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Chapter 1: Business in Internet Time
As a youth at the turn of the 19th century, an oyster fisherman worked from sunrise Monday morning to sunset Friday night. Around 3 a.m. on Saturday, he would load his catch onto a large skiff and head to the fish market in town. Although he and his father had a relationship with the owner of the fish market, they always debated the quality and price of the product. With oyster knife in hand, the fish market owner would sample the oysters and state his price. On a good day, a barrel of salty oysters and 15 minutes of haggling fetched 50 cents. On a bad day, the same 15 minutes might yield only 35 cents. Regardless of the transaction details, both the oyster fisherman and the fish market owner parted with the full expectation that they'd be doing business again in one week. They had a relationship that was built on years of short, intense, personal transactions.
From the oyster fisherman's perspective, the time he spent in the actual business transaction was insignificant compared to the time he spent hauling oysters from the brackish waters in southern Louisiana and then transporting them to market. As a producer, he felt that selling was simply the final step in a long, arduous process. He didn't have time to consider his role in the value chain and what might happen if the fish market owner refused to buy his catch in favor of that of another fisherman who might accept a lower price. The oyster fisherman and the fish market owner had an unsigned deal-a relationship-that virtually guaranteed security for both of them.
From the fish market owner's perspective, the oyster fisherman was probably a normal, welcome part of his Saturday morning. After 15 minutes of haggling and another 15 minutes of the fish market owner's watching the oyster fisherman unload a dozen barrels of oysters, the oyster fisherman was gone. The time the owner invested in the relationship was the time spent transacting business. It was an efficient use of his time. Of course, it wasn't as simple as that. If the owner didn't at least satisfy the oyster fisherman's need for capital, he might have to invest time finding another reliable source of oysters.
It turns out that their relationship lasted over a decade. The demand for oysters declined and the oyster fisherman shifted to the more lucrative shrimping industry. As captain of a shrimp boat, his main concern was maximizing his weekly catch while managing a crew of six. He no longer dealt with sales; a salesman representing the shrimping cooperative negotiated with the big freezer companies for the best price. After another decade, faced with dwindling profits and fierce competition from shrimp producers in Mexico and Taiwan, the oyster fisherman graduated from hauling ice and shrimp to managing tugboats that transported drilling equipment to offshore platforms for multinational corporations.
Through the course of his work career, the oyster fisherman became involved in longer, more complex value chains. He advanced from delivering a product with a measurable quality to a service that was difficult to quantify. He moved from dealing one or two levels up from the end-consumer to dozens of levels up from domestic and international consumers. The oyster fisherman never experienced the Web, but his career illustrates a number of points relevant to the Web.
EBUSINESS CLICHÉSAccording to the clichés floating around the trade magazines, we're all operating in "Internet time," "power has shifted to the consumer," "revenue is in and profit is out," and "the Internet changes everything." There may be some truth to these revelations, but in each case, it's a matter of degree. Despite the widespread adoption of the telephone, email, and the Web, business is still about creating and nurturing relationships. What has changed is the real and perceived time required to form relationships, transact business, and-most importantly-dissolve and disrupt relationships.
It's fashionable to speak of things happening in Internet time because processes on the Web simply occur faster than in the physical world. Instant communications and gratification are not only possible, they are expected. It's as though, as a species, business has been transformed from a lumbering elephant, which lives seven or eight decades, to a sprightly fruit fly, which experiences an entire life cycle in less than a month.
The Web, like the telephone and the microcomputer, is really a time machine. Just as FedEx is a modern version of the transporter from "Star Trek," capable of moving objects from one point on the planet to any other point in about a day, the Web compresses the relationship building-sales cycle. A three-second sequence of mouse clicks can replace a one-or-two hour business meeting. Because of the ease and rapidity with which symbiotic relationships can be established, there's little motivation for either side to develop loyalty toward the other. Or is there?
