GG: Check out the very last sentence in this Wall Street Journal Article...
<<The web's real potential is to personalize the market for goods.>>
Hmmmm.....I wonder who is in THE BEST position to help make that happen..!!
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June 9, 1999
The Wall Street Journal
Here Comes Web War II
By HOLMAN W. JENKINS JR.
<<Now the ground war begins. Merrill Lynch got all the press last week, but the established off-line industries have begun to ascend from their duffs. The record companies are throwing money at digital distribution. On Lou Rukeyser last Friday, a panelist touted the New York Times as an Internet play. Even Wal-Mart's plans to conquer the web were proceeding quietly until Lou Gerstner of IBM blabbed to analysts.
This is less surprising than it would have been 20 years ago. Peter Drucker once said new industries are seldom pioneered by old companies, since old companies are loath to cannibalize themselves. It becomes easier, though, when the CEO's remuneration is tied to the restlessly forward-looking stock market, rather than to the cash flows of the old system--the way, say, a Merrill broker's is.
Will the duffers have the courage to go all the way to Berlin? Merrill should be asking itself whether stock trading isn't destined to become a free service for small investors. But whatever happens, several assumptions about business on the web are ripe for re-examination now that the big boys are moving in.
The customer really matters. Before it was just lip service. What mattered was the investor. The customer was just somebody to whom the investor's money was given in a Japanese-style bid for market share. Look at Amazon's Jeff Bezos. He likes to say there will be "thousands and thousands" of winners on the web. But he announced his half-price best seller giveaway just as "Barnesandnoble.com" was launching its IPO. He made a noisy point of using Amazon's inflated stock to scoop up a web auctioneer just as eBay was trying to raise $1 billion.
But let's be nice about Mr. Bezos: Investors have been willing to fork up billions to test these new business models, so the game became spinning investor expectations. As long as the field was wide open, there was even a self-fulfilling logic to investor actions: Keep steering the money to Amazon and Amazon would win.
Now the calculation has fundamentally changed. Are investors going to keep throwing bales on the bonfire to keep Amazon up with Wal-Mart, which has a profoundly profitable underlying business to draw on? Not likely.
Amazon's stock has dropped by half and now is $100 short of where it needed to be so the company could call its $1.25 billion convertible bond. Next month the company faces a $24 million interest payment it never expected to make. From now on, the race on the web may go to companies that can generate cash internally.
The costs are lower. If you don't mind a trip, buying a book is cheaper at the local bookstore because you don't have to pay $10 in shipping charges and wait a day or two for delivery. Depending on how you value your leisure time, the cost of selecting and delivering the goods can be more cheaply borne by the customer than the vendor.
As for the idea that dinosaur retailers are handicapped by high fixed costs, bricks and mortar are about to become a competitive advantage. How about if a smiling Wal-Mart employee drives up and delivers your stuff an hour after you place your order? You might not even mind jumping in your own car to quickly return defective merchandise.
Stores and web sites both have overhead, but stores don't have to hire computer scientists to redesign themselves every six months. The web is just one component in quicker, better service. The other components are storefronts and delivery networks.
Price is everything. A truism of marketing is that if you treat price as the most important thing, so will the customer--and a price sensitive customer is the opposite of a brand-loyal one. The idea of trying to create brand loyalty to a web site by promising the "lowest prices" is self-defeating since you have nothing to hold the customer when somebody else offers a lower "lowest" price.
The web shifts the balance of power from seller to buyer. The idea here is that because customers found it hard to run around comparing prices at 20 stores, retailers could more easily rip them off. This was always an oversimplification if not a slur. Customers don't appreciate being ripped off and don't come back. Price variability between stores has a lot more to do with ancillary services like convenience, attentiveness and the psychic satisfaction of overpaying in luxurious surroundings.
And sellers have "search costs" too. Where the web introduces real efficiencies, ironically, prices may actually go up rather than down.
Ho Geun Lee, a business professor at South Korea's Yonsei University, explores this property of electronic marketplaces in a fascinating study of Aucnet, a Japanese used-car market set up in the 1980s. Compared to traditional used-car auctions, the average selling price per car rose 100%, thanks to a sharp lowering of costs and risks for both parties.
No longer did the seller have to tramp from auction to auction in his hunt for buyers. And he no longer faced those awful take-it-or-leave-it offers at the end of a long day when the cost of towing his cars home loomed. At the same time, potential buyers didn't have to tramp around weekend after weekend to see a range of cars. The auction sponsors learned something too: Nobody would bid electronically for a used car unless Aucnet itself inspected the cars and guaranteed their condition.
A more efficient market led to higher selling prices because both parties were more assured of getting what they wanted at lower cost to themselves.
Can we distill some provisional meaning from all this? Web-retailing as now practiced may be an excellent method for unloading excess inventories on shut-ins, but its potential to blow away the traditional retail model has been overblown. Fans do have a point about using the web to cull customer information so goods and services can be marketed to specific individuals. But when consumers begin to understand what this really means--including ferreting out secrets from our unconscious point-and-click habits--they may not be so wild about the idea.
The real revelation may be the web as an efficient marketplace for non-standardized, one-of-a-kind goods. How much new commerce this might ultimately generate is anybody's guess. But we are an affluent, overprivileged society. People want their consumption to reflect their unique tastes and individuality.
In a small way, the computer vendors already do this by letting you configure your own PC online before they assemble it and ship it out to you. We have a highly personalized market for services like haircuts, physical trainers and therapists. The web's real potential is to personalize the market for goods.>>
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