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"E-Commerce: How The Internet Will Affect You"
1999 Collectibles Business & Gift Executive Conference
George Matyjewicz
November 12, 1999

Moderator's Comments


Hi All:

As promised, we have a special report today entitled "E-Commerce: How The Internet Will Affect You" which is the talk I gave to the Collectibles & Gifts Executive Conference in Chicago. There is a lot of stats and interesting information that you could probably use in your business. There were approximately 400 people in attendance.

George Matyjewicz, C.M.O.
Moderator, E-Tailer's Digest

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"E-Commerce: How The Internet Will Affect You"
1999 Collectibles Business & Gift Executive Conference
November 12, 1999
George Matyjewicz
______________________________

A. Introduction:

In the audience (of approx 400 - responses are approximate):
How many retailers? (5)
How many have a Web site? (30%)
How many have an e-commerce site? (15%)
How many plan to have a site within a year? (70%)
How many buy/sell (B2B) online? (30%)

The Internet or World Wide Web or Web or simply the Net is creating quite a stir in the business world. It is growing like nothing before, and, for many business owners and executives, it is frightening and overwhelming. We hear typical questions like:
o Is the Internet really International? 
o Who shops on the Internet? 
o Why do people shop the Internet? 
o Why do I care ­ I'm a supplier?
o Is anybody making money on the Internet?
o What about business-to-business and channel conflicts? 
o Are my competitors on the Internet? 
o How do I fulfill orders?
o What about this security issue I hear about?
o Is it difficult to establish an Internet presence?
o How do people find me on the Internet?

Hopefully we will answer these questions today. 

B. What is this World Wide Web?

Many are comparing the Net to radio, TV and cable TV, which is wrong. If you don't learn anything today, at least come away with this:
** THE WORLD WIDE WEB IS NOT MERELY AN ADVERTISING MEDIA! **

And...

It is not like the Hula Hoop or Pet Rock! It's here to stay

You don't have user interaction on radio or TV and you don't have the ability for millions of people to communicate with each other and tell about how great (or not so great) you are. We are experiencing a phenomenal information explosion consumers are learning more about companies, products and services than ever before. And they can purchase from you as though they were in a store! It is like nothing you have ever seen before. Those who treat it as an advertising media, are missing the boat. Consider these statistics:

o 17% of autos sold this year were done so on the Net 
o It is estimated that $30 billion will be spend on the Net this Christmas
o 17 million US households will shop online this year (Forrester http://www.forrester.com/ER/Press/Release/0,1769,164,FF.html
o B2B to be $251 billion next year and $1.4 trillion by 2003 (up from $19 billion in 1997) 
Forrester Research http://www.nua.ie/surveys/?f=VS&art_id=905355359&rel=true
o 20% of Europeans are online, and they're sophisticated users Cyberscan http://www.nua.ie/surveys/?f=VS&art_id=905355361&rel=true
Jupiter http://www.jup.com/jupiter/press/releases/1999/1018.html
o Online transactions will cost the USPS $17 billion over the next 10 years (per US Government study) http://www.nua.ie/surveys/?f=VS&art_id=905355356&rel=true

The World Wide Web is also known as "The Great Equalizer." All companies are equal - the size of a computer screen! The Net today is where PC's were in late 1970's. Now, who can be without a PC? 

C. Why is this of interest to you as a supplier?

As a supplier, it behooves you to know who is buying your products from your retail channel. Present the best picture of your company. The Net is an excellent way to learn. You can post test pages to your site and track how many people visit. Or drive visitors to the retail channel.

D. Internet population. 

Nobody knows how many people are online. Respected research firms have estimated 83 million -- up from 62 million in May (Intelliquest) and 106 million -- up from 78 million in May (Nielsen/Commerce Net). The largest reported is from NUA Surveys (an international consultancy based in Ireland), who recognizes that estimating online users is an inexact science. They perused the many surveys and give an ‘educated guess' as to how many are on line as of September, 1999. 

