E-Commerce (Continue)

Trust determines the space for future interactions between parties. Distrust closes down possibilities-trust opens them up. The trust factor opens up or closes down the pace and nature of electronic commerce (EC) growth. Today, EC is well beyond the take-off stage but is still not widely established as part of the mainstream of business process. There's a lack of regulatory and legal protections in many areas, especially in consumer transactions over the Internet. We have limited experience in how to define contracts in the electronic environment. Companies do not yet know what policies to set, and there's a lack of long-term history of relationship and no faceto-face contact. Every story about fraud on, say, ebay's Web auction site, or breakdowns in e*Trade's online securities trading services contributes to customer concern, just as familiarity and frequency of use of credit cards online is reducing many customers' worries: In 1998, most surveys indicated that around 60% of people using an online service would either log off or lie if asked to give private information.

In the business-to-business sphere, there are far more established mechanisms for ensuring trust. The precursors of Web commerce-value-added networks that offer electronic data interchange services, bank payment networks, and industry supply chain relationship networks, for instance-have built up legal and technical protections, offer specialized software and services, and also are very sophisticated in their control and audit processes. That's because their users demand these: Many of them will not move to the often cheaper and more far-reaching Web commerce until they are sure it fully meets their trust criteria. It's no exaggeration to say that trust, more than technology, drives the growth of EC in all its forms. (ref: Electronice Commerce Relationships. Trust by Design).

Reel.com (Continue)

Exclusive Interview with Rosie Ruley-Atkins,Executive Producer.

Q What is Reel.com, and what do you sell on the site?
A Reel.com is a premier online destination for film-related content and commerce.

Through our Web site, we provide consumers with an intuitive, entertaining environment in which they can access a wide variety of film-related information -- such as news, film reviews, trivia, interviews, film clips and editorial recommendations -- and we're also a great place to buy movies.

Q How did you get started selling over the Internet?
A Reel.com was founded in September 1996 by Stuart Skorman, the former owner of Empire Video Superstores. Stuart sold his chain to Blockbuster Video in 1994 and launched the Reel.com Web site in January 1997. The site was launched as an online movie information site. A matching service and commerce features were added soon after.

Reel.com was acquired by Hollywood Entertainment Corp. (Nasdaq: HLYW) in Q4 1998. Since the acquisition, Reel.com has quickly grown to be a leading online retailer while simultaneously building a large cache of proprietary movie content.

Q Aside from your Web site, how else do you sell your products?
A Reel.com is a Web-based retailer of DVDs and VHS movies, and an online provider of original movie content. Reel.com's parent company, owner of 1,465 Hollywood Video stores nationwide, focuses on the movie rental business.

Q What is Reel.com's target market?
A Reel.com's audience is made up of film consumers and enthusiasts. Our original editorial content, coupled with our extensive selection of movies, provides a source of film exploration and acquisition that encourages movie lovers to come back to Reel.com regularly.

Q How much traffic are you seeing to your site?
A We have experienced significant momentum in our customer traffic since our launch. According to Media Metrix, the number of unique visitors to our Web site increased from 848,000 in January 1999 to approximately 1.4 million in September 1999. The monthly traffic pattern is influenced by many factors, including the movie release calendar, special promotions, and holiday gift giving.

Q What do you feel has helped make your site successful?
A An important part of Reel.com's success is due to the valuable tools we provide movie lovers to help them as they decide which movies they'll enjoy watching, renting, or buying. These tools are created by our staff of more than 40 editors who are movie experts and specialists in particular movie genres. These editors analyze movies in Reel.com's inventory, write 30-word "Reel Snapshots" explaining what kind of moviegoer will like the film and why, create a "Movie at a Glance" ratings profile, and "Movie Matches" that match up similar movies.

Our editorial staff also writes daily news, film reviews, trivia, interviews, film clips and editorial recommendations. For example, the "In Theaters" section is updated every Friday with reviews of movies playing at the local theater.

Q What have you done on a regular basis to promote your site?
A Reel.com's marketing and business development teams implement a broad range of programs to build brand awareness, attract new customers, maximize repeat purchases, and build strong customer loyalty.

Reel.com's traditional offline advertising is designed to acquire new customers. Our strategic corporate and consumer public relations programs support brand-building and traffic building efforts. Online traffic is also driven by our banners and content placements, which are often through our strategic partners. Reel.com's Producers Program has been an excellent customer acquisition and retention tool. Our bi-weekly e-mail newsletter keeps customers coming back.

Plus, our relationship with our parent company, Hollywood Entertainment Corporation, provides us with substantial opportunities for marketing to its tens of millions of members through point-of-sale displays, in-store magazines, and direct mail campaigns.

