At the time this article was first written, the "new, new" thing, and the metaphor for the Net as one sales channel was are Bluelight.com, not only a web site, but as complementary kiosks inside Kmart's traditional brick and mortar
stores where a customer could go and order "
online-only" items and specials. At home or at work, the Internet
made Bluelight.com only a click away. Bluelight.com, indeed, developed a hard
to beat value proposition and self reinforcing value chain that was at
once cool, trendy and practical with the Net, as an indispensable link,
but only one link in the value chain.
Since that time, not only has Bluelight.com been folded into the parent Kmart website, but all the giants, from auto makers like General Motors and Ford to huge discount stores like Costco and Sam's to more elegant retailers like Martha Stewart have woken up to the fact that the Net is a force that can really push product, even, and perhaps particularly, for those retailers with a bricks and mortar counterpart.
Experience has taught us that, according
to author Michael Porter, "the winners ( on the Net) will be those
that view the Internet as a complement to, not a cannibal of, traditional
ways of competing," and that is particularly true of sales.
To capture the advantages of the Internet requires new perspective on
what many now believe to be the benefits and disadvantages to using the
Net for business.
A primary advantage of the Net is its use as an efficient and relatively
inexpensive means to deliver information about products and services.
Geographic reach is increased and need for a sales force is diminished,
allowing many types of transactions to be completed seamlessly on the
Net. But, as Michael Porter notes in Strategy and the Internet in a
Harvard Business Review article, "the great paradox of the Internet
is that its very benefits - making information widely available; reducing
the difficulty of purchasing, marketing and distribution; allowing buyers
and sellers to find and transact business with one another more easily
- also make it more difficult for companies to capture those benefits
Porter goes on to describe the type of dynamic seen in automobile retailing
where customers are given much more information and many more options.
The geographic market is vastly expanded from local to regional or national,
but so is the potential competition and the online dealer does not have
certain brick and mortar points of distinction, such as his location,
friendly service, experienced sale personnel, a generous test drive policy,
free tickets to sporting events or coffee and doughnuts. The Net's advantages
can be wiped out by competitive pressure and the challenges of creating
a unique value proposition.
Competitive Advantage - Unique Value Proposition & Value Chain
The challenge, of course, is also the solution. What experience has taught
is that ebusiness may be a misnomer. On the Net or not, ebusiness is still
business and is fundamentally no different than traditional business,
in that it is about competitive advantage. A business must be able to
define a unique value proposition in a highly integrated value chain which
is self reinforcing. Dell Computers, for example, began with the unique
value proposition that it would custom build a computer, exactly as and
when a customer orders it, and deliver it at a very competitive price,
because its "just in time" system eliminated the cost of overhead
and mistakes in calculating demand.
The Internet, harnessing powerful new software, enabled Dell to improve
on their value proposition by allowing the customer to go online and configure
his own computer, selecting all the options herself, with the final selection
becoming a purchase order fed into the Dell manufacturing system, which
could complete the assembling of the individual computer, bar coded with
all the unique specs, within an 8 hour time frame. Internet technology
eliminated another layer of costs, and introduced another level of customer
control and self service, which enhances Dell's system of delivering value
and underscores the validity of its basic value proposition.
Businesses Which Are Able or Unable to Leverage the Advantages of the
Another business which is able to derive valuable benefits from the Internet
is eBay which is essentially an information marketplace in that it neither
maintains inventory or pays the cost of shipping but has aggregated a
huge number of buyers and sellers to exchange information about their
offerings. In essence, buyers and sellers put up their own content so
eBay achieves another cost efficiency. By understanding their own value
proposition, racing to critical mass, investing in technology and remaining
responsive to customer needs, eBay has remained the dominant competitor
in the online auction field while refusing to compete on its sales fee.
Two other bell weather companies, first thought of as "pure internet
plays", which have moved towards more traditional business models
in the hope of stabilizing revenue streams are Yahoo and Amazon.com.
Yahoo was one of the top dozen companies on the Net, in terms of traffic,
or eyeballs, which were able to capture 85 % of Net advertising. But now
that Google Adwords and Adsense have transformed advertising on the Net, making it much more competitive, Yahoo is trying to leverage its brand
with the sales of other items like magazines and computer keyboards.
In the same vein, Amazon.com has had to reach into the bricks and mortar
world, creating warehouses and distribution centers in order to increase
its margins and move towards profitability.
In effect, as these companies try to gain traction as profitable businesses,
by offline branding and building back-end infrastructure, they are leaving
their core competencies behind. Operating these new potential profit centers,
requiring different competencies and expertise, is akin to launching a
start up within your own company, and so is, almost inevitably, inefficient.
As these Net companies move into the bricks and mortar world, they are
also thrust into the role of competing with legacy companies who know
and protect their turf.
The Winners Use the Net As One of Multiple Sales Channels
As missteps and cautionary tales have a tendency to become crystal clear
with hindsight, most of us now realize it was not a good idea for Pets.com
to try to sell heavy bags of dog food over the Internet using UPS for
delivery. Perhaps not too much credit should be given to giant companies
for being slow to get on the Internet and therefore reaping the benefit
None the less, to give credit where it's due, legacy companies with impeccable old economy breeding are able to launch today with
a sound business plan , a complete infrastructure, proven expertise, hundreds
of employees, an installed customer base, and expansive reach. For them the Net is as an indispensable link, but only one link in the value chain.
On the flip side , and what surely must be sobering to giants , who are huge and lumbering and burdened with enormous expenses like rising health care costs, are the nimbleness and exponentially expanding tools available on the Net for savvy entrepreneurs. Today, one can put up cars or almost anything on eBay, and have it drop shipped to the successful bidder, without any of the cost, effort and friction of inventory or back end operations.
It remains to be seen whether legacy companies will have to scale back and become increasingly more specialized in the face of competition; whether Net companies like Amazon and Yahoo will become the new legacy companies and go through the same cycle of expansion then consolidation in the face of competition; and whether companies like eBay and Google can produce enough tools to enpower any Net citizen to become an army of one, competing on an increasingly level playing field with the giants.