Selling over the Net

Jeff Bezos of Amazon.com was recently selected Time Person of the Year. Internet stocks are getting unbelievable valuations on the NASDAQ. All this reminds one of the gold rush. The pundits would have you believe that the Internet will dominate all commercial activities in future. But will it really happen as predicted?

I, for one, don’t think so. The Internet and e-commerce will have a profound effect, but not as much as people think. I’m particularly skeptical about what the industry calls D2C–Direct to Customer–sales. I believe that D2C will work only for a few product categories. The Internet will not become a window for purchasing all types of products. D2C will work only where the Net manages to add value to the purchase process.

Value addition is the key. One instance where the Net can really add value is in the selling of PCs. To see why this is so, consider what happens when you want to buy a PC. You have a choice of CPUs (for example, Celeron vs PIII), flexibility in the amount of RAM (32/64/128 MB), and a choice of hard disks. Further leeway is provided by options such as add-on graphics cards and pre-installed software (MS Office, anti-virus programs, etc). Finally, you might pick up more than one piece if you get a good discount.

The traditional way of buying used to be to get a sales representative to visit you, and go over the options with him. This could take hours, especially if he had to revert to the office to get clarifications for some items. Getting a quote could take a couple of days. If you wanted to play the market and get three or four quotes, you could easily wind up spending a couple of weeks in the process, by which time the prices would have changed. It’s easy to see the value that the Net can add to the process. A few simple on-screen forms, and you can play around with as many permutations as you want. Comparison shopping gets much simpler.

Another such item is the purchase of airline tickets. The buying process is as complicated as that for PCs. Is a confirmed seat available on British Airways for the 18th and what does it cost? If not, does Emirates have a flight on that date and what does it cost? What if I upgrade from Economy to Business class? And can I get a confirmed reservation for my return? A Website that would allow one to explore the alternatives would solve a lot of problems. The prime requirement would be connectivity with the ticketing systems of major airlines.

Both these examples have much in common. The item to be bought is nearly a commodity and is available in lots of permutations. Finding the right permutation is a major step in the purchase process. 



Having seen what should work, it’s time to turn to what probably won’t work.

First of all, I doubt if you’ll really start buying fast moving consumer goods (FMCG) on the Net. Most such products are available over the phone with home delivery, and ordering through a site adds no value to ordering over the phone. The only possible value addition might be in reducing the price, but I don’t think e-grocers will be able to provide lower prices over a sustained period of time. Of course, there are exceptions such as books and CDs.

Piracy of designer goods is a major problem today, and the Net has the potential to magnify this. Some idea about the extent of the problem can be obtained at the shopping arcade of the Oberoi in Mumbai. The area is jam-packed with goods bearing designer labels and dollar price tags. Bargain a little and the prices drop by 30 percent, with the seller gleefully admitting that the goods aren’t the genuine thing. If thousands can get hoodwinked even after they’ve examined the article, just imagine the kind of damage that can be done over the Net.

Finally there’s the issue of social costs of doing business over the Net. At this stage, we should be looking at mechanisms that reduce traffic congestion, pollution, and overloading of municipal services. The e-world, in which couriers deliver small parcels to individual consumers who have ordered over the Net, seems to be a step backwards and not forward.







The bottom line
The fate of D2C service providers will be decided by the value they add to the product or purchase process. There are no shortcuts.