Q What are some of the downsides or pitfalls that you have experienced?
A We've experienced some of the challenges often faced by fast growing businesses, such as the ability to attract talented employees fast enough to meet the demands of our fast growth. Reel.com has the competitive benefits of having a great product, a well-financed company, and a great team already in place. Nevertheless, recruiting is always a high priority because we realize that a company's success depends on the talent of its team.

Q Were you prepared for this degree of commitment, or did you learn as you went along?
A Reel.com has always been committed to its customers. For example, early on we implemented a five-point guarantee that ensures the best price, quality, selection, secure transactions, service, privacy, and customer satisfaction. To follow up this commitment, we have continued to expand our warehouse and customer service capabilities on a regular basis to meet the needs of our growing customer base. The bottom line is that Reel.com has and always will be very committed to customer satisfaction.

Q After going online, was there a specific turning point for your business, when sales really began to increase?
A An important turning point for Reel.com was in the summer of 1998, when the company offered the Titanic home video at a special pre-order price. The home video release of Titanic was easily the most highly anticipated release of the year and broke records at the box office as well as in home video sales. This promotion drove more than 300,000 new customers to Reel.com and a post-promotion survey of a portion of these customers revealed that while over 75 percent of the Titanic customers had bought products online, a full 60 percent of these customers had not purchased a home video on the Internet previously. Reel.com, therefore, not only increased its customer base substantially, but also significantly expanded the online video category.

Q What type of store software products are you using on your site?
A Reel.com uses Microsoft electronic commerce software.

Q What type of payment processing system are you using?
A Reel.com uses CyberCash for its payment processing.

Q Where do you see your business one year from now?
A We are in a quiet period following the filing of an S1 document for an IPO, so I cannot give forward-looking statements.

Q What advice do you have for beginners who are interested in selling over the Web?
A Well, there have been many books written on how to succeed in online retailing, so a short answer will not do justice to the complexity of the subject. However, I can say that Reel.com has been successful because of our expert content, our strong brand, and our ability to execute well.

Visit their site at http://www.reel.com

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Letters to the Editor

Business Solution (Continue)

Questions

Our clients have many questions about Internet commerce:

·         How can I integrate commerce with my website to increase my revenues and traffic?

·         How can I enhance my commerce site to increase my traffic, sales, and visibility?

·         How will electronic commerce affect my business?

·         How can I take advantage of the Internet to work more effectively with my customers, suppliers, and partners?

We can help you find the answers that matter to you and your business.

Answers

STRATEGY
We will work with you to identify the key areas of your business that can benefit from e-commerce technology. We will identify the relevant products, technologies and trends that will matter to you, and what you need to know to take advantage of them.

TACTICS
We will work through the details of how Internet commerce affects your existing systems. We will produce a detailed implementation plan that delineates the issues and alternatives, and clearly and concisely identifies our recommendations.

EXECUTION
We can handle the development of a complete Internet commerce system, from design and prototyping through to final deployment and maintenance. You will receive detailed plans, schedules, status reports, documentation, and training.

E-Business (Continue)

Web Design
A team of graphic designers and programmers can help your company create a custom and unique Web presence including state-of-the-art multimedia, effective e-commerce solutions, integrated database applications and new media.

ebay.com (Continue)

Exclusive Interview with Kevin Pursglove Senior Director of Communications

Q How did your company get started selling over the Internet?
A There's a great Silicon Valley story here about a gentleman named Pierre Omidyar. He was working as a software developer here in Silicon Valley, and he had always been fascinated by how you can establish marketplaces to buy and sell goods and services. He had also been fascinated by how you can bring together fragmented audiences.

Because of his interest in the Internet, and his background in software, he developed a software program that allowed people, in one spot, to list items of various interest and various degrees. It allowed people to be able to come to that very same site and look at what's for sale and bid on and buy those items. He used the auction process as the method for establishing how merchandise is valued and eventually how it is exchanged between buyer and seller.

A key component that prompted him to do this was at the time his fiancée -- now wife -- was interested in her Pez collection. She was experiencing a frustration that many collectors have experienced, and that is often times when you're collecting a particular item or you have a passion for a particular hobby, your ability to buy and trade or sell with other people of similar interests is limited by geographical considerations. Or if you trade through a trade publication, often volunteers produce those publications, and the interval between publications can often run several weeks if not months.

All of that was shortened down when Pierre, at the prompting of his wife and interest in Pez dispenser collections, used his interest in fragmented markets and efficient marketplaces as a laboratory for what eventually became eBay.

Q Where is eBay located, and how many employees does the company have?
A San Jose, California is the headquarters for eBay, and overall we probably have something in the neighborhood of 400 employees now.

