The Changing Power of E-Commerce
12/16/99 12:00 AM PT
Working and going to school full time left Jim precious few hours to take care of ordinary chores like buying tires for his car.
The time shortage prompted the 31 year-old Columbia, Maryland resident to make his first purchase over the Internet about two years ago -- despite his reservations about using his credit card online.
"I was able to buy four tires at half the price they were charging at local dealers," he told this reporter. "They delivered the tires to my front door the next day."
Jim's first e-commerce experience is typical of a growing number of anecdotal testimonials that show the potential changing power that e-commerce is having and will continue to have over how American consumers do business.
"Since then, I've spent several thousand dollars (US$) online," Jim adds. "I've purchased a camera, a leather jacket and books. I see no reason why I should support the high overhead of local retailers."
Such sentiments are growing.
According to Forrester Research, more than 50 million households will make such online purchases over the next five years. Additionally, there will be a hefty increase in online spending per household -- growing from $1,167 in 1999 to $3,738 in 2004.
This year's holiday season online spending -- excluding travel purchases -- will double from $2.6 to $5 billion, according to market researcher Jupiter Communications.
Taking Control Of Purchasing Destiny
While issues of time, convenience and price have been nudging countless numbers of new shoppers into cyberspace daily, Pat, a 49 year-old Baltimore, Maryland resident, is typical of many who venture online because of bad offline experiences.
"I had a bad experience a few years ago after planning a vacation to San Francisco through a travel agency," she recalls. "When my husband and I arrived at the hotel at 3 a.m. -- because we were bumped from our flight -- we found that they didn't even have a room reserved for us."
When it came time to plan their next vacation, Pat began surfing Internet travel sites that offered more accurate information than her former brick-and-mortar travel agent -- and better prices.
"As an experiment, I called a local travel agency and they quoted me a price that was double what I could book online," she explains.
Since then, Pat has been using the Internet to eliminate middlemen from most of her family's major purchases, including automobile insurance and even real estate. "For once in my life, I don't have to rely on intermediaries," she adds. "It (e-commerce) allows me to take control of my purchases."
Old Economy Collides With New
Clear evidence that e-commerce is quickly diminishing the role of the middleman for consumers can readily be seen in the burgeoning success of such online brokers as Charles Schwab and E*TRADE Group.
Recently, even giant brick-and-mortar brokerage Merrill Lynch & Co. began charging as little as $29.95 per transaction for self-directed investors -- a fraction of the cost of going through one of its 14,800 brokers.
The staid Wall Street brokerage had little choice, considering that there will be about 5.4 million online brokerage accounts with total assets of $374 billion by the end of 1999. By 2003, Forrester expects the numbers to skyrocket to 20.4 million accounts, worth about $3 trillion.
More Value Online And Off
Once again, e-commerce has transformed the masses into masters of their own fates. Along with lower commissions, online brokers have even begun to offer a myriad of research services to their customers -- the very services that a few short months ago were reserved for brokers only. For instance, E*TRADE has made its stable of analysts available to its customers, while Charles Schwab is currently offering online seminars for its clients.
Nonetheless, how online brokers conduct business is causing their real-world rivals to fight back in other ways than just cutting fees.
For instance, some brick-and-mortar brokers like Stuart Kershner, vice president of investments for Ferris, Baker and Watts in Annapolis, Maryland, have countered by making clients offers that many of them cannot refuse.
"A good broker should be willing to be paid based on performance," Kershner told the E-Commerce Times. "In the New Internet Economy, it has to be that way."
Since the advent of the online brokerages, Kershner and other Internet savvy brick-and-mortar brokers have launched their own Web sites, offering value-added services in an effort to hold on to their clients.
Kershner's site provides clients with a daily scoreboard to track the success or failure of his stock recommendations -- along with an entire system of investing. By offering extras and basing his fees on performance, Kershner is actually growing his client base at a time when other brokers are hurriedly polishing their resumes.
Some brick-and-mortar shopping malls are fighting back with a method known as "Xtreme Retailing." By providing live entertainment and celebrity in-store demonstrations, these malls hope to offer enough extras to draw people away from their PCs and back to real-world shopping.
At the same time, retailers such as Borders Books & Music will soon be offering in-store kiosks that allow shoppers to browse its huge online inventory. Conversely, giant computer e-tailer Gateway Inc. is building more brick-and-mortar stores to give it a stronger real-world presence.
All Things Converging
Eventually, the maturing of e-commerce will end up creating hybrid merchants that sell across all channels, according to Seema Williams, an analyst with Forrester.
"To succeed, they must anticipate customer demand, expand their product and service offering into adjacent categories and simultaneously sell through multiple retail channels including stores, catalogs, call centers, Web sites, Interactive TV and mobile devices," she explains.
The bottom line benefit to consumers is the opportunity to buy products and services when and where they want -- at prices kept in check by vigorous online and offline competition.
A perfect example of such a convergence is the partnership between Wal-Mart Stores, Inc. and America Online.
This partnership provides Wal-Mart, which has tens of millions of customers, access to the world of e-commerce through AOL's 20 million subscribers. As a result, AOL is able to tap into Wal-Mart's huge customer base and also have an immediate brick-and-mortar presence in its 3,600 stores.
For the consumer, this deal represents just one of many that will be born as a result of how e-commerce has leveraged the power of the individual buyer.