Tag Archives: Paul Saffo

About 4462 days ago E-Commerce

Not Dead Yet

realbusiness.com Commentary: Intermediaries Like the resilient peasant in the famous Monty Python scene, intermediaries on the Internet are suddenly feeling much better Just a year or so ago, conventional wisdom about middlemen on the Web went like this: Soon, there won’t be any. The underlying thinking, of course: The Web lets sellers talk directly to buyers, without agents, brokers, distributors, wholesalers, or even retailers. Why fool around with intermediaries when you, the seller, can deal directly with your ultimate customers or when you, the buyer, can go straight to the source? Cutting out those middle layers creates what Bill Gates, in his 1995 book The Road Ahead, famously termed a “friction free” business environment, permitting direct, effortless, one-to-one E-commerce. The Web, according to those ancient theories, would quickly lead to widespread extinction of entire professions: insurance and travel agents, real estate agents and stockbrokers, car dealers, computer retailers, even (or maybe especially) the editors and reporters who choose and package news. With the Web, you can trade your own stocks, book your own trips, configure your own new car or computer, buy your computer directly from the manufacturer, and report and disseminate your own news. The theory got its own spelling-bee stumper of a buzzword: disintermediation, meaning that nothing stands between producer and buyer. “Two’s company, three’s a crowd,” KPMG analyst Bob Westrope observed just two years ago, calling the predicted shortening of the supply chain “a shift in the structure of our economy not seen since the dawning of the industrial age.” As it turned out, the greatly exaggerated death of the middleman ranks among technology’s champion myths, almost as big a no-show as the Y2K bug. Intermediaries live, and many are thriving. As Michael Hammer of Hammer and Co., in Cambridge, Mass., points out, the Web hasn’t destroyed or replaced most intermediaries’ jobs. But it has transformed them. The new-millennium middleman understands that customers — both businesses and consumers — actually prefer working with intermediaries who add value to whatever they’re buying. Typically, Hammer says, that value is information, whether the product in question is a life-insurance policy, a BMW, or a Caribbean vacation. And in most cases, he adds, you’ll get that information not from the producer but from the middleman — the insurance or travel agent or the car dealer. (Even if you buy a car online, who are you going to call for a test-drive, service, or recall work? Certainly not a Web site.) That’s why, for instance, I researched my recent trip to St. Martin online but booked the flight and the hotel through my favorite travel agent, who’d been to that island three times. (She also got us a deal that was much better than any of the ones I had found on my own.) Cutting out the middleman has always sounded like an honorable idea — the right thing to do. In theory, at least, setting up a direct link between buyer and seller improves communication, saves time, reduces waste, and cuts costs. But some of those who have gone that route have quickly found themselves mired in new problems. Many start-up owners who dream of dealing directly with their customers have wound up instead in a logistical nightmare — realizing, for instance, that they can’t handle their own warehousing or distribution. Some major manufacturers have found they simply can’t win by competing with their own partners. In one well-publicized case, Levi Strauss mollified its angry retailers when, late in 1999, it stopped selling products on its own Web site. And being the target of such hostility is hardly the purview of only large companies. Bob Duncan, CEO of American Leather, a far smaller manufacturer than Levi Strauss, was labeled by a retailer as an “unethical, two-faced liar driven by insatiable greed” when the retailer assumed that Duncan was promoting the company’s furniture for sale over the Web. (See ” First Do No Harm,” Inc. Technology, No. 1, 2000.) In a similar vein, writer