Q What does eBay offer online consumers?
A eBay is the world's largest online trading community. What we're offering our users is an opportunity to come together in one Internet site and be able to buy and trade a wide range of items, including fine collectibles. It allows people to pursue their interests and their passions in the areas of their hobbies and their collectibles.

We have found, since we started the service back in 1995, that it has received great favor among the population. We zoomed from something in the neighborhood of a very small handful of users in the very early stages of 1995 to nearly eight million users as we come to the close of 1999.

Q What type of store software products are you using on your site, and how do you process your payments?
A We mostly use Oracle software, and payment processing is outsourced.

Q What has helped to make eBay as successful as it has been?
A I think that it really allows people to often times connect with some very fond and special early childhood memories. It could be anything from collecting baseball cards to toy soldiers to Barbie dolls to doll houses, and so forth. It allows people to make that connection and relive a lot of those very vivid and very fond memories that they have from an earlier period of time.

Another factor to consider, I think, is that people really enjoy the experience of the shopping bazaar. They enjoy the hunt. They enjoy looking around for merchandise. The other component is that I believe they really enjoy the competition of the bidding process. Everybody likes to get a bargain, and everybody, I think, in some way, shape, or form, likes to haggle a little bit over the price. Our auction format allows users to do that.

The other thing is that as it has grown, it has become a very practical place to buy and sell collectibles or commodities.

Q What unique challenges exist for companies in the online auction space?
A I think the first challenge that always confronts an online merchant is the idea of creating trust and confidence among users. There are still a large number of people who do not use the Internet on a regular basis, and there are, of course, a large number of people who have no interest in the Internet at all. Sometimes they stay away from it because they are worried about confidentiality, privacy issues and the broad area of trust and safety. I think that each Internet site that is going to engage in commerce must create an environment of trust and safety that will allow the users to come back over again and over again.

That's one of the biggest challenges facing e-commerce sites right now, creating an environment so that a novice online shopper can come to a particular site and feel comfortable shopping there and feel comfortable that they're getting a good price and a bargain and getting the merchandise that they want.

Q eBay has suffered a number of outages. What do you attribute this to, and what steps have been taken to prevent outages in the future?
A Quite simply, it's growing pains. We have grown at a phenomenal rate, both in terms of the amount of people who are using eBay, the amount of items that are being listed for sale every single day, and also the amount of transactions that close every single day.

So, with the phenomenal increases in all of those areas, we have attempted to listen to our users and develop and provide new services in addition to the ability to just buy and sell. Those new services include everything from allowing our users to list their items by a photograph in the eBay gallery, the feedback forum, establishing categories that deal with higher priced items and collectibles and automobiles. We've been attempting to provide those services for our customers while at the same time maintaining this level of growth that is just really phenomenal for any business, let alone an Internet business.

At one point -- and that point came in June of this year -- we realized that we were experiencing some growing pains. And part of that was creating new architecture and enlarging our infrastructure to provide the new services and continue to allow us to grow.

Q Whom does eBay view as its major competitors?
A We've got a very healthy respect for virtually all of the online trading auctions that have been established since eBay started back in September of 1995. They all offer different types of services and unique specialties that attract their users. They all know how much of a challenge it is to operate a site that is as dynamic as eBay.

With that said, clearly, doing $8 million (US$) a day in gross merchandise sales gives us quite a lead over the other competitors. We have looked at some other sites, however, and have noticed that Amazon.com auctions do about $300,000 a day in gross merchandise sales and Yahoo!'s auctions are somewhere in the neighborhood of $480,000 a day. So, in terms of gross merchandise sales, which are the key factor in determining success in the Internet space, they're probably the two closest competitors to eBay.

Q What unique problems have you encountered, and what has been done to address those problems?
A From time to time, we have found out that individuals are attempting to list items that are in direct violation of our user agreement.

In many cases, we've looked into and investigated the listings and have found out that they are isolated incidents in which an individual user opens an account on eBay for the sole purpose of listing an item, such as the couple in Chicago that were going to put their baby up for auction and the person who put a human kidney up for auction. In each of those cases, they were pranks. But that does generate a good bit of media interest in eBay.

Although we were able to find those individuals and suspend their accounts, suspend them from eBay and remove the items from the auction site, we continue to develop new ideas, new programs and new services, in cooperation and conjunction with the eBay community, that will allow us to reduce those infrequent occurrences to a much greater extent. Earlier this month, we required all new users to eBay, who are going to sell items, to provide us with a credit card.

I think that's going to do two things. It's going to discourage people from coming to the site to engage in fraud or listing pranks. The second thing is that if they get that far, we now have a credit card to assist us in working with the law enforcement community.

