Free-Commerce: The Ultimate Guide to E-Business on a Budget
Authors: Eileen Mullin, Jared T. Rubin
Venue:  (2001)

From the Book:Foreword Why Free? Whatever you may think of Bill Gates, chairman of Microsoft and arguably one of the world's wealthiest individuals, you must give him credit for seeing-and capitalizing on-the rise of the personal computer. Therefore, it was more than mere press release fodder when the bespectacled billionaire proclaimed the Internet the most significant advancement since the personal computer. He was wrong, though, or at least uncharacteristically understated. The Net has been far more significant than the PC. Although the PC has been instrumental in driving adoption of the Net, particularly in the United States, the Internet and World Wide Web were born independently of it. While most people access the Internet from Windows today, the PC's Net suitability and Microsoft's Internet strategy were late to blossom. The Net holds promise for having its greatest impact yet outside the U.S. through non-PC devices, such as advanced mobile phones, which are more common in Japan and Europe. The real reason why the Net is far more important than the PC ever was, though, is that the PC failed to fundamentally change the economy. The PC may have improved productivity in virtually all industries. It may have created sea changes in many industries, such as publishing and film production. It may have even virtually created intrinsic industries, such as software development. However, the PC failed to tear down walls among industries. It did not raise the questions of whether music artists should distribute their music without their labels' involvement. It did not cause CNN and the New York Times to compete in the same medium. It did not give rise to retailers like Amazon.com that have Wal-Mart in their sights. It did not cause NBC to question whether it was a media or commerce company. Calling the Internet a force in the evolution of the PC is like saying that television's major impact was changing radio. LOOKING, HOOKING, AND BOOKING There is another way the Internet has changed our thinking about the economy. The Net's unique combination of direct marketing potential and wildfire distribution combined with new financial valuation models and a glut of startups, all desperate to rise above the fray, has led to a new way of thinking about customers. This is a world that has seen the tremendous success that companies like America Online have had once they have acquired customers. All AOL has really done, though, is replicate what financial and telecommunications companies have known for years. Once you have a billing relationship with customers, it is relatively simple to extract additional revenue from them through premium services, cross-sold services, merchandise, bundles, and other marketing techniques. The difference in the Net space, though, in spite of the market correction of early 2000, is that investors have been willing to forego the billing relationship for extended periods on the logic that it is only after getting someone's attention that you can sell them goods and services. Microsoft bought Hotmail, which provided free Web-based e-mail, for over $400 million because it had acquired millions of users who might be more easily converted into customers. Regardless of whether their revenue model includes advertising (as many sites profiled in this book do) every company with a Web presence must understand the principles of media. That was only in the first wave, though. The Internet has certainly blurred boundaries across media and channels, but motivating consumers is still a difficult task, particularly since the low bandwidth available to the Web makes it difficult to elicit the kinds of emotional responses possible in television. The rise of online retail, the transformation of online media, and the investment in crossover online services have pushed the Net from the domain of the consumer out to meeting the needs of businesses, particularly small businesses. AN EVOLUTION OF SERVICES The first wave of excitement around the Net came around selling access to consumers. Early Internet service providers such as Netcom seemed poised to dominate the landscape. Then came flat-rate pricing, which wiped away the juicy margins in the access business. Furthermore, as we'll discover, distracted Internet service providers were so focused on survival that they slowly saw most of their value-added services, such as e-mail and home pages, usurped by more nimble Web sites. Selling goods to consumers marked the second phase. Amazon.com started with a franchise in book sales and has slowly branched out to music, video, toys, and even consumer electronics. Amazon's blitzkrieg quickly forced consolidation in sectors ranging from CD sales to beauty supplies, where the retailer has a major investment in Drugstore.com. Undeterred in its strategy of horizontal domination, Amazon has embraced consumer-to-consumer auctions and even launched zShops, which leads smaller vessels of commerce into its raging river. What is often overlooked about Amazon, though, is that its storefront masks a services play. Books were merely an early vehicle through which to develop tools that provide one of the best online shopping experiences today, including excellent customer service, recommendations driven by collaborative personalization, and a huge selection. And what is selection if not a way to avoid running around, i.e., a convenience service? Despite Amazon's success, though, the bloom is off online retail's