New York was abuzz with e-commerce clatter late last month when the fifth annual Internet & Electronic Commerce Conference and Exposition (iEC ’99) rolled into town, and Greg Drew, founder and president/CEO of 800.COM, also visited the city to promote his venture.
The iEC show, co-sponsored by GartnerGroup, an information technology service provider, was a veritable high-tech bazaar of e-commerce software, online marketing tools, virtual call centers, payment-enabling systems and back-end equipment, drawing thousands of businesses with a stake in Internet selling.
But beyond the nuts-and-bolts mechanics of launching and maintaining a virtual store, iEC ’99 presented a host of educational panels and seminars on the challenges facing the nascent e-commerce channel. Among the most telling: a keynote discussion on the future of e-business, led by executives from Arthur Anderson and Internet software designers PeopleSoft, Open Market and Sterling Commerce.
On the issue of virtual stores replacing brick-and-mortar, Open Market president/CEO Gary Eichhorn argued that the next century’s most successful retailers will embrace a combination of both.
“There will always be a need to get out into a store and shop,” he said, “and people will get tired of spending most of their money on FedEx. Can you imagine the freight charges on a refrigerator sold over the Internet? While it’s much more convenient shopping at home than getting accosted by salesmen with a refrigerator special of the week, you also want someone who will stand behind the appliance and install it.”
The answer, said Eichhorn, is a web site that will provide customers with the best prices in their area, and a local brick-and-mortar store that will provide delivery and service.
“Computers have the opportunity for a first strike,” he maintained, “but Compaq hasn’t figured out how to bring dealers into the equation. They see it as an either-or proposition, although Compaq’s greatest value lies in its distribution system. They must bring dealers into the loop rather than exclude them.”
Eichhorn also admonished e-merchants to design their sites with the consumer in mind. “It can be a pain in the ass to shop online,” he said, “and 80% of all sites suck. They have too many pictures and confusing instructions. Some [executives] could never possibly have made a purchase from their own sites.”
Dave Duffield, chairman/CEO/president of PeopleSoft similarly urged executives to make an online purchase in order to understand the new paradigm of cyber selling: “You can’t just drop a web site over your existing business because ‘this is how we do things.’ You have to take an inside-out approach. The Internet demands that you service the customer, rather than extend what you are already doing.”
J. Brad Sharp, executive VP/COO of Sterling Commerce concurred. “The Internet pure players are turning the business model upside down, and it’s forcing old-line companies to rethink the way they do business,” he said. “You’re not just implementing a new technology, you’re changing your way of doing business. You have to create a different mind-set. People underestimate how difficult electronic commerce it is.”
Agreed Tomas Frederick, director of advanced technology for Arthur Andersen, “The Internet has caused a shift in power toward buyers and has created innovations in business models and innovations in what people are willing or not willing to pay.”
And yet, the Internet isn’t only about price, Frederick said. “Charles Schwab is not the cheapest, but it has a wide sweep of services.”
Frederick agreed with Open Market’s Eichhorn that companies have yet to leverage the strengths of their physical and online businesses to quell channel conflict. “They must use their physical and electronic capabilities,” he said, offering customers suggestions such as “come to my store to pick up that book that you ordered online, rather than have me ship it to you.”
Eichhorn concluded that one of the largest remaining roadblocks to skyrocketing electronic sales is lack of bandwidth, which is having a “huge impact” on shoppers’ reluctance to go online. “We need to supplant dial-up modems with cable modems before the whole thing takes off,” he said.
Also holding court in New York during the week was Greg Drew, founder and president/CEO of 800.COM, the self-proclaimed Ultimate Electronics Zone.
In town to tout his two-year-old CE selling site, Drew was riding high from a recent $16 million cash infusion from private investors in a second round of financing, and from the expansion of his merchandising team with seasoned retailers from The Good Guys, Sun Television and Reel.com.
Drew’s team now includes Greg Hughes, who was formerly a senior category manager for television at The Good Guys and joins 800.COM as a senior buyer for TV and video; Lee Carman, a former Sun Television buyer who was tapped as an audio buyer for 800; and Douglas Butdorf, a founding member of Reel.com who now heads up 800’s movie and music operation.
All report to Frank Sadowski, VP of merchandising and also a Sun Television veteran.
In contrast to industry perceptions of virtual CE stores as disruptive wild cards, Drew positioned 800.COM as a good corporate neighbor.
“We actually like MAP [minimum advertised pricing],” he told TWICE, “and only sell products we’re authorized to sell.” And while a big frustration for vendors is that their products are not presented properly on the traditional retail floor, he said, “the Internet allows us to position manufacturers’ products the way they want all the time.”
Although the site has yet to turn a profit, Drew said positive returns have been deliberately put on hold while cash is plowed back into the business. “The lack of profit is related to expanding our market,” he said, “and we’ve got the pedal down pretty heavy right now.”
Indeed, he argued that his business model paints a “strong gross margin picture” by eschewing such commodity products as computers and white goods, and dispensing with stores, regional warehouses, sales reps and shelf stocking. At the same time, the site will have “the most aggressive prices on the web,” albeit through “intelligent bundling and compelling promotions” that are fueled in part by vendors’ promotional dollars.
To ensure repeat business, service remains a top priority, said Drew, citing a recent refund offer that made up the difference to customers who purchased a product before a price drop, and a new Red Carpet shipping program that will include in-house setup of home theater products via local service providers.
