Internet business news and analysis by Dylan Tweney

Just in time

It's the last week before Christmas, and TIMELY DELIVERY is top of mind for nearly every e-commerce entrepreneur, Web shopper, and Internet business pundit. It turns out that it's a lot easier to put up a commerce-enabled Web site and to start taking orders than it is to make sure those goods actually get delivered. (Surprise!)

The problems are becoming particularly acute now that the volume of online orders is getting really big [1]. Last year, as holiday shoppers discovered the Internet for the first time, most of the buzz was about site security, usability, performance, and price comparisons. This year, people are starting to take online shopping for granted. Usable site -- very nice. Decent price -- OK, thanks. Now where's the stuff I ordered?

With this huge sales volume come enormous logistical challenges. Some vendors, such as Wal-Mart, have already reached the limit on orders they can ship before Dec. 25 [2]. Due to unspecified "supply chain" problems, Wal-Mart won't be able to guarantee pre-Christmas delivery for any orders placed on its site after last Thursday.

All this e-business is good news for shippers like Federal Express and UPS, right? Absolutely -- provided the e-merchants in question can actually get products out of their warehouses and onto the UPS trucks and FedEx planes. Some aren't even going to make it that far, suffering from a fatal "first mile" logistics problem before they even get a chance to tackle the "last mile" to the customer's doorstep.

Even the New Yorker has woken up to the importance of warehouse logistics to online retailers, with its Dec. 6 story, "Clicks and Mortar," by Malcolm Gladwell (p. 106). This story points out that the most revolutionary technology in online business may not be the commerce-enabled Web site at all, but the automated warehouse and distribution center.

Gladwell draws a comparison to the mail-order retail revolution of a hundred years ago, in which it wasn't so much Sears & Roebuck's printed catalog that enabled the mail-order boom, as free rural postal delivery. And that, in turn, was enabled by a simple technology for smoothing dirt roads.

So less may depend on snazzy Web sites and on solid Internet infrastructure than you think. These are simply the technologies that deliver the product catalog to the end-user, and then take the order. They're important, no doubt. But what delivers the goods is the shipping infrastructure: warehouses, trucks, highways, planes -- and the people who work in them.

In fact, the most successful online retailers this season are turning out to be those companies that have sunk significant resources into warehouse space and into sewing up critical supply-chain partnerships. Witness the top 5 Net retailers from last week: Amazon.com, eBay, eToys, Buy.com, and Barnesandnoble.com [3]. Except for eBay, which doesn't actually process transactions or handle goods, all of these companies have spent serious dollars on supply chain and distribution logistics. (And eBay, as everyone knows, is busy spending millions to repair its own core infrastructure: its Web servers.)

So it seems like the physical world is reasserting itself, after all. Perhaps that explains why so many offline brands are suddenly experiencing a big boost in online sales. Three of last week's top 10 online retailers -- Barnes & Noble, Toys 'R' Us, and KB Kids -- are primarily traditional bricks-and-mortar companies [4]. These companies are, finally, figuring out how to build commerce sites. At the same time, they're exploiting their built-in real-world advantages: huge brand equity, distribution, the physical presence of their products and stores (which many customers find reassuring, even if they prefer to shop online), the ability to return products in a bricks-and-mortar outlet, and so on.

See the future:
Next week's Tweney Report, now in progress at my new weblog.

Not coincidentally, this week saw a rash of partnerships between online and offline giants. AOL forged alliances with Wal-Mart and with Circuit City [5,6]. Yahoo and Kmart teamed up [7]. And Microsoft inked a deal with Best Buy [8].

When the three biggest sites on the Net announce similar offline deals in the same week, you've got to figure something is afoot. Dot-com pure plays who don't have physical infrastructure or close alliances with real-world partners should be nervous.

[1] Report: 41 Percent Jump in E-Commerce Traffic Since Thanksgiving

[2] Some Web Customers Cry: 'All I Want For Christmas Is My Order Delivered!'
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[3] Media Metrix press release on top e-commerce retailers

[4] Offline chains enjoy online sales

[5] AOL, Wal-Mart next to team on Net service

[6] Circuit City, AOL strike marketing alliance

[7] Do Kmart, Circuit City Web plans make sense?

[8] Microsoft, Best Buy team up

Martha Rogers of the Peppers and Rogers Group / Marketing 1to1 writes:

Hey, it was YOU who predicted the WalOL merger, nearly a year ago, you visionary, you.

Thanks, Martha -- I didn't want to brag, but since you mention it, I did make that call in my column last year: "Back to the future: a look at I-commerce from 1998 to 2002."

