Robert Olson and Peter Granoff found that on the Web, information sells wine. It may be the way to sell everything else, too
One day in the summer of 1994, Bay Area wine maven Peter Granoff sat down with his brother-in-law, Robert Olson, to kill a bottle of product.
"I knew Robert had left a great job at Silicon Graphics," Granoff says, "and I wanted to know why."
"I think he was worried about how I was going to support his sister," says Olson.
Olson began by telling Granoff about his work at SG: he had managed a marketing team that had sold software for interactive television. SG's effort had been a cutting-edge enterprise, taking Olson to some remote corners of computer science. Typically, software is supposed to minimize the load on system resources. The software Olson had sold minimized response time. The software had to analyze a query, define the process needed to reply to it, find where the supporting data were stored, pull them together, format a reply, and pipe it back to the user, all in less time than it would take for the next request to arrive.
During that project Olson began thinking about taking the art of "real-time programming" into another context: customer management in on-line retail. Programs interrogate several databases in parallel, format the retrieved information into one-of-a-kind, just-in-time Web pages, pick up the hits that constitute a customer's response to that Web page, and then swing through the cycle again, all more or less instantly. The more he thought about it, the more he wanted to be the first to start building and selling this new customer-support software.
And that was why he had left SG.
Unfortunately, Olson said, he wasn't getting many return calls from vendors. At that time few vendors had a clear picture of what the Internet thing was anyway, and those who did couldn't see the point in running complicated (and expensive) software. How hard could it be to digitize a brochure or even a catalog? Why did people need more than that?
"They just didn't understand the potential," Olson recalls.
But Granoff found his brother-in-law's tale compelling. During almost 20 years as a teacher, taster, consultant, and sommelier in San Francisco's restaurants and clubs, Granoff had seen a wave of consumer demand for low prices and no-fuss transactions shake his industry to the core. Wine outlets had reacted by building superstores and buying larger quantities of fewer wines, using the clout of their size to squeeze lower prices out of the industry. As their stock simplified, the outlets realized still more savings by replacing experts with clerks and relying on the advertising budgets of large producers to take care of educating consumers.
Those changes delivered lower prices, but they also crowded out producers that were unable to sell in quantity, offer discounts, or afford large promotional budgets. In a 15-year period, Granoff had seen hundreds of small wineries -- those producing fewer than 5,000 cases a year -- abandoned by their distributors and retailers.
The market was only responding to demand, but that didn't make Granoff like it any better. Small producers had been the backbone of the sommelier's career. They were the quality end of the business, and he hated seeing them replaced by a system that couldn't be bothered with an order of fewer than 50 cases. Besides, Granoff was convinced that a market for specialty labels was still out there; the success that restaurants and clubs had had with the better California wines told him that people were still avid for quality. It was just that the market was geographically too diffuse and demanded too much care and feeding to interest the superstores.
That evening Granoff and Olson decided that each was the solution to the other's puzzle. Olson would bring his vision of interactive, high-service "Web stores" (his slogan: "High tech, high touch"). Granoff would bring his relationships with the small wineries, his command of the subject, and his reputation. Together they would open an on-line retail store that would act as an agent for both the vineyard and the customer. Presenting wines the old-fashioned way, its proprietor would taste -- and be eloquently responsible for -- everything in stock. And their earnings would be based on commissions from sales. In short they were going back to the future: selling wines traditionally but using the newest technology.
Virtual Vineyards went on-line in late January 1995. It was an immediate hit with both wine buyers and the press. Olson won't give exact figures, but he does say that business has been increasing by an average of 20% a month. Today sales are at about $1 million.
From the first days of the commercialization of the Internet, low prices were expected to be the killer application. The public might or might not be interested in playing games on-line or surfing the White House Web site, but the hook that was going to pull "the rest of us" onto the Web was the promise of finding the best price for anything. (The catch phrase was "wholesale from your desktop.")
The argument had three legs: First, the function seemed compatible with the technology. If computers are good at anything, it is at spotting and weighing the difference between higher and lower numbers. You cannot ask a database to find a dress that is "fierce but not outrageous" (at least, not yet), but a software agent or search engine could be expected to start with a product description like "T-shirt dress, raspberry or navy" and come back with a list of vendors arranged by price.
