Last update at http://inet.nttam.com : Wed May 17 14:17:33 1995 Commercial Use of the Internet Lee Levitt Abstract This paper and accompanying presentation will discuss the key issues facing companies employing the internet for the purposes of commerce. Using both the findings of primary research and case studies, Mr. Levitt will examine the issues faced by companies in integrating internet activities into their overall marketing, sales, and customer support activities. Specifically, Mr. Levitt will analyze the opportunities, risks, and critical success factors for such an undertaking. 1 Introduction The Internet has been ballyhooed as the next great quantum leap forward in technology, enabling users to do things impossible only a few short years ago. Today users can retrieve information from remote libraries, correspond via email or talk (using Internet Phone) with friends all over the world, or even buy products using an extremely efficient sales and marketing medium. The Internet has been around in one form or another for more than twenty years, yet only in the last year or so has it enjoyed a level of growth and hype difficult to match in any other industry. Several factors have fueled this growth, including much broader usage of PCs at home (hovering at around 40% of all households in the US today), better and faster connectivity at the office, the availability of more powerful PCs to run complex client/server and graphical user interfaces, etc. Shipments of Windows 95 and to a lesser extent OS/2 Warp, both with built-in connectivity, will spike this growth in the short term. The Internet is being called the great social equalizer, offering efficient, egalitarian electronic access to the political process, educational resources, and electronic shopping. Politicians are now discussing the merits of a "laptop in every home" and universal access through schools and libraries to ensure that nobody is left out of this electronic nirvana. Today, though, most of the hype around the internet is focused on all of the "gee-whiz" things that can be accomplished, ranging from realtime multimedia interaction, three dimensional image viewing, complex graphic publishing, etc. Little attention has been paid to the true longer term potentials of the medium its ability to help customers and suppliers forge stronger, more strategic relationships and for users to gain far better access to information sources. Similarly, few have acknowledged the limitations of the medium or the structural changes within a company required to support a successful net.presence. It is in these relationships that the large payoffs can be found, as effective implementation of an online presence can dramatically enhance the lifetime value of a given customer (the overall long-term profitability of holding a relationship with a given customer). And as the costs of sales and marketing continue to increase and the competition grows ever stronger and more numerous, deriving incremental profitability from a given customer becomes increasingly important to the very survival of a company. To better understand how large companies may be using the internet for a variety of activities, International Data Corporation (IDC) surveyed 1,000 large companies in the U.S. at the end of 1994, asking IS managers, via telephone, to characterize their current and planned usage of the Internet. Fully 30% of those surveyed view the internet as a "major industry development", with another 43% characterizing it as an "intriguing development." (see Figure 1). Few were willing to characterize it as unimportant. This information is available from IDC in a study entitled IS Priorities Survey. Yet this brave new electronic world is still largely misunderstood even by those toting the mortar and chisels for the immense construction project currently underway. Fundamentally, the internet is moving from a (largely) communications-focused medium for a relatively small group of highly trained professionals, who all had a vested interest to maintain the standards of civility and communication that made the whole thing work, to that of a "mass-medium". Over the past couple of years, access to the internet has become vastly easier, with internet service providers popping up in people's basements and in storefronts. In addition, the large online services (CompuServe, AOL, and Prodigy) have each established gateways to the internet as well, allowing their users to access certain parts of the internet. This change in user demographics is fueling much of the commercial opportunity on the 'net, which in turn is attracting more users... With the vast number of companies and individuals jumping onto the internet, a rational analysis of the true opportunities, costs, and structural issues is necessary. This paper will delve into these issues and provide some basic recommendations for any company considering a net.presence. 