Q What have you done on a regular basis to promote eBay?
A We have had isolated campaigns through radio and print, and we've also done some tradeoffs and some banner ads on other sites. But the really unique thing about eBay is that when you compare us to traditional businesses or other e-commerce sites, we have done very little external promotion to build membership.

eBay is such a unique community that we've been able to build our membership through the word-of-mouth of our users and we've also attracted new members due to the amount of media attention that has come to the site in the past four years. We're very, very fortunate.

Q What has been your biggest surprise in doing business online?
A The surprises never end. It's a fun place to work because, firstly, the great majority of people who are selling on eBay are really warm, decent, trustworthy and honest people. It's great to see how they interact and show those same characteristics toward their fellow eBay users. We also know that a lot of folks have been creative in how they sell items on eBay.

For example, one of our favorites is the fact that somebody, somewhere along the line, decided to list and eventually sell a used bulldozer on eBay. It went for $23,000.

We also had a person earlier this year that was doing their annual spring cleaning and pulled out the cushions from their sofa. They found pretty much what you would find in your sofa and I would find in my sofa, and that's a discarded piece of gum or two, a crumpled piece of paper, a few scattered notes, a broken pencil, a cap to a ballpoint pen and some loose change. They got it all together and arranged it rather nicely, took a photo, scanned it and listed it with eBay. I think that six or seven days later, whenever the auction expired, the "merchandise" had sold for about $7.00.

Q What has surprised you most about the impact that your business model has made?
A I think that eBay has had a phenomenal impact. It is probably the best hands-on example of how the Internet has changed commerce. People have been talking about this for a good number of years now. There have been many pundits and experts that have suggested that the Internet is going to change the way that business is conducted in the United States, and then we can certainly see that in a number of ways.

But eBay might be the first example where a commerce site has actually been built around a community where people are exchanging information and exchanging goods, services and merchandise. It's changed people because although we certainly have our share of hobbyists and very serious collectors, we have also learned that people who have established additional brick-and-mortar businesses are slowly moving a lot of that business over to eBay.

We've also heard that people with traditional businesses found that eBay was so enticing, so much fun and in many ways profitable that they created a brand new business for themselves on eBay. They've left behind their profession or careers and started a new business on eBay. I think that those are demonstrations where people have really changed their lives and changed the way that they are doing things and they way commerce is conducted. eBay has made that possible.

Q What are the traffic levels that you're seeing at your site?
A As of October, we were seeing 1.4 million unique visitors every single day.

Q Where do you see that traffic coming from?
A It comes from virtually everywhere. It comes from people of all economic backgrounds and from virtually every demographic group. We now have eBay members who are actively buying and selling on eBay and they have registered in 19 different countries. We have seen virtually all age groups on eBay. We have also heard, anecdotally, that many parents spend a Saturday or Sunday morning with their children on eBay, buying and selling goods. You have to have a parent, because on eBay, you have to be 18 years of age to be a member.

Q Have international auction orders brought up any unexpected challenges? If so, how were those handled?
A We now have trading sites in Canada, the United Kingdom, Germany, New Zealand and Australia, and of course people across the globe can access the core eBay site through the Internet. We're also moving into the Asian market in the early portion of the first quarter next year.

We sit down with people in each of those countries -- market specialists and government specialists -- to understand what particular rules and regulations may apply. I don't want to go into too much detail about that, but we generally try to get a lay of the land to understand how a business may or may not operate or what considerations a business may have to factor in, and then we proceed from there.

Beyond that, we're certainly working on ways to address the different languages and the currency exchanges that take place. For the most part, our sites are set up to allow for people to trade and buy in the appropriate language of the country and deal in the appropriate currency of the country.

Those are certainly challenges that we will face. We do find, to be quite honest, that there is a global marketplace for buying, selling, collecting and engaging in one's hobbies. We think that's going to be a real great opportunity for us as we move into the New Year. When you're getting into the business now of shipping merchandise across international boundaries, it's a little bit more difficult than shipping within your own state or from one state to another. But so far, we've been able to address those challenges and come up with solutions that allow people to join the eBay community and be very active and very efficient at it.

Q After going online, was there a specific turning point for your business when sales really began to increase?
A We started in September of 1995, and perhaps over the last 18 or 19 months we've really seen phenomenal growth. I'd say 19 or 20 months ago, you were looking at maybe 700,000 to 800,000 registered users who were buying and selling on eBay. Now here it is, in a very short period of time, and we're pushing eight million customers.

Certainly there was a tremendous amount of interest generated around eBay in the fall of last year as more and more reporters became aware of it, its unique features and functions and the unique community that was developing on eBay. There was a tremendous amount of media attention and then that was followed in September of 1998 with a little more attention as eBay offered its IPO.

