Upstarts: New-Biz Watch
Hip aficionados of dance-club tunes cut CDs by computer and sell them on-line
Belgies Anan loves music, especially an avant-garde style known as acid jazz. When the 30-year-old account manager craves a CD by a group like the Brand New Heavies or Jamiroquai, she hoofs it from her apartment in New York City to a store and pays as much as $25 for a disc. But last winter she hit upon another way to shop.
Anan logged on to the Web site of CDuctive, an on-line music retailer. When she clicked on a category marked "Acid Jazz," her computer screen displayed 30 titles. Anan sampled 45-second snatches of several songs and, with a few keystrokes, ordered a $21 compact disc. "With CDuctive," she recalls, "it was so easy." And Anan liked another CDuctive feature: she could customize a CD of any assortment of songs according to her personal taste. On the disc she ordered, she specified 12 songs by recording artists like DJ Food and 9 Lazy 9, songs that ordinarily would have cost her a lot more money if she had bought all the CDs on which they appear.
CDuctive's headquarters is in the hip TriBeCa area of lower Manhattan, not far from Anan's apartment. Two of CDuctive's founders, 29-year-old Thomas Ryan and 30-year-old John Rigos, work in its loft-style offices there. But neither Ryan nor Rigos fills the orders that, like Anan's, zip in from all over the world. The two men don't have to. The process is completely automated: high-powered computers retrieve digitized songs stored on hard drives and burn them onto blank discs.
CDuctive, which opened for business in January, is one of about a half-dozen start-ups joining a rush toward CD customization on-line. Their niche represents only a tiny slice of a phenomenon known as mass customization--a trend among companies applying sophisticated technology to produce unique goods, ranging from shoes to vitamins, to match a single customer's order. And the new wave is here to stay, predicts B. Joseph Pine II, author of Mass Customization: The New Frontier in Business Competition.
Already, music lovers are spending large sums on-line ordering mostly noncustomized CDs and other recordings--an amount estimated at $70 million in 1997 and projected to balloon to $1.6 billion in 2002. Numbers like those quicken the pulse of Ryan and Rigos, who dreamed up CDuctive with a third founder, Alan Manuel, 29, two years ago. All three were then business-school students and dance-club regulars in France. Each chipped in $25,000 in seed capital, which was augmented with $50,000 more from family and friends.
Reflecting the founders' own tastes, CDuctive's repertoire of 10,000 titles is limited to a modern beat. The company's competitors in the increasingly crowded on-line market sport names like SuperSonic Boom and Custom Revolutions Inc. Yet Ryan says CDuctive enjoys an edge because of the exclusive licensing agreements it has signed with more than 50 independent record labels. As part of the deal, CDuctive will also promote and sell on its Web site full-length recordings of its partners.
To sell music CDs is to swim in a huge ocean. CDuctive must compete with sharks like Music Boulevard and CDnow Inc., on-line companies that offer thousands of recordings from Sony, Warner Bros., and other major labels. Then there are the whales: giant retail stores like Tower Records that stock the most popular tunes. By contrast, the listings of the companies selling customized CDs comprise limited, often obscure offerings, says Billboard magazine writer Doug Reece. The major labels refuse to license CDuctive and others selling customized CDs, fearing customers will "cherry-pick" hits instead of purchasing whole albums, explains Reece.
But CDuctive has an edge over many of its competitors, partly because it has no expensive inventory to maintain. The company expects revenues to hit $300,000 this year--and to jump to $12 million by 2002. If that sum sounds optimistic, the mood at the CDuctive warehouse is decidedly upbeat--literally. Ryan and Rigos pay continual tribute to the music they're selling, blasting themselves 14 hours a day with the sounds of their own pulsating dance-club tunes.
Toffler: Change--or Else
One sharp-eyed observer who spotted the coming of mass customization long ago is perhaps the nation's best-known futurist, Alvin Toffler.
As far back as 1970, Toffler wrote in Future Shock about "destandardized" goods and services that he forecast the United States would produce in the "greatest variety." In The Third Wave, a decade later, he coined a new term: "the de-massification" of production, adding that "we are racing toward machine customization." In Powershift: Knowledge, Wealth, and Violence at the Edge of the 21st Century, published in 1990, Toffler described the trend as "standing the principle of mass production on its head."
How far does Toffler believe the shift will ultimately go?
Speaking recently to Inc. by telephone from his California home, the 69-year-old Toffler replied that mass customization will proceed with a kind of gravitational force because, as Americans have become more affluent, "we have wanted greater individuality, and we can afford it, partly because technology makes it cheaper."
