The Clickable Corporation; Successful Strategies for Capturing the Internet Advantage

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Chapter One

The Future Is Only a Click Away

Now that most of us do business on the Internet, none of us can do business without it.

Remember great travel agents? They were the godsends who saved us from squandering our time punching telephone buttons. Like brilliant sleuths, they penetrated mazes of travel gobbledygook, getting straight answers to the simple question of how we could get from A to Z and back again.

And then, alas, they began disappearing, victims of turmoil in the travel industry. But, wonder of wonders, we may have gained something better. Thanks to the Internet -- the world's most useful do-it-yourself tool -- the best travel agent may, in fact, be sitting right in your chair.

The Internet has changed everything. Today anyone can be his or her own travel agent, easily locating the best fares, flights, hotels, or car rentals in a few minutes of tapping away at the keyboard of a personal computer.

Because millions -- and more millions each day -- routinely access vast banks of travel data at 56K modem speed, customers need not cede control to someone else, as in the past. In a notable shift in power, travelers are increasingly taking charge of the travel business.

So who besides travelers are profiting from this phenomenon? Easy: tens of thousands of Web-savvy businesses, whose customers are the millions of mouse-clicking computer users across the planet. They are clickable corporations -- and the topic of this book.

Clickable corporations are dramatically closing the old gap between themselves and their customers. On the Internet, buyers and sellers can achieve nearly instant rapport. Mutual satisfaction is only a few clicks away.

MSN Expedia (www.expedia.com), the online travel service from Microsoft Corporation, offers a compelling example.

Microsoft originally planned a CD-ROM of travel information culled from some twenty printed guides and travel magazines. The company simply wanted a piece of the $200 million travel-guide industry, which seemed ripe for a user-friendly alternative to print media.

But Richard Barton, the manager at Microsoft in charge of the project, spotted a bigger opportunity. His idea: Sell not just travel information, but actual travel services online. As he noted, "That's a $200 billion industry."

Microsoft's co-founder, chairman, and chief executive officer, William H. Gates III, approved, and Barton established Expedia's Web site. Launched in 1996, it was an instant hit. Within a year, it boasted 150,000 visitors a month; within two years, that figure had risen twenty-fold. Today, net monthly revenues top $12 million.

Just what services MSN Expedia performs for its obviously pleased customers -- and just where its burgeoning revenues come from -- are detailed in Chapter 2. But Expedia is hardly a special case.

This book argues that the Internet is the business opportunity of the century, an electronic Klondike, a new gold rush for all sorts of companies, provided they can solve the puzzle of how to turn trillions of mouse clicks into solid sales.

In the pages that follow, we profile twenty-five companies that seem to have, in fact, solved the puzzle and opened opportunities for themselves.

But this book is addressed to other companies: the hesitaters. They are the businesses -- thousands of them across the globe -- that remain dubious, confused, or simply uninformed about the Web's ability to sell their products and services.

If your business is among them, you may have good reason for your reluctance. Maybe you tried the Internet and had a difficult experience. Or maybe you just don't want to fool with something you don't know enough about. Or you hesitate to send your credit card number into the ether.

All are valid reasons -- assuming the Web won't be a competitive factor in your industry anytime soon. If that is your assumption, we suggest it is time to think again. In our view, all the evidence confirms that Internet usage will soon -- in five years at most -- dominate every industry in every corner of the world.

The Web is already a planetary infrastructure, like highways and electricity. Now that many of us do business on it, we argue here that none of us will be able to do business without it.

How long can you afford to hold out? That's really for you to analyze -- and carefully. We simply think the time for hesitation was yesterday.

Our own assumption is that most holdouts are either swayed by misconceptions about the Internet or not yet sufficiently briefed about its extraordinary advantages. Let's examine the misconceptions first.

* Nobody makes money on the Web.

The media's frequent stories about the Internet's profitless companies typically overlook the fact that many currently spend more than they earn, because they are building infrastructures from scratch. Wall Street understands: Many Internet startups boast stock-market valuations in significant multiples of their revenues, giving them easy access to the capital they need to grow.

* It doesn't hurt to wait and see.

Many companies prefer to let others in their industry break the trail and cope with the headaches that Internet leaders sometimes encounter. That strategy didn't benefit Barnes & Noble, Inc. It simply watched an Internet-only bookseller, Amazon.com, Inc., seize a strong first-mover advantage (and a market capitalization that tops Borders Group, Inc., and Barnes & Noble combined). Now Barnes & Noble is catching up, but not without paying a price.