Second, Net commerce seemed likely to make its reputation as a source of lower prices in general because it promised to lower marketing expenses. Four half-page ads a year in the New York Times more than cover the cost of a good midrange Web site, and once a site is up, it's up 24 hours a day, 365 days a year. And a Web site can sell direct to customers, eliminating intermediaries and slashing distri-bution costs. Falling costs, the Web masters said, would lower entry barriers; lower barriers would bring new competitors crowding on-line; and greater competition would ensure that all the cost reductions ended up where they belonged: in the consumer's pocket.
Finally, history testifies that whenever an opportunity for lower prices and simpler transactions appears, American consumers respond aggressively and enthusiastically. Over the past 20 years, American retail has been racing to feed demand by building larger chains of bigger stores, using size to club price cuts out of distributors and producers. That strategy has spread through most sectors of consumer retail, from Wal-Mart to Home Depot to Staples. Given that history, the prospect of consumers floating through virtual superstores so large that they make Sam's Club look like a corner bodega seemed a natural next step.
The argument looked pretty strong, but not everyone bought it. From the beginning there were people -- like Peter Granoff -- who were left cold at the prospect of the world's vendors wrapped in a grim struggle of all against all, a world in which brand and customer loyalty is a joke, price is king, and the closest vendors get to customers is watching software agents squint at their price tags.
But with his brother-in-law writing the code, Granoff thought he could combine the best parts of the Web-site paradigm -- convenience, reach, and low costs -- with "touch." What Olson and Granoff's Virtual Vineyards would offer consumers would be credible and useful information, an education in wine, a breadth of labels that the superstores could not and would not match, as well as a little entertainment for a market that wanted a more intimate relationship than the superstores were created to offer.
All that and lower prices, too.
Virtual Vineyards is not the only Web store selling consumer goods or the only wine shop on the Web. What makes it different is the credibility it has established in a niche market. The emphasis is on information -- supplied by Peter Granoff, an acknowledged authority in his field. "Every time we sharpen the authorial presence, people respond," Olson says.
For example, most sites that list retail goods carry links to reviews by other experts, mailing lists and newsgroups, professional prizes and awards, newsletters and journals, and the like. On Virtual Vineyards there is a clean line running straight to one voice: Granoff's.
Ordinarily, resource sites introduce the original producers by linking to their sites, which in this case would mean giving customers the opportunity to wander through the Web sites of a dozen or more wineries to read a dozen or more product presentations.
But not Virtual Vineyards. A user clicking through the winery descriptions learns as much about Granoff's command of the industry ("Among the many reasons to explore the wines of Fisher Vineyards is their use of wild yeasts instead of cultured yeasts, a very old technique that is getting a second look in California") as about the operating details of specific producers. The Web site has no forum where, in the best Internet tradition, users can and do flame the master for cluelessness.
Virtual Vineyards does have an advice column, in which Granoff fields questions on topics from investment, wineglass selection, and the relation of storage methods to climate, to put-up-or-shut-up challenges. ("Do you taste evidence of noble rot in Bonny Doon's 1993 Le Sophiste?")
Virtual Vineyards wants to educate its visitors as well as sell them products. For example, the Portfolio option, which describes wines on sale, gives a sentence or two about each label ("very bright, raspberry-scented zinfandel fruit in a medium-bodied red wine"), then takes the user up a level for a generalization about the class of wine ("Marty Bannister's two 1993 zinfandels offer an opportunity to explore the impact of appellation on finished wines with a precision unusual in California"), and then goes down a level for the next entry. Again, users learn as they shop, something they can no longer do at their local liquor superstore.
The third feature in the Portfolio option is Peter's Tasting Chart, which has seven parallel horizontal lines, each representing a dimension of wine taste (intensity, sweetness, body, acidity, tannin, oak, and complexity) for the label under discussion. Each line represents a range. The sweetness line, for example, runs from "dry" on the left to "sweet" on the right. A red diamond, placed anywhere from far left to far right, indicates the status of the wine in each dimension. Olson says the chart began as an effort to communicate with techies in their own terms. Whatever its origins, the chart is a real innovation, conveying a great deal of information at a glance.