rose. The threat of shopping bots that compare prices across Web sites; the eventuality of established branded retailers moving online; the reality of lowballers such as Buy.com, who are willing to trade profits for advertising revenue; and the twist of reverse auctioneers such as Mercata, which allow consumers to aggregate demand, have made selling goods online something less than the frictionless mecca it once seemed. Similarly, in the media side of the Web, major portals such as Yahoo!, which has established itself as one of the few successful online media companies (and only through strong offline ties, at that), have made a fundamental shift in the past few years. Most of the attention on its transition over the past few years has focused on the migration from a search site pointing consumers to resources to a directory focusing on internal resources. The more significant change, however, has been Yahoo!'s development of a series of communications and transactional services, all under a unified login-Yahoo!'s answer to Amazon's one-click ordering. Yahoo! itself has started offering its own wallet, from which its members can shop at sites from such retail stalwarts as Macy's and Nordstrom's. AN OVERLAP OF MARKETS The relatively distinct market for consumer goods has little overlap in terms of corporate competition. Outside of uniforms, most corporations have little use for clothing. Outside of functions, they have little need for food. And outside of desks, they have little use for furniture. A floor of 200 people, each of whom may have his or her own VCR at home, may share a single VCR in a corporation. Likewise, the average consumer has little use for copy machines, and the largest consumer PC companies in the world derive only a small fraction of their total revenue from the consumer market. Moreover, these markets account only for finished goods, leaving out major sectors of the economy focused on components and parts. On the other hand, while some services, such as health care, education, and entertainment, remain largely consumer-focused, what consumers spend on some of their most expensive services is dwarfed by what corporations spend on those services in real estate, telecommunications, insurance, financial services, and travel. We are at a crossroads in the Net's evolution. It's not that the Internet economy has given up on the consumer. It's that business models-ever craving the steady renewable revenue that services can bring-are evolving to a point where it's easier to make the case to the business customer than to the consumer. The disadvantage is that while changes in the consumer Internet economy led to a crumbling of walls among industry and through the supply chain, the business Internet economy will have relatively low impact in comparison. ENTER THE ENTREPRENEUR As an entrepreneur, you represent a very attractive target to the provider of free services. You're willing to take action and responsibility, and may even influence the spending of others, such as employees and customers. Furthermore, while the key to motivating customers is often to evoke an emotional reaction, capitalism's unadorned invisible fingers-seeking opportunity, saving costs, and improving efficiency-guide entrepreneurs. Sites such as eToys had to invest millions of dollars to buy their servers, develop their Web sites, get online, host their sites, promote their brands, and communicate with their customers. They also had to spend millions to shore up their own organizational needs. Today, technology has advanced and organizations have launched to greatly ease the pain of starting a robust commercial site. Web content management systems, team development environments, and commerce servers have allowed new online stores to get up and running faster. Application service providers and commerce service providers let you rent programs and outsource development so you don't have to hire as much staff to build your own engines of e-commerce. Nevertheless, we won't kid you. To launch a world-class commerce site still costs millions of dollars because the bar has been raised. Now, for example, staying on customers' radar involves personalized opt-in direct mail campaigns, auctions, and sophisticated data management. However, while the Internet may not quite have allowed all of the smallest guys to unseat the biggest guys, it has allowed the smallest guys to take on the somewhat bigger guys. SOHO (small office/home office) is really where free-commerce has bloomed, allowing entrepreneurs to concentrate on their skills and look to other resources to mind the shop. SELLING YOUR SOUL: BEST OF BREED VS. INTEGRATION Even though some services profiled in Free-Commerce have a strong offline component, Web-based services have, in general, started to push the limits of Web development. Desktop.com, for example, has made extensive use of JavaScript to create an online experience that behaves more like a traditional Windows desktop than a Web page. Other advanced developments lurk behind the interface. As has often happened when weighing costs and benefits, decisions need to be made between choosing the best of breed and an integrated experience. For example, in the PC market, the best-of-breed components won. Apple's Macintosh may not have had the best video cards, the biggest hard disk, or the widest selection of software, but its integrated experience allowed a user experience that many argue the PC still has not matched. Nevertheless, the PC far outsold the Mac. Advocates of Microsoft Office argue that each of its applications