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Is Web Business Good Business

In an effort to lure Web-savy customers, more and more companies are setting up shop online. Profits are elusive, though, as pioneers attempt to discover how best to tap the medium’s potential.

Wine buyer Peter Granoff was looking for a way out of the restaurant business, he never dreamed his future lay in cyberspace. Then one evening over dinner as his brother-in-law Robert Olson sketched out a plan for starting a company on the World Wide Web, Granoff had a vision. Olson, a former marketing executive at a Silicon Valley computer maker, wanted to sell an easy-to-distribute product with a large, passionate, and geographically dispersed buying audience. He believed the ideal product line for the Web was one whose customers needed extensive information to guide their purchasing decisions. An excited Granoff said, “You’re talking about my business. Inspired, Granoff and Olson launched Virtual Vineyards, a rapidly growing online vendor of wine and one of the first of a growing number of companies that are illustrating the revenue-generating potential of putting a storefront on the World Wide Web.

Companies that continue to do most of their sales through conventional channels are setting up Web sites as promotional and corporate image tools. At the same time, the Net has given birth to a rising number of Web-only enterprises.

Tapping the Web’s Wonders

Many early-adapting businesses have struggled with how best to use the new medium. Commonly, companies fail to exploit the capacity for interactivity, offering static sites that serve as electronic versions of brochures. Successful companies, in contrast, have developed dynamic, information-rich sites that create an informal, often whimsical atmosphere that consumers enjoy searching whether they buy products or not, and that take advantage of the Internet’s unique attributes. Good Web business sites offer visitors a wealth of useful, diverting information in addition to detailed product descriptions. Virtual Vineyards, for instance, publishes a “tasting chart” that helps shoppers learn how to judge wines by intensity, sweetness, body, acidity, tannin oak, and complexity. It also provides a glossary of frequently used terms and tips on how to mix wine and food and an archive of menus, including recipes and wine choices, for a variety of holidays and special occasions.

Online booksellers are also employing innovative ways to use free information to stimulate sales. Amazon.com devotes a Web page to each book that the cyberstore sells, and many of the more popular offerings feature links to author interviews and reviews by professional critics. Another Internet bookstore, PureFiction in England, not only reprints snippets of critical reactions to its featured offerings but also publishes sample chapters and offers five-minute audio excerpts of its books on tape.

Early-adapting companies have found that too much visual sophistication can be counterproductive. Frustrated shoppers bail out of business Web sites quickly when detailed renderings of products or other images take too long to load on their computer screens. ReadMe.Doc, a computer-book retailer in Chambersburg, Pa., recently scaled back on the number of graphic images on its site because “it was taking too long for someone with a 14.4-kilobit-per-second modem to get a page up,” says president Christopher Kendall.

In a similar vein, Perry Lopez, creator of Hot Hot Hot, a hot-sauce retailer in Los Angeles, stresses the importance of easy navigation. He has tried to create a Web site where customers have to click only once from the home page to get to key information in any given category. But such an approach is a matter of personal taste; some Web users prefer pages with small amounts of information and frequent links.

Internet business experts caution would-be cybermarketers that good Web site design takes time. It is deceptively easy to throw together a quick-and-dirty Web page in a few hours. But a high-quality site that customers will feel comfortable visiting and revisiting requires planning and maintenance. Successful electronic merchants make detailed studies of commercial Web sites before designing or opening an electronic business. For instance, Darryl Peck says he “spent 16 hours a day checking out Web sites” before formulating a business plan for Cyberian Outpost. Similarly, the founders of Amazon.com spent a year learning the business before going online, according to Scott Lipsky, vice- president of business expansion.

Web business veterans recommend bringing in outsiders or customers to evaluate a new site before launch. AMP, one of the world’s leading manufacturers of electronic and electrical connectors, took a year to develop a Web site allowing online parts purchase. For almost six months before the site officially opened, major customers piloted the new system and offered comments on its usability, according to Robert Orendorf, project manager for AMP eMerce Internet Solutions. And Virtual Vineyards took nine months to develop a product inventory system to support the company’s Web site, accommodating more than 75 wineries and 45 specialty-food companies.

