Subject: Mar2001 The New Economic Environment brought to you by
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March 1, 2001 *4,100 subscribers* Volume 3, Issue 3 Online:
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The New Economic Environment
Management Perspective
by Mitchell Levy, Author,


Although we are already mired in the New Economy, we are just at the beginning of the changes, as brick and mortar companies race to be successful online, and dot.coms try to dethrone established companies' brands. There will be more consolidation, hybrids, partnering, and new business models that will shift the mix and balance of power.

The backdrop of the last year in the financial markets paints a very interesting story. In 1999, Internet stocks were the high-flying, "can do no wrong" darlings of Nasdaq, and envy was epidemic. Only a year later, reality checks against valuation and global earnings warnings from technology firms caused the market to slide into rapid decline. Untold was a story in the making, as click-and-mortar entities, hybrid purchasing models, reflecting our human nature, and new alliances were laying the foundation for the next ten years. Let's look closer:

A view from now into the future.
E-Commerce really got started in 1996, when there were less than 25 million Web users. Software and computers were the most common purchases, and had been open for less than a year. Internet commerce was just scratching the surface.

The middle game - 1999 to 2001 was marked by market growth to 120 million Web users, among whom over half had made an online purchase. Over 50 million cell phones had Internet access, and 10 million transactions were made through mobile commerce. Half of all US households had computers with modems, and one third of all American Internet users would give up their television if forced to choose between it and their computer.

Projecting to 2005, 80% of North Americans will access the Web on a daily basis. 150 million shoppers will buy something once a week, with total consumer spending of $250 billion dollars - 10% of all retail. Business to business e-commerce will represent almost 4 trillion dollars, with 50% of all B2B transactions facilitated by networked digital commerce.

In the end game - 2010 - all business to business transactions in the developed world of 3 billion people will be done over broadband multi-protocol networks, and consumer retail in North America will exceed 1 trillion dollars. Over 500 million cell phones will exchange email, and less than one billion people on the planet will have never used the Internet.

At the end of this -; who will have won, lost, or successfully e-volved into holistic Internet enabled entities?

Back in 2000 and 2001, retail firms including Barnes and Noble, Eddie Bauer, Wal-Mart, Target, and Kmart, realized that to hold onto their customer base, and to satisfy the needs of increasingly Internet-enabled customers, product catalogs, pricing, customer service, and transaction-capable e-commerce sites were a necessity. and proved that Internet commerce worked, and was more than palatable. But the need for a physical presence, not just for returns, but to "ground" shoppers who needed more "security", was a necessity. Ironically, many retail firms actually chided their online counter parts for "stealing business" from them. They never realized that they had lost track of their customers, and worse still, their transactions. Christmas 2000 put the large shopping establishments firmly with a foot in each canoe, which successfully bridged the gap for many shoppers.

Bricks to clicks
Barnes and Noble watched Amazon go out early and score 20 punches in the first round, but carefully waited and watched, then launched its own division. The secret to their longevity was realizing the need to brand themselves in both venues through such tactics as marketing to physical store customers with online coupons, and providing in-store kiosks. They and Sephora learned that the "buy anywhere, return anywhere" model was the secret. Both firms adopted the policy that customers were customers, no matter where they bought. Best Buy implemented a searchable catalog with options to buy online or in person, to have a product shipped or picked up from the store, and also provided clear information on where to return it if necessary. They e-volved.

Click and mortar became a holistic retail approach and key migration of strategy. Consumer behavior changed at the end of the year 2000, with many people shopping online, and buying in person, or shopping in person and buying online. From the kiosks set up at Barnes and Noble, retail firms quickly learned how to track their customers, no matter where they went. Direct email marketing and database mining merged in - of all places -; Buffalo, New York!

Premier Wines in Buffalo issued a "rewards card" that was scanned in the store, recording your purchase through the POS terminal and bar code, often with sale items. They "bound" your email address to the transaction, and then delivered targeted messages based on your purchase patterns. Using permission marketing, their program drove customers both to their e-commerce website and into their physical store, the way that most of us shopped back then.

