OPINION: The Internet is Channel Four

August 3, 1999
Web posted at: 3:56 p.m. EDT (1956 GMT)

by Thomas H. Davenport

From IDG

(IDG) -- Prior to the Internet's existence, there were only three ways to make direct, interactive contact with one another: face to face, by mail or over the telephone. Print, radio, television and other media don't count in this category because the recipient can't talk back. Now we have a fourth way. The Internet has become the newest channel for communicating with customers, colleagues, competitors or any other business-related thing that starts with the letter C.

Is this all that revolutionary? Well, it's at least 25 percent better than our previous three-channel world. And, obviously, new channels don't come along very often, since the last channel was added at the end of the last century. So it's worth getting excited about this channel, even if it's not an entirely new world.

But, just as the first telephone owners had to decide when to call vs. when to write or visit, we have to figure out what's really new and different about this fourth channel and when it's appropriate to employ it.

Channel Four is good for quick interaction and frequent updates. We can have some sense of whether the recipient of e-mail or Web information actually looked at it, which is very useful and better in this regard than mail. Channel Four is often an easier means to handle customer input than with phone or face-to-face channels because it's already in electronic form. And, unlike the other interactive channels (at least until the long-awaited interactive cable TV finally arrives), it allows for moving pictures, which human beings find very interesting.

Still, it's not perfect. It's a bit of a chilly channel compared with the alternatives-hardly as warm as a handshake and a smile, a friendly voice or even a handwritten signature on crisp vellum. It reaches a lot of people, but not as many as have phones or mailboxes or doorbells. And it runs on a device-the PC-that's ridiculously difficult to use.

In addition, it's a crowded channel. The number of phone calls I get, the number of letters I receive and the number of visitors I entertain when combined are dwarfed by the number of e-mails I receive and Web pages I frequent in one day.

I heard recently from a semi-authoritative source that we'll soon have five (or four or six, it doesn't really matter) web pages for every person on the planet, which seems more than enough.

What's the big deal?

Mostly, however, I think the e-link is similar to the other channels, not different from them.

When the channel matures-and there are already signs that it is starting to-it will be just one more channel to choose from. Already the types of people who use it look much like the people who use other channels.

And I'm guessing that the same information junkies who are good about answering letters and returning phone calls will be the candidates for "most likely to respond to e-mails before deleting." Ultimately, e-information is still information. And e-business is still business.

One thing that the e-thing has in common with other channels is that they all can be mixed much of the time. My mom taught me that you should call before you visit a friend's house. A direct-mail solicitation is likely to have more effect if followed by a phone call. And mailed invitations are frequently used to provoke face-to-face gatherings.

Similarly, I expect we'll see a lot more hybrid use of the e-monster with other channels for communication and commerce. The first sign of that came several years back when print advertisements started to list Web addresses; the practice is pervasive now. There are a few retail chains-Gap Inc. is one, and the much-maligned (for slow e-commerce adoption) Borders Inc. bookstore chain is another-where you can return e-ordered products to real stores. We'll see more.

There will also be more instances of Web kiosks in stores for ordering out-of-stock or configured products, and a greater ability to buy on the Web this morning and pick up at the corner store this afternoon (that will accelerate quickly when we start having to pay e-sales tax for fully electronic purchases). A further indication of the trend will come when you can seamlessly move from one channel to the other; all Web sites should eventually have a button saying, "click to talk to a live person" (today many don't even list their bloody phone numbers!).

New channels probably initially favor buyers over sellers, and again the e-way is no different. When phones became ubiquitous, I suspect profit margins may have fallen among merchants because of the ability to more easily compare prices. Eventually, however, buyers have to finance both the seller's profit and the additional cost of supporting the new channel.

The e-discount sites that are selling products at or below cost will ultimately raise their prices or go out of business, leaving a few battered survivors to get their revenge on customers. We saw this pattern in banking, where ATMs first favored consumers; it was inevitable that transaction fees would rear their ugly heads.

All channels also have poor execution in common. Mediocrity already prevails on the Internet in terms of buyer and seller behavior. Most Web sites are pretty boring and are poorly structured and designed. Just as we often can't find what we want in a physical store with a confusing layout, market researchers tell us that a majority of e-customers have left Web sites without finding the product or information they were looking for. On the buyer side, most e-surfers can't "shoot the curl," that is, do a sophisticated search or examine their cookie file.

Keeping it not so simple

In that respect, e-business is no different from the other channels. When was the last time you got a really effective direct-mail piece? What percentage of guests RSVP'd to your last mailed party invitation? And how many of us still say "just in case it doesn't work, here's the number" before transferring a call? As with all these other channels to the outside world, e-execution will prevail over simply jumping on the e-bandwagon.

The best companies in e-commerce will ultimately be those that hire the best people, work the hardest, build the best infrastructures and develop the most efficient and effective business processes. Being on the Internet first won't matter much in the long run.

Take USAA, the highly successful insurance company with roots in serving military officers. A few years ago, I was doing some research and consulting at the company. Some managers there told me that they were not yet ready to offer transaction services on their Web site. But did I immediately rush out and sell my USAA stock? No, and for two important reasons. First, the company is privately held, so I really had no stock to sell. Second, and more significantly, USAA has traditionally executed well in terms of the other three channels, and I have no doubt that it ultimately will do so on the fourth (in fact, it has already added several transaction types to its site).

USAA is renowned for its telephone customer service, handles its mail in a more automated, efficient fashion than just about anyone, and even excels at managing the face-to-face channel by largely avoiding it. The company's lack of agents is one factor making its insurance products highly cost-competitive. In short, USAA executives decided that it was more meaningful to execute well on the fourth channel than to offer something on it quickly, and I think they were right.

The virtues of extreme size, small and large, will work in this fourth channel as it does in the others: The companies that will ultimately do best in e-competition are those that are either first in relatively sleepy industries ( in books, E-Trade in brokerage and so on) or those that are big and have a lot of resources to invest.

American Airlines was a big airline before automated reservation systems; it became even bigger after its pioneering efforts with the Sabre system. The sophisticated Travelocity and Web sites will no doubt make it even bigger. Similarly, it doesn't surprise me that General Electric Co. was an early, aggressive adopter of Internet procurement (the Trading Process Network). GE is big, rich and smart-no big shock that it does well at e-biz.

However, the small, the virtuous, the e-underdog still has its appeal. Particularly after some of the security concerns are assuaged, I think we'll see lots of appeal to the 'little Web store around the corner' if we can only find out that it exists. One Internet bookstore entrepreneur, for example, is trying to capitalize on its smallness. Lyle Bowlin, proprietor of the online bookstore Positively You, operates out of his home in Cedar Falls, Iowa. Publicized by Thomas Friedman of The New York Times in a couple of his columns, Bowlin's e-bookstore grew from $2,000 a month to $2,000 a day. I think people are buying from Bowlin because they already view Amazon as a big, faceless bureaucracy (and with their market cap level, they deserve it) and because the Bowlin site makes a charitable contribution with each purchase. Bowlin may no longer be able to have guests over to dinner, but he is profiting from one of the same forces found in previous channel dynamics.

We don't yet know all the factors that will lead to e-success or e-disaster in the world of the fourth direct channel. But we'll be making a big mistake-an e-error, if you will-if we assume that none of the old rules apply. Some will some won't. It's not the same old sheet of paper, but it's not a blank slate, either.

By the way, my goal here was to make you so sick of the e-prefix that you'll never want to use it again. Did I succeed?

Thomas H. Davenport is professor of management information systems at Boston University School of Management and director of the Andersen Consulting Institute for strategic change.

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