A rambling editorial: "E-commerce - Dropping cash over the web"

Nov. 01, 1999 By Matthew Baynard

It's my lunch break and I have a whopping forty minutes to kill. What to do? I'll run some quick errands to pick up a few things. Jump out to San Jose CA to get some Hewlett-Packard promotional items, step down to Orlando FL to get a five-day pass to Disney, zip back north to Atlanta GA for a Delta airline ticket and then a quick trip to Wendy's for lunch. How did I do it? I'm not Superman, but I do have a LAN connection and the Internet.

The Internet has changed the business community in such a profound manner that business activities will never be the same - ever. Internet based businesses have grown at such levels that industry leaders foretold of mass economic calamity when they would inevitably fail from excessive growth. Ask Amazon, ebay, etoys, kbtoys, and TheMall what they think of the expert's viewpoint. They are giants in the e-commerce world. Today, the retailing industry is somewhat differentiated by either saying you're on the web or wishing you were on the web. The difference is that one group is growing with the web, (meaning business is growing rapidly), and the other has to invest considerably to play catch up, (meaning their assets are being kicked by the Internet savvy). Internet business has become such an issue that if executives do not mention it, they are viewed as out of the loop and out the door.

In an October 1999 Network World article, JC Penney CIO David Evans announced that JC Penney's web page is generating more revenue than their largest retail store. Internet sales have offered Penneys advantages in more accurate orders, higher volume than call center sales, and most importantly, less 'reverse logistics'. Reverse logistics are product returns and account for almost 40% of traditional catalog orders. Since the users enter web orders, they are far less likely to order the wrong item. (The reverse logistics of returns are also a big headache for Internet businesses since many do not have any true physical operations. These are "click" businesses and not "clicks and bricks", which have associated storefronts. This is the reason for the harsh return policies of many Internet businesses.)

What does all of this e-commerce activity mean to the sport of snowmobiling and you the "Snowmobile Online" reader? Very simply, it will, if it hasn't already, change how you spend your money, view your dealer, and how your dealer makes money. I spent about two months looking at hundreds of web sites that are dedicated to our sport and are supposed to be leading the way to e-commerce. What I found out is that most sites can be classed as e-commerce (electronic commerce), and my own definitions of i-commerce (information commerce), and u-commerce (useless commerce).

U-commerce speaks for itself and these are sites that have no value whatsoever to the sport of snowmobiling, even though their authors think a picture of their sled adds to the value I get from the Internet. Sure it's nice to have some pics on the web, but this is not what I was looking for. i-commerce is useful information that is informative and valuable to me, but these site do not sell anything either. "Snowmobile Online" is a perfect example of i-commerce. i-commerce is the fastest growing segment of the net by the way. And more and more sites are charging for this information. I feel this is a waste and refuse to ever pay for Internet information. Period. Most will refuse to pay for web information when you already pay for web access. The last category is e-commerce - the whole purpose of this article. The Holy Grail; these are the sites that actually sell something. I go a step farther and define a true e-commerce site as a web site that I can purchase from without having to pick up the phone to confirm an order or give a card number. No human contact.

Before I go any further, let us look at the typical dealer/reseller and how we do business as of today. I'll call it the consumer - reseller relationship of the past. Very simply, you walk in, tell him what you want, he gives you a price, then you either buy it, or drive to the next dealer to try and beat the price. You can pretty much throw that model out. Like it or not, reality is that this conventional dealership model is going to be short lived in today's technology. The Internet is changing it all very quickly. Good or bad, it has already changed for most of us. I now buy my parts and accessories from a dealer whose several hours away, while never leaving my office, (while on a conference call most of the time), and I'll still have the parts for my weekend project. To counter this new model, some will tell me that the local dealer will have the item in stock for immediate delivery. This is generally not true since the trend is to reduce parts inventory costs and the storage requirements. The number of sled models to "part" for is also through the roof. If I'm going to have to order the item anyway, why waste two trips, (to order then pick-up parts), when I can just click - order - ship over the net. Add in the savings and you tell me what is the best method to use? With the liberal return policies of the better sites, even clothing is a better deal over the net. Dealer technical expertise is no longer an edge either as most of the Internet dealers are as knowledgeable as the avid enthusiast.

On a side note, Of all the "storefront" dealers I've talked to, not one told me they didn't want to be on the web. Most lacked the money and expertise to even attempt it. It takes time and money to evolve a good e-commerce site. They feel the Internet savvy are going to eat their lunch and they are right.