* Doing business on the Web costs too much.

It certainly isn't cheap, but many companies say the benefits far outweigh the costs. Autobytel.com, Inc., the leading Internet car-buying site, has seen demand for its services grow from 361,000 purchase orders handled, for all of 1996, to more than 970,000 handled, by the end of the second quarter of 1998. Autobytel.com assures us that its Internet investment has paid for itself many times over. Cisco Systems, Inc., which attributes $500 million savings in annual operating expenses to its networked business model, reports that online sales have resulted in about a 15% increase in account executive and sales engineer productivity. The benefits for Cisco have even spread to the recruiting process, where receiving resumes via the Internet has led to an $8 million recruiting cost reduction.

* Internet customers are vulnerable to theft.

Some holdouts fear losing customers, who worry that Internet intruders will steal their credit card data. If this were an uncontrollable problem -- which it isn't -- scores of the nation's biggest companies would not be conducting millions of credit card transactions, safely and smoothly, round the clock, every day of the week.

* Web sites are vulnerable to competitors.

The perceived fear here is that your site may be picked clean by competitors poaching proprietary information about your customers, products, or services. This isn't the case.

Actually, some Internet companies rather hope their competitors do snoop around their Web sites. Autobytel.com and Coldwell Banker Real Estate Corporation, for example, believe that it makes good business sense to let competitors see what you have for sale.

* The Internet isn't big enough.

More than 100 million people are already online. At the current growth rate, that number will reach one billion within five years -- an order of acceleration and connectivity never seen before. And even in five years, the vast majority of the world's people won't yet have owned computers, much less have gone online, ensuring future Internet growth for years to come. If that isn't a mass market, what is?

So these misconceptions have been dismissed -- or at least addressed. What, then, are the Internet's advantages?

The twenty-five businesses we profile in the book show us that the Internet offers eight distinct advantages -- most of which may seem, at first glance, to be variations on the ways you have dealt with customers for years. But these ways are not the same. The difference is in the details. A Web transaction doesn't necessarily start with or involve salespeople, direct mail, or catalogs, much less a store. Even customer behavior is different.

Internet customers expect to deal with a fast, reliable, easy-to-use interface. They expect flawless products and services. They can easily compare yours to others by clicking on your competitors' Web sites. Dealing with them profitably requires new strategies and tactics, all detailed in the pages ahead.

Here are the eight Internet advantages we have drawn from the hard-won experience of our twenty-five companies.

* Information

The Internet enables you to provide information about your products or services in whatever detail at whatever time your customers desire it. Instead of waiting in line to talk to a salesperson, or hunting through a catalog, a customer can immediately learn all he or she wants to know about specifications, costs, terms of service, and compatibility with other products.

For its part, a Web-savvy business can provide the pearls to satisfy even its most demanding customers. It can also offer different routes by which customers can access information -- according to manufacturer, style, and color, for example -- and allow users to download and print that information. In Chapter 2, Autobytel.com, Bloomberg L.P., and MSN Expedia all demonstrate the advantage information provides.

* Choice

Web customers aren't only particular. They also can easily click to your competitor's site. It is, after all, a lot simpler than driving to another store, or even walking across the mall. To counter this problem, you must offer greater variety and choice. The Internet makes it possible, because Web sites have none of the space and inventory limits of traditional retail businesses.

On the other hand, you have to organize your site in a way that doesn't overwhelm customers with too many choices. They need an efficient search engine -- and clear categories -- to narrow their options. In Chapter 3, we look at three companies that have done this well: Barnes & Noble, Coldwell Banker, and Marshall Industries, Inc.

* Convenience

The Internet is the ultimate convenience store. It is always on open, not only for taking orders but also for tracking deliveries, receiving shipments, even enabling customers to communicate in their native tongues. For Peapod, Inc., the online grocer, convenience takes the form of a site that allows customers to match home deliveries to their work schedules. In Chapter 4, Peapod, Federal Express Corporation, Pitney Bowes, Inc., and 1-800-Flowers, Inc., all demonstrate the value of Web convenience.

* Customization

The Internet gives businesses a unique capacity to tailor products or services to fit the needs of customers. On many sites, customers are encouraged to design their own products and services -- and shown a graphic image of the results.

Dell Computer Corporation not only offers guidelines for possible configurations, but also helps customers order directly from the supplier that makes, say, Dell's computer monitors. In Chapter 5, we look at how both Dell and Cisco Systems, Inc., have made customization a high priority on their Web sites.