Several factors affect the Internet business relationship: trust, is one factor. Each side assumes that the other will abide by the agreement to exchange goods, services, or money. Trust doesn't have to go very far if the business transaction involves trading a barrel of oysters for a few coins. Both sides get what they want out of the exchange or the deal is off. But consider a business transaction for services, such as a one-month contract for house cleaning. A service, unlike a physical object, is difficult to quantify objectively. If a customer isn't satisfied by the quality or timing of the service, there may not be any recourse against the supplier other than simply not using that supplier again.
To quote a sales cliché, "The fear of loss is greater than the prospect for gain." Or, as Spencer Johnson says in Who Moved My Cheese?, "The more important your cheese is to you, the more you want to hold on to it." We-buyers, sellers, and bystanders-fear the unknown. This universally human trait provides the psychological basis for cultural development, patriotism, and loyalty. Since we are consumers in the service industry, this fear of the unknown also fuels our desire to stay with a service provider that has performed admirably for us in the past. Presumably, service providers appreciate the money paid to them for their services. However, if they're in demand, they may not be as attached to the consumer as the consumer is to them. When the world is full of clients willing to pay for a service, one client is just as good as another.
Another factor in relationships is control. If one side can walk away from a relationship, and the other side can't or won't, the side that can walk away controls the relationship. On the Web, where so many product and service providers are only keystrokes away, control of the relationship is clearly in the hands of the consumer. According to Fisher and Ury in Getting to Yes, consumers have a better BATNA-a Best Alternative To a Negotiated Agreement. If the deal doesn't work out-if a seller doesn't meet a price point, for example-the customer can click to another eBusiness in a half-second. This scenario assumes that providers are numerous and largely undifferentiated.
The BATNA view of relationships suggests that the time invested in a relationship affects our decision to stay in a relationship. It's one thing to drop someone after one date and another to walk out after living together for a year. If a person has invested significant time in a relationship, then walking away and starting the process anew with someone else isn't very appealing. At least the time investment in an ongoing relationship is known. Starting anew, trying to develop another relationship, often has an unknown time commitment. Time is the most precious commodity on the planet, and no one wants to spend it unwisely.
In an ideal environment where customers find an eBusiness strictly at random, market share can be calculated as the number of potential customers divided by the number of eBusinesses on the Web. In the real world, the process of creating business relationships isn't random, even on the Web. The entire focus of marketing is to make the process of a customer's locating a supplier as non-random as possible, in favor of the business behind the most aggressive marketing effort. Establishing a brand with a positive or negative image, for example, significantly upsets the randomness of the Web. A customer is likely either to search out or avoid a particular eBusiness, based on perceptions of the brand. Similarly, although geography and physicality are irrelevant concepts on the Web, the Web equivalent of prime real estate-a short, catchy URL-can have the effect that a multi-million-dollar storefront in a prime location has on sales in a brick-and-mortar business.
Brand aside, a basement eBusiness startup with a Web designer who has an eye for graphics and a programmer who knows her way around active server pages is on equal footing with a 100-year-old multi-million-dollar brick-and-mortar corporation-at least from the perspective of eConsumers. Of course, when an established business with a known brand decides to establish a presence on the Web, the physical business can give the eBusiness instant credibility.
For example, the Gap's click-and-mortar Web site (www.Gap.com) is an online extension of the Gap chain of retail outlets. The Store Locator function allows anyone to locate the nearest Gap retail outlet. In addition, as the Web site boasts, Gap.com is about ease. A customer can order a garment from the comfort of her home. If the item doesn't fit, she can bring it to any Gap for a refund or exchange. Gap.com is also up front about collecting consumer information. A disclosure statement on the Web site states that the company maintains records of product interests, purchases, and whatever else might enable it to enhance and personalize a consumer's shopping experience.
Consider two eBusiness startups, neither one of which initially has a physical business presence. What is the differentiating factor that will successfully upset the randomness of customer hits in favor of one of the businesses? Given equal advertising and marketing budgets, it won't be brand development, unless perhaps one business has a great Web address and the other doesn't. All other factors being equal, the difference will center on customer stickiness or loyalty.