What's interesting is the growth from May, 1999 when I spoke to Gift Retailers at the National Stationery Show in the Javits Center in NYC to now. 

Sept* May* Growth* % By Day**
USA and Canada 112.40 90.63 21.77 24.0% 178,443
Europe 47.15 40.09 7.06 17.6% 57,869 
Asia/Pacific 33.61 26.97 6.64 24.6% 54,426 
Latin America 5.29 5.29 
Africa 1.72 1.14 .58 50.9% 4,754 
Middle East 0.88 0.88 

WORLDWIDE TOTAL 201.5 165 36.05 21.8 295,452

* Growth in millions ** Actual count by day http://www.nua.ie/surveys/how_many_online/

So, your universe is between 83 million and 201 million. 

E. Shopper profile.

There are many Net-based surveys where they try to determine the profile of Net surfers or shoppers. Every six months (April and October), since April 1994, the Graphics, Visualization, & Usability (GVU) Center at Georgia Institute of Technology in Atlanta does a very thorough survey of the Net population which has become the de-facto standard. 

In their latest survey they profiled the typical user to be:
o 37 Years old (with most between 21-25 and 51-55)
o Average income $69,000 
o 88.8% have some college
o 47.6% married
o 87.2% Caucasian
o 87.0% have been on Net 1 year or more
o 88.7% purchased on Net in last 6 months
o 87.5% Visited store sites
o 84.6% Search to buy at least once month

http://www.gvu.gatech.edu/user_surveys/

F. Why Shop The Net?

Why are these people shopping on the Net? And why don't they shop at my store?

You will be surprised that many (51% according to Find/SVP study) who search the Net do look for a local store to purchase the merchandise. So, to paraphrase the New York State Lottery statement "You have to be in it to win it." According to GVU, the reason folks shop on the Net (in order of importance) are:

o 21.0% Convenience
o 18.8% Save time
o 18.7% Vendor information
o 16.0% No pressure
o 8.4% Product reviews
o 8.3% Other or N/A
o 4.6% Customer opinions
o 4.2% Personalized information

Many people are asking others on discussion lists and chat rooms about their experience with a product or service or a company. And smart executives will listen -- the Net is really a small community! Disgruntled customers can put you out of business -- even if you are not online!

* http://www.nua.ie/surveys/index.cgi?service=view_survey&survey_number=386&rel=no 

G. What information are shoppers looking for?

The Net is an excellent way to learn all about your company, your products and services. So, it behooves you to provide as much information as possible to help shoppers make a decision to buy. And it must be easy for them to purchase. Shoppers are looking for:

o 30.7% Detailed information on products or services and your company
o 26.6% Compare price 
o 25.5% Availability of merchandise
o 8.9% Store location (yes they do look for a store near them)
o 8.3% Other 

As a supplier, just like a retailer, you need to tout your business and products and make it easy for your customers to purchase.

H. What sells on the Net?

Three or four years ago I would have said anything under $100. Today the answer is anything! Folks are purchasing high-ticket items like real estate, automobiles (17% of all autos purchased are purchased online) and jewelry, as well as low- to medium-priced goods and services. I am under contract to sell my house and the buyer came from the Net. A lady on E-Tailer's Digest bought a home, sight unseen, from the Net. The most popular items sold on the Net are:

Earlier this year: 
o PC hardware & software
o Travel & entertainment
o Books
o Music
o Gifts
o Toys
o Flowers & greetings
o Clothing (biggest increase)
o Groceries & pharmacy

September, 1999
o Books, 26 percent up from 10 percent in 1998
o CDs, 24 percent up from 10 percent last year
o Computer Software, 21 percent, up from 11 percent
o Computer Hardware, 13 percent, up from 7 percent in the last 12 months
o Airline tickets, 12 percent up from 5 percent last year