Stephen King hit a few snags in his attempt last year to bypass publishers and bookstores by selling his novel The Plant online in serial form. King said he’d continue writing the novel, about a vine that takes over a publishing company, as long as 75% of those who downloaded it paid $1 or $2 for each of 10 installments. But by year’s end, with only 46% of his online readers paying up, King posted Part 6 free of charge. He later put the plan on hold indefinitely, saying that he needed to devote time to other projects. Ironically, King notes in an explanation on his Web site, dozens of would-be readers told him they’d be happy to buy The Plant when it’s really published — in standard book form. (King, however, still considers the self-publishing experiment a success, citing gross sales of more than $600,000 — with no printers, publishers, or agents to pay.) The new-millennium middleman understands that customers actually prefer working with intermediaries who add value to whatever they’re buying. In fact, some of the Web’s most successful companies have been intermediaries. Search engines like Yahoo serve as middlemen between people who are seeking something and people who are offering to provide it. EBay, the pioneering auction site, offers buyers and sellers a way to find each other online. Then there’s service. The Web’s most lasting legacy may be that it’s created an expectation of 24-hour help, in person, in real time. In a 1999 survey, Forrester Research, in Cambridge, Mass., found that more than a third of people who bought something online requested service at some point during the experience. In other words, being able to buy the product or service anytime wasn’t enough; nor was it enough to be able to contact customer service later if there was a problem with the purchases. From the moment people log on to a Web site, Forrester concluded, they expect to be able to turn to other people for help. But that expectation creates new opportunities, too. Service is, in fact, the new differentiator, as Geoffrey Moore writes in Living on the Fault Line: Managing for Shareholder Value in the Age of the Internet. “Even the most product-centric of companies — automobile manufacturers, factory equipment vendors, and raw materials providers, real atom guys — are now assigning their best and brightest to the task of differentiating on services,” Moore writes. Customers increasingly place a high value on companies that offer one-stop shopping — access to a range of services in a single location. That, analysts say, bodes well for companies like Accuship.com, a Memphis-area company that shows its corporate customers all their price and service options for shipping packages. (See ” Express Delivery.”) Accuship is, in fact, a prime example of a trend highlighted in a 10-year business forecast prepared in 1998 by the Institute for the Future. The concept of disintermediation is “a mirage,” futurist Paul Saffo writes in that report. “It’s directly at odds with what is actually happening.” In fact, Saffo writes, the Internet and other technologies “enable new kinds of transactions, which lead to new market niches and, overall, make the market environment more complex.” Such changes will, of course, kill off some intermediaries, but, as Saffo notes, they will create opportunities for others. Meanwhile, those who too readily bought into the wholesale slaughter of the middleman might want to keep Saffo’s big-picture conclusion in mind for next time: “Beware of conventional wisdom, for it is nearly always wrong.” Anne Stuart is a senior writer at Inc. Technology. With no fanfare and little venture money, the companies profiled here are delivering real stuff to paying customers and making a buck in the process. There may not be any “new rules,” but there are rules, and we suspect every one of them will look familiar. DVD Empire: The Bootstrapper SitStay.com: The Mom-and-Pop Shoebuy.com: The Scorekeepers Accuship.com: The Traditionalist Fashionmall.com: The Conservative Healthcommunities.com: The Underwriter Commentary E-tailing Intermediaries The Markets Please e-mail your comments to editors@inc.com.