How to cultivate loyalty in the customer base is the most critical issue in a successful eBusiness. A loyal following is also important in a traditional business, but it's not as essential as in eBusiness because of practical physicality issues, such as storefront location and prospect for walk-in business. A customer is likely to continue to visit the corner grocer, even if there is a better product or service available elsewhere, simply because the store is on the way home.
THE LANDSCAPE OF EBUSINESSeBusinesses are spending unprecedented millions on short, catchy URLs and radio, TV, and print marketing campaigns to attract shoppers to their Web sites. Until about the beginning of 2000, hits were all that mattered. Eyeballs were where the big money was. For marketing firms, that's still the case, but for an eBusiness that delivers products or services, it's not the window shoppers, but the buyers who count. Window shoppers are good, because they represent potential customers, but buyers are best, because they add value to the eBusiness, especially if they return with more business.
As eBusinesses become smarter, the metrics of success are less about hits and more about transactions. Having visitors drop by an eBusiness is necessary but ultimately not the crucial condition for a thriving eBusiness. What's important is how many of those customers actually complete a transaction. It doesn't matter how long or often a customer visits a site if, in the end, he or she doesn't buy. On the Web, a little less than half of the adult shoppers are also buyers.
Of the four main distinguishing characteristics of a business-price, place, product, and time-the Web has yet fully to address time. For example, while customers may use the Web to look up books on Amazon.com, if they need the book immediately, they'll probably walk two blocks to their local Barnes and Noble to purchase it. Although customers may consider themselves to be loyal to Amazon.com, practical considerations often dictate that they forgo loyalty in order to save time. The point is that the eBusiness world isn't a fish tank; the brick and mortar malls are still doing very well.
Attracting customers to a Web site is still important; in fact, it's critical. One of the hottest areas of Web technology development, from an "attract the customer" perspective, is 3-D. The increasing availability of high-bandwidth DSL and cable modem Internet connections, together with affordable 3-D software, is making realistic product renderings the new "must have" of the month on the Web. The Sharper Image (www.SharperImage.com) site uses 3-D to create an online version of an actual shopping experience. Shoppers can manipulate products, such as a waterproof CD Player, which have been modeled in 3-D. Sharper Image's Web traffic is up several hundred percent since the introduction of the 3-D animation, and customers spend considerable time viewing the 3-D objects. This extra time spent shopping presumably translates to more sales, either through the Web, a Sharper Image storefront, or through the mail-order catalog.
Lands' End® (www.LandsEnd.com), the catalog clothing retailer, is using 3-D technology to help female shoppers visualize an outfit on them. Potential customers create a personal 3-D model that approximates their figure, face shape, hair style, and skin tone. With the model, shoppers can experiment, discovering which garments enhance their body type. For example, a blouse with wide horizontal stripes might look great on a sleek model, but altogether different on a voluptuous figure. Like a virtual Barbie doll, the model can be dressed in a variety of garments and then viewed from multiple angles.
In creating their 3-D surrogates, customers have a choice of filling out either a Quick or a Detailed questionnaire. The Quick questionnaire requires qualitative information, such as small, medium, or large shoulders, hips, waist, and bust. There are clearly labeled buttons for selecting hair style, hair color, skin tone, and face shape from a palette of icons. The Detailed questionnaire requires exact body measurements, including height, arm length, and rise. With this information, the Lands' End site can suggest outfits and general style advice. For example, for a woman with medium shoulders and a large bust, the system suggests avoiding double-breasted jackets.
Lands' End also offers a functional Lands' End Live!™ feature on the Web site that allows customers to talk directly with a customer service representative while shopping on the site. Customers with a second phone line can talk with a customer representative by phone. Those with a single phone line who are comfortable with email can have a live chat session with a customer service representative. When a customer chooses the telephone option, he can enter his phone number and a customer service representative will call him. The only information customers have to add is their first or last names. The Lands' End site also makes it easy for customers to track their orders.
