Storefronts Multiply on Information Highway's Main Street
Shopping in cyberspace these days is a lot like walking Main Street of a boom town. Most of the stores aren't open yet. The few that are seem rather dinky. But watch out for the rush of new shopkeepers.
By year end, today's block-long commercial district will stretch eight blocks, according to one estimate. The year after that, 32 blocks, and so on.
Look carefully and you'll find a coterie of Internet vendors who are already turning a profit.
During his first 10 years in business, Dave Johnson sold software through traditional retail stores. But as national chains began to take over the business, they demanded heftier and heftier wholesale discounts. Disgusted, he began marketing on the Internet a year ago. Sales have blossomed.
"We're making money on the Internet," Mr. Johnson says.
His company, Working Software (http://www.working.com/), is a natural for the Internet because it sells Internet-related software. The real breakthrough, however, is the business model that Johnson and other software vendors have hit upon. Traditional software retailers will be hard-pressed to beat it.
Take the CyberSource Corp., another software retailer on the Internet. The Menlo Park, Calif., company (http://www.software.net) is a year-and-a-half old, already at a break-even point, and witnessing monthly increases in sales.
Its secret? A completely automated ordering system on the graphical part of the Internet, called the World Wide Web.
Say a customer comes to CyberSource's Web site, reads the product literature, and decides to buy something. He clicks on an on-screen button, which brings up an order form, and he completes it with his name, address, and credit-card information. Then he clicks on another button to send the order to CyberSource.
Once the order comes in, the company's computers handle it automatically. They complete the credit-card transaction, check for possible fraud, then - the real coup - send the software electronically to the user's computer. No person ever has to get involved.
This represents a huge cost advantage over retail stores and even mail-order companies.
CyberSource doesn't have to print any catalogues, set up toll-free telephone service, or pay people to answer calls or fill orders. It pays nothing for inventory, packaging, or shipping. And, of course, it doesn't have to maintain a costly retail store.
Critics pooh-pooh on-line shopping as so much hype. They point out - correctly - that fewer than 1 in 3 Internet businesses turns a profit. Even the successful ones have minuscule sales. Some things - cars and certain clothes, for example - customers will probably always want to touch and feel before they buy.
But these criticisms miss the point. The marketing model is compelling, even if it takes several years to make a big impact on retailing.
And it extends far beyond software. In its survey of Web marketers last fall, market-researcher ActivMedia found that the biggest-selling goods and services were (in order) real estate, computers and accessories, software, travel, consumer electronics, and financial services.
Even the biggest hurdle - consumers' reluctance to send credit-card information over the Internet - may disappear as people grow comfortable with on-line transactions.
Many buyers at Music Boulevard (http://www.musicblvd.com), an Internet music vendor, prefer to call in their first order but switch to the on-line system once they're familiar with it. In all, 4 out of 5 of the company's customers use the Internet to order (which, in reality, is no more risky than ordering by phone, security analysts agree).
The idea seems to work. Revenues at N2K, the eight-month-old company that owns Music Boulevard, are growing a whopping 40 percent a month, says J.J. Rosen, senior vice president and general manager. Within a year, he expects the company will turn a profit.
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