Hybrid purchasing patterns, and a move towards "click and mortar", signaled the turn when the Internet became part of the holistic strategy for the firms that would e-volve, but it took almost 20 years for digital commerce to see it.

The evolution of the hybrid customer has been an important factor in e-Commerce. ATM use in the early 1990s gave us good indicators that people and technology mixed, but rates of adoption varied based on experience, technology optimism, and the "trust" factor needed in a transaction. It was no surprise that the 50% of Internet users who then shopped and purchased online looked like the 50% of bank customers who prefer ATMs. The surprise was that 80% of technology savvy users would use the Internet to gather information to make a physical purchase of durable goods. Not to be online was tantamount to not being in business.

The click-and-mortar approach wasn't a compromise between brick-and-mortar and the Internet. It was man and machine. You need a piece for each. Forrester's "technographics" only explained that Internet commerce adoption was related to technology comfort. The hybrid buying pattern, not correctly recognized with ATM use, and the trend to click-and-mortar, is explained simply that people need both machines and humans for transactions and commerce.

Superior human customer service at e-commerce sites, and a daring strategy by banks in 2002 to offer personalized bill presentment and account set up for their most profitable customers, will bridge any so called "technical divide". Internet users expect the efficiency of a machine, with the personal touch of a human. That was the secret of unraveling the hybrid user preferences of banking customers with ATMs. 24x7 customer service, online or human, to help track orders or finish transactions, will become a necessity.

Man and machine and fun along the way!
Movie and MovieLink (777film) capitalize on the efficiency and assuredness of "on-the-go", tech -savvy professionals who love to get out. The movie buffs can search films, reviews, and purchase tickets, but they pick up the tickets up at the physical outlet: - the theatre. Email marketing based on transaction history comes next, with personalization, and migration to other entertainment venues. Auto-by-Tel will pave the way for reverse auctions in car sales. We love to shop online, but buy and drive cars in person, enjoying the thrill of having the Internet level the playing field!

Clicks to bricks for business and government applications.
The IRS morphed early. State DMVs, the Social Security Administration, and almost all large metropolitan city services have been heavily leveraging their Internet investments. In 2005, the IRS will not only encourage e-filing, they will likely offer online tax services for business. Along the way, citizens will become netizens in their use of these services, and deployment of electronic forms, services, and Web based personalized self-service will become standard procedure.

Business and software firms also will realize that the Internet is the ultimate deployment vehicle for their services, but need to reach out to the millions of small businesses with a physical presence in a wired business world.

Office Max and Staples made key strategy shifts in 2000, looking at the value they brought to their business customers, and began to offer business services to help them become successful in an Internet economy. Small business embraced services with Microsoft B-central for targeted email marketing by neighborhood, and Quicken and Intuit brought online accounting services and more to the doorstep of a holistically wired brick-and-mortar world.

Dell Computer, AT&T, and broadband vendor Qwest all formed application hosting alliances with their telco partners, and started the first migration for many traditional hardware vendors (Dell) into the more lucrative value added business application hosting - from the very customers to whom they had only sold computers before.

The end game
In the end game, the successful firms that survived and thrived through the " crash of 2000" have realized three things.

  • First, customers are customers, wherever they go. The task for the vendors is to understand as much as possible about them, and to be able to serve them in physical and online venues.
  • Second, customers are human, and while we love technology, our relationship with machines and humans is not all or none, one or the other. We embrace both, and our behavior reflects that.
  • Third, a physical presence and an Internet channel have synergy, not conflict. Successful firms drive their strategy to include off-line and e-business as integral and not separate, eventually merging their operations.

The turn of the century has been quite a time - and we all have grown better for it.

I hope you enjoy this eZine.
See you in cyberspace,

Mitchell Levy
Executive Producer, <>
President, <>
Founder and Coordinator, SJSU-PD ECM Certificate Program <>

  • is the premier monthly ECM e-zine.
  • is an e-commerce strategy, e-marketing and training firm. helping start-up, medium and large corporations change their business to harness the power of the Internet.
  • is a book one must read to help them figure out how to e-volve-or-die
  • San Jose State University, Professional Development, Electronic Commerce Management (ECM) is a Certificate Program for e-commerce professionals <>.

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