Q What can you tell us about your strategic partnerships?
A We have many strategic partnerships; chief among them is America Online. We've created a series of co-branded sites through the AOL properties, and we have a number of arrangements with smaller sites that go back several years as an exchange to encourage people to come into the eBay site.

Q What, if anything, is eBay considering to improve or expand upon its business model?
A Well, there's nothing that we would want to disclose at this point. But I think you can look back at our track record and see that we, as a fairly small company compared to other large businesses in this country, are very flexible and are able to react to market conditions and to our users in a very rapid manner.

Earlier this year, we purchased Butterfield & Butterfield with the precise goal of creating a new service online for eBay, which is now called eBay Great Collections. It is designed to bring higher valued items to the site. We also purchased a company called Cruise International Auctioneers, which is an automobile auctioneer company in Auburn, Indiana, and we have since created an automobile site on our site that serves two functions. Firstly, it allows people to list automobiles in a separate category, and it also creates a site where collector automobiles can be auctioned off on eBay.

Those are just two examples, and in each case, the idea for those purchases came from our user community because they were sending signals to us that they were interested in listing additional higher priced items. We noticed that the higher priced items were not only being listed, but they were very active in the number of bids placed on them, and then there was a very high percentage of sales taking place in that area.

The same occurred with automobiles. We did not have an automobile category back in January or February. But we did notice that more and more users were listing cars on eBay, and more and more of those cars were being sold. We were prompted to look at that, begin the negotiations with Cruise and then eventually we purchased Cruise. Those are two examples of how our business changed.

Our primary goal and mission is to be an online person-to-person community, and that's really where we're going to stay focused. But we're certainly going to keep our options open.

Q Where do you see eBay one year from now?
A We're going to stay focused on the personal, online trading environment. We're also going to continue to offer new services to eBay users and to enhance those services that are already available to them. I think that's really going to be our goal. We really believe that we are just at the very beginning of the online trading business, and using the auction process as a format to conduct commerce.

We really see the opportunity to expand our core business. The opportunities over the next year are going to continue to expand into global regions, and also to expand the regional services that we started here within the past couple of months. We now offer about 50 to 55 markets on a regional basis. That's strictly within the United States.

Q What developments do you foresee over the next year that will have an impact on the world of e-commerce?
A Clearly, people are becoming more and more comfortable with shopping online. A lot of analysts use the holiday season as the benchmarks, and certainly the amount of online shopping this holiday season is predicted to swamp the amount from last year. So, I think more and more people are shopping online and they're getting more and more accustomed to doing that.

I also think you're seeing more and more traditional brick-and-mortar types of businesses making entryways into the Internet space. They're recognizing that this is going to be a critical component of future commerce. It doesn't mean that e-commerce is going to totally replace traditional retail outlets, or traditional commerce. But I think really sharp entrepreneurs and sharp business operators will recognize that the Internet can complement the success that they've experienced in the traditional retail world. So, I think you'll see more and more retail businesses complementing their traditional business by moving into the Internet space.

Q What advice do you have for beginners who are interested in getting started selling over the Web?
A The one piece of information that I hear from our sellers over and over again is, despite the facts that the Internet can be such an efficient means of commerce, there are still some old principles that carry over from the traditional world. That is, basically, customer service, knowing your product -- being able to develop that product and address concerns that your customers or users may have.

Universal Studios Store (Continue)

Exclusive Interview with Steve Jacobs Director of Online Commerce

Q Which products or services do you sell on your site?
A We sell licensed products based on Universal-supported property, such as "Babe," "Rocky & Bullwinkle," and "Woody Woodpecker," as well as theme park goods, which were formally exclusive to the parks, such as the Jurassic Park T-shirt from Universal Studios Hollywood. We support the main studio site, UniversalStudios.com, by offering the complete home video library, and a good portion of the music library, of the main site, as well as feature movie related products. Anything related to "Xena, Warrior Princess" sells well, and is our most popular property. Our second popular category is theme park tickets, and theme park items.

We are the only studios that have an online auction. We started the auction last December as a four-time-a-year event, and in February, we started holding auctions 12 times a year. In each auction, we feature about 250 items, such as props, wardrobes, promotional items, limited editions, and many autographed goods. There is a designated charity that receives a portion of the proceeds, during each auction.

Universal Studios also owns Spencer Gifts, which is a chain of about 600 stores in the U.S., and our Web site acts as its online presence.

Q Can you tell us a little about yourself and how you got started selling over the Internet?
A I joined Universal Studios Online in the last 60 days of the development of the store. I was brought in to help expand the merchandise offerings that were currently being offered in its beta test, and to expand the properties that were represented. A Web site, in a beta run, went up in August of 1997, and then a fully transactional site was formally launched in November of that year.

