InformationWeek

June 28, 1999

New Model For E-Commerce

Electronic commerce is poised for radical change--but not all of today's electronic storefront products will support the transition

By Steve Gillmor, Jeff Angus, and Sean Gallagher

Related links from our sister publications:

EETimes Customer service may be missing link in e-commerce

TechWeb Consumers Need Global E-Commerce Protection

he dirty little secret of consumer-aimed electronic commerce is that it's going to change so suddenly and radically that everything that currently looks like a winner will likely be swept away. It may not happen this year, but when it comes, the change that transforms the current model will be as sudden and cataclysmic as E-commerce's rise. Companies planning to jump aboard the electronic storefront trend have a wide range of choices for "Storefront-In-A-Box" solutions--but not all of those choices guarantee, or even support, the transition to the new model.

To have the best chance of understanding the model that will replace the current one, it's useful to lay out the limitations of today's version. We'll call this model the E-commerce-as-cable-TV model. It's predicated on a few simple success rules. One: Strip out human contact to the maximum extent possible. Two: Sell commodity items--things such as books and videotapes--that are uniform once you know the title or name. Three: Beat the competition on price, range of selection, or both. This approach is like cable TV in that it offers a fairly broad range of choices, but the communication is heavy going one way (from retailer to customer) and very light in the other direction.

On the other hand, recent developments in business and consumer broadband technology are making more interaction with the customer possible. Persistent Internet connections in the home mean persistent connections to customers, and that companies can potentially start applying a tried-and-true marketing model from the physical world in the electronic one--the relationship sell.

There are severe challenges to the current E-commerce model. For one thing, the low prices used to attract business guarantee low margins. Low margins guarantee thin customer service, sometimes augmented with whatever can be added through automation, which isn't much. The low margins also mean that the way to make money is not through the sale of the objects themselves, but in the remarketing of intangibles such as customer information or by selling advertising.

Low margins guarantee the seller's fragility unless they can put all the brick-and-mortar storefront competition out of business. And price-motivated shoppers are notoriously fickle, willing to move to a competitor at the drop of a discount. This means the vendor can have positive cash flow only if it floats more stock or dabbles in day trading of its stock.

So how does E-commerce survive the coming shakeout? By reaching untapped customers with innovative projects through community networking, taking advantage of the expectations that persistent connections will engender.

The customers that the old model don't engage are the high-margin buyers, people who expect quality products, high-involvement customer service, and personal attention. These high-tone, high-touch customers require too much individual effort to be profitable in the current model. Dealing with this kind of customer requires a model that delivers high or normal margins in exchange for real-time interaction, equal communication in both directions, the ability to learn enough about non-commodity items to risk buying them without touching them, and most of all, high-quality personalized customer service from a real person with expertise and authority whose functional intelligence is higher than that of a set of frequently asked questions. It results in a partnership between seller and buyer, at the level of a business-to-business transaction.

This isn't easy to execute. But companies that haven't yet fully committed to the current model have an opportunity to extend themselves to the Internet, using it to amplify their personal touch. Dealing with high-demand customers is becoming technically possible because of the introduction of real-time interaction products, some of which are part of software vendors' platforms. Free portal mail, WebTV, PalmPilots, NetMeeting, AIM, and Sametime are available today, and Microsoft's Windows 2000 and Exchange Platinum, Web cell phones, and Novell's DigitalMe in the near future.

Buying Scenario
Imagine the following E-commerce transaction: Your customer wants advice on a new digital video camcorder. A friend has E-mailed a link to a comparative review that boils down to a choice between two hot models, both hard to keep in stock because of heavy demand. While browsing, your customer notices her friend is online and available for a chat via an AOL Instant Messenger client. Your customer asks which online store he recommends, and is pointed to an E-commerce site that also allows interactive querying of technically proficient sales representatives.