The E-Business Software Weekly is a series profiling trends and developments in software and applications that support e-business, the Internet, and other electronic communication channels. Look for a new story each week in this space.
Bandwidth and Behavior
In preparation for the July 18 theatrical release of "Jurassic Park III," cable television's Discovery Channel last week aired a new two-hour dino-documentary entitled "When Dinosaurs Roamed America," followed by a reprise of its Peabody Award winning 2000 production on the same subject, "Walking With Dinosaurs." The shows are a visual spectacle, transporting viewers to the plains and forests of 220 million and 65 million years ago. The audience watches as computer-generated dinosaurs stalk and sprint and struggle with one another, scenes so realistically rendered that it is easy to imagine that one is screening a videotape brought back by a photojournalist of the present day. With the immediacy of a visit to a real-world animal park and the naturalism of Discovery Channel's real-life "Animal Planet," the dinosaur features succeed masterfully in convincing viewers that these mere digital images are, in fact, reality.
Such is the ultimate destination of e-business.
So, too, is the recently released theatrical film "Final Fantasy," an action-thriller in the direct lineage of such special effects powerhouses as "Aliens," "Independence Day," and the "Terminator" series-except that, instead of the flesh-and-blood Sigourney Weaver, Will Smith, and Arnold Schwarzenegger, every actor in "Final Fantasy" is computer-generated. Although the characters are voiced by real people, the images themselves are synthetic, the actors the products of nothing more than microchips and computer code. While digital filmmaking technology has not quite advanced to the point that it can create cinematic personae indistinguishable from reality-computer-generated actors who never complain, who never forget their lines, and who never ask to join the Screen Actors Guild-the technology is close. Very close.
Other foreshadows of the endpoint of e-business can be found in the ubiquitous Pokemon-populated Nintendo GameBoys that command the avid attentions of so much of the 6- to 16-year-old demographic. The handheld video game machines (about the size of a Palm Pilot) present low-color images that are about as realistic as "Pong," yet they recreate an imaginary world that plays hosts to literally hundreds of variations of pet-like creatures with magical powers called "Pokemon" that game players must capture, train, and battle. So detailed and apparently satisfying are the challenges and interactions of this handheld world that supposedly low-attention-span youth can remain in its thrall for hours on end, hatching conquest strategies with all the zeal and machination of an M&A specialist.
Still more proof that the future, literally, lies in our hands.
But wait. Dinosaurs and Pokemon as harbingers of the new e-business reality? Someone has got to be kidding.
Consumers' Buying Preferences
Maybe. But maybe not.
These speculations about the potential of computer systems to simulate other worlds are brought to mind in part by the comments of Siebel Systems Chairman and CEO Thomas M. Siebel in his new book "Taking Care of eBusiness." In a chapter entitled "eBusiness, Not eCommerce," Siebel writes that, "as powerful and compelling a medium as it isÖ the Internet does not replace existing channels but adds more channel options to the mixÖ This is because customers insist on a choice of channels. They want to be able to do business in any way that is most convenient at the moment. In banking, for example, customers want the option of going into a local branch to buy a cashier's check..." Similarly, "a corporate buyer of computer hardware who is planning a major purchaseÖ wants to meet with a field representative to work out the detailsÖ"
In other words, says Siebel, no matter how much they might like to use the Internet, most purchasers remain nearly as ready to use other, physical-world sales and service channels as they ever were.
The speculations above are also prompted in part by the recent demise of Webvan, discussed in last week's column. Aside from whatever unwise business decisions the company may have made, like over-investing in warehouses or expanding too aggressively into new markets, Webvan faced a number of obstacles inherent to the online grocery business-indeed, to online retailing in general-that make Internet commerce a challenging enterprise regardless of the soundness of a company's business model or the quality of its Web site. These challenges can be summed up, from Webvan's perspective, in a single phrase: too few consumers were willing to buy their groceries online. Specifically, as in the examples cited by Tom Siebel, while hundreds of thousands of customers liked the convenience of placing at least an occasional grocery order over the Internet, most viewed Webvan as but one of a number of grocery-buying options. Only a small percentage of the company's customers significantly altered their overall grocery-buying behavior and became dedicated online grocery shoppers.
And therein lies perhaps the more vexing challenge of e-business in general and of Internet commerce in particular: while millions of people enjoy the convenience of occasionally ordering online, they typically regard online buying as but "one more channel option in the mix." That is, presented with the opportunity to buy online, they expand their option set, but they usually don't fundamentally change their buying behavior. Indeed, most consumers persist in holding onto a number of buying preferences that prevent them from embracing online buying as their sole (or even primary) buying choice. For instance:
Customers typically like to see, touch, and physically inspect the merchandise they are buying.