Pressed to define the implications, he answered, "I'd say if you have a company and you're not moving toward automation on demand, you'll have a competitor one day soon who will put you out of business."
Jeans Made in Heaven: Earthly Fit
Jeans are supposed to be the most comfortable pants in the world, but they're not for me. I've never found a pair that was truly comfortable and flattering. So I jumped at the chance to order a pair of custom-fitted jeans. And I thought I had found an easy way to do it through InterActive Custom Clothes Co.'s Web site. Once I zapped my instructions to the whiz-bang computer of the two-year-old company, based in Greenwich, Conn., it would relay the order to the cutters that it has on contract, and I'd have my jeans in no time.
But when I got into the nitty-gritty of placing the order, it wasn't exactly convenient to take my measurements--all 11 required, some of them a bit, er, personal--while standing in front of my computer in the office. So I printed out all the instructions to allow me to measure myself in the privacy of my own home that night. It took me about 45 minutes to work my way through all the choices on the Web site. What material did I want? There are 100 fabric and color combinations from which to choose. Brass rivets? Copper rivets? What type of fit? It was sort of fun at first but quickly became laborious. The next day I mailed off my check for $80.60. Ordinarily, the company says it delivers in two to three weeks, but my deadline required a rush order. That I achieved only after tracking down the company's telephone number (the Web site requests only E-mail contact and does not offer a phone or fax number), calling the company, and, reluctantly, identifying myself as an Inc. reporter.
With visions of inspiring the envy and admiration of my colleagues and friends--"Did you lose a few pounds? Wow, you look great!"--I anxiously waited for my custom-fitted jeans to be shipped to me. They arrived 12 days later.
The jeans were comfortable overall and the material of good quality. But I wasn't wild about the style (I found it a bit masculine for my taste), which is the only one offered on the site. And the fit? Well, not custom perfect--a touch short, in fact. That is probably entirely my fault: I goofed in taking the measurements. (For example, the Web site instructs you to measure your knee bent, and I mistakenly measured it straight.) All considered, the jeans were probably no better or worse than a pair I might have bought in a store. When I queried InterActive Custom Clothes Co. about the fit, it swiftly reminded me of the company's policy: for half price it would make another pair that I might be happier with. I declined. To me, it wasn't worth spending another $40 when I could buy a regular pair of jeans for the same price. -- Karen Dillon
Producing Unique Goods--and Headaches
Custom Foot Inc., based in Westport, Conn., has a secret weapon: an infrared scanner that measures feet. The scanner operates in 3-D and translates data into one of 670 shoe sizes. Once the company knows the exact dimensions of a customer's feet, it fills the order at a high-tech factory in Italy or Maine. By all rights customers should love the results.
But when Custom Foot activated its scanner in 1996 and started selling shoes, many customers complained. "What we found was that it might have been the 'right' size, but customers didn't like the fit," says James Metscher, the company's CEO and president. "It was too big or too small--whatever. We had to redo lots of shoes, and it was costing us a ton of money." Metscher had the scanner replaced. The new scanner advises three possible sizes for each foot it measures. And before an order is finalized at one of Custom Foot's five stores, a customer tries on the three sizes and expresses a preference. Returns of shoes have fallen sharply since the change, according to Metscher.
His experience illustrates a basic tenet: the flow of precise information from customers to companies dealing in customized products or services is crucial to their success. When information is lacking or misleading, it can undermine the whole rationale for a customized purchase.
When it began operations, a year ago, Philadelphia-based Acumin Corp., which blends vitamins in accord with on-line responses to questionnaires, learned a similar lesson. The replies were often too vague, leading to "value judgments and some guessing to fill orders. It ate up a lot of staff time," says CEO Brad Oberwager, 28. So he substituted a series of computerized yes-no questions and installed $25,000 worth of software, allowing the company to crunch the answers effectively and specify a correct vitamin regimen for each customer, Oberwager says. --M.B.
The End of Discounts?
Writing books about the virtues of mass customization is becoming something of a cottage industry. Martha Rogers, co-author with Don Peppers of Enterprise One to One: Tools for Competing in the Interactive Age, spoke recently with Inc. staff writer Marc Ballon:
Q: Isn't mass customization somewhat similar to what the craftsmen of yore used to do?
A: In a way, a company that mass-customizes is building the same one-to-one relationship with its customers that shop owners and craftspeople once had. Of course, shop owners and craftspeople carried databases of dozens or hundreds of customers and their preferences in their heads. Technology allows companies to keep track of millions.
Q: What's the advantage?
A: First, there's a huge reduction in inventory. Mass customization allows enterprises to charge more for their products, because they are giving customers something they cannot get anywhere else. Mass customization means you don't have to discount.