the corner opens, or which store in my neighborhood has a size 8 Calvin Klein’s in stock. It's not quite there yet but it’s going to be, and so suddenly it becomes a much more powerful tool for combining the virtual and the physical.

The other one is … well, there’s a whole bunch. In general, everything’s going to be knowable, and so the challenge is going to be filtering out what you don’t want to know, whom you don’t want to hear from. Instead of finding, the challenge is filtering.

iMediaConnection:  What do you think is the next big shift for the Internet business model?

Dyson: I don’t think there’s one Internet business model. There’s a multiplicity of them. One of them is advertising, another is paid content, another is services, another is connections between people that you cannot make. You need an intermediary because I don’t know this person and I want to be introduced, and they have to agree so there’s this double blind thing you have in social networking. Those kinds of things.

iMediaConnection:  Talk to us about the value of community as it is now, and what it’s going to become for marketers.

Dyson: Community is a word that’s bandied about and sometimes overused. The value of community is really determined by the people in it. They decide how valuable it is. If you can foster the creation of a valid community as a marketer, obviously you’re doing well. But users are very good at detecting fake. Sometimes they don’t mind -- there’s a whole lot of stuff that’s fake on Friendster -- and so the fakeness of it is real in a sense. People are pretty cynical and they really like their friends. But it’s hard to get right as a marketer because you can make magic or you can make an awful fax paus.

iMediaConnection:  What is the most positive societal thing that the Internet is doing right now?

Dyson: It’s doing lots of things for lots of individual people. It’s connecting parents and kids. It’s doing all these amazing things. It’s like electricity. Do you know what great things is electricity doing? Well, it’s lighting villages and lighting schools, it's connecting people over telephones. It does so many different things it’s hard to focus on just one. But fundamentally, what it does is connect people -- and that’s all the different, good ways that people can be connected.

iMediaConnection: What do you think the Internet is going to be in five years? Or will it have melded into a lot of other things at that point?

Dyson: Yeah. It will be much less visible. People won’t talk about it the way they don’t really talk about the telephones. When’s the last time someone interviewed you about the impact of the telephone? People will expect to be connected just the way they sort of expect to be. As I said, everything will be visible, so you need to figure out, "Well, what is it that I really want to see? When do I want to avert my gaze?"

iMediaConnection: It's an indispensable tool now where it used to be just pretty darned amusing. Nobody surfs any more.

Dyson: They actually do, but they don’t call it surfing because they’re doing something in particular. It’s sort of like the guy who used to come back and say, “Well, I did email all day” -- and the modern guys says “Well, you know, I worked with my subsidiaries and then I handled some customer crises and then I…” They look at “Well, what task did I accomplish?” And the fact that they used the Internet to do it? They don’t even think about that.

iMediaConnection: What’s the one prediction that you keep hearing or reading about the Internet that you think is way off base?

Dyson: The notion that using the Internet is really going to be able to solve political problems. If people want to communicate, it’s certainly going to help. But just linking different cultures with the Internet -- you know, it’s not going to create a global village, unfortunately.

iMediaConnection: Marshall McCluhan would be so disappointed. Tell us something we don’t know yet but we’ll find out in the next year.

Dyson: The thing I’m writing my next issue about is kind of interesting. Two or three years ago, there was this wonderful Wall Street Journal article about the secret phenomenon of small women buying their clothes in the kids' department. And there’s another secret phenomenon going on right now -- it’s small businesses buying their software and their services in the consumer department. And that the really big business places right now, I think, are Yahoo! and Google and eBay.

They’re the providers to small businesses. Yahoo! is something like 10 percent of the small business Web hosting market. They’re the largest player. eBay is 430,000 small businesses -- which is again about 5 percent of the total number of small businesses determined by the Small Business Administration.

Google with all its local marketing, its ad words. You know, suddenly, small businesses can get online and market, because every small business person in his or her secret life is also a consumer. And so they get marketed to online, they get email campaigns, they buy things off the Internet, they see ads -- and suddenly all these tools are accessible to them, not through some big business vendor like SAP but through all the same old things. Through Google, through Yahoo!.

iMediaConnection: That’s fascinating. So what should marketers take from that?

Dyson: You know, a good marketer takes from it something very specific to his or her own product. You can’t take generalities.

iMediaConnection:  Can you give us a little preview of what you’ll be talking about at the Summit?

Dyson: I don’t have a clue. It’s a month away. I’m sure I’ll talk some about this small business thing, but it’s actually going to be more a conversation and I’ll do Q&A with the audience. I just finished a month researching this issue. It’s the only thing on my mind right now.