I. Is anybody making money on the Net? 

Activmedia: Report Examines Profitability of B-to-B Sites (9/24/99)

o 42% of three-year-old B2B sites are profitable
o 14% more expected to turn a profit within the next year
o 18% more expect to be solvent within the year
o 27% less than one year old are profitable
o 18% percent expecting to be in the black within the next 12 months
o 32% of two-year-old b-to-b sites are profitable
o 15% confidant of turning a profit in the next year.
o Average income for first year b-to-b sites at $94,000
o 3 year old sites - $30 million
http://www.activmedia.com/
http://www.nua.ie/surveys/?f=VS&art_id=905355298&rel=true

There are many companies making money on the Net -- some you've heard of like Dell Computers http://www.dell.com who is doing $30 million a day http://www.dell.com/corporate/media/newsreleases/99/9908/17.htm

Jaclyn Easton wrote a book called StrikingItRich.com http://www.strikingitrich.com/ which lists 23 companies you never heard of who have been successful on the Net. We got an update from one of them -- Coastal Tool & Supply http://www.coastaltool.com/ind/ who now does $10,000 a day on the Net, and who has done away with their catalog business (750,000 mailed out each year). And, they opened a new 30,000 square foot store right across the street from their biggest competitor -- Home Depot! In New York, we call that Chutrzpah! On the Net, it's common reality -- do it right and reap the rewards.

Others that are doing well include Art.com -- a site for art only -- and iVillage -- a multi-dimensional site that discusses women's issues. 

J. Why are these retailers important to you? 

If you don't recognize e-commerce or virtual stores, you are going to miss out on a lot of business. Too often manufacturers are reluctant to sell to e-commerce or virtual stores because they are afraid of losing business from their retail channel. Or they are not sure of the financial stability of e-commerce companies. Forget about it. The venture capitalists recognize the importance of these companies and are pouring money into Net-based companies. So, while they may not be profitable, they do have money. And, they will probably sell more merchandise than your average retailer.

By the way, just because these folks are online (and maybe losing money), you should consider them anyway -- they are the future. Art.com attended the National Stationary Show in May, and had a difficult time buying product, as they were considered to be "one of those."

K. What about channel conflicts with my retailers?

There are two issues here:

1). Brick & mortar retailers are afraid of losing business to the Net. 

B&M retailers will lose business to the net, just as they did to malls, catalogs, new competition, etc. IN NJ they just built a 1.3 million foot mall, to compete with such stalwarts as Garden State Plaza, Woodbridge, Short Hills and others. Where will these customers come from? The pocketbook is only so deep. The smart retailer will understand that cannibalization is necessary, before others do it.

2). Retailers are afraid you will sell direct.

3 - 5% of visitors to a site will purchase (on a good day). So what happens to the other 95 - 97%? They go to another retail, which may mean they go to your competition. According to Angela Kapp, V.P., Special Markets & New Media, Estee Lauder, you should focus on new customers, not on replenishment. If yours is a destination brand (i.e., household name), you can sell direct to the consumer -- otherwise, no.

L. Are My Competitors on the Internet?

YOU BETCHA! If they aren't now, they soon will be. On the Net we have the ability to see who has registered a domain name -- your competitors. If they have registered, you can be sure it will only be a matter of time before they open for business. 
http://www.networksolutions.com/cgi-bin/whois/whois 

M. How do I fulfill orders?

If done right, you will receive an influx of orders from the Net. At the e-Tail 99 Conference here in Chicago in July, one CEO told how they were receiving approximately 25 orders a day in November of 1998. They then started some major advertising campaigns, and on December 10 they received 10,000 orders! A client of ours started some major TV commercials and their order volume quadrupled. 

So how do you handle the increased volume? If you are in doubt about whether you can handle increased volume, or you don't know what to do next, contact some experts who have done this before. Perhaps your accounting firm may have an MAS department that can help; or consulting firms who specialize in warehouse management or order processing.

1). Be sure you have a good back end system to process orders. Some of the older legacy systems may not be able to handle an increase in volume. Look at the entire process, i.e., order taking, pick-pack-ship, billing, credit card authorization, etc.

