[12239] in Commercialization & Privatization of the Internet
RE: The internet will kill us
daemon@ATHENA.MIT.EDU (Tansin A. Darcos & Company)
Wed May 11 00:43:00 1994
Date: Tue, 10 May 94 19:59 EST
From: "Tansin A. Darcos & Company" <0005066432@mcimail.com>
To: Tom Limoncelli <tom_limoncelli@warren.mentorg.com>
Cc: com priv <com-priv@psi.com>
Sender: "Tansin A. Darcos & Company" <0005066432@MCIMAIL.COM>
>From: Paul Robinson <PAUL@TDR.COM>
Organization: Tansin A. Darcos & Company, Silver Spring, MD USA
---
tom_limoncelli@warren.mentorg.com, writes:
> The Internet will end our ecomomy as we know it as soon as
> digital cash is accepted and purchases can be made via the
> Internet. It will bring all competition down to price.
Which shows why the only automobile people purchase is a Yugo (or
equivalent sub-compact) since it is the least expensive car on
the market. Or why nobody *ever* buys a Cadillac, Oldsmobile,
BMW, Mercedes Benz, Porsche, Pantera or Lexus, since those are
*all* more expensive than compact cars. After all, the only care
people have in buying cars is one based on price.
NOT.
> With sufficient purchasing automation, it won't make sense to
> have a contract with a single supplier that averages the
> cheapest. Instead you can order each individual item from
> whomever is cheapest at that moment. Don't worry about all the
> paperwork from having 15 suppliers rather than 1, DigiCash
> handles all of that for you.
This, of course, assumes that you do enough business on the
Internet to justify the cost of the connection, the software and
the problems that will inevitably occur when you have a brand new
technology started.
Is anyone on here aware that Bank of America took something like
a US $20 million writeoff (in 1969 dollars) for the creation of
the Bank Americard credit card system? Or that Sears ate $80
million to start the Discover Card?
IBM, Sears and the other partners have taken a bath to the tune
of $1 billion to pay for the cost of Prodigy; that's a lot of
washwater! :)
This stuff would have to work very well from the start - small
merchants cannot afford these kind of losses (even in proportion
to their size) and thus would not be able to stand them - or
people will not even consider these "high tech" marketing
schemes.
> Think about it:
>
> Run Mosaic 6.12. Go to the Global-Super-WAIS query screen
And this requires that the software be written to handle this,
plus the ability to handle transactions online and so on.
Digital Cash is a long way from being a done deal. Plus, to
handle this, I strongly suggest the addition of what I suggested
before: that a .SVC domain be created to distinguish between
commercial services and the E-Mail or other office services.
> and search through the index for "Office Supplies, Pens".
> Click on it.
Ahh, a subject I can discuss with confidence: commodity items. I
sell commodity items; computer disks and magnetic media. I have
to compete with everyone else including Giant (grocery store) and
some of the local office supply companies such as Jacobs
Gardener, and the national ones such as Staples, plus Egghead.
Then there are the mail order companies that compete on price.
I learned years ago to stop competing on price; anyone who does a
huge volume can undercut me. I have to sell on quality and
service; if I can't make it, then I get out of the business and
let someone else bleed their capital. I think there is enough of
a niche for the customer who wants better service for a supplier
to make money. If not, I am wrong and I'll leave the market to
those who can cut each other's throats more efficiently.
> Now new fields appear and you enter information about exactly
> what you want, what color, what quality, felt or ball.
>
> Click "search best price".
>
> In 2 seconds you are told the best price, displayed a picture of
> it, and you click on "Purchase now".
There is a company in Pennsylvania called "Softmart" that does
the same thing with a set of diskettes they send you that allows
you to go through their catalog and select items, then mark the
ones you want and have your modem dial up their computer and send
the order via a toll-free number.
I think Softmart sells computer programs, but the idea is the
same; it's selling a commodity. (How many different
classifications are there of Word Perfect 6.0 for DOS on 3 1/2"
diskette are there?)
> Office World, Staples, Boise Cascade, even the tiny self-owned
> office supply store around the corner all make their serious
> money by becoming the sole supplier for large companies and local
> businesses. Sure some of their prices are low, but some of them
> are not... that's where they make their profit. They lock you
> in.
There are a number of reasons why a company buys from someone,
and not all of them are based on price. And not all companies
sell on price. Read Harvey Mackaulay's "Swim With the Sharks..."
for points about how you can sell a commodity-based product.
