Kent Anderson
loves the chatter of commerce: clerks advising customers, registers ringing up
purchases, mood music over the intercom. When he shops online, he misses all the
hubbub. But as president of Macys.com, Anderson is able to change that. Now,
visitors to his site can click to hear about the latest promotions, listen to an
explanation of electronic gift certificates, or get guidance on how to find just
the right present for a loved one. Sound "keeps the site new and
exciting," Anderson says.
E-commerce doesn’t have to be quiet. Three-fifths of the Web’s top
destinations sport sound, from spoken instructions to quirky noises, according
to researcher Jupiter Media Metrix. Half of these sites dish up music, and 64%
feature voice clips–like America Online’s trademark "You’ve got
mail"–that give information about the company or its products. For Web
merchants who haven’t turned up the volume, here’s some sound advice: As
more users get speedy Net access, they’ll demand ever-richer Web pages,
including audio. "Sound is a wonderful enhancement to e-commerce,"
says analyst TS Kelly of research house Nielsen/Net Ratings.
The Company Store has heard the news. Almost every page features a woman’s
voice explaining products, reminding you to look over your shopping cart before
checking out, or reassuring skittish surfers about privacy policies. The idea,
says marketing manager, Orestes Chinea, is to cut down on the amount of reading
visitors do. The approach is paying off. The new audio capability, added in
November, has contributed to revenues jumping about 15% so far this year
compared with the same period last year, Chinea says.
Helpful hints from a soothing voice aren’t the only means of sounding off.
Voxxy.com, a site for teenage girls, treats visitors to whiz-bang sounds that
help them navigate. You know you’ve found the chat room when you hear a
ringing phone and cocktail party chatter. A heavy guitar riff announces the
"rant" section. A revving car engine signals a browser’s return to
the home page. "The sound on the site really captures your attention,"
says Jennifer Main, a Los Angeles 10th grader who visits Voxxy.com often. Audio
has been a key factor in helping Voxxy.com boost its monthly visitor total to
150,000 in April, up from 70,000 in February, says founder Kristi Kaylor. And
special sound events, such as actress Jennifer Aniston opining on relationships
and romance in a live Web talk show, have increased traffic by 400%.
Nifty noises add muscle to brand-building as well. Check out Twix.com, where
candy was never so audibly cool. Move your mouse over the smiling guy and he
raps the words "chewy caramel" to a techno beat. Scroll to the girl
and the chant changes to "crunchy cookie." "It makes me think
Twix way more than a banner ad would," says Michael Wean, a creative
director for kids’ Web sites and a frequent online shopper. The music mix is
such a draw that unique visitors tripled between June, when sound was added, and
January, says Scott Hudler, Twix brand communications
manager.
Sound is becoming an online hit. Three-fifths of the Web’s top 75 sites feature audio, mostly spoken instruction and background music. Here are the most popular uses of sound on the Web by the sites that use audio: |
|
Product/ corporate description | 73% |
Promotional information | 27% |
Ambience music | 23% |
Navigation instruction | 7% |
DATA: Jupiter Research |
There’s one danger: All the clatter can bug some surfers. "I don’t
always want a salesperson interrupting my shopping," says Wynne Schiera, a
tech manager at a Chicago-area children’s library. Sure, she could just turn
down her speakers, but savvy sites let shoppers click off the sound altogether–something
Macy’s does. Given the traffic that sites with sound are attracting,
though,most Netizens seem to like the chatter of commerce as much as Anderson
does.
By Roger O Crockett
in BusinessWeek. Copyright 2001 by The McGraw-Hill Companies, Inc
True grit
But the very strengths of the Net are also its limitations. Just because
communication is ubiquitous doesn’t mean it’s everything. The last five
years have taught us that in industries such as retailing, manufacturing, and
transportation, physical factors overpower the virtual. E-tailing turns out to
be more about which company is best at moving boxes around rather than who has
glitziest web site or the biggest virtual store on earth. Linking supply chains
over the Net cuts costs and improves response times, but ultimately
manufacturers succeed or fail if they develop good products and figure out how
to produce them at low cost and high quality. Online airline reservation systems
can improve customer convenience and boost the revenue yield per passenger, but
they can’t do anything about long delays caused by runaway congestion, too few
loading gates, antiquated air traffic control systems, and mechanical
difficulties on airplanes.