Q Aside from your Web site, how do you sell your products?
A Apart from the Universal Studios store at the Universal City walk in Hollywood, and one under construction at Universal Studios in Florida, the studio doesn't have a retail presence outside of the parks. We also do not have a mail-order catalog, so our Web site supports retail transactions outside the parks. If a customer went to a theme park and saw a Babe stuffed animal, which they later regretted not buying, the Web site is a vehicle to make that purchase once the customer is home.

Q Do you see your business coming from any particular areas?
A Our business is worldwide. Consumers, especially those who are new to the Internet, trust certain brands that they are already familiar with, and people all over the world are familiar with Universal Studios and feel comfortable with it.

Q How has the traffic to your Web site been?
A Our traffic fluctuates according to what Universal Studios is doing. When a movie comes out, there's always a traffic increase. Overall, our traffic has grown exponentially over the past 12 months.

Q What do you feel has helped make your site successful?
A We offer certain unique products that can only be purchased through our site. Our site also features easy navigation, which helps make people more comfortable when they visit.

In general, more consumers are comfortable shopping online today than they were a year ago. There's general acceptance of, and confidence in, online transactions.

Q What have you done on a regular basis to promote your site?
A Everything that comes out from the park has our URL on it, including all consumer goods, and receipts from Spencer Gifts and other retail stores in the parks. The Web site address is part of the Universal Studios logo.

We're also linked to the front page of the main studio site, as well as to the sub-sites for feature movie, home video, and music. There is a link to Spencer Gifts on Comedy Centrals site, as well as in the Earth Link mall. We're an Excite Certified Merchant, and are featured in Planet Oasis, and other major portals.

We use banner ads selectively. We did some banner advertising over the summer for a movie called Small Soldiers, where visitors to the movie site on the studio's main site were directed to our store. We hosted a Small Soldiers online store with about 225 items.

Q What has been your biggest surprise in doing business online?
A When we get transactions at 3 o'clock in the morning. It just seems funny to me that people are sitting in front of their computers all night buying items. This points to one of the benefits of conducting business on the Web, which is that the store is open 24 hours a day, 7 days a week, and no one has to be standing behind the counter. However, you can't operate it with one person. E-commerce doesn't have the traditional business environment, but it's just like a traditional retail endeavor, and you have to treat it as such. The overhead is lower than in an offline retail store, but not as low as one might have expected in the online world-I think everyone is realizing that.

Q What type of store software products are you using on your site?
A Our site is built on Microsoft Site Server 3.0, Commerce Edition. We used it to design the current storefront about one week ago, and it's working wonderfully. On our back end, we use Great Plains as our accounting and inventory module.

Q What type of payment processing system are you using?
A Everything that's out there today to protect the credit card transaction, we have in place. We use SSL for the transmission of credit card information, and all the transactions are cleared through CyberCash, where the credit cards are verified to the customer's billing address. We've found fraud to be extremely miniscule, and we've never had a customer claim that their credit card number was stolen.

Q Where do you see your business one year from now?
A We have plans to directly tie our electronic commerce transactions with other sites. We also plan to implement a feature called Express Purchase. In the past, when a customer who is visiting the home video site finds what they're looking for, they would have to click "Buy Now," wait for the store front page to appear, enter the shopping cart screen, and then check out. With Express Purchase, the customer could initiate the purchase of the desired item from within the home video site, or any of the other sub-sites.

Q What advice do you have for beginners who are interested in selling over the Web?
A Those interested in online commerce should be ready to roll up their sleeves, because it is a long path to finally getting a Web site up and running. It's not as easy as people say. People think, they can open a store on the Web, no problem. But to become an actual transactional site, takes quite a bit of planning and work.

NECX Direct (Continue)

Exclusive Interview with Brian Marley Vice president of operation

Q What kinds of products or services do you sell at NECX Direct?
A We're an online reseller of computer products. We really cover the spectrum of technology products from servers, desktops and notebooks, all the way down to cables, diskettes and paper for your Laser printer. All the products that you would expect from a full reseller, including printers, monitors, digital cameras, and the like. We represent the product lines of over 1,000 manufacturers. If it's out there in technology's product-land, we'll have it on our Web site for you.

Q Can you tell us a little about how your company got started selling over the Internet?
A It's interesting, and it kind of parallels my career. When I joined the company in 1989, we began as company managing information in and around technology products. We actually aggregated it, broke it down, and built a database of information that we sold as a subscription to computer resellers who would load this information onto their hard disks.

We then built a search capability for them that was driven off our database of information, which was really an electronic reference system to help computer resellers move quickly to find the right products for their customers, based on specifications, applications and use of product. We also went as far as cross-referencing where you could buy certain products, which had them available, contact information, and so forth.