Attracting and Keeping Customers

There’s nothing so forlorn as an unvisited Web site. Companies that want to attract people to their online storefront use a variety of channels, both on and off the Internet, to attract potential customers. One approach is to send marketing offers to customers through electronic mail. Such efforts need not be the kind of unsolicited junk mail, or “spam,” that so enrages many recipients. Many Web sites ask visitors to register, a process that offers the option of signing up for e-mail from the company announcing product news.

One technique that universally attracts customers to a Web site is visualizations of products. When engineers search the AMP Connect Web catalog, for example, they can navigate among 70,000 choices by part name or number, or by using a menu of product pictures. Once customers have found products meeting their specifications, they can view detailed line drawings, and in some cases, download three-dimensional renderings. At Toyota’s Web site, customers can not only read text screens with detailed product specifications and dealer locations but can see what a variety of colors look like on a car model, view new automobiles from different vantage points through photographic “walkarounds,” and look at interiors through a special “photobubble” view like that provided by a fisheye lens.

Granted, such attempts to visualize cars are primitive compared with what consumers see when visiting an automobile dealership. And shoppers often have to go through an involved process of downloading free software to use such effects. But car buying on the Web has proven surprisingly popular, especially in the form of online brokering services that gather product information and handle transactions. The Auto-By-Tel site, for example provides access to financing and insurance information as well as an electronic form for requesting no-haggle, no-obligation price quotes on specific car models. Since starting up in 1995, the company has processed 325,000 requests for quotes from a network of 1,500 accredited dealerships. One participating dealer-Atamian HondaVolkswagen of Tewksbury, Mass.- credits Auto-By-Tel for initiating as many as 25 percent of its sales.

In the San Francisco Bay area, the 12-dealership Tasha Automotive Group has sold several hundred cars through another Web-based buying service, Autoreach, according to Jon Fisher, director of operations. Although those represent less than 5 percent of total sales, Fisher expects more than 20 percent of his company’s sales to come from the Internet within five years, based on recent growth trends. Fisher is particularly excited about the potential of Web sites to alleviate consumer disgust with the high-pressure sales and marketing tactics common in the automotive business.

Building Electronic Communities

Surfing the World Wide Web can be an adventure, but online users are often eager to relieve the loneliness of the ride. Many Internet businesses are trying to tap into the desire for interpersonal connection by establishing hospitable sites. People need to feel that someone is listening and responding on the other end of the modem.

While fast and consistent response is a basic of good business in any case, entrepreneurs have found its importance magnified on the Web. Shoppers want some confirmation other than a message box on a Web site that their orders have been processed. The rapidity of e-mail transmission has accustomed Internet users to expect responses to their questions and concerns within hours instead of days. Scott Lipsky of Amazon.com says that the company strives to answer every e-mail note-usually within hours. With the site’s business growing by 30 percent each month, this task has become more daunting with each passing week, and the bookseller has continually beefed up its staff to meet this demand.

Business Web sites also gain by fostering a sense of community among their visitors. The first prerequisite of community-building is to offer a place “where people want to hang out,” says Lee McKnight, a specialist in Internet economics and a lecturer in MIT’s Technology, Management, and Policy Program. One way to do so is to address visitors in an informal, often humorous tone that encourages customers to have fun while making purchases or gathering product information. Visitors to Van den Bergh Foods’ Rag sauce site, for example, enter a cozy dining room dubbed “Mama’s Cucina” where a grandmotherly woman waits at a table set for two. A dialogue bubble over her head says: “You’re buying a new computer? What’s this new new all the time now? I’ve got pots and pans older than you.” In similarly colloquial language, Mama offers visitors recipes, Italian lessons, a free vacation contest, and advice on one’s love life, along with information about Rag products.

Some online businesses encourage a sense of community by allowing customers to contribute information to their sites. Virtual Vineyards publishes consumers’ favorite ways to marry wine and food while offering the “Cork Dork”-a column that answers customer questions about wine. Amazon.com invites readers to post their comments about books it sells alongside those of professional critics.

