 June 2000
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Newsbytes Imagine the day when, upon surfing to your favorite online retailer, you find yourself awash in a sea of doting kindness, as a bounty of price breaks and free delivery offers flow your way - all simply because of who you are. It's as though you're the visiting Princess of Siam being smothered with love and luxury at some virtual Tiffany's. If analysis by Forrester Research [NASDAQ:FORR] is correct, such a scene may not only be possible, but a guiding principal of online retail inside a year or two. Forrester associate online retail analyst Carrie Johnson is convinced of it. "They already do it at (brick-and-mortar) stores by customer service, right? When people walk into Nordstrom's or Bloomingdale's and clerks recognize them as their regular customers, they'll get much better service," Johnson said. "It is also reflected in things like credit cards that tier customers on status level. As you get into a data-rich world, it will be a natural outcome." In fact, she says, it is a necessary outcome in an online retail industry that currently is cannibalizing itself by shaving profit margins to the very edge of survivability - and then some. The state of the industry now, Johnson says, is that the customer is in utter control, able to surf from site to site to compare prices, or even use automated agents that ferret out the lowest prices for goods they seek, playing merchants against each other and forcing prices into the cellar. Such a situation renders the prevailing "one price fits all" model obsolete - a reality Johnson says in her report that retailers are slow to grasp. "Most merchants feel pressure to compete on price online and are testing a mix of strategies to appeal to price-conscious consumers," Johnson writes in her report, titled "Pricing Gets Personal." However, the report continues, "while 57 percent of retailers plan to expand those tests to offer multiple prices for the same item - like preferred pricing for repeat customers - less than 10 percent think multiple prices will replace fixed prices." Another two-thirds think fixed pricing is here to stay. Johnson interviewed 30 "pure play" and "click-and-mortar" online merchants, plus cataloguers who have drifted to the Web, and concludes those old notions are simply wrong now. Johnson explained, "The moral of the story for the report, really, is that not every buyer is the same. While online buyers are extremely price-conscious for the most part, and they are also not very loyal, different shoppers at different times have different motivations. (That means) figuring out those motivations and figuring out the right offers - not just price but offers." Johnson touts the concept of "personalized pricing" - something she defines not as inequitable prices offered according to status but as delivery of customized sales offers. She says, retailers which do adopt it, will regain equilibrium and restore margins while building customer loyalty. In short, they will survive and prosper. There is little doubt that many online retailers are in deep trouble. Wall Street has called many to the carpet over their failure to generate profits, voicing its collective opinion through plummeting stock prices. Many sites sell undifferentiated goods at desperation prices - while still others sell well below cost to squeeze out those who can't. And a highly touted Forrester Research study recently pronounced the situation so dire that most retailers won't survive the year without either folding or consolidating. Johnson doesn't question those results. But she says that those, which do survive, will face many of the same business problems plaguing today's overcrowded field. "The demand (for online retail) is not going away," she said. "So strategies that actually tame the online consumer for the surviving retailer will only push survival and help survival." The report identifies three kinds of online consumers. "Price grabbers" care about nothing but price - this is the teen who spends hours searching the Web for the cheapest possible Macy Gray CD. "Express shoppers," typically moneyed professionals, want what they want and they want it now - and will pay a premium to get it. "Affinity folks" are something of a combination; their purchases are typically lifestyle driven and not guided just by lowest cost - but they're patient enough to wait for prices to drop on seasonal goods like quality hiking boots. Retailers need to identify who is who among shoppers, Johnson said. That equation is complicated, though, because people flit in and out of each category, depending on circumstance. There is only one answer, Johnson suggests, and it lies in data mining. Retailers must learn how to record and interpret information about who shops on their Web site, and then begin to tailor offers to repeat customers based not on general demographics but on the actual behavior of those individuals. It's pure one-to-one marketing - a monumental, but doable task, Johnson asserts. "It's mostly partnering with technology firms and understanding the technology," Johnson said. "There are plenty of technology providers out there and personalization vendors. But the most important thing really is to have someone at the retailer that understands data. Anybody who sells online needs to make sure they have a database-marketing department and a database manager who understands and knows how to extract data about consumers." Cataloguers already understand this, Johnson said: "That's all they do - run lists of consumers and figure out their lifetime value, figure out who's dropped off the list in the last four months and why and what demographics. It's not really that new a competency; it's dealing with more data from more sources, and maybe slicing and dicing it a different way." But won't people bristle to learn that their data is being collected so that they can be charged one price, while someone else is offered the same thing at a different price? Precedent suggests yes; last year there was something of an outcry when consumers learned Victoria's Secret was sending out identical catalogues to different regions containing different prices, targeted at varying demographic groups. But Johnson says it won't happen, providing retailers proceed fairly and logically. And they must be honest about it, Johnson said. People will understand, for instance that a larger dress size costs more because it requires more material. If customers know what merchants are doing, there will be few problems. "That generates a lot less anger," she said. In fact, the report suggests, if prices offered are based on familiarity with a customer's unique buying behavior and sensitivity to price, not only will customers not feel snookered - they will feel positively babied. "I think the really important thing to remember is not to get caught up in this phrasing of 'personalized pricing,' because it's really personalized offers," she said. "It's not about just throwing out differentiated prices to everybody. It's about rewarding different customers with percentages off. It's up-selling customers that might want to pay for more warrantee or extra service. "The final price, yes, is different for different people," she added. "But it's about the offer. It's not offering an arbitrary different price to a consumer based on demographic data, it's based on their buying data." The address for Forrester Research is http://www.forrester.com .