2). Consider a radio-frequency (RF) controlled warehouse management system. Now they can be obtained for under $150,000. They allow you to update your records immediately as the order is processed. We installed a RF system at a client's warehouse in SC and the results have been startling. The system cost approximately $200,000 and they will see a payback in nine months.

3). Oursource your fulfillment process to companies who specialize in that function. Up to this point there weren't many companies around who would fulfill orders -- not like catalog sales. Or there were very large companies like Fingerhut and Valley Media who fulfill orders for the major e-commerce sites. Smaller services available for the small to medium-sized company. include shipper.com, ifulfill.com and Netship.

We recently reviewed Netship, and their fulfillment service that looks promising. (http://www.netship.com/e-tailer) Two years ago, entrepreneur Dave Campbell took a fresh look at his successful, but traditional, franchise network of 120 pack and ship stores and envisioned an innovative distribution system for online retailers. They are a complete, integrated inventory management and fulfillment service that targets small and medium-sized wholesalers and retailers. The service utilizes an existing, trained and functioning nationwide network of more than 400 retail pack and ship centers (Affiliates). 

And they have a strategic alliance with Swiss-based Danzas Corporation http://www.danzas.com/, an international forwarding and logistics company with over 29,000 employees in 50 countries and annual revenues of $6 billion. Established in 1815, Danzas is the logistics unit of Deutsche Post and a world leader in logistics. 

This alliance means a seamless logistics solution to importers and exporters who need efficient logistics support to process their orders and deliver their products globally.

N. What about this security issue I hear about?

The Internet is as secure as telephone mail order or waiters in a restaurant or your card at the "pay at the pumps" automatic gas pumps. You need to understand that information travels on the Net in packets, which are assembled at the destination site only. So, it is possible for you to submit a 16 digit credit card number and have four digits go in four different directions, only to be assembled at the destination. So the issues are really at your end and the receiving end, but not too much in the middle.

The real risk of credit card theft is when a human being takes your card. If they run a blank impression they have all the information they need. As an aside, when you pay for gas in stations where you insert your credit card into the pump, you have to press a button to get a receipt when you are finished. About a third of the time when you pull up to a pump and press the button, you get the receipt from the previous user with all their information. 

But, perceptions are realities -- if folks perceive there is a security issue, they won't shop.

The Net has secured servers whereby your credit card is encrypted and then sent secure. Also, there is nothing wrong with searching online and ordering by telephone, if that makes you comfortable. Coastal Tool does 40% of it's business that way. 

Visa did a survey of folks who shopped in December, 1998 and found:

o 51% purchased online December 1998
o 92% received order timely
o 95% goods received in good condition
o 62% satisfied with telephone support
o 55% paying by credit card were comfortable with security

O. Dissatisfying experiences.

For business folks, the more important issue should be dissatisfying experiences that shoppers have online. According to GVU:

o 23.2% Couldn't find what they sought
o 20.5% Confusing site
o 19.3% Site was too slow
o 13.2% Poor page design
o 10.8% Obnoxious site
o 7.3% Other reasons
o 5.6% Hasn't happened yet

P. Is it difficult to establish a Net presence?

Like everything else, establishing a Net presence is not too difficult, providing you know what you are doing. The most important aspect of a Net presence is your **BUDGET!** Too often folks decide to start a business on a shoestring, and find that approach doesn't work! Would you open a warehouse without fixtures? Or without an advertising budget? So why try to establish a Net presence with nothing?

First decide what you want to accomplish with a site:

1). A presence and awareness site to drive customers to your retail channel.
2). An e-commerce site.

Commit to a site for at least a year and be prepared to spend some money. Don't expect to see any results in the first 6 months. Start with 15 products in 3 price points and monitor what happens. If the higher priced items don't move, replace them with lower-priced ones, or change them. This is no different than you would do in your present operation.