Customers often want to interact either face-to-face or over the telephone with a live salesperson-someone who can walk them through a product description or contract, who can answer their questions on the spot, or who can show them how to use, wear, or manipulate a product.
Customers often want to browse quickly through a store's inventory-sometimes with no idea what they are looking for-rather than conducting a systematic keyword search for a particular item.
Customers often prefer to take the items that they have purchased home with them at that moment, rather than having to wait sometimes days for their delivery.
Customers usually want to be able to return undesired items to a store rather than having to package them, mail them, and pay for return shipping.
Many customers enjoy shopping as much for the social and aesthetic experience as they do for the more clinical process of acquiring a particular product.
Infinite Bandwidth
At present, the Internet is unable to fully deliver any of these common qualities of a satisfying shopping experience. Of course, the Internet is not alone in this regard. Television shopping, catalog shopping, and direct mail suffer from many of these same problems, as well as other inconveniences that do not affect Internet-based commerce. For instance, while it is usually easier to browse a paper catalog than it is even a well-designed Web site, the data in paper catalogs quickly becomes obsolete, and paper catalogs fail to offer the real-time inventory checking or one-click ordering that many Web sites provide. Similarly, television-based shopping is a purely linear experience, with browsing and choice even more constrained than on a typical e-commerce site.
Still, these other purchasing channels emerged from pre-existing media, with which consumers already had some degree of familiarity and comfort, and so their transition to commercial channels was relatively natural. As an almost wholly new medium, the Internet has lacked this history of familiarity, and so has faced a conversion challenge much greater than its predecessors. So radically different was the Internet shopping experience from anything that had previously existed, in fact, that one might be forgiven for wondering why so many people had adopted the medium so quickly rather than so few.
While admitting to these problems, many analysts and e-commerce advocates seem to maintain an implicit faith that the proliferation of high-speed communication networks will eventually make them go away. Social critic and technology visionary George Gilder even wrote an entire book on the subject. In "Telecosm: How Infinite Bandwidth Will Revolutionize Our World," published last year, Gilder forecast the end of the computer age and the emergence of an era of infinite bandwidth fueled by a global fiberoptic network that he called the "fibersphere." He writes: "Just as the old integrated circuit made transistor power virtually free, the new integrated circuit-the all-optical network-will make communications power virtually free." In fact, he predicts that "computers will so enrich the power of communications that people will soon be saved the expense, tedium, and energy waste of conventional travel, whether for work, entertainment, or education." Or, for that matter, for commerce.
At the frontier, Gilder is surely right. One of the most powerful lessons of photorealistic travelogues like the Discovery Channel's dinosaur series, and one of the most enticing promises of the "virtual humans" in films like "Final Fantasy," is that much of the technology already exists to simulate reality to any degree that one might like. Geometric advances in these technologies over the next few years is almost assured, leading to the likely mid-term creation of naturally navigable virtual worlds that look, sound, and feel so much like the real thing that we will wonder if we aren't really there. Gilder's infinite bandwidth will make it possible for the bits and bytes of these virtual worlds to be transported on demand to anywhere in the world, so that a customer could travel from Los Angeles to a virtual Harrod's in London or to a computer trade show in Beijing without ever leaving her living room. If such worlds were populated with virtual humans a la "Final Fantasy," consumers could secure nearly all of the benefits of shopping in a physical setting, saving them "the expense, tedium, and energy waste of conventional travel."
Surely, Gilder's infinite bandwidth is a necessary precursor for this world. But it is hardly sufficient. Even if we take bandwidth out of the equation entirely and place the consumer in the same room with an elaborate virtual reality simulator, much more is required to execute this scenario than the mere generation of photorealistic digital images. For one thing, users of such a system would need to wear a headset or goggles so as to visualize their presence in the virtual world. In order to simulate motion and spatial connectivity (like picking up an object and inspecting it), some form of hand-device, like a wired glove, also would be required. Most importantly, people would have to dramatically alter their behavior, going through all the steps necessary to enter and navigate a virtual world rather than simply hopping in the car and making the familiar drive to the local mall.
