NEW YORK-Like the Wizard of Oz working the controls unseen, electronic commerce could soon become the primary delivery and fulfillment mechanism for all goods and services, regardless of whether consumers buy those goods and services online, by mail order or in a store.
Telecommunications, provided as stand-alone or bundled service, is no exception to the larger trend sweeping the economy. By one prediction cited in a recent Bear, Stearns & Co. Inc. report on “E-gistics: How E-Commerce and the Supply Chain Click,” there will be no uniquely identifiable Internet companies by 2006 because all companies will be Internet companies.
“E-gistics is the use of a Web-based technology as a critical tool that contributes to the broader logistics management process or a component of this process,” said the report, lead-written by Edward M. Wolfe.
Growth in business-to-business and business-to-consumer electronic commerce markets will have a disproportionately high impact on growth in the logistics sector, which comprised nearly 10 percent of the U.S. Gross Domestic Product last year. A far greater reliance on outsourcing of logistics for e-commerce relative to conventional commerce will push that proportionate influence, Bear, Stearns said.
A significant catalyst for this change are innovations in the underlying technology that will facilitate communications among businesses and allow the advent of new players into e-commerce.
“The vast majority of electronic commerce today is conducted via electronic data interchange, which allows businesses to exchange large amounts of data quickly and efficiently. However, EDI is inherently expensive and inflexible, so it has not had universal appeal, particularly with small and start-up companies,” Bear, Stearns said.
“Many see extended markup language as the next step in the evolution of EDI. XML is an Internet-browser-supported language that … provides users with the capabilities of EDI … on top of additional features that address most of EDI’s weaknesses. … XML forms the basis for a highly specialized tool for B2B communication that can be developed without reliance on proprietary software, privately controlled value-added networks or closed standards.”
Over the longer term, the idea that every company will, in effect, be an Internet company, holds resonance for Court Lorenzini, co-founder and chief executive officer of Point.com.
“We are probably headed that way, toward the Wizard of Oz concept of provisioning and fulfillment,” he said.
Point.com began as an online destination for direct consumer purchases of wireless telecommunications products and services. Today, however, 80 percent of its business is serving other companies that sell online directly to end users. These include wireless carriers, the major handset manufacturers and retailers.
Wireless device makers, such as Ericsson Inc., Nokia Corp. and Motorola Inc., “like to go directly to the end buyer with handsets, content, software and services because, if they can take orders and ship directly, it cuts out the middleman. This starts to look like the Dell (Computer) model,” Lorenzini said.
For carriers and electronics retailers, Internet-enabled customer interaction also can facilitate online sales and provisioning. This is important for technically savvy consumers and corporate customers, both of whom comprise high-value and loyal subscriber segments. Online acquisitions also lower sales and marketing expenses for carriers.
However, many individual consumers tend to be more loyal to stores where they have made a prior, in-person purchase they found satisfactory. Retaining these subscribers, giving salespeople the chance to sell them more advanced services and gaining invaluable word-of-mouth advertising from satisfied customers are also quite important.
This human factor, which cannot be denied or discounted, has given rise to a new permutation of online retailing. “Clicks-and-mortar” which has been ascribed only to arms-length Internet purchases, now also means an Internet enhancement for conventional bricks-and-mortar retail sales.
“Online wireless retailers are leveraging their proprietary back-end technology to enable traditional retailers such as Staples, Office Depot and RadioShack to sell wireless handsets over the Internet and in their stores without having to rely on the carrier for ordering and provisioning,” said The Yankee Group in a recent report, “Will the Web Become a Force in Wireless Distribution?'”
Traditional electronics retailers have been reluctant to sell activated wireless devices on their Web sites because such transactions are far more complex to execute than television or VCR sales, for example.
“In addition, traditional retailers can use a Point.com’s back end to sell wireless handsets and services they previously did not have access to in their stores. … Using a comparison site’s back-end technology … lowers acquisition costs, allows the retailer to have a Web presence, does not require … as much inventory on hand and lowers training costs associated with the handsets,” said The Yankee Group report, written by Knox Bricken.
The Yankee Group projects that Internet-only sales could account for 33 percent of gross wireless subscriber additions within five years, up from 2.5 percent this year. While this research group cites higher average revenue per subscriber among online purchasers of wireless services, carriers have some reservations about whether this is completely true.
Lorenzini noted discussions are under way to make Internet sites more user-friendly by allowing simultaneous consumer conversations with customer service representatives. This tack takes aim at one weakness of online sales relative to telephone or in-person transactions, which provide a direct sales force the opportunity to convince consumers to buy more.
“Some carriers have recently discussed that fact of how much effort they want to put into the Internet channel because it might be a lost revenue opportunity because they can’t up-sell the customer,” he said.
“Still being discussed at top executive levels are the use of online access to customer service reps to allow a live person to complete the order, to change handsets or add options, especially data, which is essentially pure profit.”
Today, however, voice services “dominate online retail telecom,” according to Forrester Research Inc. Carriers also are far more likely to sell bundled services through their own Web sites than to allow third parties to do so. This is part of the current love-hate relationship between online resellers and telecommunications providers.
“Communications portals and carriers can’t quite figure each other out, with carriers unsure as to whether they should shun or embrace their online brethren,” said a Forrester report, “Telecom’s Online Retail Future,” lead-written by Amanda McCarthy.
Carriers are trying to capture the bundled services revenues for themselves. Consequently, their best interests are not necessarily served by third-party online providers that allow consumers to pick wireless from one provider, long-distance wireline from another and Internet access from still a different one. Furthermore, communications companies are concerned about the ability of online portals to handle the complexity of bundled service offerings.
Forrester Research described today’s online retail telecommunications marketplace as “lively and chaotic” and divided it into four basic categories: carrier initiatives that run the gamut “from nascent to full-throttle;” portals, like Telstreet.com and Point.com, which are part of wireless operators’ “vast network of indirect distributors;” other portals, like Essential.com and ServiSense that “want to become branded e-stores, virtual telcos where consumers flock to pick up discounted communications and energy services;” and content sites, like America Online, which now owns 15 percent of Talk.com and also sells discount voice throug
h Prodigy and others.
By 2002 when AOL buys Telstreet.com outright, giving its members access to inexpensive and plentiful wireless services, Forrester predicts carriers “will quit wasting money on content deals and supply branded communications services to AOL et al.”
Out of the chaos of this new channel sector, the research firm expects a transition to a triumvirate of more successful online selling and fulfillment methods for wireless communications and products.
“Lacking online brands, service providers like Sprint and SBC that try to go it alone on the Internet will flounder, but specialty portals like Point.com that lack breadth are not the answer either,” Forrester Research said.
“Instead, three winning online retail strategies will emerge-broad-based portals, communications e-stores and online affinity marketers-each suited to different communications products and targeted consumers.”
These will give wireless operators several advantages, not the least of which is that companies like Yahoo! and AOL have a very high brand recognition among Web surfers.
Consumers also are demanding customized service bundles tailored to their individual needs. Rather than losing a sale because its own menu lacks a desired option, a carrier may find it more advantageous to let the customer buy its services plus others from other providers, all assembled by an online retailer.
The Yankee Group, on the other hand, believes companies like Cellmania, Telstreet and Point.com are third-party online distributors “best positioned for success … because of first-to-market advantage and name-brand recognition.”
However, it also believes that carrier-owned Web sites “will be best positioned to take advantage of this e-commerce opportunity.”
“To be successful, all players must overcome obstacles such as the touch-and-feel factor and customer ownership issues that could arise and hamper this newly developed distribution outlet.”