Another tactic for building community is to emphasize interaction among customers. An excellent illustration of this approach is Onsale Inc., which conducts several virtual auctions a week of refurbished computers and home-electronics products. Shoppers can not only follow the progress of the auction and enjoy the pleasure of the hunt but can also include personal comments with their bids-and read those of other buyers. “They often get into competitive interactions, making comments like No way, MP of Mountain View, it’s mine!!’” says marketing director Michelle Pettigrew. Onsale also stirs the pot by soliciting comments from bidders on topics not directly related to the purchase, posing questions such as “What’s your favorite personal-computer game?” These interactions, says Pettigrew, help ensure that the auction is “not just a static online catalog or order-taking mechanism.”

Onsale’s strategy of combining entertainment with retailing appears to be paying off. The company says it has attained profitability with monthly sales exceeding $4 million. And according to PC Meter’s recent audience rating reports for the World Wide Web, the online auction house often attracts visitors for more time each month than any other Internet shopping location. Between August 1996 and January 1997, Onsale shoppers spent an average of 30 to 48 minutes on the site each month.

Businesses gain further important advantages by maintaining strong electronic-mail contacts with customers. “A lot of times all you have to do is ask your customers for their opinions and feedback and you get a statistically reliable sample in a matter of hours,” says Onsale’s Pettigrew. “We use our customers as a sounding board whenever possible.” Rosalind Resnick, president of a Web-site design company called NetCreations, considers the three hours a day she spends answering mail from customers as time well spent. “Customers are thrilled to get a response from the president of the company,” she says. “The more interaction the better.”

Indeed, Hot & Spicy Foods president Marcil says that what he likes best about adding an Internet component to his business is the rapid access it gives him to customers. He can make a change in product offerings and get the word out immediately to customers-both on his Web site and through targeted electronic mailings to regular cybershoppers at his store. The response rate to e-mail specials is around 5 to 7 percent, he says, in contrast to the 3 to 4 percent response elicited by traditional targeted mailings.

Customized Shopping

Successful online businesses have even found ways to tailor the shopping experience to individual buyers. These innovators give consumers tools that ease product searches or profile individuals’ buying preferences and offer information tailored to their needs.

A good example is Preview Travel, where consumers have access to a powerful engine for customizing their trip plans. A would-be shopper enters a destination and preferred dates, times, and airline. An automated flight-planning system then displays a selection of flights that match the desired itinerary-including fare, seat availability, type of airplane, meals, number of stops, and the flight’s on-time record.

When Pull Comes to Push

In the first heated year or so of Web business, most of the action has revolved around efforts to tap the consumer market. More recently, as the Web proved to be more than a fad, companies have started to buy and sell products and services with one another. Such business-to-business sales make sense because businesspeople typically know what product they’re looking for, according to Joseph Bailey, an MIT doctoral student who has written extensively about Internet economics.

Nonetheless, many companies still hesitate to use the Web because of doubts about its reliability. “Businesses need to feel they can trust the pathway between them and the supplier,” says senior analyst Blane Erwin of Forrester Research. Some companies are limiting the risk by conducting online transactions only with established business partners who are given access to the company’s private intranet.

Another major shift in the model for Internet commerce concerns the technology available for marketing. Until recently, Internet marketing activities have focused on strategies to “pull” customers into sites. In the past year, however, software companies have developed tools that allow companies to “push” information directly out to consumers, transmitting marketing messages directly to targeted customers. Most notably, the Pointcast Network uses a screen saver to deliver a continually updated stream of news and advertisements to subscribers’ computer monitors. Subscribers can customize the information they want to receive. By clicking on intriguing advertisements, they proceed directly to a company’s Web site. Companies such as Virtual Vineyards are already starting to use similar technologies to push messages to customers about special sales, product offerings, or other events. But push technology has earned the disdain of many Web users. Online culture exalts the notion that the information flowing onto the screen comes there by specific request. Once commercial promotion begins to fill the screen unbidden, the distinction between the Web and television fades. That’s a prospect that horrifies Net purists.