1.1 So Just What Is The Internet? At its essence, it is a communications medium that allows disparate computers around the world to exchange various types of data. It is not the Information Superhighway, although for lack of anything better it has become the manifestation of this particular buzzword. As a communications medium, it can facilitate a variety of types of activities, from information retrieval (ftp, gopher, etc), electronic gatherings (usenet, maillists, chat-groups), to cyber-stores, to electronic malls and electronic billboards. One site on the World Wide Web (an "area" of the internet that provides graphical browsing capabilities) even looks like a Southwest Airlines ticket counter (http://www.iflyswa.com). If you need information about Southwest Airlines, you can simply point your browser at this URL or web address. Similarly, to learn what's going on at IBM (http://www.ibm.com) or Dell Computer (http://www.dell.com), just stop by their web sites. Beyond that, the technical capabilities of the medium are stretching the imagination. Silicon Graphics' 3D viewer will significantly enhance the browsing experience. Similarly, NetMarket's Digital Dressing Room (http://www.netmarket.com) allows the browser to assemble an outfit, view the results online and to add them to a "shopping basket." But we're getting a bit ahead of ourselves. Ultimately, the internet will foster a lot of interaction among people belonging to small focused interest groups. Currently, most of the activity centers around the world wide web because it is the most impressive visually. But it is a rather limiting format in a lot of respects, mostly due to existing design philosophies for web sites. Few people are truly taking advantage of the two-way communications capabilities, mostly throwing words and graphics at browsers. Other resources on the internet today offer far more opportunity for interaction, both for leisure or personal interest and for business. For instance, if one wants to discuss mountain biking, you can browse any one of several usenet newsgroups (rec.bicycles.misc) or join one or more mail lists (mtb-new-england@cycling.org). These groups are decidedly non-commercial and anyone posting messages to these groups of a commercial nature are flamed by many participants. Similarly, a small but increasing number of companies are hosting mail lists for the purposes of customer interaction. Consider these groups as private parties. Commercial gatecrashers are simply not welcome. It is not appropriate to post commercial messages here, unless of course the charter of the group specifically allows it. It is appropriate, on the other hand, to gently sell through your .sig or other indirect means, such as providing advice when asked and then following up privately. 1.2 The Internet Is Commercial Overall, the internet is becoming more commercialized, as startups make more interesting tools, utilities, games and sites available. By no means is the current (and temporary) lack of secure transactions hindering the millions of dollars of business currently being conducted across the net every month. Many corporations are rushing to develop some form of online presence, to get closer to existing customers, to make communications with these customers more efficient, or to reach new customers. Pizza Hut (http://www.pizzahut.com/) received a lot of free publicity in the fall of 1994 when it set up a site allowing people (in the Santa Cruz area) to order pizzas online. The "net-heads" at RagŁ put up a site to share their perspective on life, Italian style (http://www.eat.com), and similarly, Reebok showed itself to be a "cool and forward-thinking company" with its web site (http://www.planetreeebok.com). Whither Nike? A variety of companies, ranging from the smallest "Hot Hot Hot", the internet's "Culinary Headshop" (http://www.presence.com/hot), to the largest , such as IBM, and American Greetings, are finding growth opportunities on the net. The smaller companies are finding that they can dramatically increase their potential market reach and revenue streams. American Greetings, for instance, allows browsers to design their own greeting cards and mail the card to a specified recipients without ever leaving their desk. Software companies find that the internet is an ideal medium for both advertising and selling software, with Oracle (http://www.oracle.com) offering free evaluations of its Personal Oracle 7 and related software. Download this fully-featured software, play with it for a while and then decide whether to purchase it. Federal Express, taking yet another long step beyond its competition, put up a useful site on which one can track package shipments (http://www.fedex.com). Type in the package number of something that you've shipped via FedEx and the site will display when the package was picked up, where it went along the way, when it was delivered and who signed for it. Many net.surfers cite the Federal Express web site as the single most useful, although perhaps not most entertaining, site on the internet. Speaking of entertainment, an increasing number of content providers have gotten online. Beyond the variety of magazines publishing on AOL (BusinessWeek, US News and World Report, etc), more entertaining sites are available, including Wired and Playboy (http://www.hotwired.com, http://www.playboy.com). Each of these sites is more than a faithful reproduction of their traditional paper format. Each uses the interactivity of the new media to enhance the subscriber's reading pleasure. At this point however, few agree on the best way to conduct commerce on the internet. For service providers, it may be as simple as gently advertising your business in your .sig. For others, it may mean setting up a dedicated listserv to host dialog between interested parties. Some companies, afraid to host such open dialog between their customers, miss the point that such dialog already occurs. In hosting such a dialog, the customers provide immediate feedback to the company and show their appreciation for the forum through increased loyalty (business) for the supplier. For yet others it involves