Where the Internet May |
These information-intensive industries are good candidates to be transformed by the Web: |
FINANCIAL SERVICES Most financial services can potentially be handled electronically. But so far, banks can’t even figure out a good way of letting people pay bills online. |
ENTERTAINMENT Much of entertainment can easily be digitized. But no one knows how to make money yet, and the technology is lagging. |
HEALTH CARE The benefits of shifting health-care transactions to the Web could be enormous. But so are the institutional barriers. |
EDUCATION E-learning could cut the costs of education, but only at the price of making education more impersonal. |
GOVERNMENT Delivering information to citizens electronically has enormous appeal, but requires massive investments. |
Even in areas where the Internet can play a central role, the big changes are
not going to come overnight, as investors have found to their chagrin. Some of
the information-intensive industries where the Internet could have its biggest
effect are also the ones where institutional and regulatory barriers are the
highest and vested interests are the strongest. In health care and education,
for example, the possible benefits from widespread use of the web are enormous,
but it’s going to happen in baby steps, over time. What’s more, it’s a
difficult, painful, and slow process to restructure companies and markets.
In the end, it turns out that the speed of Internet time has more to do with
the capital markets than with the pace of technology adoption. The enormous
amounts of venture capital available to startups drove companies to grow far
faster in a few short years than the underlying infrastructure or consumer
demand could support. In fact, the eventual benefits of the web should be
measured over a decade. "People had higher expectations for the next couple
of years than are likely to be realized," says Jeffrey Bezos, CEO of
Amazon.com. "And people have much lower expectations for the next couple of
years than are likely to be realized over the next 10 years." That may help
explain the current confusion about the future of the Internet.
Got Web?
That’s why Internet optimists are refusing to retreat. Analyst Mary Meeker
of Morgan Stanley Dean Witter is urging Net leaders such as Amazon, Yahoo, and
AOL Time Warner to band together in a ‘Got Milk?’-style marketing campaign
promoting the idea that the web is alive and well.
Such webfests, however, aren’t likely to change the minds of burned
investors or restore the once-buoyant expectations for the Net. For instance,
Merrill Lynch analyst Henry Blodget recently reduced his expectations for how
much retail sales will go online to only 5% to 10%, down from 10% to 15% he
envisioned just a few months ago. Even Bradford Koenig, head of the technology
banking practice at Goldman, Sachs, which underwrote many of the hottest Net
IPOs, has lost confidence in pure Internet companies: "The notion of an
Internet company is no longer viable."
...And Where the Impact May Be Incremental |
Industries where information plays a relatively small role: |
RETAILING The glitzy web sites got all the attention. But dot-com success turned more on who had the best logistics.. |
MANUFACTURING Web-enabled supply chains and intranets are important, but ultimately a manufacturer lives or dies on the quality of its goods. |
TRAVEL Online travel sites are popular, but the ultimate constraint on travel is the physical capacity of the air and road systems. |
POWER Online energy exchanges get the publicity, but power generation and transmission capabilities will have the bigger economic impact. |
But that’s too pessimistic. In fact, part of the problem was that much of
the investment flowed into areas where the Internet is incremental rather than
revolutionary. Take retailing. The hyped consumer dot-coms were supposed to blow
away their brick-and-mortar counterparts. But it turns out that the importance
of information and communication in retailing–the Internet’s forte–is much
smaller than the role of logistics. How much smaller? According to a Softbank
spokeperson, it takes between $15 million and $25 million to build a
top-of-the-line web site. Yet it costs at least $150 million to build a
warehouse and distribution system for a consumer web operation.
All across retailing, the Internet is no longer seen as the 800-pound
gorilla. For example, a year ago, the prevailing wisdom was that old-fashioned
auto dealers were going to be passe. But so far, that hasn’t turned out to be
true. "There hasn’t been the massive shift to buying cars online that we
thought there would be 18 months ago," admits Mark Hogan, president of
e-GM, the auto maker’s online consumer unit.
And there’s growing evidence that shoppers on the Net are supersensitive to
price, according to Austan Goolsbee, an economist at the University of Chicago.
The implication is that any profits e-tailers might make could be short-lived as
competition drives prices down on the web.
Perhaps the biggest surprise is the comparatively limited impact that the Net
may have on manufacturing. To be sure, there is no doubt that e-business has
become an essential part of any manufacturer’s toolkit. The use of the Net can
reduce inventories, take costs out of the supply chain, and eliminate
unnecessary transactions. Collaboration can also speed up product development,
e-marketplaces can lower the cost of components and other supplies, and detailed
info on customers can help customize products to snag bigger orders or even help
determine which customers aren’t cost-effective. At Procter & Gamble, a
web-based information-sharing network makes it easier to collect and evaluate
new product ideas from the company’s far-flung workforce of 110,000 people.
Nevertheless, at the end of the day, manufacturers are still in the business
of making things, not simply moving bits and bytes around. Wheels have to be
bolted onto the car, circuit boards have to be installed in the router–and
that has to be done physically.