Test your promotion campaigns and modify them accordingly. One thing nice about the Net is you can see the results of a campaign quite easily. Direct folks to a special page in your site, and see how many visit. This is similar to direct marketing, however, here you can see where they go after they visit you. And you can also see where they came from.

Q. Site Contents.

If you had to sum it up in one word, the message that you need to get across to visitors to your site is...

** COMFORT **

They have to be comfortable with your company. There are certain elements of a site that are critical:

o Company profile and history
o "What's new" - updated as events occur
o Products - start with 15 in 3 price points
o Services and policies
o Order forms including payment options
o Survey/feedback form
o Auto responder to acknowledge the visitor and to send additional information.

To properly prepare you need to have ready information that will allow the site to be developed easily. You need not have this information formalized, rather have some thoughts and ideas on paper. 

1. Company information, history and description. Try to emphasize your financial strength, or the length of time in business or the uniqueness of your business.

2. Objectives. Do you want to sell on your site? Is it an awareness site for folks to learn about your company, products and services?

3. Differentiation strategy. What makes you so different than all of your competitors? And don't say your people or products, because everybody says that.

4. "Elevator Speech" You are about to enter the elevator in the Sears Tower, going to the 62nd floor. You are pleasantly surprised to find a prospect whom you have been trying to meet for months gets on with you. You now have approximately 90 seconds to tell the prospect about you and your business, and why he should do business with you. What are you going to say? (start with a 25 word or less statement)

5. What are the benefits of doing business with you?

6. Who is your competition and what makes you better?

7. To whom do you target your business, and where do you sell? Are you looking for college educated, 37 year old Caucasians in the U.S.? Or Latinos in the major markets? Or working moms? Or small retailers and SOHOs? And you need to address whether you can sell internationally.

8. What products and services do you want to start with?

9. How would you like your site organized? If you have some ideas, express them Otherwise, leave it to the experts.

10. If you have a site, what promotion efforts have you done to date?

R. Promoting Your Business

As you would do with your offline business, you need to promote your virtual store. Start off-line by placing your site address (URL) on your business cards, stationery, literature and ads. Also don't forget to hang a sign in your office or store that says "Visit us online at ...." 

Online you have many vehicles for promoting your business -- classified ads and paid banner ads. Press releases are also a great way to let the media know of your progress and new plans. They are not a place to do an ad (pay for that in their publication). 

Search engines are unique to the Net. They are like gigantic yellow page directories of every address in the world. Building your site is not like the "Field of Dreams" movie -- "Build it and they shall come." You have to direct them.

Discussion lists (over 90,000) are also unique to the Net. Folks with common interests meet online to discuss issues pertinent to them or their business. Our E-Tailer's Digest is one where 1,600 retailers in 47 countries meet every Monday-Wednesday-Friday to discuss all issues related to retailing -- both on- and off-line. And many of these lists accept paid sponsors to help offset the cost of maintaining the forum. A great targeted audience for you.

Relationship building is common on the Net, and works very well. Companies with like interests promote each other via links to each other's sites. 

Too many "newbies" to the Net think they can buy a list of e-mail addresses and send out notices to the world. WRONG! That is spam, and could get you barred from the Net, as well as annoying many potential customers. Instead there are legitimate "opt-in" mailing lists where folks subscribed to receive information. But, you need to be careful and know who you rent the list from. Netcreations is good. Sanford Wallace is not.

The Net also has affiliate programs whereby folks partner with you to sell your products or services for a commission. Amazon.com was the first to start an affiliate program, which helped build them to where they are today. Companies like eToys are offering affiliates programs and paying higher commissions. If it is a win-win situation for you, use them. 

S. Pitfalls to avoid.

Gartner Group Identifies Five Pitfalls for eBusiness 
Seventy-five percent of ecommerce projects are bound to fail because of a lack of good business planning and unreal expectations of what new technologies can do for their business. 