It was pretty cutting edge, actually, back in 1989, when everyone was still using catalogs and file drawer systems. Electronic presentation of information really wasn't that well known. As we evolved, we started getting feedback from our customers that it would be really neat if, instead of being told where to buy, they could just buy the products from us.

So, in 1993, we opened up a service called "The Desktop Channel." It was really an online network that we managed here in our facility, much like AOL, Prodigy and CompuServe, where we had the responsibility of setting up communications software. Our customers would dial into our service, and then use the information in the navigational software to query the network to use a credit card and a purchase order to place orders for computer products right online.

I painted this picture because we didn't get into e-commerce because of the Internet. We got into e-commerce because back in 1992 and 1993 we felt that this would be the way to source and buy computer products. You can imagine that when the Internet started to really percolate [circa 1994] we were sitting there with a service that required us to send out communication software in order to give our customers access to our system.

So that was a bar for us, in terms of cost. We had restrictions with regard to how many people could use our online store, based upon who had our diskettes. When the Internet emerged, we quickly rewrote our desktop channel application with a Web front-end, and went online in April of 1995. We were the first fully transaction-capable store for selling computer products on the Internet -- which we know of.

What's also interesting about our model is that in 1993, when we opened up our desktop channel, we had over 30,000 products we'd been offering to our customers. But, we don't physically stock the product. We actually connected electronically to suppliers on the back-end. In 1993, we had a fully functional end-to-end electronic commerce system in place. So, we were involved with e-commerce pretty early on. Since 1995, we've grown to be a $100 million (US$) business this year. That figure is Web-only, we don't sell products through retail stores or mail order.

In February of this year, Gateway became an investor and partner in our business. We now actually run their SpotShop.com, which is their Internet commerce offering for all these non-Gateway brand products.

Q Can you tell us a little a bit about the NECX Enterprise Purchasing Network (EPN)?
A That's a utility and tools that are designed for a buying organization that has "decentralized purchasing" -- multiple buyers with established credit lines within an organization. It's software that connects with your catalog and allows a business to set up what we call an administrator account.

So, let's say you have a company of 100 employees, and you spend $500,000 a year on IT products. You could actually register as an EPN customer, setting yourself up as the administrator of the account, and you would have a credit line for your over-all account, setting up multiple buyers under this one account. You could assign credit limits for different buyers who all have their own sing-in process.

You then can use catalog filters to control which manufacturers and which types of products they see and, in essence, what they buy. So, you can use EPN to customize the shopping experience to your business.

Q What do you feel has helped make your site successful?
A From the beginning, we've been focused on delivering quality service to our customers. We've always been proponents of, and major investors in, providing the best possible information about products that we're capable of. That's what the customer needs in order to make buying decisions online. Reliable, accurate and up-to-date pricing and availability information for our category, computer products, is certainly vital. So, we've made a concerted effort to provide good content.

From there, it's about navigation and helping customers to find the products that meet their needs. We've done an exceptional job there, and that roots all the way back to your early days. We've got a lot of experience in understanding the information customer’s need -- and how to present it so that customers can get around and make buying decisions without speaking to someone. Also, what's really helped us is that we've always been a pure Internet commerce play.

So, we've always been looking to design programs and ways that get customers through the online shopping experience, without needing to talk to us. We're not the type of company that posts an 800 number all over our site, driving calls to our phone banks. That's just not our model. So, I think our focus of being a pure e-commerce player has really helped us.

From there, it's having an easy checkout system so customers can create accounts and giving customers the ability to pick the payment method that they need to use. Then what's important is the whole back-end process once an order's been placed, which includes having effective communications programs with customers via e-mail about the status of orders and delivery, having an easy to lookup account history, and so forth.

That whole back-end process of servicing customers and their orders is certainly something we feel we do a good job of. Our retention rate, or repeat buying business, is over 70% of our revenue. That's a pretty strong indicator that customers have an overall quality experience with us, and that keeps them coming back.

Q What are some of the downsides or pitfalls you've experienced?
A Early on, the struggle concerned 'where are all the customers?' Back in 1995, if I was out at a social gathering, no one would believe that people would buy computer products over this thing called the Internet. So an early struggle was the velocity of customers coming online who were actually buying online.

Also, early on we had to contend with the security issue, and people placing orders with a credit card online. That's a media myth, as I always like to refer to it as. But that perception became reality, and that reality became 'it's unsafe to use credit cards on the Internet.'

As we evolved, there's obviously been a lot of competition in our space. Along the way there have been vendors who have been willing to almost give products away to acquire business and conduct transactions. So, there's certainly been a price pressure in this space that we've had to contend with. But at this point, we're not seeing any expansion really, just consolidation. So the list of competitors doesn't necessarily grow any longer.

