Staking a Claim on the Internet
Commerce has come to the Internet. It's too soon to know whether the worldwide computer network will be a boomtown or a bust, or how best to sell yourself on-line. But somebody has to be first
Challenge: How to explore the Internet as a possible marketing channel for your company's goods and services
Solution: Getting in on the ground floor of the myriad services that are growing up around the country, using them not only to get business going over the Internet but to do so in a manner that's as painless, risk free, and cost-effective as possible
Resources: Electronic malls, books, and newsletters (See page 3.)* * *
When Randy Adams and Bill Rollinson opened their computer-and-software superstore, last spring, they erased almost every traditional cost of doing business. Scratch the storefront, the salespeople, and the warehousing space. Forget the displays, the lighting, and the inventory. Those were quaint anachronisms. Mail-order retailing, with its attendant costs -- operators, 800 numbers, and warehouse space -- looked only marginally more efficient. To avoid all that, the partners went on-line.
Adams and Rollinson opened a computer "store" on the Internet, the worldwide computer network. Their enterprise, Internet Shopping Network (ISN), comprises several computers and fewer than 10 people in a cramped office located in -- actually, the location doesn't matter, since foot traffic is completely irrelevant to on-line commerce. ISN's customers need to know only the Internet address: http://shop.internet.net. That string of letters opens ISN's doors to the 25 million people with access to the Internet. Once the ISN catalog is up on a customer's screen, he or she can browse through 20,000 computer hardware and software products; and with a few keystrokes, that customer can gain access to the latest product reviews published in the computer publication InfoWorld.
When customers make a purchase, their orders travel electronically to ISN's computers, in Menlo Park, Calif. "Orders go through the system without human contact," says Rollinson, ISN's vice-president of marketing. The computer checks inventory, debits the customer's credit card, and sends the order electronically to a distributor. The customer gets confirming messages via the Internet and receives the order within two days. Prices for most items, Rollinson claims, are the lowest in the industry, thanks to the elimination of most usual selling expenses.
Welcome to the brave new world of sales and marketing on-line. Although companies have advertised products on private computer networks such as Prodigy and CompuServe for years, commerce came to the Internet only in the early 1990s. Developed in the 1960s to aid defense research and development, the Internet has evolved into a massive system connecting 20,000 computer networks run by universities, businesses, and the government. The number of users grows at a rate of about 5% a month, according to some estimates.
Experts versed in both business and technology argue that the Internet represents the most significant new sales and marketing channel in years. The value of goods bought and sold via the Internet already amounts to roughly $10 million a year and is growing by as much as 10% a month. And the network is especially significant for small businesses.
The Internet, which blankets the nation and the world, gives small companies an unprecedented opportunity to expand their reach. An electronic storefront on the Internet -- open round-the-clock, seven days a week -- costs as little as $1,000 a year. "The economy of scale is enormous," says Kitty Weldon, an analyst with the Yankee Group, a telecommunications research and consulting firm based in Boston. "Where else could a small company afford to advertise to more than 20 million people?"
Such a breakthrough in the ability of small companies to reach broad markets boosts their position relative to larger competitors. "The Internet has capabilities that put small companies on the same playing field as large international companies," says Mary J. Cronin, professor of management at Boston College and the author of Doing Business on the Internet. "Small companies can look for customers overseas and across the nation. They can look much bigger than they are."
The Internet also eliminates prohibitive costs of entry into many industries, enabling small companies to gain a beachhead in industries dominated by large companies. Without the Internet, Adams and Rollinson could not have competed against established computer retailers like CompUSA because of the capital required to open many dozens of superstores. But electronic networks enable entrepreneurs to enter business without acquiring expensive physical assets. "We're already selling all over the country," Rollinson says. "To expand, all we have to do is add a new server for about $25,000. But they have to build a new store in a new location."
Though on-line commerce looks promising, impediments remain. By far the most serious is the security problem posed by dishonest hackers, the masked highwaymen of the information age. They occasionally make the evening news after using their home computers to rove the Internet and break into corporate and government computers. Companies are understandably wary about sending purchase orders over unsecured computer networks, and consumers often hesitate to send their credit-card numbers.
Another problem is the numbing complexity of using the Internet. Even though new indexing and searching tools have been developed over the past few years, using the Internet requires a high level of skill and knowledge. Small companies often lack that kind of expertise.