Newsbytes A hodgepodge of technologies and applications behind many of today's electronic marketplaces won't be capable of supporting the weight of future business-to-business (B2B) trade, a recent report suggests. Analysts at Cambridge., Mass.-based Forrester Research Inc. [NASDAQ:FORR] say such Internet marketplaces, built rapidly in response to predictions of a boom in online transactions, don't offer the full breadth of functionality needed to support serious business. "E-marketplaces must replace today's patchwork approach to market site design with a robust application architecture that supports participants from product discovery to trade dispute settlement," said Stacie McCullough, a Forrester senior analyst. "This infrastructure will be assembled in layers that work together to facilitate the entire transaction process - from dynamic negotiations to fraud detection and risk mitigation." In its report, entitled "E-marketplace Hype, Apps Realities," Forrester said intense competition for the Internet marketplace space has resulted in loosely integrated technologies for "quick, functional hits," that sacrifice long-term strategies. Forrester said it calculates that more than 400 e-marketplaces launched last year, all vying for what it had estimated in March would be a total of $1.4 trillion in trade by 2004. The company said it interviewed 50 executives at high-profile B2B companies and found that 68 percent of the e-marketplaces they represented have drawn more than 100 active buyers, but only 36 percent of them are closing more than 100 sales per month. It also said that 72 percent of the e-marketplaces have their own, homegrown applications powering their services. "Despite future automation plans, 40 percent of our interviewees currently employ labor-intensive activities," the report said. "These include manual processes to match buyers with sellers, update catalog content and finalize deals between firms." Forrester described e-marketplace operators who manually scan and fax bid opportunities to potential sellers who aren't Internet savvy. Others are constantly wrestling with the integration of data from various suppliers into their site's homogeneous online catalog. The report advises such companies to beef up support for "the entire life cycle of a business relationship" by offering community-enhancing features, including personalized search, chat, and buyers' guides. "Once familiar with the trading environment, users will need to define business parameters, research products or offers, and approach prospective partners," Forrester said. "To close deals, sites will help users offer, negotiate, and commit to transactions - and all these processes will be automated. Once the deal has been agreed to, marketplaces must ensure that users fulfill commitments." But Forrester said that e-marketplaces built on commerce servers designed for one-to-many transactions (instead of man-to-many) and a patchwork of add-on services to support community features, catalogs and industry news and information could crumble in the face of real growth. The "layered" approach to e-marketplaces recommended by McCullough includes what Forrester calls an "integration layer" which acts as middleware between generic "platform" technology - such as authentication, messaging, order capture and content management - and a layer of marketplace-specific applications. A fourth layer of Internet-based services may tie in off-site services, such as credit verification or shipping. Forrester said the situation it describes looks attractive to B2B- application vendors, which are offering more robust technology aimed at filling the gaps in current e-marketplaces. However, it said, no single vendor currently fully supports all four "layers" of its recommended e-marketplace infrastructure, suggesting that sites will be turning to integrators to help stitch their systems together. "Manufacturers, distributors, and suppliers will be bombarded by invitations to join new marketplaces," said McCullough. "Rather than jumping at each opportunity, these users should methodically choose partners based on strategy, technology foundation, and community." Forrester Research can be found online at: http://www.forrester.com
Newsbytes Napster may be the subject of great controversy for engaging in what the music industry regards as the blatant piracy of its products, but that's not stopping youthful users from logging on, according to one new survey. The file-swapping software that allows users to share MP3 files back and forth online for free - cutting out the record industry and sapping its profits - is used weekly by more than half of New England's college students, according to a survey by online music "intelligence network," Webnoize.com. The survey of 4,294 college students from 10 New England colleges conducted on campuses last month indicates that 57 percent of students surveyed use the MP3-swapping service weekly, Webnoize found. Seventy percent of students said they have used the service at least once, the survey says. The question of whether students used the service was one of many the survey asked in an effort to determine whether there is a legitimate business model for music file-swapping of the sort typified by Napster, said Ric Dube, a Webnoize analyst. 
