[WIRED Subscriptions]  [Market Forces by David Kline]

     [Time: the Killer App in Net Shopping?]

     Some say the Internet is the biggest new commercial opportunity in
     history. And they may be right - eventually.

     But so far ... well, look at the facts. In 1994, purchases of
     content, goods, and services on the Internet amounted to a grand
     total of ... (drum roll, please) ... $13 million!

     That's right, folks: $6 million for content and $7 million for
     goods and services, according to market researcher SIMBA
     Information. That's barely 1.5 percent of the $843 million derived
     last year from the sale of Internet-related hardware, software,
     consulting services, and access fees.

     In other words, a lot more money is made selling access to the Net
     than selling anything on the Net itself. (Similarly, consumer
     purchases on the commercial services last year amounted to some
     $35 million out of total industry revenues of $708 million.)

     To be sure, Net commerce is young, and SIMBA predicts it will grow
     by an astounding 6,000 percent to become a $1 billion industry by
     1998. Of course, that'll still be only half the size of today's
     market for blow-dryers. But it's a start.

     Now don't get me wrong. I believe the Net will eventually become a
     major consumer marketplace. But several problems must be overcome
     first:

     [No shoppers]

     The plain truth is that only about 10 percent to 15 percent of
     online users buy products or services online. Interestingly,
     that's roughly the same percentage of women on the Net, according
     to most surveys.

     When you think about it, the similarity in the online demographics
     of women and consumers makes sense. Women, after all, make most
     key buying decisions and are the predominant consumers of media in
     the United States. According to the American Mass Retail
     Association, 73 percent of all primary shoppers in America -
     whether for groceries, apparel, or durable goods - are women.

     So why are so few women online? And come to think of it, why are
     less than half of all modem-equipped households online?

     [Not enough value added]

     Part of the answer, as studies consistently reveal, is that most
     women (and similarly, most nontechnical people) have very little
     interest in computers per se. They take a pragmatic approach to
     technology, using it only when it offers some practical benefit in
     their daily lives.

     Unfortunately, today's online services and networks offer precious
     little in the way of practical solutions to everyday problems. You
     can read a movie review online, but you can't reserve tickets at a
     local theater. You can download Consumer Reports, but you can't
     find a local repairman to fix your water heater.

     You can't pay your parking tickets online. Nor can you register to
     vote, renew your drivers license, enroll in adult education
     classes, or take care of any of those myriad time-consuming tasks
     of everyday living.

     And as for shopping online, well, I've yet to see any major cost,
     service, or convenience advantages to doing it online.

     [Ignoring the consumer]

     Some well-funded Internet companies act as if the basic rules of
     marketing and merchandising don't apply in cyberspace. They
     concentrate their efforts on boosting the technological
     sophistication of their services rather than on developing
     effective brands backed by strong, targeted marketing.

     They ask themselves, What's technologically possible? when they
     ought to be asking, Who are our potential customers, and what do
     they want?

     It's hard to ask those questions, of course, when 95 percent of
     your staff works in engineering, and you've only got one poor soul
     with "VP of Marketing" on her or his business card and a budget
     that would be considered laughable in almost any other industry.

     I'd be interested to see how many Internet shopping ventures have
     a VP-level person on board with major consumer marketing
     experience. I'd be shocked if there were even a handful in the
     entire United States.

     All that said, it's only fair to note that the focus on technical
     issues is not entirely misplaced.

     [Not-ready-for-prime-time technology]

     You and I are used to the "unable to locate server" messages. But
     look at it from the standpoint of the ordinary consumer: "Unable
     to locate server?" That's like driving all the way to Macy's
     department store only to discover a vacant lot with a sign that
     reads: "Sorry, we're not here today. Try again tomorrow."

     There's no way ordinary consumers will ever put up with that - not
     in the real world or the virtual world. Nor will they tolerate
     today's agonizingly slow access speeds. Go into any department
     store and watch how many customers drop their merchandise and
     leave at the sight of a 10-minute cash-register line. After all,
     who has that kind of time to waste?

     Marketing professor Donna Hoffman of Vanderbilt University's
     Project 2000 believes that online commerce won't reach critical
     mass until most people have a 56-Kbps connection. And that's still
     a ways off.

     But despite these problems, Internet commerce will eventually be
     ready for prime time. And when it is - when the technology works
     well enough and at fast enough speeds, when enough people have the
     equipment and skills needed to access it, and when enough truly
     consumer-oriented services and stores have been created - what
     will we have? Ladies and gentlemen, I give you ... ta-dah! ... the
     shopping mall!

     You see the problem? We already have shopping malls, and we
     already have mail-order catalogs with toll-free numbers. So what
     does Net shopping have to offer?

     Sure, online commerce seems perfect for products with a great deal
     of informational content, such as high-end consumer electronics.
     It should also be great for products, such as flowers or concert
     seats, that are more difficult to visualize on the phone. But I
     suspect the Net's real commercial advantage lies elsewhere.

     "The only online shopping service that has managed to attract
     large numbers of women is Peapod," a grocery-delivery service,
     says Rosalind Resnick, editor of the Interactive Publishing Alert.
     "Talk to any woman with young kids and you'll quickly discover the
     nature of Peapod's appeal." One happy user reported saving five
     hours a week by ordering her groceries online.

     Five hours a week! Now that's added value!

     In a world where time has become the scarcest resource, saving
     more of it for customers just may be the "killer app."

               [David Kline]

       D a v i d   K l i n e

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