Olson's Virtual Vineyards pages are clean and load quickly. The menus are uncluttered with links, and the graphics are compact and casual, more like watercolors than photographs. The fast loading is more than a convenience: it contributes to the aura of authority the way a quick reply in conversation does, conveying control of the subject. The site assembles its pages on the fly by modifying data from forms. The process makes it easy to standardize the amount of information that appears about each entry, keeping those in the same category (like the winery descriptions) at about the same length. The uniformity reinforces the idea that Virtual Vineyards is there to provide useful information as well as to sell wine.
Olson and Granoff's approach is working. Virtual Vineyards is becoming widely known as the best store on the Web.
Virtual Vineyards was a response to a particular situation -- the rise of the wine superstore and the accompanying loss of the personal touch in the vendor-buyer relationship. But what inspired Olson and Granoff is a general phenomenon. Over the past 20 years, the growth of superstores has pushed small high-end producers out of a wide range of sectors, including furniture, books, sporting goods, and specialty foods.
American retail may be a miracle of low prices, but the degree to which it has been dumbed down by layoffs and low wages affects the efficiency of commerce as well as the morale of consumers -- and not just on the high end. The success of Virtual Vineyards suggests that the market for the type of service that was once standard in those sectors has not disappeared with the emergence of the superstore; it has just gone underground -- or in this case, into cyberspace.
Analysts impatient with the growth of Internet commerce often suggest that what's needed is some sort of technical tweak, like better credit-card security or simpler access procedures. No doubt those are important, but the big inhibitor might be a simple lack of trust in the vendors themselves.
The average consumer in the average Web store has no history with the company -- and in many cases may have never even heard of it before he or she surfed by. The Net is unregulated; it has no customs or community standards. What is the risk of running into a vendor who is incompetent or unpleasant, if not fraudulent? How much weight can be placed on product descriptions, given that vendors sell to people they have never seen and never will see, and know it? If you have a complaint, where do you go? Most on-line retail Web stores are run by the producers of the product being sold. Those producers might know a great deal, but they are financially committed to a single sales outcome, and that fact tilts the scales against their credibility.
And on most Web sites, there are no faces, no voices, often no names. (Occasionally there's an 800 number.) The site server could be anywhere today and somewhere else tomorrow.
The most common response to the trust problem is to stick with established brands. That's safe enough, but it leads to the loss of perhaps the most attractive feature of the Internet: participation in a worldwide market.
Virtual Vineyards comes at the credibility issue from three directions: a strong voice tied to a specific person, software that expresses and focuses that voice, and inventory drawn from a range of producers. (In April the company had 250 labels from 50 wineries.) Virtual Vineyards isn't tied to the products of any single winery, so it gives the customer a channel for complaints about a given producer.
The kind of information-based, expert marketing that Virtual Vineyards provides does present some difficulties. For one, it's self-limiting. Past a certain depth, the expert's command of the stock begins to weaken, and the software gets too elaborate to use easily. And past a certain number, the Web store becomes a superstore, which is self-defeating in terms of niche marketing.
The information-based model also raises prices -- the expert has to be paid -- which means that customers could use the site to find what they want and then approach the producers with a side deal, offering to split the retailer's profit. (An informed consumer is a competitor.)
Olson hopes to deal with the difficulties by making the service Virtual Vineyards provides ever more personal and intimate. For example, he can use customers' own preferences, gleaned from their order histories, to present wine options in line with previous orders. By selling more that way, Olson and Granoff can lower their commissions, thereby making their virtual store even more attractive.
It is possible that those analysts who worried that the Web would throw distributors out of business had the story exactly backwards. If Virtual Vineyards is an example, the Web may turn out to be a great engine for "intermediation," opening the door for tens of thousands of retailers, distributors, and sales agents to use their unique expertise to introduce buyers to producers.
Looking back, historians might reflect on the paradox that the killer application, the competence that pulled a technophobic citizenry onto the most anarchic and antiestablishment of media, ended up being not price at all but the technology's ability to resurrect the virtues of the custom shop.
Fred Hapgood (email@example.com) is a Boston-based freelance writer who specializes in science and technology.