I have looked at sites that were recommended/used in the past and I was pretty amazed at what has happened over the last few years. Five years ago, not one of the sites even existed. None of the businesses had a web site to advertise hours, let alone sell their merchandise. There are so many web sites that are attempting e-commerce that I decided to not go into detail about any particular site in this article due to length.

Word of mouth is one of the best barometers of the Internet business, or at least it was. The Larkin Group of Culver City CA and M80 Interactive Marketing of Los Angeles CA are Internet companies that generate word of mouth hype called 'net hype.' Every time you send a post to a news group that you use product 'XYZ', you are a 'net hyper' too. They use Internet news groups to plant users who hype various sites and products. The news groups have become big business, whose users are the targeted Internet aristocracy who purchase electronically. In the past, a relatively small group of users purchased over the net, but that number is tripling yearly as more homes are getting on-line. Even my employer, Hewlett-Packard Company, monitors news groups targeted towards our products to see how the consumer views them. One post can reach hundreds of thousands of users. Think about it. A bit larger audience than your buddy has complaining on the trail.

On the food chain of e-commerce sites, there are those that offer full service shopping associated with an established dealership ("clicks and bricks"), full service without the dealer ("clicks"), and the spare bedroom dealers. They can be real small sites or huge sites. The site complexity and size is not an indication of the sales volumes or the quality of the dealer. Some of the small sites are doing more business than the snazzy ones. A differentiator here is the ability to move through a site with ease and be able to find a product that may be buried ten pages deep, very quickly. The search engine is key here and many have missed such a simple feature, and most likely the sale too. If you can't find the item, you can't buy it? The smaller sites don't need a search engine since the complexity level is so minimal. Internet sales are more price sensitive than traditional store sales since the consumer can price comparison-shop so easily. The average Internet consumer looks at four sites before purchasing.

Manufacturer sites are last ones I want to cover. These should almost be called u-commerce sites, since they offer so little intrinsic value today. (I'm focusing on price, if you add the technical expertise they offer, the value climbs considerably.) Excluding sled manufactures that only use the web as a giant electronic brochure, the other related manufacturers don't offers anything for sale at anything but retail pricing. As an example, Dynoport, (maker of aftermarket exhaust systems), provides a technically outstanding and well-designed web site; one of the best that I have seen. Loads quickly, information easy to find, graphics on demand, and etc. It's still a poor e-commerce site however. What the site does not offer for the consumer is the chance to buy anything at prices less than retail. Why?

Manufacturers still do not understand of e-commerce yet. In business you have to eat your own lunch before someone else does. These guys have a menu out. Why spend the money for the site if it raises no revenue? Not in business 101. The electronic brochure is all most of the manufacturers are looking for. Most will tell you that they only sell through distributors/resellers and they will not undercut that relationship. These are the same manufacturers who want Internet businesses to sell their goods, but still require a reseller to have a storefront. Internet businesses can be virtual, and by definition you can have a company that is very successful, but has no storefront. Tell me these manufacturers have not missed the boat. The first manufacturer who offers goods at better than retail prices to the consumer will be amazed at the sales volumes and the fact that no manufacturer/distributor relationship was damaged.

This will change as the original model I spoke of with dealer's changes. Before long, you will have virtual dealers and virtual distributors with virtual customers. Where and how you buy your sled is another article all together, but a good dealer base will always be needed and supported. They will just have to be Internet smart dealers and on the web. I can't wait to see a dealer trying to figure out how to sell and deliver sleds to a consumer's doorstep via the web, or at least increase sales volume with transient sales. The Internet has eliminated the boundaries of geography that most have used to establish dealerships. The way dealers can compete with each other has changed also. The gloves have basically come off.

To get to the end, what does this all mean? The Internet has empowered the consumer like no other technology. We can comparison shop with the click of a mouse. The web has given us options on how we purchase, but it's still a buyer beware world. With so many choices, be aware that many are the wrong ones when selecting a site to patronize.

My goal of this article was to open the eyes of Internet snowmobilers as to the power that you wield, the affects of your internet purchasing on the current business model for dealers, and to maybe point out some of the changes to come. With retail store sales growing at single digits and web based sales growing at several hundred percent, where do you think the future resides? The Christmas '99 shopping season is forecasted at $6 billion dollars of Internet e-commerce; how much of it will be yours?

Thanks for the bandwidth.

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