There are both short-term and long-term solutions to both problems, however. In two to five years some solutions should come from CommerceNet, a consortium of large electronics companies in Silicon Valley formed to facilitate the process of doing business on the Internet. Backed by $12 million in federal, state, and private funds, CommerceNet is working to make on-line businesses easier and safer to run. CommerceNet intends to develop an on-line marketplace connecting thousands of organizations and electronics companies in northern California, enabling them to distribute product information, order goods and services, and collaborate on projects through computer hookups between offices. Its founders also hope to protect the exchange of sensitive financial data and other information.
But small companies do not have to wait for CommerceNet's buds to open before they plunge into electronic commerce. Larry Grant, a florist in Ann Arbor, Mich., took his business on-line earlier this year. Although he is one of the first owners of a small business to go on-line, Grant is a technological neophyte. He does not own a personal computer. He does not care one whit about how the Internet operates. A fax machine, in fact, is his one concession to modern technology. But Grant, owner of Grant's Flowers and Greenhouses and an FTD florist, has seen his business grow by more than a third since he opened an electronic storefront on the Internet, earlier this year.
Last December Grant turned over some basic advertising material, mostly photographs and descriptions of bouquets, to Branch Information Services, in Ann Arbor, a company that helps small businesses open electronic storefronts on the Internet. Jon Zeeff, president of Branch Information, typed and scanned the material into a computer and designed the layout.
Grant's electronic storefront comprises multiple files made up of pages on a computer screen. The first page greets customers and draws them in, much as a conventional storefront does; subsequent pages present the goods or services for sale. The result is an electronic color catalog -- a series of a dozen screens featuring Larry Grant and his flowers. Unlike conventional catalogs, Grant's does not incur the cost of printing and mailing, and it can be changed and updated within hours.
Zeeff placed the file for Grant's Flowers into what he calls the Branch Mall, the electronic equivalent of a shopping mall, which is connected to the Internet. People browsing the Internet can use various directories to find the Branch Mall, which features 50 or so storefronts. Users can gain access to each storefront, including Grant's Flowers and Greenhouses, with a simple click of the mouse.
A customer orders the flowers by entering information on his or her computer screen. The order goes to Branch Information, whose computer in turn generates a fax transmission, giving the specs of the order, to Grant's Flowers. As the operator of the on-line mall, Branch Information thus fulfills two critical functions: it creates an Internet sales channel for Grant's Flowers without any need for Larry Grant or anyone else at his company to touch a computer; and it maintains the storefront in its own computer, so there's no direct connection between Grant's Flowers and the Internet -- which means users (and hackers) are less likely to threaten the security of Grant's Flowers.
Grant is thrilled by the additional sales coming his way. "We've become a world business," he says, citing orders from throughout the United States as well as Canada, Australia, and Europe. His electronic storefront produced about 40 orders on Valentine's Day and another 40 on Mother's Day, and now generates as many as 6 orders daily. "It's all business over and above what I had been getting," says Grant. "And it should keep getting better."
To get a spot in the Branch Mall, stores pay monthly fees. A simple one-page storefront costs $960 a year; multiple pages are substantially less expensive per page. It's just one way to do business on the Internet.
Jon Lusk, president of Digital Dynamics Inc., also in Ann Arbor, opted for a more modest storefront than Larry Grant did -- a one-page ad for his company's service, CD-ROMs made to order. Digital Dynamics sells primarily to corporate and academic markets interested in a permanent medium on which to store data. Prices range from $200 to $30,000 per disk.
Just one sale a year at the high end of that price range can bring a huge return on Lusk's investment in the Internet. He's now pursuing the first potential customer to come through his storefront in the electronic mall. "It gives me the opportunity to reach a wider audience for a price that's difficult to duplicate," he says. "I don't have to have a television-size budget, but I can still reach millions of people."
Another company, Conlin-Faber Travel, opened a storefront in the Branch Mall this past summer, for about $3,000 a year. Chris Conlin, the company's president, runs three conventional stores in Ann Arbor and one in San Francisco but was intrigued by the potential of an entirely new sales and marketing channel. "What," he wanted to know, "can we sell outside our two geographical areas?"
Two of the travel products offered by Conlin seem perfectly suited to an electronic storefront. Conlin uses the Internet to list last-minute discounts on vacation packages, taking advantage of his ability to move new information onto the network very quickly. He also sells custom travel books -- produced after customers fill out electronic forms indicating the city they plan to visit and the information they need -- on topics such as sporting events, tourist attractions, restaurants, and shopping.