About 4582 days ago Business Software

Video Births the Internet Star

Convergence New technologies stand to make Internet video as useful and ubiquitous as the telephone. How will it work for your company? You’ve heard it all before, and not that long ago. Teleconferencing was supposed to drive airlines into the ground. Telecommuting was going to make office complexes obsolete, and we were all going to work in our bathrobes. Television was going to converge with the Internet and the computer to form one big box. It’s easy to mistake the progress of the present day for the revolution of the near future. In 1993, Time magazine wrote, “Suddenly the brave new world of video phones and smart TVs that futurists have been predicting for decades is not years away, but months.” And that was not the first time such a promise had been made. Gad Liwerant, president and CEO of VideoShare, a provider of Internet video services in Watertown, Mass., says, “More than 35 years ago the big telecom carriers were always saying the phone was going to come with a screen, but it never really took off.” Well, this time it’s different. Really. This time there’s not just one silver-bullet technology that will supposedly revolutionize the ways in which we do business but rather a convergence of technologies that are all advancing at once. And they will all help deliver cheap, convenient high-quality video over the Internet. “Video’s going to be integrated into everything from your PC and your TV to your cell phone or PDA,” says Neal Manowitz, vice-president of marketing and business development for Vingage, a Reston, Va., company that creates server software for online video delivery. “If you launched a Web page today, you’d be shocked if there wasn’t a picture on that page. Five years from now, you’ll be surprised if you don’t see video. It would be like turning on the TV today and seeing a still image.” Sounds like the grandiose pronouncements of the past, no? But here’s what’s different now: advances in the software used to compress and deliver video, combined with increased computing power and the spread of high-bandwidth delivery services, are fostering the creation of new Internet video technologies. Providers are already creating wild new consumer services. Sony’s ImageStation.com, for instance, allows users to archive and share home movies online. And on the way are new tools that will offer even small businesses the capability of using live and recorded video for everything from Web brochures to training to customer service. Of course, we heard the same kind of promises about the picture phone. And a video clip, or even a two-way live videoconference, will never replace a face-to-face schmooze with your best customer or lead investor. “People have been dreaming about video as a travel substitute since the oil crisis,” says Paul Saffo of the Institute for the Future, in Menlo Park, Calif. “It’s a myth. The more we communicate electronically, the more we go to face-to-face meetings.” So the new promise of video is not the replacement of air travel or television or telephones as we know them. It’s about technologies that are satisfying, cheap, and easy to use, and that don’t require special equipment. You can see the difference already with devices like Web cameras. “Even a few years ago, you had to open your machine, install software, and then set up the camera,” says VideoShare’s Liwerant. “Now all you have to do is plug the camera into a USB port.” In the same way, Internet video is finally getting good. “Video technologies are going to provide a revenue-generating opportunity that never existed before. It’s an entirely new channel,” says James Canton, president of the Institute for Global Futures, a high-tech think tank based in San Francisco. Canton’s research predicts that E-commerce sites with live video will generate more sales than competitors without such features will be able to do. Right now, says Canton, 75% to 80% of people who are looking to make a purchase online fail to do so, largely because they get confused. “There’s no one there to help them,” Canton says, adding that video — either a product demo or a live, two-way help center — could conceivably provide that assistance. “Small businesses should be adopting this stuff faster. It will give them a chance to establish brand awareness, whereas big companies aren’t going to change so fast.” Taking that step shouldn’t be too scary, says Dominic Milano, editor-in-chief of DV (digital video) magazine, in San Francisco. “There’s no real barrier to entry anymore. The tools are more powerful, and they’re really cheap. It really all came to a head at some point in the middle of last year. It’s like somebody threw all the pieces in a big stew pot, and it started to congeal.” The new promise of video is not the replacement of air travel or television or telephones as we know them. It’s about technologies that are satisfying, cheap, and easy to use. One of the advancing technologies bringing better video to the Net is compression software. Here’s how it works: A piece of software reviews a video file, effectively “deciding” which parts of the picture don’t have to be duplicated for every frame. Think of the passionate beach scene in From Here to Eternity, in which Deborah Kerr and Burt Lancaster are all over each other on the sand as the surf encroaches. A compression algorithm would review that scene and see that the sand and the sky are pretty much static. Only the wriggling actors and wild waves