Then, probably like every other Internet commerce company, the cost of acquiring customers is an ongoing issue -- in terms of how to build a long-term, profitable and sustainable business model.

Q What types of marketing and promotion efforts has NECX undertaken?
A We've run the gamut from banner advertising to major partnerships to signing up major customers like MIT (Massachusetts Institute of Technology), who is one of our larger customers buying online through our network. We've participated in CNET's Shoppers.com and other vehicles like that. We also find e-mail to be an extremely effective vehicle.

Q What has been your biggest surprise in doing business online?
A How much people still want to talk to people. I guess that our biggest surprise is that in this space of Internet commerce, that browsers and customers-at-large are not more comfortable at this point.

The difference between categories like ours, being IT products, and Amazon.com, is that their book business is a really low-involvement product -- with a relatively low price tag. We're dealing with an average order size of $400, and a high-involvement product. So, for us, it was working through that adoption curve of customers feeling comfortable buying online.

This next one's not as much of a surprise, but you have to have the business principles and fundamentals in place behind your site in order to be successful. That might be the biggest surprise to a lot of people, however. From my travels, it seems that people get this idea that they can just kind of run a business out of their garage with 3 folks. This channel demands a lot more than that behind the scenes to scale with growing customers, and so on.

Q How much traffic are you seeing to your site?
A Probably 50,000 visitors a day that come to our site, which is pretty sizable.

Q Where do you see most of your e-commerce business coming from?
A I'd say 50% is coming from consumers, and 50% from what we would classify as buyers making purchases for their businesses -- that's everything from small business up to large universities, and so on.

Q What sort of unique challenges do you think companies face as they move into international markets, and is this a move that you've made with NECX?
A We could, although our focus up until this point has been here in the US. There are still some things that we would like to accomplish here in the states before venturing abroad -- but it's always in the back of our minds as a natural progression.

With regard to the obstacles, it's less the language issue, especially around technology products, because English seems to be the standard language in describing computer products. But obviously servicing the customers would present some language issues, both written and verbal. In terms of logistics for transporting the product in and around international companies, payment issues would have to be resolved. So you're really looking at financials, logistics and the whole support organization to service a foreign country.

Q After going online, was there a specific turning point for your business, when sales really began to increase?
A I would say that 1997 was probably a turning point for us; we really caught some momentum that year. And what caused that? Well, I wouldn't call out any particular marketing programs. It's not like we started advertising on TV or anything like that. I think it was just our presence and our ongoing commitment to quality of service for our customers.

This is probably something that folks really don't understand, but referrals are tremendous fertile ground for customers. If you deliver to your customers, they tell a few friends along the way. So, I think having been in the business and online with a quality brand and offering, our momentum just continued to build, and a lot of it was just a natural evolution. It wasn't anything magical.

Q What type of store software products are you using on your site?
A Well, I have to say, we've really developed our own. We didn't buy any particular catalog management software and/or system. For example, the credit card processing we've built, that's something that we put in place with our electronic clearinghouse, if you will. We use typical EDI software for our connection to our supplier. That whole integration we've done ourselves.

Having been an early company in this business, we've been forced to really build our own capabilities as we continue to look in our rearview mirrors in terms of what applications are out there that are off the shelf that would satisfy needs. So, we're not using open market or anything else that you'd expect we'd be using for technology. We built it, really, ourselves.

Q Where do you see NECX, one year from now?
A We're not going to lose sight of the fundamentals that you need to run a quality business, and to provide the offerings that keep customers coming back. There'll certainly be an expansion of the products we offer, and obviously we'd like to double our revenue.

Q What developments do you foresee over the next year that will have an impact on the world of e-commerce?
A I think you're going to see continued convergence between brick and mortar retailers and online companies. There may be expansion into uncharted territories, but you're probably going to see consolidation of the major brands. Obviously there'll always be room for niche players, who carve out a certain marketplace for themselves. But in terms of true market share, you'll probably see that the real winners, in the long-term, are the companies that have integrated strategies, not just online-only.

Then, I think business-to-business is going to really expand. There's going to be a big push for commercial buyers to use this technology to buy for their enterprises or their businesses at a larger level.

Q What advice do you have for beginners who are interested in getting started selling online?
A Bring somebody on the management team that has experience. Beyond that, I wouldn't wait much longer. If you got a plan that you feel strongly about -- and you have the backing -- do it, because time is of the essence. It is still an expanding universe. It's not yet contracting, with 170,000 plus users a day coming onto the Internet. Also, have a clear picture of who you want to be. Then, put your resources into the building of the business and the systems, and you're going to have to watch out for the cost of acquiring customers.