Unlike Zeeff's mall, with its eclectic mix of businesses, CyberShoppe, a specialty mall run by Lynn Manning Ross, based in Solana Beach, Calif., offers high-end gift items, many of them handcrafted by artisans around the country. Customers see color photos of china, jewelry, collectibles, sculpture, ceramics, and leather goods on their computer screens. "It's exactly like a catalog," says Ross. "But we have no inventory, no printing, and no distribution costs. Old, traditional marketing tools have been redesigned and presented in a new way in a new medium."
Many of the artisans whose products are sold in Ross's mall hew to handicraft skills that reach back hundreds of years. Few of them understand the latest in electronic technology. CyberShoppe offers all the help they need. It collects the orders that come over the Internet and then faxes them to the artisans. "Many of our artisans don't have a computer," says Ross. "Many give us their postal-annex fax number."
Probably the most sophisticated mall concept on the Internet comes from O'Reilly & Associates, in Sebastopol, Calif., a publisher of computer books. True to its publishing roots, the company offers editorial material as the magnet to attract prospective customers. "We are, in the end, a publisher and a creator of audiences," says Richard Peck, O'Reilly's vice-president for business development.
O'Reilly's on-line service, Global Network Navigator (GNN), offers a quarterly electronic magazine with articles developed around a common theme. In addition, GNN maintains several resource centers. One that covers personal finance provides links to other resources on the Internet, such as stock quotations, stock and mutual-fund data, and Securities and Exchange Commission filings. It also offers investment news and articles by financial experts. People gain access to GNN -- there is no charge -- 150,000 times in an average week. While there, they can browse the commercial offerings, which range from exercise equipment to legal services. Advertisers buy space on GNN for fees ranging from $500 to $5,000 a month.
Which of these on-line selling approaches will be most successful? With electronic stores so new, no one can know for certain. On-line marketing will not be a critical channel for small companies until later in this decade, if at all. But some business owners, like Chris Conlin of Conlin-Faber Travel, want to assure themselves of a competitive advantage. "I want to be there now so that when it becomes easier to use the Internet, I'll be ahead of my competitors," says Conlin. "Travel agencies will have to take advantage of technology in the future. I want to be prepared for it."* * *
Stephen D. Solomon is an associate professor of journalism at New York University and was formerly a senior editor at Inc.
Plenty of help is available for companies interested in exploring on-line sales and marketing. Even if you don't know a bit from a byte, operators of electronic malls can open a storefront for you. The malls listed below are mentioned in the article, but many others are popping up each month. The books listed here are among the best introductions to the Internet now available.
Global Network Navigator: 800-998-9938; email@example.com
Branch Mall: 313-741-4442; firstname.lastname@example.org
CyberShoppe: 619-794-9522; email@example.com
Doing Business on the Internet, by Mary J. Cronin (Van Nostrand Reinhold, 1994, $29.95)
The Whole Internet User's Guide & Catalog, Second Edition, by Ed Krol (O'Reilly & Associates, 1994, $24.95)
The Internet Complete Reference, by Harley Hahn and Rick Stout (Osborne McGraw Hill, 1993, $29.95)
Internet Business Report, Robert Hertzberg, editor; 800-340-6485; firstname.lastname@example.org
The Internet Business Journal, Michael Strangelove, publisher; 613-565-0982; email@example.com
The Internet Letter, Jayne Levin, editor; 202-638-6020; firstname.lastname@example.org
dot.COM, Fred Guterl, editor; 201-783-0726; email@example.com
-- Reported by Jennifer deJong
Advocates of commerce on the Internet point to the 32 million people -- potential customers all -- who are using the network. But who are those people? What's their age, their income level, their level of education?
Nobody really knows, at least not yet. Some critics suspect the worst, given the Internet's origins a quarter of a century ago in university-based research and development projects. "The problem is that most access is by bored, impecunious graduate students who have nothing better to do," says Michael J. Walsh, president of Internet Info, a market-research company in Falls Church, Va.
It's probably true that the demographics of the Internet are skewed toward people with academic and engineering backgrounds, but that's changing. Many corporations now provide Internet access to employees, and hundreds of thousands of people enjoy access from their homes. Richard Peck, vice-president for business development at O'Reilly & Associates, surveyed customers of the company's Global Network Navigator, an on-line advertising service and magazine. Preliminary results show that more than 70% of customers have a household income of more than $50,000, and about a quarter of those have an income of more than $100,000. As the commercialization of the Internet proceeds, definitive demographic studies will no doubt follow. -- S.D.S.
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