were best of breed, but in the productivity applications space, the packaging together of word processor, spreadsheet, presentation program, and database unseated the former leaders of those categories-WordPerfect, Lotus 1-2-3, Harvard Presents, and dBase. With that in mind, let's return to Yahoo!, which along with other portals, has built some of the Web's most comprehensive service offerings. Among its prodigious collection are Yahoo! Messenger, Yahoo! Finance, Yahoo! Mail, and Yahoo! Auctions. Registering for one of these services registers you for all of them, but they have other ties. For example, Yahoo! Calendar can be accessed easily from within Yahoo! Mail, which can be monitored from My Yahoo!, the site's personalized "front door." Undoubtedly, moving from Yahoo! service to service is more convenient than having to log in to several different services on different sites. But while Yahoo!'s services are generally good, they are not necessarily the best. Other free mail programs, for example, offer the option to have text read over the phone or free mail forwarding. Yahoo! Messenger has far fewer members than the equivalent service by America Online, while Yahoo! Auctions has a far smaller audience than eBay. Datek and Realtimequotes.com offer free real-time market information; Yahoo! Finance's quotes are delayed by 20 minutes. The competitive nature of the Web means that no one should own an advantage for too long. The integrated sites are certainly worth registering for and provide an easy way to experiment with services you might not ordinarily try. They also tend to be more established compared to many startups. In general, it's not very difficult to switch among services online, but sites use features such as personalization to raise those barriers. THE PRICE OF FREEDOM Almost all the free services have a price, and that's personal information. Often times, it can be as innocuous as your name and e-mail address, but it often includes more sensitive items like your address, phone number, and income. Surprisingly, few ask much about the specifics of your business, apart from company size and industry. Critics contend that privacy online is like a nuclear plant. Everyone enjoys the cheap power until someone's space gets contaminated. Increasingly, Web sites offer privacy policies that describe what they will and won't do with data you provide, but there have been instances of companies breaching their policies intentionally or with the unsolicited help of hackers. Worse than having your free service provider abuse your trust is having one of its partners solicit you after buying or trading for their member list. Efforts to enforce strict privacy standards have ranged from industry organizations such as TrustE to largely stillborn technical standards with obscure acronyms like P3P. Technology companies such as Zero Knowledge Systems and eNonymous have also been sprung up to "anonymize" the online experience. In fact, they don't even know who their own users are. If your privacy is tantamount to you, your safest bet is to avoid these services. A less extreme measure is to limit your relationships to those you trust or to companies that have more to lose than you by violating their own policies. In general, that means larger companies like America Online and Microsoft, but smaller companies also have their reputation on the line. The main difference between the Net and other channels, though, is the speed with which information travels. Don't do or divulge anything online that you wouldn't want the rest of the world to know about, although determined snoops can probably get the information through other means. If other companies, like banks and telcos, were held to the same strict standards privacy advocates are proposing for the Net, we could kiss junk mail and telemarketing goodbye. Privacy concerns also tend to be overstated by the media and are a price of progress. The telephone represented a major threat to privacy. And yet, as we complain about telemarketers who are far more annoying than direct e-mail marketers, we rush to adopt cellular telephones to ensure we have even less privacy. ABOUT FREE-COMMERCE There may be other prices to pay for free services. Some companies explicitly request the right to send you e-mail as part of the registration. Many of the free PCs discussed in Chapter 1 are tied to contracts. These have parallels in the physical world, where cellular carriers like AT&T Wireless have offered free cellphones in the past in exchange for annual or even multi-year contracts. Nevertheless, the shift of the Net to services and the attractiveness of the small business as a target customer have allowed you to get things done on the Net. You can get online, find the right software, build your Web site, attract and retain customers, and stay organized throughout it all-all without spending a penny. There are over 150 free services profiled in Free-Commerce, each with information on what they offer, what they'll ask for, and even some inexpensive premium services they offer for you big spenders. The book seeks to provide access to the best and most useful services to you in running your business; we didn't include many free consumer services because they just couldn't be tied back to productivity gains. Whether you already run a small business with a few employees or have thought about launching a home office, embracing free-commerce will let you focus on what you need to, including the bottom line. Ross Scott Rubin Vice President & Chief Research Fellow, Jupiter Research