Harvey tells how he got a large customer for his envelope
business, but it took him three years to get her to buy from him.
And in that three years, he kept licking away at the customer's
resistance. (Pun intentional - licking; envelopes, well I guess
you had to be there).
Good businesses do not always sell on price and good customers
don't always look for the best price. Sometimes you do and
sometimes you don't. I once purchased the store brand of raisin
bran, and won't make that mistake again. I won't buy the cheapest
margarine and off-brand spaghetti is false economy. While I won't
pay an "excessive" amount for the soft drinks I buy, I won't buy
a product I don't like even if it's cheaper. And if I find what
I want, I am willing to pay more.
Does anyone know someone that sells strawberry pies? I used to
get them all the time in California but they are rarer than hen's
teeth here. I'd pay more for a strawberry pie than I would for
the apple, cherry or blueberry ones that come from Hostess or
Dolly Madison, only I can't get them at all.
> These major "single supplier contracts" are what keeps most large
> companies in business.
People who run the purchasing office for large companies often
have other concerns than merely price. If you are the largest
customer of a company, you tend to get much better service. And
then again, it's not going to bleed a company if it has to pay
$10,000 a year more for its office supplies when it uses perhaps
$1,000,000 a year in office supplies, but in return, when it
places an order, it gets what it orders the same day or next,
even to the point of the store owner bringing the order by in his
truck.
For example, a company may be using a certain amount every month.
It might decide to have the office supply company ship them
supplies on a regular basis, or be able to pick up the phone and
order off a company account where the company can eliminate
paperwork.
Or there can be other considerations. In Ohio, for example, it
is legal for an employee of a customer to accept kickbacks from a
supplier if the customer does not object. I wonder how many of
the large companies in Ohio are paying their purchasing managers
less by letting them keep kickbacks from suppliers?
> DigiCash will change that. There would be little incentive to
> make such a contract and consumers would demand "best price per
> item" and would buy wherever WWW tells them that best price is.
Just because one is selling a commodity product does not mean one
can only make commodity prices. "In Search of Excellence" tells
an example of a gas station in a town that routinely charged 3-4c
a gallon more than some of the stations only a few blocks away.
And did a good business, and the service bays were usually full,
and he charged slightly more for repairs. Well, one day this
woman had to get her car fixed, and the other places were full or
closed or couldn't handle it.
So the woman takes her car in, and while she is at work, she gets
a call from the repair man, who wants to consult with her before
proceeding with the work. She's thinking he's going to tell her
it's very expensive. The repair man called her to tell her that
if she takes it over to the dealer, they will fix it under
warranty at no cost to her; also, that he called the dealer
and he has the replacement part in stock.
Want to guess where she buys her gas from now on?
> When you can only compete on price (because all other factors
> are the same) you are now in the "Commodity Market". The problem
> with selling a commodity product is that you reduce your profit
> to just barely what it takes to get by.
But the fact is, not everyone buys ONLY on price. And not all
factors are equal. There are always differences. If cost was
the only concern, the videoconference booth would have decimated
the business travel business. People still travel on business
because it serves a basic need, the ability to socialize.
Especially when it's on your employer's nickel.
> Cars, stereos, floor wax, makeup, soap, food, videos, etc. You
> name it. If all of these things turned into commodity items, our
> current economic models would stop functioning. Storefronts
> would rarely be able to compete against a warehouse with a T3
> line and an automated shipping system. Massive layoffs as
> salespeople are no longer needed.
A large company probably can't be concerned with selling small
quantities of inexpensive items.
One of my competitors charges $3 to place an order with them. If
you are ordering $100 worth of supplies, that's only a 3%
surcharge. If your order is $10, that's a 30% surcharge. If I
sell to companies without a surcharge in small quantities, I can
make a $1 more on a box of disks because it's less than my
competitor with a minimum charge. And I can offer something to
local customers that my competitor in a midwestern state can't
offer: same day service. And sometimes I buy on price: if my
competitor is lower than my supplier, I buy from him; if someone
else is lower, I buy from them. Now what do I offer that they
don't? Personal service; I can't guarantee the disks are
perfect, but I'll take them back on the spot, no questions asked
and replace them, then and there. Competitors require that you
mail them back and wait days or weeks for replacements.
Further, *I* use the same diskettes that I sell to my customers.