The latest research from Gartner Group finds that businesses tend to get confused by new technologies and do not draw up sound business plans as a consequence. The company noted five pitfalls which new online businesses should avoid. 

eBusiness should never be taken as an end in itself, rather it should be seen as a tool for the wider business, the report warned. Secondly, online trading demands good project management and project managers should be fully trained in the intricacies of new technologies. 

Thirdly, the report advised companies to assign specific teams to implement technologies for eBusiness and update outmoded systems. This team should fully understand the scope of the new technologies being implemented and have good reason for implementing them. The group said that many ebusinesses bought new technologies with little knowledge of how they could improve business. 

Companies should include overviews of emerging technologies in their business plans. They should plan ahead and be aware of what technologies are set to be released on the market, and they should encompass this information in their forward planning. 

Lastly, the report warned business to monitor the behavior of competitors closely, and to be prepared to embrace change when it happens.

http://www.nua.ie/surveys/?f=VS&art_id=905355314&rel=true
http://www.gartner.com/public/static/home/ggebiz.html

T. What does it cost to have a Net presence? 

That's like asking what does it cost to live. ** $80 MILLION ** That's what Toys R Us just spent. 

It all depends on where you are and what you want to do. GartnerGroup Reports That an E-Commerce Web Site Costs $1 Million to Build. Average Cost Is Expected to Rise 25 Percent Annually Through the Second Quarter of 2001. Labor Accounts for 79 Percent of Total Cost; software - 10%; hardware - 11%. Some spent less than $350,000 on their Web sites Others spent more than $2 million The average time to complete an E-commerce site was five months Some took up to a year to launch

The goal for some enterprises was to create a Web E-commerce presence quickly and inexpensively, while others built Web sites that create market differentiation. 

Perhaps the biggest surprise to survey participants was that they did not get "almost everything they needed" from their E-commerce application vendor. On average, most corporations used two or more external firms, usually including a nationally recognized media firm as well as local systems integrators to help control costs. According to the report, "a great deal of effort was needed to build the front and back ends of the E-commerce sites," which resulted in various delays and additional costs. 

"Building an E-commerce site is a definite requirement for any midsize to large enterprise that intends to remain competitive during the next two to five years," said Roy Satterthwaite, GartnerGroup research director. "One of the challenges, however, is that today's state-of-the-art E-commerce site will become outdated in just a few months if the back-end connections and interactive applications do not keep pace with the new technologies that are being developed." 

The report also identifies three cost categories that will emerge based on function. These include: 

1. $300,000 to $1 million to "Get on the Map." This site is adequate but it is functionally behind most industry participants. 

2. $1 million to $5 million to "Run with the Pack." This site is functionally equivalent to most industry participants. 

3. $5 million to $20 million to achieve "Market Differentiator." This site raises the industry competitive bar and changes the nature of online competition. 

http://www.gartner.com/public/static/aboutgg/pressrel/052799site_costs.html

Costs of a site are divided into one-time charges and on-going charges. The initial one time charge is the registration of your name (URL) and being allowed to use that URL. It is paid to the Internic and costs $70 for first two years. Then there are hosting charges to pay for where your site is physically located. Site development can be as little as $1,500 and go into the millions (Toys R Us budgeted $80 million for their site). Marketing is another item that can range from $500 to hundreds of thousands. And finally you have on-going site maintenance which is usually a percentage of the original site development costs. 

In your first year plan on spending (as a minimum) $25,000 - $50,000, which is not bad when you consider the cost to open a new outlet. Of course, it can be unlimited for larger sites (like Toys R Us -- $80 million)

U. Summary:

The Internet will affect your business and the industry over the next couple of years. 

USE IT (the Internet) or LOSE IT (your business).

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Resources
Articles at http://www.gapent.com/gap/
Special reports at http://www.gapent.com/etailer
Join E-Tailer’s Digest at http://www.gapent.com/etailer

George Matyjewicz, Managing Partner
GAP Enterprises, Ltd.
Rutherford, NJ 07070
(201) 939-8533
_________________________
www.gapent.com georgem(at)gapent.com 


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