would need to be updated in every frame. That cuts down the size of the file. Once the file is compressed, it’s translated into file formats (such as those developed by RealNetworks, Microsoft, and Apple) and delivered to viewers through streaming-video service providers (such as Yahoo Broadcast, I-Beam Broadcasting, Activate, or Digital Island). Competition among such developers and providers has kept up pressure to make delivery more efficient. RealNetworks now uses an Intel compression system called SureStream, which functions like the advance team for a presidential candidate. When a user clicks on a video file, SureStream shoots out ahead to detect the speed at which he or she is connecting to the Internet. Then it matches the downloading speed to the user’s connection. That way, even users with slow-modem Internet connections will be able to watch the clip, although not with the same quality enjoyed by someone with a broadband connection. Improvements in compression and delivery of video files have boosted traffic on the Internet to the point where it often threatens to overwhelm the Net’s capacity. So there is a third technology in play that will help expand access to high-quality Web video: improvements in the capacity of the Internet itself. “The Internet became its own worst enemy,” says Sanjay Srivastava, vice-president of enterprise services for Akamai Technologies, a kind of Internet traffic cop headquartered in Cambridge, Mass. Akamai helps manage traffic on the Internet through hundreds of networks it has installed in countries all over the world, which it operates from a room that looks like the NORAD command center, with giant screens displaying maps of the continents. You can store multiple, or redundant, copies of Web pages — including video — on Akamai’s servers. So if your company is in Indiana and you want to stream your financial presentation to investors in New York City, you can hook it up to a server in Manhattan, rather than one in Muncie, to send it more efficiently. “We’re a visual species. You can go back and find cave drawings from thousands of years ago” to prove it, says James Canton, president of high-tech think tank Institute for Global Futures. A fourth frontier that technology has now crossed enables users to receive fat video files, thanks to the increased power of personal computing and the spread of broadband delivery. According to senior analyst Jeremy Schwartz of Forrester Research in Cambridge, Mass., about 5 million homes will have broadband Internet access at the end of this year, with a critical mass of 19 million households wired up by 2002. So where are the great new business tools? They’re coming, and very soon. Already, developers are providing new products that make video more flexible. For example, there’s Krishna Pendyala, who six years ago was assistant director of a National Science Foundation project at Carnegie Mellon University that focused on making video a more meaningful communication tool. “Text can communicate only 7% of a message,” Pendyala says. “The rest is body language, the audio, the visual content.” Or as futurist James Canton says, “We’re a visual species. You can go back and find cave drawings from thousands of years ago” to prove it. Pendyala and his fellow researchers tried using technology to map out important messages on video, including software that could “recognize” speech and language patterns as well as images. Essentially, they were indexing video electronically, a task traditionally carried out manually by a lot of employees fortified with cases of Pepsi. By 1997, Pendyala and his team had founded MediaSite in Pittsburgh, and last year they launched an Internet-video search engine. That Carnegie Mellon project has spawned a technology that will surely be a boon for companies with archived video, and it’s ready now. Businesses that are already using it include a health-information Web site and a conference producer. Companies are also already using Internet video to communicate with customers and investors. CUseeMe Networks, headquartered in Nashua, N.H., has launched two-way videoconferencing on the Web at www.cuseemeworld.com. The service is free, except for the $99 Web cam you need to beam your gorgeous mug out over the Internet. “Teleconferencing was a niche market with a few hundred thousand units worldwide running on ISDN lines,” recalls CEO Killko Caballero. “The proprietary equipment cost $100,000. Early-stage PCs couldn’t handle video.” Today, Caballero says, the company makes money by hosting the back end of other companies’ face-to-face Web call centers. Novell and Ericsson recently launched a video instant-messaging service with CUseeMe’s technology. Liwerant’s VideoShare offers video E-mail as well. Most of the business tools being forecasted for the new age of Web video, however, have yet to be invented. Not until Internet video is truly ubiquitous will all the possibilities become apparent. “Streaming is one of the first truly converged voice, video, and data applications on the Web,” says Alex Benik, an analyst at the Yankee Group in Boston. “It’s the forerunner of truly futuristic next-generation applications that will run on IP-based networks.” Applications now in development include “hotspotting,” a kind of video version of Amazon’s “1-Click.” Hotspotting would allow you to, say, watch a clip of an Olympic snowboarder and click on his board. That would process an E-commerce transaction. Two days later a snowboard would appear at your door