* Savings

You will never have less labor-intensive sales than those you clinch on the Internet. But your cost savings go beyond the absence of sales representatives. You can use the Web to streamline processes, eliminate organizational barriers, and more efficiently manage your supply chain. The results: higher revenues, lower production and distribution costs, a chance to pass savings along to customers and increase market share, and, in Cisco's case, increase customer satisfaction. In Chapter 6, Northwest Airlines Company, and BMG Direct, Inc., illustrate the value of passing along savings to customers.

* Community

In times past, community was a function of geography, centered in the churches, schools, and living rooms of your hometown. The automobile and telephone changed that, and now the Internet is transforming it as well. Suddenly, people from all over the world with a common interest in estate planning, women's rights, or nursing homes are meeting and creating new communities online.

Alert companies are providing these new communities with resources, such as guest speakers and chat rooms and otherwise attracting them as another online business opportunity. In Chapter 7, we profile some of the Internet's best community creators, including GeoCities, Inc., Purple Moon, Inc., SeniorNet, Inc., and Women.com Networks.

* Entertainment

Whether you're selling jets or geraniums, the Web offers all sorts of ways to attract customers by entertaining them. Some companies provide interactive access to games, music, and sports on their Web sites, and on the customers' own terms. On the Internet site of the International Business Machines Corporation, for example, viewers were able to choose their preferred camera angles for the Wimbledon tennis championships. Chapter 8 shows how Brøderbund Software, Inc., Berkeley Systems, Inc., CBS, Inc., and IBM are all using entertainment to promote their products and services.

* Trust

When the only handshake available is between modems, how much trust can be found in an online relationship? Web-wise companies emphasize secure technology -- encryption, for example -- to make sure that the information exchanged is kept private. They also bend over backwards to make sure their Internet pages are available, welcoming, easy to use, and fast.

By nurturing customer confidence in sensitive transactions, these companies add essential value to their products and services, and that translates into increased revenues. This is definitely true for Metropolitan Life Insurance Company, Wells Fargo & Company, and Charles Schwab & Company, which are the companies profiled in Chapter 9.

The twenty-five organizations we examine in this book were chosen for a variety of reasons. Some were leaders, some were followers. Some were proactive, others were forced to react. Some are well known, others are emerging or are in relatively niche markets. The common factor is that they all exemplify one or more of the eight essential benefits that companies seeking to leverage the Internet deliver to their customers. Indeed, some may deliver all eight. Does this mean they all will be successful in the long term or that they are, or will be, better than their competitors? In some cases, perhaps, but it takes a lot more than just a successful Internet strategy to be successful, and we'll leave this determination to the best judge -- the customer.

The case histories can help guide you toward building a successful Web strategy that will increase your return to your customers, shareholders, and business partners. But the case histories will only provide ideas. You will need to invest a considerable amount of time and energy to turn your ideas into successful and sustainable solutions. You'll need to involve many parts of your organization in this process if you want your solution to be truly integrated into your business and business strategies, so don't even think of throwing it over the transom to be completed by your information technology team. Yes, you will need to make a host of technology decisions, but your decisions will need to be broader in scope than Web servers, HTML, and protocols. You have to determine your company's core business objectives, with an eye to what your competitors are doing and where your market is headed. What products or services do you want to sell? Which of your processes can be improved by conducting them on the Internet? What customers do you hope to attract and serve? What do your customers and business partners want, expect, or even demand in terms of customer care and customer service? What level of financial and personnel support can you commit? What level of online sophistication do you wish to incorporate into your site? What level of leadership will be required to move the project to a successful conclusion? What costs can we remove from the channel?

Once you have decided to pursue business on the Internet, you will face additional concerns, such as figuring out site-building logistics and integrating new technology with your existing technologies and business processes. You may also need to consider some new business risks that you may not have considered before -- privacy, security, performance, and scalability among the most prevalent. Depending on your business, you may face new and unforeseen regulatory or tax issues. And once your solution is up and running, you will have to make sure it gets the continued marketing support it will need.

"A lot of companies think it's a technical problem. You know, if we put up our entry on the Web, we'll get the business," Peter Solvik, chief information officer for Cisco Systems, told us. "But if you don't promote and support and market your site, people aren't going to use it."

You will find down-to-earth, practical insights on these and other issues in the next eight chapters. No matter what business you are in or where your company is on the Internet adoption curve, issues of designing, building, and improving an Internet presence are sure to be faced by your company. We suggest that sooner is better.

Copyright © 1999 Arthur Andersen LLP. All rights reserved.