setting up a website to display a variety of information about the company, allow feedback or email with the company, and possibly have an online ordering system. Some companies will publish electronic catalogs for browsing and ordering purposes (http://www.emall.com). Given the dramatic increase in the cost of paper and postage, it's not surprising that companies are looking to move or supplant their direct mail activities with online catalogs. Analyst Dean Ramos, of Dain Bosworth, was quoted in the April 21 edition of the Wall Street Journal, as saying that the cost of producing a catalog will rise by about 11% this year. As a result, companies like Lands' End and CUC International looking to shift some of their business to online activities. These companies save in transaction costs as well. The typical cost of taking an order over the phone, for a large direct vendor, ranges from $5 to $12 per order. Online transactions will cost several orders of magnitude less. In addition, by the nature of the medium, the online activity will attract new customers. Most of the "action", not to mention commotion, on the internet has focused on the publishing of these electronic catalogs. This activity requires several components for success - a browser such as Mosaic or NetCruiser, an internet connection of some sort, and a web server. To date, the battle has been to see which vendor could give away more browsers. Versions of Mosaic are available as freeware or shareware, with NetScape Communications giving away their commercial version in an effort to build brand awareness and future market opportunities for their secure webserver product. It is estimated that several million browsers have been downloaded from various sites as freeware, although many of these downloads may not ultimately result in new users browsing on the web. Similarly, thousands of companies have rushed websites onto the internet, looking to bolster their access to millions of potential new customers. Most of these companies seriously overestimate the short-term opportunity and underestimate the long-term costs of conducting business on the internet. Interestingly, the discussion among presence and content providers is about what can, would and should be done in this brave new medium. Few pay any real attention to the wants/needs/expectations of the end customer (the user) in this medium. This paper and associated presentation will go into some detail about the types of users currently on the internet, describe some typical usage patterns, and lay out the critical success factors for companies wishing to enter the fray. 2 User Demographics To date, few have been able to quantify with any real sense of accuracy how many people have access to the internet. The old strategy of taking the number of nodes and multiplying by 10 users per node has been thrown out, in favor of a more focused estimating process. This process gives estimates of anywhere between 3 and 30 million users worldwide with some form of access to the internet - dialup, direct connect, mail gateway, etc. What is increasingly well known is the demographic composition of the users. Historically, most were technical, degreed professionals using the internet (email mostly) for academic purposes. This characterization is clearly out of date. Today, four major psychographic groups surf the net, including: corporate user, typically middle manager, well paid knowledge user - 90% email usage student, no income, free access, school account - web, email, games, usenet, etc casual home user, upper middle class, well educated - 75% email, telnet, usenet, a little web. professional net.surfer, programmer, systems analyst, etc - email, mudding, telnet, ftp, web. Based on a recent survey by Netsurfer Digest (15,778 surveys mailed, 45% response rate) the "typical" user is also characterized by the following: 90% male 35% under 30 <10% business professional 40% with incomes <$35,000 54% spend less than 10 hours/week online The internet user is typically a young male, although by the end of this year, with dramatically better connections available to business users, the demographic makeup will change as well. By year-end 1995, the profile of the typical user will look more like: 70% male 30% under 30 25% business professional 40% with incomes <$35,000 35% spend less than 10 hours/week online These demographics point to increasing business usage, with users having better internet access from their desktop. The differentiation between business and casual usage will be more difficult as well, as incoming email may be from a supplier, customer, or from a personal interest mail list. Company guidelines on personal use of computing equipment will be difficult to enforce. And after all, who's to say that your fellow browser of the alt.food.fat- free usenet group isn't interested in your company's product? 