At the end of the eBusiness shakeout, the winners won't be those with the coolest graphics or catchiest marketing slogans. The winners in eBusiness will win by providing outrageous service. eBusinesses that want to attract paying customers, not window shoppers, will focus on what matters most to customers: service. Customers expect prompt, courteous, personalized service. With intensified competition and uncertain brand loyalty, successful eBusinesses will focus on developing and maintaining excellent customer relationships.
CUSTOM IS KINGService has a personal connotation. To be treated like the masses, without the slightest hint of personalization, is not service. The American Express ads reminding Visa and MasterCard holders that "Membership has its privileges" appeal to the consumer's need to be recognized as an individual. With this pervasive attitude, it's no surprise that consumers are willing to pay handsomely for customized products and services. Consider, for example, the custom Levi's store in San Francisco. Patrons are more than willing to have their bodies scanned with lasers, submit to fingerprinting, and pay top dollar to have a pair of custom fit jeans made to their exact specifications. Not only are consumers willing to pay handsomely, but also, they are willing to forfeit their personal information for a pair of jeans.
Customization and personalization are generally easier on the Internet than in the physical world. For example, instant messaging, popularized by America Online, allows online consumers to request on-line customer assistance. Alternatively, a customer service representative monitoring the site for visitors may initiate the interaction, just to let the customer know that online assistance is only a mouse-click away.
Although humans are the gold standard as dispensers of quality customer service, they can be expensive, and aren't always available or in a good mood. One of the technological alternatives to human customer service is to use Intelligent Agents. Consider booking an airline reservation with the aid of one of these software programs. An agent can be programmed to find, for example, flight times and ticket prices at various airlines, saving the consumer time and money.
An intelligent shopping agent serves in the same capacity as human travel agents do with the airlines. As such, these agents are poised to become the primary interface between customers and suppliers, with the businesses that create and maintain the agents reaping most of the benefits of the transaction. The issue isn't whether agents and other software tools should or will be used, but how the technologies are implemented. As intelligent agents and other tools become commodity items on the Web, the real winners will use agents and other technologies in a customer-centric manner, with a goal of building customer loyalty.
Consider the parallel "real-world" situation with a human travel agent. Even though anyone can make reservations directly with airlines via the phone or on the Web, many customers prefer to use a human travel agent. Why use a human agent, with so many free alternatives available on the Web? One reason is that it's faster. The other is loyalty. Many customers don't feel loyalty to the airlines; the airline selected by their travel agent is usually insignificant, as long as it's one of the major carriers, and there hasn't been a major crash in the carrier's fleet within a week of the intended flight. The loyalty is to the travel agent, not the travel agency she works for, and not the airline.
BETTER NEVER THAN LATEThe Christmas shopping season of 1999 was a painful wakeup call to those who took the "If we build it, they will come" approach to eBusiness. Tens of thousands of shoppers, hoping to avoid the holiday crowds in the malls, opted to make their toy purchases through one of several new eBusinesses advertising wide selections, good prices, and guaranteed delivery by Christmas.
Unfortunately, thousands of shoppers who opted for the e-solution to their shopping challenges were without the expected FedEx boxes of toys as Christmas approached. During a frantic two weeks before Christmas, their phone calls to customer service representatives produced stories ranging from "FedEx was unable to deliver to that zip code," to "I'm sorry, we're out of stock on that item." These shoppers ended up in the malls on Christmas Eve.
For their troubles, customers were offered a $10 gift certificate and a "come back again real soon" pat on the back. Clearly, the customer representatives for the online toy stores just didn't get it. The primary reason that thousands of customers chose an online toy store over the malls was to save time and avoid the hassle of shopping. Unfortunately for those eBusinesses, many customers have no intention of ever using their services again, $10 bribe or not. What the customer service representatives didn't understand was that many customers were willing-happy, even-to pay a premium for the service that the online toy store advertised. That eBusiness lost potential customers-forever. In addition, these customers may be hesitant to use an eBusiness toy store in the future, for fear that they'll be in the same predicament again.