The answer? There probably is a real business model, says Dube.
"What things like Napster do is provide decentralized content distribution," the analyst said. "The content is all over the map and all among people. And people, in sort of a virtual way, stroll among each other and chat and search for the things that they're interested in, and that's how they meet people who are interested in the same things they are interested in. If this could be commercialized and legitimized, this could be part of an actual business model." The survey indicates that the use of file-swapping is a reflection of the growth of Internet usage in general among college students. It indicates that 47 percent of college students are spending more time on the Internet than they did a year ago. And digital music is a more pervasive part of their Internet lifestyles, the survey says, with fully 63 percent of students responding to the survey saying they are spending more time listening to downloaded music than they did a year ago. The research is part of a forthcoming report, "Napster University: File Swapping and the Future of Entertainment," which is due out in early June, Dube said. He said that students were not asked to reflect on the controversies surrounding Napster, which include the "enemies lists" compiled by speed-metal group Metallica and rapper Dr. Dre of Napster-using fans, which were delivered to Napster in an attempt to stop users from pilfering the musicians' works. But one element of the controversy was perhaps highlighted by answers to one of the questions, Dube said. Students may not realize what they are doing when they pinch songs off Napster. The analyst said that students were asked if they ever use Napster. Seventy percent of them said they use the software at least occasionally. Then they were asked if they swap music files online. Again, 70 percent said they do not, apparently oblivious to the contradiction of those two responses. "When you use Napster," Dube said, "you're automatically sharing music files with anybody that might want them." But in another sense, Dube said, the survey tells him that a kind of Internet mandate is being spoken. Users are sounding off about file-swapping as a means of obtaining music, and their vote is a resounding yes. "File swapping is unavoidable; people say they want to do it," the analyst said. "There are a lot of applications out there that do it. This is the way that people want to deal with content ... It's the idea of a Web site, where content is stored in some sort of centralized locations and it's ordered by way of a business model or somebody's specific editorial decision." In fact, he said, if it can be transformed into a legitimate business model, Napster may be the one most closely patterned on the design of the Internet itself, featuring as it does voluntary exchanges of information from far-flung people of like interests over a decentralized network. "It's a lot closer to the original spirit of the Internet, and the spirit of the World Wide Web," Dube said. But is there any way to harness commercially an exchange system that currently thrives as a kind of open, musical black market, the analyst was asked. "There might be," he said, "but the music industry is going to have to drastically rethink the way it does business. Right now, it's built on the model where physical products are purchased in stores and you buy this sort of shrink-wrapped item that you bring home and you unwrap and you store on your shelf. What we're finding is that people might not be so interested in storing things on their shelves as being interested in being able to access digital content anywhere they are." What many in the music industry are trying to do is to develop a kind of reliable digital watermark on music files that allows them to track the delivery and usage of music files, enabling them to bill the user. Dube thinks that is probably not necessary to making online file-swapping profitable for the music industry. "I'm not convinced that watermarking is an absolute necessity," Dube said. "If the music industry could be as creative with creating a quality service to music fans as they're trying to be with watermarking, piracy might not be an issue. The idea is to make the music experience that people pay for so valuable that piracy just isn't worth bothering with." For instance, he said, music providers could forge premium package deals with cable companies and broadband telecommunications service providers that allow users to freely access music files each month after paying a monthly service charge for the right to access the "programming." However, Dube was again asked, doesn't that seems an exorbitant expectation, given that people already have access to much of the music they want, without paying any fee, simply by going directly to their peers and exchanging files online? "It's an ideal," he conceded. "I think we're going to see a lot of experimentation. Some things will fail. But Napster itself may turn out to be the killer app for Internet music in the same way that e-mail is what made everybody decide that they had to get on the Internet and then the World Wide Web just made that richer. The search engines are probably the killer app for the Web. Well, maybe file-swapping - Napster in particular - is the killer app for Internet music. "It's up to the music companies, since so many people have voted in favor of file swapping as the killer app for Internet music, to turn that into a money-maker," he concluded. More information is available online at http://research.webnoize.com/ .