3 Usage Patterns In fact, over half of the 1,000 large companies surveyed by IDC indicated that some form of electronic commerce will be "important" to "critical" to their business (see Figure 2). Clearly, large companies are looking to move some portion of their communications activities online. Most companies characterized their overall internet usage as relatively minor to non-existent (see Figure 3), but did expect that the usage would increase significantly or moderately within the next 12 months (See Figure 4). Some companies are finding new customers through their internet presence. In March and April of 1995, 250,000 people requested information from Fidelity Investments (http://www.fid-inv.com) through its website. According to Neal Litvack, the firm's executive vice president, 80% of those had never requested information from Fidelity prior to hitting the web site. " Litvack was quoted in the Boston Globe (April 26, 1995) as saying "Those requests accounted for about 5.5 percent of the fund inquiries that Fidelity has received since February...It's clear the market potential that the Internet offers us is huge." In talking with large companies about the purpose of their online service usage, IDC uncovered an interesting theme. Most of the usage is to keep existing customers satisfied and productive with existing products. 87% of the respondents identified technical support as their reason for having online access, while software updates and patches was mentioned by another 59%. The types of responses to this particular question are driven as much by history as anything else. Several years ago forward-thinking companies hosted forums on CompuServe as a way to gain quick access to their installed base, with little investment in infrastructure required (much the same way that a California Gold Rush is occurring on AOL today). Today, however, with the vastly increased capabilities of the internet and the much broader demographic reach, companies can conduct virtually any corporate activity online, from advertising, to selling to conducting virtual press conferences. Most of the hype regarding the internet has been focused on advertising and selling on the World Wide Web, yet few medium or large companies have been able to point to significant gains from activities in these areas. As noted earlier, the smaller company typically has more to gain from vastly increased market access. The activities can be divided into three major categories, including customer acquisition, customer retention, and supporting activities. Customer acquisition includes the following: marketing advertising public relations customer research secondary research sales technical support Customer retention includes the following: technical support customer research customer support line extension marketing Supporting activities include: recruiting customer research secondary research information gathering (news) The reach of these activities include both existing and prospective customers. For existing customers, the quality and quantity of contact can be significantly increased with little or no incremental transaction costs. Similarly, prospective customers can be lured from new psychographic groups previously unreachable by traditional marketing. The effective implementation of each of these activities warrants literally hundreds of pages of discussion. For now, however, the following thumbnail sketch of critical issues should serve as the underpinnings of an effective campaign. 3.1 Internal Usage Literally all of the hype with regards to the internet revolves around external capabilities, yet a number of companies have found tremendous cost savings from internal usage of internet tools. An IBM spokesperson indicated that while the company has already spent significant dollars on web site development company wide (and much of that for internal consumption only), it estimates that it will reap overall savings from better employee access to critical information and a significant reduction in the cost of reproduction and distribution of materials internally. This spokesperson recently described the various internal applications residing on forty different web servers. These applications include: storage and retrieval of internal strategy documentation, customer presentations, department documentation, etc. storage, retrieval and updating of customer presentations forms and tools for internal services online bookstore preview of web pages prior to external release resource for product information (shared with external web servers) internal local resource for executive travel, listing places to stay, restaurants to visit, etc. announcement of events, complementing internal employee newsletter Overall, these applications support a wide variety of activities within IBM, including both customer focused and internal infrastructure issues. They clearly represent the opportunity to save IBM millions of dollars in documentation and transportation costs. IBM estimates that more than 500 people company- wide are somehow involved in web site management, with more than a dozen full time staffers dedicated to both the internal and external effort. IBM's external activities, based on more than 30 additional web sites, are focused on revenue generation (helping to move customers along the sales cycle), customer support, and on cost reductions (such as publishing IBM financial information on the web rather than shipping additional copies to the many recipients of this information. 