by Dana Blankenhorn
Volume III, No. L
For the Week of December 13, 1999

This Week's Clue: Evaluating Christmas

This Week's Clue: Evaluating Christmas

SSP (Shameless Self-Promotion)

Phase Two

A Dissenting Voice on WTO (I'm For It)

Mindspring's Choice

Clued-in, Clueless

This is the week every newspaper writes of how wonderful this Christmas is for e-tailers. (In the week before Christmas, the expectations will be downsized - they always are.) Indeed, record sales have been racked up. Many online stores have tripled the figures of a year ago. 

There have also been problems. Servers at eToys and Toys R Us have crashed so much they've become a running joke (and made a joke of the whole category). Sites like Bluefly.com have had tons of trouble, in part because it takes tons more computing power to run a secure session (because you're encrypting on the fly) than a regular session. (This is a Clue the brokerage sites have been picking up through the year.) I even had trouble looking up a recipe at Foodtv.com, where an apology over slow server speeds was posted.

But the story most newspapers haven't printed yet is that when it comes to Christmas (and a merchant's reputation, as well as their bottom line) the returns aren't all in until the returns are all in.

There are bound to be many unhappy returns, as I learned in my own e-shopping. At eToys, I was told by the Web site cash register that my complex order failed to go through so I re-entered it some hours later.

The result - two sets of toys went to all the kids on my list. (The kids were all good, but two of the same thing?) My sister, a major eToys fan, alerted me to the problem when she got her second package, and after a half-hour on hold at eToys I learned the recipients could simply refuse the extras and the Post Office would return them. The kids will be happy, but eToys is going to lose money on me this year, I'm afraid. And some of my technophobic relations will get the wrong message. 

There were bigger problems at Staples.Com, where my lovely wife and I combined click-and-mortar to create a big mess. I wanted a new desk in the corner of my office and we found one in a store, with a hutch to hold notebooks and a file cabinet to boot. We took a sheet describing these wonders (with their part numbers) and bought them online. After four hours of assembly work, we found the hutch didn't match the desk at all. (The hutch wanted a flat wall, not a corner.) 

The store was nice enough (they took the half-assembled hutch back without question), and I even went to the back of the store to save another couple from the same fate we suffered. (They were about to order the same parts from the same sheet.) But there was an important Clue hidden in each of these stories. Mistakes happen, both online and offline. What counts most is how you handle them. When mistakes happen, stop worrying about your bottom line. Worry about your relationship, worry about your customer's problem, and if you do they'll come back. (I'm awaiting e-mail now about the hutch I need coming back into stock.) 

These problems can be mitigated, of course. The more information (especially visual information) you can place before a customer the better, but that information has to be accurate. It's also important to watch your order flow closely. If you see duplication, maybe a phone call can save a loss later. 

The point is we have a long way to go on the goods front before we can turn clicks into profits. Every online store of any size needs what "The New Yorker" calls a "Willy Wonka Warehouse" - if not theirs then that of a good fulfillment house. To see how competitive next Christmas can be, look closely at what outfits like OrderTrust and Sunset Direct  do in this area over the next six months. Unless fulfillment capabilities are competitive and flexible, only the strong will survive. (Small stores won't be able to break beyond their tiny sales base because they won't be able to scale-up, and they'll get pounded by national advertising besides.) Customer service also needs a lot of help, especially in the form of software and pro-active customer service personnel who can prevent trouble before it happens using every medium available, including the phone.

Look at the financial results that come out of this season closely. Measure the percentage of returns against the percentage of sales - that's where you'll find the long-term winners. And as we noted earlier on the toy aisle, remember that in many departments procurement is half the battle. 

SSP (Shameless Self-Promotion)

I have begun my adventure at Voxcap.Com, discussing how next year's elections might impact the future of the Internet. I had two features in a recent special section of the Chicago Tribune  as well.

I write daily for ClickZ, and appear on TechEdge Radio. I write monthly columns for  NetMarketing, Boardwatch, and  Intellectual Capital. Once every other month I'm in CLEC Magazine. The lead item here is also the Monday e-commerce column of Andover.News. You can still buy my book . Subscription instructions are at the bottom of each issue.

Remember that it's still journalism that keeps the Clues coming. Give me a call at 404-373-7634. (Yes, I do some commercial writing.) Now back to the show...

Takes on The News

Phase Two

With the dawn of the new century the easy online money is disappearing. (As with everything else this was first discovered on the porn beat , which is the best reason why that business is worth studying.) When the stock market recognizes this, the Internet stock boom will end, as subsets of the boom have ended already .