Newsbytes Eighty percent of technology businesses are now engaged in e-business, according to a "Technology Barometer" report released today by PricewaterhouseCoopers, an international professional services organization. Pete Collins, survey director for PricewaterhouseCoopers, told Newsbytes that technology businesses are those included within the federal government's standard SIC code as well as those which "self- define" themselves, based upon their opinion of how other businesses view them, as being a technology business. According to Collins, the category is very broad and can cover such obvious technology companies as software developers to the less obvious such as Fidelity Investments. Fidelity Electronics would qualify as a technology business, Collins said, because they are "entirely electronic." The Technology Barometer classifies technology businesses into three groups. In the first classification are the "hard chargers" - the 28 percent of all technology businesses that have made great inroads transacting online sales. In the second group are the "showcasers" - they are the 29 percent that use the Internet as a sales support medium, with transactions being completed offline. In the third group are the 23 percent of technology businesses which are classified as "new adopters" - the technology businesses that are just getting started with online sales. According to the PricewaterhouseCoopers report, hard chargers and showcasers are expecting to achieve, on average, a better than 20 percent revenue contribution from e-business during calendar year 2000. Based upon this projection, the report finds that technology businesses have increased their budgeting for e-business and the Internet by 23 percent, to where it now equals 10.56 percent of expected 2000 corporate revenues. PricewaterhouseCoopers says that its quarterly Technology Barometer reflects the views of 462 top industry executives. This number is broken down into 214 chief financial officers and managing directors of large publicly held businesses and 248 chief executive officers from smaller, privately held companies. For the first quarter of 2000, the Technology Barometer found 80 percent of technology business leaders reported involvement in Internet-related sales, with 57 percent identifying e-business and the Internet as the anticipated leading driver for their business and industry niche in the year ahead. According to PricewaterhouseCoopers, when it comes to direct selling online, considerably more large than small technology businesses (58 percent as opposed to 44 percent) are currently completing direct sales transactions. However, the report also finds that the smaller companies anticipate gaining a slightly greater share of revenues from e-business over the next 12 months. When the executives of technology businesses were asked about how large a share of corporate revenues their e-business activities could become over the next 12 months, the hard chargers, which are the most active in online sales, expect to garner 21.6 percent of their total revenues over the Internet. Showcasers, which complete their transactions offline, expect 20.4 percent of their revenues to come from e-business, while new adopters were looking at just 1.8 percent. According to Paul Weaver, global technology leader for PricewaterhouseCoopers, "It would appear that the businesses most experienced in using the 'Net have achieved a significant jump on the latecomers. It may become increasingly difficult for new entrants to crack through and build a sizable customer base." The Technology Barometer also found that all those companies with a budget for e-business and the Internet were planning to increase the percentage of the budgeted amount to company revenues over the next 12 months. And, over half of these companies expect that by the end of 2000, their return from e-business will exceed their investment. According to the report, 29 percent have surpassed this mark already, another 22 percent are planning on it, with a further 21 percent expecting to reach "break-even" next year. The PricewaterhouseCoopers report also explored how technology businesses will be directing their efforts to gain more e-business in the coming year. Seventy-eight percent of the respondents said that the creative use of technology was the most important method for expanding their Web site and e-business operations. Identified as the second most important method identified was co-marketing and/or strategic partnerships (66 percent), followed by business-to-business Advertising also continues to play an important role in generating e-business, according to the report. Sixty-three percent of the respondents felt that traditional advertising was important, while 59 percent gave the nod to advertising on high visibility search engines. "Technology businesses will be bringing their own unique stamp to e-business in the year ahead," Weaver said. "These are pacesetting businesses with an extremely creative bent. We're at the start of a revolution that is changing all the rules." More information from PricewaterhouseCoopers is available at http://www.pwcglobal.com
Washtech The Women's Business Center today launched its Web site, which provides visitors with the opportunity to register online for a variety of programs, workshops and seminars all aimed toward helping women develop and maintain their own businesses. "As more and more women are creating Internet-based business enterprises and conducting business research on the Web, we recognized that we needed our site to be functional while providing a comfortable and efficient environment for our clients," Women's Business Center Executive Director Beth Cole said in a statement. The District-based Center cites a study released in the Mar. 22 issue of Computerworld that reported 49 percent of women now use the Internet on a regular basis. "The number of women using the Internet has more than tripled over the past two-and-a-half years," said Norman Rich, executive vice president and general manager of Circle.com's Mid-Atlantic Region. The Center was founded in 1996 by Baltimore-based Circle.com [NASDAQ:CIRC], an online professional services provider for Fortune 1000 and emerging dot-com companies. Circle.com also is a division of Snyder Communications Inc. [NYSE:SNC]. The new site, www.Womensbusinesscenter.org/ allows visitors to register for programs as well as gain access to the Center's newsletter, register for an e-mail distribution list and obtain information geared at introducing Center clients to business-to-business networks and business users of technology. Plus, special efforts are made to serve women who are socially or economically disadvantaged, the statement The Women's Business Center is a Washington, D.C.-area organization dedicated to offering women entrepreneurs low-cost business training and support. Funding for the Center is provided in part by the Small Business Administration's Office of Women's Business Ownership. Reported by Washtech.com, http://www.washtech.com/ Reported by Newsbytes.com, http://www.newsbytes.com © Post-Newsweek Business Information, 2000. All rights reserved. |
