Cyberspace Short on Sales and Satisfaction

The $240 million virtual marketplace isn't meeting consumer demand or business expectations

Despite the hype, merchants aren't giving consumers much of a reason to shop in cyberspace, resulting in an electronic marketplace with low sales and slow growth.

Customers in today's virtual marketplace encounter many of the same drawbacks that catalogue and television shoppers face -- not being able to touch or smell something before they buy it and then after deciding to purchase, having to fax or call in the order. Analysts say that until consumers are given an incentive to buy electronically, such as discounts or value-added services, they will continue to keep their cybercash in their electronic wallets.

"Electronic commerce is starting to see some sales, but we haven't replicated the shopping experience yet," said Robert Main, president of Electric Press, a Reston, Va.-based firm that helps companies do business on the Internet. But even though it's been slow-going for firms setting up virtual storefronts, most still think the marketplace will eventually be successful. "It's just a matter of time," Main said.

Some take the long-term view. The Internet is developing like other mediums that have started out as mostly an advertising tool, but the sales end will follow, said Gaige Paulsen, chief technical officer at Intercon Systems Corp. of Herndon, Va., an Internet software company that was recently purchased by Performance Systems International Inc. Just as direct mail used to be just for marketing and is now a $60 billion sales tool, the Internet will evolve into a business medium, too, he said.

In fact, a recent market analysis by Forrester Research Inc., suggests the interactive retail market, which includes selling online and via CD-ROMs, will take off in 1998 when security issues are expected to be solved and when more people will have Internet access and other technologies needed to do electronic commerce. But until then, electronic sales will continue to be like pulling teeth.

Despite the addition of hundreds of new merchants to online services and CD-ROM catalogs, total electronic sales have not increased much over last year's $240 million. In comparison, the direct mail market registered about $60 billion in 1994 and the major retail market pulled in more than $2 trillion.

The Internet has proved to be a good medium for some products, including computer hardware and software, books, compact discs, videos, flowers and magazines. But shoppers aren't interested in buying most things electronically, especially clothing, cars and other expensive merchandise. "Currently, people aren't comfortable buying consumer goods on the Internet," Main said.

One reason that interactive retail hasn't met with much success is because the new shopping medium has a narrow audience. Between 70 to 90 percent of Internet users are male, said Forrester senior analyst Emily Nagle Green, "and most of these merchants are used to dealing with women," she said. In fact, 65 percent of those who buy from print catalogues are women.

Another problem with today's virtual shopping experience is that companies offer bare-bones product lines. "Early interactive merchants are not thinking straight. You can't test a new channel with one-tenth of your product line or fully probe the market with T-shirts and coffee mugs," she said.

Finally, interactive retail is failing because the technology providers, those companies that help firms do business on the Internet, don't understand selling in this venue and therefore can't help their customers, the Forrester report said.

Some companies have tried to capture a piece of the electronic marketplace by renting space in virtual shopping centers or Internet malls, such as Downtown Anywhere, Branch Mall, Global Network Navigator, and Marketplace.com. But these retailers are finding little success. "I am not sure that trying to replicate the mall in cyberspace is the right way to sell on the Internet. I think those people are missing the boat," Main said.

"Malls aren't a real attractive long-term way to do business in cyberspace because people don't [go there for] the same reason they go to a real mall -- to save time driving around to different stores," Forrester's Green said.

Then what does it take to make cash exchange hands in cyberspace? The key to selling on the Internet is creating an interactive experience that makes the customer feel good, Main said. A storefront or World Wide Web page has to be creative and make the customer come back again and again so that eventually he or she decides to buy. For instance, the magazine Popular Mechanics presents a daily "technology update" on its home page that describes new innovations. "The site gets 70,000 hits a day and some of those people [will] end up buying the magazine," he said.

In the end, consumers will only begin wide-scale electronic purchasing if it saves them time and/or money. Savings of either of these two haven't been shown so far. Security concerns have prevented the quick "browse, then click to order" process from emerging, which means customers fill in electronic order forms, or have to call a toll-free telephone number, just as they do with catalogs. As far as cost, the Forrester study found that by and large, pricing online only matches the best discount and warehouse operations.

But despite its current obstacles, analysts agree electronic commerce will be a success before the end of the century. "Within two years every company will be on the Internet," Main predicts.

Another thing that will spur Internet shopping is when America Online, CompuServe and Prodigy give their combined 5 million users direct access to the Internet. These people are more consumer-oriented than today's average Internet user, which is expected to increase the number of electronic sales. These new online consumers should also help balance the Internet audience to better mirror the whole population, something that needs to happen before electronic commerce can take off, Green said.

Once a more representative customer base is using the Internet, then it's up to merchants to decide if they will offer consumers a faster, cheaper way to shop.

dollar value of interactive sales (billions)

Revenues1994199519961997199819992000

($ billions)

Consumer$0.24$0.35$0.52$0.95$2.3$4.5$6.9

Spending

Online

Source: Forrester Research, Inc.

The chart at top shows predicted increases in the dollar values of interactive retail sales on the Internet through 2000; the increase from 1994 through 1997 is relatively small, 295 percent, compared to 1997 to 2000 - 626 percent growth in the same number of years.


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