KILLER APPSEons ago in Internet Time, Unleashing the Killer App, by Downes and Mui3, made a stir in the eBusiness world by identifying concepts that are critical for an online business to be successful. Killer apps-the next big thing; products and services that converge in creative, new ways, such as the spreadsheet, the word processor, and the Web-are so powerful that they transform industries, redefine markets, and annihilate the competition.
The principles most relevant to our discussion of eBusiness are: outsourcing to the customer; auto-cannibalizing markets; treating each customer as a market segment of one; and, perhaps most important, from the perspective of Emotionally Intelligent Interfaces, replacing rude interfaces with learning interfaces.
As an example of outsourcing to the customer, consider the Web-based FedEx tracking system, which allows customers to obtain tracking information on their packages without involving FedEx staff. Not only are fewer FedEx employees needed to cover the customer service lines, but customers can view tracking data on a 24/7 basis. Motivations for outsourcing are numerous; there may be an economic incentive for customers to do some of the work. For example, many travel agents charge $20 to issue a domestic ticket. However, anyone can log on to the Web and reserve the same ticket directly from the airlines without the $20 charge.
Auto-cannibalizing markets refers to a company's treating its legacy operations just as its competitors do. If a company can do a better job using improved methods, Downes and Mui suggest that it toss its old operation and start on the new one before someone else does. This isn't to say that a company should raise its new multi-million-dollar facility to modestly improve production efficiency. However, if a company recognizes an advantage to offering some of its products on the Web at a discount, then it should do so, even if this cuts into brick-and-mortar profits. It's better for a company to do the cutting instead of having competitors eating away at its profits.
Treating each customer as a market segment of one is a call to customize products and services to suit individual customers. The Web can be used to capture data of sufficient granularity to predict, with good accuracy, exactly what customers want. The trick is using the data to make intelligent decisions.
Any human-human interaction has the potential to become rude. That is, if a customer representative is having a bad day, all of his or her customers will as well. One solution to this potential problem is to provide electronic interfaces for customer interactions. The advantage of this approach is that the eBusiness maintains control over the interface. The challenge, of course, is to make the interface great, not merely good enough to replace a questionable customer service representative. It's not enough automatically to capture customer information and instantly provide relevant responses based on this information. A great learning interface gives a sense of humanness, of empathy, and of customer advocacy. In other words, the interface should be emotionally intelligent.
REFLECTIONRevisiting the oyster fisherman's era, it's clear that, thanks to technology, the transitions we'll experience in our lifetimes will make the changes his generation experienced seem inconsequential. Two generations ago, lifetime employment by a single employer was expected and seemingly monumental changes in work and income took decades; today's business economy appears to be moving at warp speed - with or without the Internet.
Today, the only thing constant is change, and that rate of change slows no signs of diminishing. Our grandchildren will look back on this period, when everything happens in "Internet time," just as we look back on the oyster fisherman's time-slow, imprecise, impeded by lack of communications, with both suppliers and buyers separated by layers of bureaucracy.
Technology-enabled business is in its infancy. Our Web, fax, cell phones, and PDAs will seem as antiquated to our grandchildren as an old Marconi wireless system does to us. Those old wireless systems of early radio were used with Morse code to take full advantage of the limited bandwidth of the newly tamed ether. We are still in the process of taming communications at all levels in our society and in business, and we have a long way to go. Technology will help get us there as long as we are ready and willing to accept and promote change in how we perceive and do business.
EXECUTIVE SUMMARYBusiness-not just eBusiness-is becoming more customer-centric every day. However, eBusinesses unhampered by physical inertia are evolving at a much faster rate than are comparable brick-and-mortar businesses, and customer expectations are evolving at least as rapidly. In this environment, personalization of the Web experience isn't just a nicety; it's expected.
Regardless of the short-term fate of the Web, eBusinesses with a competitive advantage will be here for the long term. While short-term goals of attracting customers are critical, what really matters in the valuation of a company is steady growth. The winners in eBusiness will be those who provide consistent, highly responsive customer relations by developing customer loyalty.