This day was inevitable. Number theory demands that as numbers grow larger, it becomes harder for them to grow in percentage terms, and the Internet is indeed very large. But the trend is also being misread by people who should know better .

Phase Two will be harder, Jesse Berst writes, because we have to get the other half of America online, and there will be more competition . What's actually happening, however, is a move from expectation to reality. Most of current Internet stock pricing is based on expectation, and now that everyone is in the game (yes, Virginia, even Wal-Mart ) the time has come to fulfill those expectations.

Those who have customers have an advantage, but not necessarily a decisive one. The key here isn't to extract money, but to build relationships. The more you know, the more you're trusted, the more you can serve people, and the more they'll tell their friends you can be trusted, meaning you'll get new opportunities.

In this Brave New World it's depth, not breadth, that matters most.

A Dissenting Voice on WTO (I'm For It)

With the failure of the WTO talks in Seattle , most are breathing a sigh of relief . The West doesn't want to be bound by the Third World's environmental or work standards, and vice versa. But the BBC has it right - the failure to find agreement is hampering the growth of the Internet and electronic commerce . Without a wide-ranging agreement, Internet tariffs are inevitable. One Chilean delegate has already proposed a 5% tariff on all Internet transactions, to be divided between the nations involved.

What is most disturbing to me in all the brouhaha over the WTO is American isolationism. It's of a type this history student hasn't seen in his lifetime, the kind that flourished here between 1919-1941. I actually heard one idiot reading the "UN Declaration of Human Rights" and claiming (with a straight face) that fines would be levied against insulting jokes as a result. The amount of demagogic nonsense involving this issue is enormous, and it threatens the whole world trading system.

What's funny to me is that this new American isolationism is driven, in our field, by a misreading of the words of Laurence Lessig. Lessig says that rules can be enforced with computer code, that the Web is not anarchic, and we see examples of all this every day . So Internet businesses, being naturally distrustful of government, figure this is OK, that code can privatize the creation and enforcement of law, and that democracy is therefore unnecessary. In fact Lessig is a liberal, he wants law, and he's saying we need law (and government) as a check against the destructive forces of code and private law.

What can be said, and done, both in commerce and outside it, varies widely from nation to nation. With the Internet, however, we cross borders and make this (for better or worse) one world . If we on the Internet don't defend that principle as a good thing, it will be taken away from us. And our children will end up dying in wars over nationalistic jingoism as a result. The WTO for all its faults (and there are plenty) at least provides a mechanism for pushing our ideas and ideals, and as with the United Nations the price of talking is listening, the price of pushing is being pushed in return. While we're the 900 pound gorilla on the world stage that's exactly what we should be doing, talking and pushing and working to open up markets. Instead we're going into a shell, and we're going to pay for that in blood and treasure.

Mindspring's Choice

All the talk (including mine) following AT&T's partial capitulation on cable broadband involved AT&T. The attention was placed on the wrong party.

The focus here should really be on Earthlink (or Mindspring, depending on whose side of the marriage you come from) . The problem for every ISP that didn't own its own lines was going to be coming up with a coherent broadband strategy in the absence of assets it could control.

Clueless carriers - the Bellheads, the long distance idiots, the cable headends - have all felt they could use their facilities as a club to beat down this ISP uprising. There are currently about 5,000 such companies in the U.S., and they continue to gain market share from the majors by focusing on customer service. The idiots own the facilities, but the smart boys (and girls) hold the customers' trust.

With this AT&T agreement Earthlink (I still prefer MindLink) has made major deals with three facilities-based carriers that are (or could be extended to) the broadband world. Mindspring is already offering DSL service in some markets, thanks to an agreement with BellSouth. It will be able to offer cable modem service nationwide in 2002, thanks to this deal with AT&T. Plus, from the Earthlink side, it has a nationwide dial-up agreement with Sprint (Sprint has the right to own up to 27.8% of the combined company as a result). Sprint owns "wireless cable" licenses that can be adapted to broadband , and one unit of the company already offers this to its subscribers .

So, a national ISP with a good reputation has agreements with carriers to provide broadband services via the phone, the cable, and wireless. Can any other "small" ISP negotiate such deals? Maybe they can, thanks to the example set here. But MindLink was first, and in a few years we may be saying they're best.

Clued-in, Clueless

Clued-in is the Salem Five Bank, which was early to the Net and is now reaping the rewards .

Clueless (perhaps fatally) is United Press International . Now you know why Helen Thomas hasn't retired. She can't afford to.

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