3.2 Why Should this Campaign be Different? Companies that would spend literally hundreds of thousands of dollars conducting focus groups, attitudinal surveys, psychographic research, and so on, are hopping onto the net with no more than a Mac running webserver shareware and a 28.8 modem. It is rather surprising to find the following message on Dell's homepage (http://www.dell.com) in January: I've converted some of these files from text to html. I'll convert the rest when I get back from vacation in January. No company would dare run unfinished commercials or place an advertisement that still had editorial markings on it. Yet, in their rush to stake out a claim on the 'net, hundreds of companies are jumping on the stage with their makeup still in their hands and their costumes around their ankles. An InfoSeek search (http://www.infoseek.com) run in mid-April on the words "under construction" found the following sites empty or "under construction" among the hundreds: Digital Link Corporation (http://www.dl.com). "Welcome to Digital Link Corporation. Our Home Page is Under Construction. Please come back soon and check us out!" Thomas Conrad Corporation (http://www.tci.com/uchp.html). "This Page Under Construction. Stay tuned for more information, coming soon." Renaissance Internet Services (http://www.ro.com) Please pardon our sawdust, but our workmen are busy at work constructing this homepage! Please check back from time to time, as we may finish soon, and we'd really hate to miss your visit. These companies have decided that it is better to put up a partially completed site and hope that people will return later to see if it has been completed. A television viewer, encountering a test pattern on a particular channel, would be unlikely to go back to that channel. It is far better to simply remain off-net until one's site is complete. Some companies are testing their online efforts prior to launch. Sun Microsystems runs user tests to ensure that its sites perform as expected and convey the appropriate information and tone. Similarly, other companies use focus groups to evaluate their web sites, in much the same way that traditional advertising firms use research to test packaging, advertising copy, etc. Presence providers are beginning to test the man/machine interface to ensure good site design, not simply quick and dirty HTML publishing. Moreover, companies putting up web sites are beginning to use those sites to gauge customer interest and gain feedback. A well-designed web site can provide its owner with valuable information about which products or services people are interested in, on an up to the minute basis. Conversely, a poorly designed web site, such as Compaq's (http://www.compaq.com) with its 1,000 line laundry list of product releases, simply represents laziness on the webmaster's part and a foregone opportunity in gathering valuable information. Constant changes in content (value) will keep browsers coming back. The Specialized Bicycle site (http://www.specialized.com) is a particularly good example of this, running a contest for browsers and regularly changing the featured products. 4 Critical Success Factors To achieve success with an internet presence, a company must follow most, if not all of these guidelines: gain executive commitment - both people and funding assign ownership and accountability for the net.presence to the marketing organization build a cross-discipline committee from sales, marketing, IS, customer support, R&D, manufacturing, service - all major functional groups within the company appoint webmaster to "own" the site and keep up on what's hot elsewhere on the net appoint net.monitor to be the focal point for incoming email and to monitor usenet traffic, either through a direct presence or through the use of a search utility like InfoSeek establish rational expectations don't chintz on the investment in people, training, equipment or software. Use commercial grade equipment from companies that provide training and support. integrate the net.presence with other marketing/service/support activities invest in a "quality" presence, don't throw just anything up on the web to have a presence track the results in sales, service, support, awareness, etc. commit to the presence for the long term Ignoring these guidelines puts the company in serious risk of failing to achieve positive results. 4.1 Site Design One of the key aspects of an internet presence is the site design. The following are a few key guidelines for effective site design: most importantly, give people a reason to visit the site and to stay. Don't link with the rest of the world unless you want to give away your customers change content often track usage patterns, not just the number of hits, but the path and the length of the visit. Change your site to reflect usage patterns. Put the popular information closer to the home page. capture information from the user - name, address, information requested. plan the site as though it were a paper document and not easily changed don't assume that all browsers will have a T-1 connection. Most, in the near term, will be using 9,600 baud modems and will not wait for complex graphics to download make the site simple and easy to navigate don't show off technical capabilities just "because you can." It may turn off users to have their user-id displayed when they first hit the site, as at least one presence provider is currently doing. Image maps may be fun to implement, but they are less usable than simple buttons. Forms don't work with all browsers graphics may be important to the ego of the company or web master. They quickly become tiring to the browser foster appropriate net etiquette from every person with email access. plan your linking strategy and check the links constantly to make sure that you don't lead people to dead-ends. It reflects poorly on your site don't just join a mall because everyone else is doing so. While brick and mortar malls make a lot of sense, emalls can be easily replaced by users' hotlists. Importantly, it is your marketing efforts that will drive people to your site, not your electronic inclusion in a "mall." not all users have web browsers.Make sure