But it is hardly inevitable that companies on the Web will need to resort to push strategies to make money. The examples of Virtual Vineyards, Amazon.com, and other pioneers show that a Web site selling the right kind of products with the right mix of interactivity, hospitality, and security will attract online customers. And the cost of computing power continues to free fall, which bodes well for any enterprise setting up shop in silicon. People looking back 5 or 10 years from now may well wonder why so few companies took the online plunge.

The Neverhood of Internet Commerce

New technologies sometimes offer an illusion of benefit that holds true only within a narrow economic frame. While we eagerly chase the savings in money and effort that a new tool seems to offer, we may disregard the wider, social costs that may eventually mock our sense of prosperity.

This bane of false economy haunts today’s push for Internet shopping. A vast cybermall has recently moved into every village, town, and city, selling clothing, CDs, computers, automobiles, and other products to millions of potential customers. Digital entrepreneurs predict that people will relish the convenience of buying things on the Net, flocking to stores whose electronic doors are always open and where parking is never a problem.

The hoped-for bonanza of Internet commerce has not yet materialized; most online establishments are still in the red. But a few retailers have begun making strong inroads into traditional business domains, especially in the realm of book selling.

At first glance electronic book vendors such as Amazon.com, Book Stacks Unlimited, and others have much to recommend them: enormous catalogs searchable by home computer, 24-hour-a-day service, literary reviews on the Web, and other nifty services. Amazon.com, for example, carries 1.5 million English-language books, roughly 10 times the number available in the largest conventional stores. Adding to their appeal, Internet sellers typically offer impressive discounts of 10 to 40 percent.

But before we shift our purchases to Internet vendors, we need to recognize a hidden price we may end up paying: the demise of traditional shops. A bookstore is first and foremost a gathering spot for those who care about books and reading. In these places the purchase of a product is only part of the experience. As we enter the stacks, we often expect to talk with store clerks or other patrons about what’s new or interesting in a particular genre.

This aspect of browsing is especially important for children as they approach a life with books. “I’m finished with all the Brian Jacques stories,” my son recently announced to Muriel, proprietor of a bookshop in our town. “Are there any more of that kind?” The kindly white-haired woman raised her eyebrows, smiled, and led him up the stairs to a shelf of children’s novels, enthusiastically describing each volume. The $9 we paid for the book cannot approach the real value of Muriel’s gift-a child’s heightened sense of the horizons between two covers.

Some will argue that fast search engines supplemented by online help desks can replace the human touch that traditional stores have to offer. But this reflects an impoverished understanding of what the social life of books involves. Even if a Web site learns our names and buying habits, even if it automatically notifies us when “books you want to know about are published,” can it connect us to the world of living readers, the place where the pages come alive? I don’t think so.

The personal benefit that bookstores and other local shops provide is magnified by the way they buttress the civic culture of our towns and cities. One sign that a community is flourishing is the presence of well-maintained, well-stocked shops in downtown and neighborhood centers. There is now widespread awareness that the arrival of huge, corporate superstores tends to kill small businesses, leaving main street with boarded-up buildings, prey to the social ills that spread when the economic core of a community expires. It is this realization that has spurred citizens in many towns to band together to resist the coming of Wal-Mart and its ilk.

But I wonder if those residents newly vigilant about megastore sprawl are aware that potentially greater destruction will occur as people abandon local concerns to start buying online. The threat to those concerns from Net vendors is far more insidious than that posed by the large national chains. Communities may summon their powers to unite against a Borders or Wal-Mart. But QuickBucks.com will creep in under their radar screens. Many shops survive on a precarious margin and are not robust enough to withstand the onslaught of electronic commerce. If 10 to 15 percent of the sales of your local bookstore quietly migrates to the Internet, it’s likely that the shop will eventually fold.

This suggests that we will have to become more judicious about where and how we make purchases. In my view that means avoiding Internet commerce when there are reasonable, local sources of supply. It is not a question of altruism, but of self-interest broadly conceived. The short-term advantage of sending money to a data-processing organization in Seattle for a bargain-priced book makes no sense if the action depletes the economy down the street and undermines the integrity of community life.

Yes, we should use every Internet resource to explore the market and make intelligent comparisons. But when it comes to casting “dollar votes,” we can better spend the money closer to home, in a neighborhood where people actually live rather than the neverhood of digital bits.

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