and a charge would show up on your Visa bill. Some new tools may be built from current technologies. For example, there’s Princeton Video Image’s virtual advertising technology, which is used at sporting events to superimpose digital images on stadium walls. The company says the same effect could be created using Internet video. And MediaSite introduced a video-skimming product at the end of last year. Video skimming uses speech- and language-comprehension software to find key themes of a video presentation and take out all the “Thank you very much for coming” stuff. The resulting thumbnail videos are as much as 90% shorter than the originals, so they save time and bandwidth. Progress on another tech frontier — wireless — will help make video easier to use. Japan is leading the way on this one, but industry watchers predict it will be only a year to 18 months before the United States sees streaming video on a handheld personal digital assistant or a Web-enabled phone with an improved display screen, no cables necessary. “Right now you can access the Internet and get some content delivered to your cell phone,” says Vingage’s Manowitz. “Imagine how much more powerful it will be when that content is video.” In video, content is the killer app. And the first companies to explore the new uses of Web video are, so far, content producers and providers like E Screening Room. Founder Ward Bouwman spent a year in E-mail conversation with RealNetworks engineers before deciding that the time was right to launch his documentary-film E-commerce site. Bouwman, a former Discovery Channel documentary associate producer, says technology has caught up to his business concept: using the Internet to eliminate the middlemen who take big cuts from a film’s profits. “It’s hard for documentaries to find the right target audience because the audience is not geographically oriented. They’re communities of interest. That’s why the Internet is an ideal medium,” Bouwman says. “So I’ve been watching the technology, building the Web site, and testing it. For us, the video is of good-enough quality right now.” But for most business users, the issue isn’t so much quality as it is utility. “The next step is, How do you take all this streaming capability and tie it in to your back end — your employee-learning management and your customer- relationship-management database?” says Akamai’s Srivastava. “When you do a live video presentation online and Joe Blow customer asks a question, you want to know that Joe buys $40,000 worth of stuff a month or that he hasn’t bought anything in three months. You can respond to his question a lot more intelligently.” Video can be tied in to just about any business function. Training is an obvious application. But there are industry-specific applications as well. In manufacturing, for example, you’ll be able to diagnose and repair machinery from a remote location. “We should stop looking at video as something discrete or separate from the rest of the world. It’s like telephony,” says Christine Perey, a video-technology consultant based in Placerville, Calif. “It’s part of HR, part of supply-chain management, part of financial planning with your retirement consultant. It’s embedded. It doesn’t have to be considered the primary application. The primary application is, What do you want to do today?” “Right now you can access the Internet and get some content delivered to your cell phone,” says Neal Manowitz, vice president of marketing for Vingage, which creates server software for online video delivery. “Imagine how much more powerful it will be when that content is video.” Skeptics will — and should — wonder whether any of this will happen, and if it does, what it all will mean. According to Perey, even if you removed all the technological barriers, there would still be the human factor. “Do you remember how uncomfortable we used to feel leaving voice mail and how awkward it was to receive it? Today getting a live person is the exception to the rule,” she says. “It’s the same with video. We need to get to a level of user familiarity, user comfort. Then not only will people not be afraid of it, but it will be one more step in lowering the perceived difference between small and large businesses, just as the Internet has lowered the access barrier of small businesses to global audiences.” Another detail that will have to be worked out before video reaches the no-brainer status of the telephone: billing. How will all the new streaming-media providers charge customers for their services? “Pricing is an extremely deep black hole,” says Perey. “Think about how a cell phone works,” says MediaSite’s Pendyala. “When you’re on a call, the signal jumps from one tower to another, each one owned by somebody else. Imagine if you got 150 bills a month from all those tower owners. I guarantee I would not use a cell phone. There needs to be a whole industry cooperating for video. It has to be easy to buy, easy to install, and easy to use.” Perey predicts, “The most successful model in the future is going to be a blend of a subscription model and a premium fee for services as you go.” It’s likely that the greatest benefits of video are things we haven’t even thought of yet. “The next-generation Internet will become more secure and faster, but ultimately it will become more intelligent as well. Video enablement is just a part of that,” says futurist James Canton. Jill Hecht Maxwell is a reporter at Inc. Technology. Please e-mail your comments to editors@inc.com.