that your company is also reachable by simple email publish your URL and your main email address on all documentation and advertising, just like you do with your toll free phone numbers Evaluate your site periodically with a critical eye. Browsers will not give your site a second chance. If they encounter "Under construction" signs, they probably won't come back. It has to be easy to use, informative, interesting, of value to the browser, and compelling to revisit. Most browsers simply won't want to see a message like the following: For a paper catalog, send $3 The web is the electronic facsimile of the paper catalog, and as such, it replaces the paper catalog. Similarly, most browsers don't care what HTML authoring tools were used in the development of the site or the personal interests of every HTML author. On the other hand, the net is a wild and woolly place, comprised of many interesting characters. It is possible, perhaps compelling, to present a slightly offbeat view of the world, particularly in this early startup phase (curious, since the net is 25+ years old). So a balance between polished marketing and a down- to-earth personal flavor is in order. 5 Recommendations To achieve success with a net.presence, first one must define the goals and expectations. Then the strategy must be carefully planned and executed, with support from the highest levels of the company. Only with this support will such an effort truly succeed. Many internet marketing or presence efforts will fail because of a lack of corporate commitment and the wrong supporting structure. Six months after the launch, senior management will ask the deadly question "So how's that internet thing going?" And Marketing will say: Gee sir, we haven't had the time to update it lately. We had some hits early on, 14,000 the first week, in fact, but then we got busy doing the conference and some other things. Gee, we really don't know how it's going. Sales never tracked the influence. Support never answers their email anyway, and since we changed the corporate brochure, the website is kind of outdated anyway. We just haven't had time to revise it since we got it up. I think we got 4 hits last week. And senior management will say: Fine, it's up. Now get on with your other work. If planned for and implemented carefully, the internet is a wonderful tool for fostering increased communication between customer and supplier, and between business partners. As a result, most of the benefit, in the short term, will come from traditional email activities. Longer term, as enhanced connectivity becomes the norm rather than the exception, and an increasing number of companies include pointers to their online presence in their traditional media, the world wide web will become an increasingly important engine for moving customers along the sales cycle and enhancing their overall satisfaction with their suppliers. Author Information Lee M. Levitt is Manager, Market Development, Process Software, 959 Concord Road, Framingham, MA 01701 USA. His email address is levitt@process.com, with an alternate at channels@world.std.com. Telephone is (508) 879- 6994. Lee is responsible for defining specific market segments and potential partners and alliance members for Process Software, building partnerships to increase joint leverage, and ensuring that those partnerships are successful. Process Software is the publisher of Purveyor , World Wide Web server software for Microsoft Windows NT. Prior to joining Process, Lee was Director, Distribution Channels Research, for International Data Corporation. There, he planned and managed all desktop distribution channel research carried out by IDC in the U.S. His last work focused on the growth of "emerging" channels, including bookstores, toystores, interactive television and online services, with specific focus on the use of online services for advertising, marketing, public relations, sales and customer support activities. Other recent work included market segmentation and positioning for discrete market segments. He has also spoken about marketing and channel issues at numerous conferences, including the New Media Expo, IDC's annual Executive Briefings, COMDEX and CES trade shows, focused IDC distribution channel and Systems Integration seminars, Uniforum, and at numerous vendor and reseller conferences. Lee has written for a variety of publications, including BrandWeek, ComputerWorld, Computer Reseller News, and Reseller Management. He joined IDC after six years of successful sales and support experience in the field for Texas Instruments and ComputerLand of Boston, calling on VARs, distributors, OEMs and end-users. At ComputerLand of Boston, one of the most successful franchises in the ComputerLand family, Lee managed the service function of the original franchise location, providing technical support to large corporate accounts and small businesses. Prior positions include IS manager for a financial consulting firm and a sales position with a high-end audio franchise. Lee is a member of the Massachusetts Software Council, the Internet Society, and CompTIA. His undergraduate degree is in economics from Colgate University, Hamilton, NY, with minors in both computer science and education. Lee, an avid cyclist, is a member of both the Boston Road Club and the National Off Road Bicycling Association. He competes regularly in both road and off-road racing events. He is also the editor of Mass Cyclist, the newsletter of the bicycle advocacy group Bicycle Coalition of Massachusetts.