Making the web work
Out of the ashes of the World Wide Web, customer-focused businesses that make intelligent use of new technology will arise, predicts Simon van Wyk.
When the dot com collapse continued for six months after the tech wreck last April, people said the worst was over. They were wrong. Of the 210 Internet-related businesses in the US that officially curled their toes up during 2000 (not including shotgun weddings and the death of hundreds of small e-businesses too small to appear on the radar), 120 of them failed during the last quarter of the year, the majority of those just before or just after Christmas.
In the aftermath, most analysts have described the collapse using analogies about traditional big business eventually triumphing over the little guy. “The market provided seeming validation for the idea that small companies following the new rules could indeed change everything and topple Goliaths. This created an attitude of invincibility that might have led companies to risk too much,” Saul Hansell wrote recently in The New York Times.
“If anything is unarguable amid all the dashed hopes and wagging fingers, it is that it takes longer to change the world, or even build a business, than it does to make a pretty website.”
An editorial earlier this year in Fast Company, a magazine that has always been particularly bullish on the new economy, admitted that “certain assumptions about the Internet economy have been shattered: the short-lived notion that there would be a separate business sector devoted exclusively to dot coms; the assumption that whenever a startup met a big, established company, the question wasn’t whether the startup would win, but when.”
But they also acknowledge that the Internet has had a lasting effect on the way the world does business. According to Saul Hansell, “The simple truth seen by the web pioneers remains: this medium can connect more people to information and to one another faster and cheaper than any before it. And amid the prominent failures, there have been remarkable successes. So now it’s possible to start asking what has been learned from this experience.”
After mourning the death of the dot com sector, Fast Company went on to proclaim, “Digital technologies remain a powerful force for strategic transformation. Thanks to what’s happened over the past five years, companies and their executives have embraced - and will continue to embrace - powerful new ideas about what it really takes to develop a winning strategy, how to build a creative and productive organization, and what it means to succeed.”
Christmas’ silver lining
This optimism among the gloom was borne out by last year’s holiday shopping results. Despite all the problems, the Christmas etailing season was hailed as a success. In the US, online shoppers spent more than US$10 billion in November and December, according to Forrester Research. The Boston Consulting Group (BCG) charted a 76% increase in sales over Christmas 1999, while some analysts such as eMarketer pegged the increase at more like 100 per cent.
In Australia, ZDNet and www.consult estimated that holiday sales online in 2000 topped $300 million, doubling the $150 million spent during the same period the year before. This is despite the collapse of major etailers such as The Spot and dstore between the two Christmases.
www.consult estimated that 1.1 million Australians shopped on the web last Christmas, spending nearly $300 on average. During the full year online retail spend tripled from 0.5% to 1.5% of all retail consumer spending in Australia.
Not surprisingly, the main winners last Christmas were the “clicks and mortar” businesses, traditional businesses with an online outlet. Nielsen/Net Ratings reported that 11 of the top 15 online brands during the Christmas season were clicks and mortar retailers, in sharp contrast to the previous year. And according to Media Metrix, six of the top 10 holiday shopping retail sites in terms of gains over 1999 were traditional offline brands. They were led by Kmart’s bluelight.com, up more than 1,000% over the previous year (admittedly off a small base).
Making both halves work
I think much of the slump in pureplay ebusinesses can be attributed to the fact that people are still working out how to get an adequate business return from the Internet. As it stands at the moment, the Web only half works. It holds enormous promise, but many businesses tried to go too far, too fast. Pureplay and clicks and mortar businesses that have survived have done so because they learned a few lessons along the way:
Respect the technology - but don’t bow down to it: Lots of dot coms poured too much money into developing complicated technology that either no one quite understood how it worked, or was too labour-intensive for too-little return. Early Web pioneers like CDNow and Amazon.com built their business by relying less on whiz-bang technology and more on having a first-class call centre and distribution network.
Most Australian businesses still don’t get this. Visit any of the telecommunication, tourism or car sites in Australia. Not only is it hard to work out how to conduct business with them online, the customer service is simply not there backing it up.
Bundlers buy: The main reason why clicks and mortar businesses will ultimately win out is summed up by the latest e-marketing buzzword: “channel bundling”. It refers to the fact that an increasing amount of people researches their purchases online, but make the actual purchase in person. Nearly 50% of the most sophisticated shoppers found items they wanted online and bought them in a store during 2000, according to a study by the Institute for the Future and marketing consultants Peppers and Rogers Group - twice as many as in 1999.
Channel-bundling consumers have more power over the total shopping process, according to Peppers and Rogers, controlling everything from the price they pay to how and when goods and services are delivered, and how they’re billed.
“The ’store’ is no longer at the mall, on the Web, or in a catalogue - it’s wherever the customer is when he chooses to shop, browse and buy,” the study concluded.
Always have a human available: Amazon.com is still ahead of Barnesandnoble.com - and most Australian booksellers online - because despite the fact that it has never had any face-to-face contact with its customers, dealing with Amazon feels more like you’re dealing with a real human being than any of its competitors. From the no-nonsense design of its site to the friendly, intimate tone of its newsletters and the language employed in its correspondence, you know the place is run by real people who love books.
While I’m on the subject of humans, another essential ingredient for a successful web business is to have real people answering any correspondence that comes in - and to do it promptly.
The old economy and the new economy are converging into something that will just be called the economy. And just like in the old days before the Web, businesses that get the basics right and focus on customer service will be the ones that survive.