I think my data is important, and I won't sell inferior product.
I can name at least 1/2 dozen brands of disk that I won't touch
because the quality of them ranges from barely tolerable to broom
sweepings.
But with some of my competitors getting into delivery, it's time
for me to move on into other fields since I can no longer compete
on price and service, so I'll go on into something else that my
competitors don't want the market on; perhaps I'll go into
private label disks for small stores that want to sell their own
brand of disks.
And you can't buy services from a catalog: would you buy the
attorney defending you from a criminal charge based on the fact
he was cheaper? Would you hire a plastic surgeon to cut out your
warts based on the fact he costs less than others? (I used
'plastic surgeon' because that's a charge you'd have to pay
out-of-pocket; insurance plans won't cover it.)
> ...and our economy would be ruined.
Browsing an on-line catalog doesn't have the 'feel' that a visit
to a Staples or an Egghead Software does. Twice I've made recent
purchases in a store because the item was there and I saw it. If
I'm searching through an online catalog, I'm not likely to see
things that I'm not looking for, because no matter how smart its
browser is, it's not going to know how to show me what I don't
even know I need.
Because I saw one in a Staples, I bought a whiteboard for a
relative. She has found this $10 erasable board to be very
useful for a number of things in taking short-term notes and to
write important details down. It's not the sort of thing that
you necessarily look for if you don't know it's there.
I put one up in my office, and it has become quite useful for
those who want to leave me messages to do so. Much less messy
than a Yellow Sticky (tm) and when I've read the message it is
just wiped off.
At least three times I've bought computer programs from Egghead,
Comp-USA or Micro Center based on seeing them in the store, and
twice because I got to try the program. An on-line browsing
capability is not going to substitute for actual exposure to
applications.
Plus you have the problems of delivery. If I stop at the grocery
store on the way home, the cost for further distribution of the
food is zero. If a grocery in, say, Nebraska has to ship a
weeks' worth of food to me in Washington, DC, someone has to pay
the U(S)PS charges. Figure at least $2 a pound. The prices had
better be a whole lot lower than the local store to cover the
cost of shipping. Not everyone is willing to pay extra for the
privelege of saving 2c an item.
And, a local company here is also offering to do your shopping
for you, and order whatever you want. The ads for them indicate
the charge for this to be "as little as $10". For some people,
the extra charge to not have to bother with grocery shopping
might be worth it. For other people, the public socializing they
can do in the store is part of their day.
I sometimes visit computer stores even when there is nothing I
want. It sometimes gives me ideas, and sometimes I find things I
didn't know about or even get ideas for new products. But that
fountain of free ideas which is available for the taking, is only
there if you get out and see the junk^H^H^H^H^H merchandise for
sale in todays computer stores.
Also, let's not forget logistics problems. Do you know most
American Cities are so efficiently fed by local supermarkets that
the average city is only 3 days from hunger and a week from
famine? It is because food comes in to every market every day
that we have prices as low as they are. If you start to ship
food in to people's homes, what kind of increased truck load does
this generate for the nations highways and for UPS or the Postal
Service? Do you think you can build mega warehouses large enough
to hold 10-day supplies of food for a large portion of the
country, which is about how long cross-country shipments can
take?
Since the average 15,000 item supermarket serves perhaps 1,000
people in a neighborhood and provides them with food perhaps
every other day, in a space of perhaps 20,000 square feet, the
space needed to hold a megawarehouse to hold 10 days worth of
food for 2 million people, would be perhaps 100 milion square
feet if we use robotic stacks 4-stories high. 100 Million square
feet is a piece of land 2 miles square, 4 square miles! And can
you imagine what it would take to load a monstrosity like that?
You'd have to have eight-lane highways capacity filled to bring
in food and ship out orders!
The whole 'price-performance' of discount mail-order of primary
supplies falls apart as soon as the customer has to go into a
local store and buy something because he ran out when the shipper
failed to deliver at the time the supplier promised. The customer
is not going to look favorably on that supplier in the future,
unless the cuts are *so* steep that the inconvenience is part of
the price reductions. And customers are more likely to pay the
extra cost to get *rid* of inconveniences.
> Just a totally pesimistic thought for the morning,
That ignores what business is *really like*.
---
Paul Robinson - PAUL@TDR.COM
Voted "Worst polluter of the (IETF) list" by Randy Bush <randy@psg.com>
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