To know how this limits the impact of the Net in manufacturing, look at the
example of Cisco, the communications equipment giant, universally regarded as
the poster company for using the web. Some 68% of Cisco’s orders are placed
and fulfilled over the web and 70% of its service calls are resolved online.
Cisco is in the process of linking all of its contract manufacturers and key
suppliers into an advanced web supply-chain management system, dubbed eHub
speeding up the rate at which information about demand is distributed to
suppliers.
According to Cisco’s own calculations, its payoff from its use of the
Internet amounts to $1.4 billion per year, or 7% of sales. If the rest of
manufacturing could even do half as well as Cisco in using the Net, that would
cut an impressive $150 billion from annual manufacturing costs. And yet it is
not the radical reduction in costs that would signal a revolution.
Slow as molasses
While supply chains linked over the Net are more responsive than their
predecessors, they have their limits, too. "The flexibility now being
demanded by customers exceeds the physics of what the supply chain can actually
deliver," says Kevin Burns, chief materials officer for contract
manufacturer Solectron, whose big customers include Cisco and IBM. Now that
companies have switched to web-based models, he notes, they expect to be able to
ramp up or halt production of a product within weeks. But it still takes at
least three months to get a specially designed chip made in a Taiwanese foundry
and around 40 weeks to order an LCD screen.
Obstacles don’t disappear, but it’s easier to see the far-reaching
potential of the Net in industries that are primarily about moving information
rather than goods. Take financial services. In many ways, financial products are
ideally suited to the Internet, since they deal only with information. A recent
Goldman Sachs survey reported that 63% of financial companies had sold their
products through an e-marketplace or a web site, the highest of any industry.
The Internet is already well on its way to transforming financial services.
Online brokers such as E*Trade Group have completely changed how the retail
brokerage business worked. And Net services are now offered by nearly every US
bank and credit union. Bank of America says it’s signing up 130,000 online
customers a month, giving it more than 3 million Net customers. Citigroup has
2.2 million, Wells Fargo, more than 2.5 million.
But as in the case of entertainment, technological and institutional barriers
are slowing down the eventual gains. Consider online bill-paying, widely
anticipated to be the "sticky app" that drives traffic. The benefits
of paying bills on the Net, for both consumers and businesses, could be
enormous. But the technology has proven exceptionally complicated, and it has
hit a wall trying to penetrate the banking industry. Among the problems: Banks
and billers have been unable to agree on how bills should actually appear
online. Still, Bank of America plans to launch a big ad campaign later this year
to promote its bill-paying service.
And then there’s health care. Despite the tangible nature of many medical
services, health care has a very large information component that makes it a
natural for Internet applications. Just shifting claims- processing to the web
could save $20 billion a year, according to the Brookings economists. At a
leading provider of prescription drug care in the US, it costs a matter of cents
to handle a prescription order on the Internet, as opposed to more than $1
through other methods.
Broadband’s promise
But there are enormous institutional barriers. For one, privacy
considerations may slow down the full shift of health-care records to the web.
Moreover, health-insurance companies, doctors, and hospitals are unwilling to
give up control of patient records and insurance payments to a third party. This
reluctance helped frustrate WebMD and Healtheon, which expected to lead a
restructuring of health care by moving many claims, payment, and related
processing services to the Net. WebMD’s efforts to provide real-time payment
capabilities were shunned by insurers and HMOs, who prefer the current
cumbersome process that lets them hold onto the money longer.
There’s also the technology factor. In the long run, realizing the promise
of the Net will depend on the widespread introduction of advanced technologies
such as broadband to the home and high-speed wireless. With broadband
connections over telephone or cable-television lines, consumers will be able to
watch TV-quality video clips of the NCAA basketball tournament or download
crystal-clear music files faster than ever before. What’s more, they’re more
likely to use the Net because they’ll always be connected and won’t have to
spend minutes dialing into the Net each time they want to visit a site.
The problem is that getting the new technologies in place may take longer
than expected. Financially stressed telecom companies are slowing down the roll
out of broadband. The failure of small telecom providers means that subscriber
growth may slow down in second- or third-tier markets. And the prices for
high-speed Internet access may rise.
In the end, the Internet seems likely to revolutionize mainly
communications-intensive industries. If that seems too
limited, remember that almost every breakthrough technology over the last 200
years affected some areas of the economy more than others. The automobile
transformed personal transportation and patterns of housing while little
affecting manufacturing. Electricity radically altered manufacturing practices
and any industry that was power-intensive, while not having an enormous effect
on health care. The Net deserves to be put in such august company.
Michael J Mandel and Robert D Hof with inputs from Linda Himelstein in
Silicon Valley, Dean Foust in Atlanta, Joann Muller in Detroit, and bureau
reports–BusinessWeek