QUIET MARKETPLACES: Business Week's Tim Mullaney recently reviewed Accompany, a company that aggregates blocs of buyers together so they can command volume discounts on products. Accompany and its competitor Mercata are early examples of how the Net enables consumers to self-organize for their own benefit. But, as Mullaney points out, Accompany's catalog is still a little thin -- it's dominated by Palm Vs and computer peripherals, and there are few if any choices when it comes to, say, clothes or major appliances. And it's not just the selection that's thin: The audience is also smaller than it could be, as indicated by the small numbers of people signing up to buy items.

If these sites are to be really successful, they'll need the large product selections that will attract large audiences. And large audiences will command bigger discounts on the goods they purchase.

In other words: marketplaces like Accompany and Mercata need to accumulate a critical mass of participants before they really live up to their potential.

But here's an idea: What if there was a site that allowed consumers to truly self-organize? Right now, Accompany only lets you purchase items for which it has already negotiated volume discounts in advance. Therefore, its catalog is limited. But suppose somebody came along who didn't bother negotiating contracts or dealing with specific products at all -- and instead just provided the infrastructure for consumers to organize themselves into groups and negotiate with companies on their own? That company would be to Accompany and Mercata what Ebay is to Onsale.

Sometimes, the biggest value-add is just to provide a marketplace and get out of the way of the community gathering there.

[9] Accompany.com: Where Group Buying Needs to Bulk Up

A couple of QUESTIONABLE LEGAL ACTIONS have cropped up in the past few weeks: a court decision regarding hypertext links and an Amazon.com suit against Barnes and Noble regarding one-click purchasing. (And I'm not even going to talk about the Patrick Naughton case.)

First item: A federal judge issued an injunction against several critics of the Mormon Church that prevents them from linking their Web sites to pirated copies of some Mormon texts [10]. According to this judge's reasoning, when you link to pirated information, you're contributing to that piracy.

Does this mean every site owner is now responsible for making sure the pages he or she links to are all free and clear of copyright violations? I sure hope not. Such a policy could open the door to endless litigation, and would impose unreasonable burdens on the average Webmaster.

As for Amazon.com, the company won a patent on its "One-Click" purchase technique recently -- and it's now using that patent to threaten anyone else who wants to implement single-click purchases on their sites, starting with Barnesandnoble.com. (Does anyone ever get tired of hearing about Amazon and Barnes and Noble? I know I'm getting fed up with these two companies -- but what can you do, when they pop up in every other e-commerce news story?)

Amazon's not alone in this strategy -- Priceline has also notably pursued an aggressive patent strategy, suing Microsoft for emulating its airline ticketing business model. A recent Industry Standard article discusses the spate of patent lawsuits among Internet companies and provides some helpful guidelines on how to play this game yourself, if you're so inclined [11].

I've got to question the sanity of this kind of patent. One-click buying seems like such an obvious and universally useful thing that I can't imagine Amazon.com having the exclusive right to use it. A patent on the specific technologies they used to implement it, sure. But to patent the notion of convenience seems ridiculous. Are customers on every other site now going to be forced to click two or more times for every purchase they make?

The regulatory madhouse doesn't stop with crazy court and patent decisions, either. In other respects the Web continues to look like the Wild West. Two more illustrations: tissue-paper privacy policies [12] and the continuing saga of snafus and bad policies relating to domain name registration [13].

There may be thirty million shoppers online, but a lot of the rules are still up in the air.

[10] Copyright Decision Threatens Freedom to Link

[11] Surviving the Internet Patent Wars

[12] Internet Privacy Eroding, Study Says

[13] Domain Winner Loses Big

John Bentham writes:

you know i've gone on for years about copyright needing to be re-accessed etc... and more recently seen lots of silly things going on with patent and trademark issues. ... i just dont see a place for copyright, patents & trademarks as we know them now.

~ Back issues ~

Networking nightmares: DSL and my home networking nightmare; banner ad deathwatch, part XXIX; CompUSA killing itself -- on purpose (12.03.1999).

Getting personal: Personalization counts on Web sites; Net tax factions prepare for battle royal; auction houses stumble online; it's not cool to be a dot-com (11.15.1999)

Sorry sites: RealNetworks apologizes for privacy leaks; Amazon to sell hardware and software; AOL not accessible to the blind; banner ad deathwatch continues; updates to Tweney.com (11.8.1999).

Distributed merchandising: Farewell to InfoWorld; Levi's takes it offline; Consumer Reports rates e-commerce sites; Britannica.com and the public's thirst for knowledge; stop fixating on stores and start thinking about distributed merchandising (11.1.1999).

The whole blinkin' Tweney.com archive...