Accounting for Consumers' Behavior
For the Pokemon set, who spend a considerable number of hours each week playing in a virtual world, such a behavioral change is likely to be unremarkable, as commonplace and inviting as flipping on the computer to check email or join a chat room. But for anyone now over 25, such a transition is apt to be difficult, and in a great many cases affirmatively avoided. As suggestive evidence, one need only look to the nearly half of the population that, this far into the computer age, generally eschews using a computer, even when one is available. Likewise, a new survey by the Pew Internet and American Life Project, released last week, found that Internet usage has reached a plateau, having held steady for the past six months. A separate study issued around the same time revealed that the number of Americans who used the Internet dropped 3% from May to June, in part because of fewer newcomers to the Web. The survey, conducted by the online consulting firm ComScore Networks and Diameter, a unit of online ad firm DoubleClick, estimated that 3.6 million fewer people used the Internet last month-the first decline in usage since the companies started measuring the figure last December.
The implications of findings like these are quite profound. Computers and the Internet are evidently not the preferred communication or commercial vehicle for everyone-not necessarily even for most people. While television has achieved nearly 100% penetration of the American population, the home computer is not likely to approach this figure any time soon, at least among adults. Nor, even when it is present, is it likely to command the amount of attention that the television does. One key reason: even before the advent of television, people were used to "watching things" for entertainment. The television therefore required only limited behavioral change. A lesser but still substantial proportion of people were accustomed to typing communications, and so email has won wide acceptance, even among more computer-phobic segments of the population. But shopping over the computer is a radically different experience than shopping in a store or even via paper catalogs.
Not only that but, as noted, computer-based purchasing deprives consumers of some very important qualities of the typical shopping experience. Significantly, these intrinsic limitations of Internet shopping-the inability to easily browse or to inspect or try on a product, for instance-will not be eliminated even with infinite bandwidth. A virtual reality based Internet ultimately will overcome many of these problems, although some challenges, like real-time acquisition of a physical product, will remain even with the most elaborate VR apparatus. But that possibility, for the most part, is moot anyway. Even if this perfectly simulated future were to arrive tomorrow, the adoption curve is apt to be much slower than for other Web-based technologies. People are simply not likely to change their core behaviors that much and that quickly.
Over the longer term, of course, a tremendous amount of change will take place. Like Discovery's dinosaurs or "Final Fantasy's" digital cast, computer-based commerce will become a much more "virtual" experience, with computer-generated sales agents, digital product representations as lifelike as their physical counterparts, and sensory input devices as readily accepted as keyboards and mice. Much of conventional travel will disappear, just as the telephone and videoconferencing have eliminated other aspects of travel. When today's children become adults, their shopping preferences will reflect the acculturation of their youth, much as the current generation of adults embraces television as a legitimate substitute for the day-to-day forms of entertainment and recreation that prevailed in our grandparents' time.
But for now, the bottom line is this: the Internet is what it is. While DSL lines, cable modems, and Gilder's fibersphere will make Web pages download faster-enabling greater use of video, animation, and rich graphics-they won't in themselves change the fundamental nature of the Internet. Nor will they alter consumers' basic behavioral predispositions. Companies wishing to deploy e-business solutions therefore will need to take these behavioral and technical conditions into account in designing an e-business enterprise, rather than banking on some as-yet-to-be-defined technological great leap forward to radically transform the Web experience.
Prospering Magnificently
The continuing lack of success by some very well-funded and well-developed Web entertainment vehicles suggests that there are simply some tasks for which the current incarnation of the Internet is not well-suited. The relatively slow uptake of the expanding broadband alternatives further indicates that many consumers do not find tremendous value in faster download times, even when the marginal cost increase is small. But perhaps the most instructive development comes from one of the closest analogues of Internet commerce-the paper catalog industry.
Paper catalogs have been around almost since mail delivery began, and improved printing, photography, and graphic design have made these catalogs considerably more inviting than they once were. But the "technology" of the paper catalog is basically unchanged since the industry's inception, meaning that most of the original limitations of catalog retailing are still with us. Rather than hoping for some dramatic change in "catalog technology," catalog retailers have accepted these limitations and, within the somewhat restricted range of opportunity that such limits impose, have prospered magnificently. In fact, the catalog retailing industry is stronger than it has ever been.
Those firms choosing to pursue e-business initiatives, particularly Internet commerce ventures, face the same equations. We now know, contrary to initial expectations, that the potential of e-commerce is not limitless. Likewise, the realistic target market size is considerably less than 100% of the American (or world) population. Still, even within these bounds, e-business remains one of the most powerful growth enterprises in history. By accepting and operating within the limits imposed by the nature of the Internet medium-and by truly regarding the Internet as a channel and not as a business-firms can prosper magnificently in the e-business sphere in the years ahead.
In future columns, we'll turn to some of the leading experts in this field to explore how this can be accomplished.
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