The Trend Toward a Multi-Channel E-Business Model

In 1991, the extraordinary social historian and author Paul Johnson wrote The Birth of the Modern: World Society, 1815-1830, which explores an age of new ideas, inventions, and great technological advances of every kind. One suspects that those who lived then were, as we, awed by the swiftness with which change had come upon them — how change became a way of life, not simply a moment or two within their time frame.

For all that took place during that threshold to a mechanical revolution, it is appropriate to remember that for them it was the steam engine that crashed its locomotives through their walls of comfort and certainty with unforeseen force and dislocation of time and space. For us in this period of threshold to a technological revolution, the Internet — our steam engine — is causing the virtual elimination of distance between nations and between consumers. There was no going back then, nor is there now.

One might also recall, with some forbidding, that on September 15, 1830, a gentleman named William Huskisson became the first railway accident victim. The British essayist Charles Lamb and many of the arts and sciences community of his era watched the aurora borealis of change with fascination and uncertainty. Fascination for all the possibilities before them, and uncertainty for the same reason.

Today, some one hundred and seventy years later, virtual victims lie to the right and the left, in front and in back of us. We too are filled with awe and no small amount of uncertainty. Once again there is no going back. Our new modern world both blesses and victimizes us.

Some denounce what is taking place as a coming tsunami, which will result in the eventual suffocation of our individuality, the plowing over of our nature and our natural uniqueness. And thus, they hold, it is simply not a good evolution of the modern.

To say that one side of the tumult is all evil and the other all good is tragically simplistic. Globalization of our world has carved out of the human psyche something which has always been with us — the duality of all things human and contrived. Add to that the consistency of the pendulum swing — the constant movement from one extreme to the other — and we once again confront the need to view all this from a distance and not become overly caught up by the flagrant blossoms of individual flowers about the fields.

Such is the case with our many evolving economic drivers — the spiders weaving our intercontinental Web. Key among them at the present is the emergence of vast technological advances turning themselves into the buyer-seller continuum. As for Lamb, much of the fascination lies in watching the pendulum swing — the passing parade.

As with those who witnessed the perambulating display of mounted scenes each passing in their turn in pre-Renaissance theatre, some of us find ourselves simply standing at the side watching in enthrallment as the pageant passes by. Some seek and gain places in the pageant itself, building the scenery and acting out the scripts. And others are the playwrights of our e-business stage. Unlike the plays of the pre-Renaissance, however, our theatre is ever-evolving not over decades and centuries, but literally from moment to moment before our very eyes.

Only yesterday we witnessed that part of the pageant in which the dot-com entrepreneur, who pounced upon the facility of electronic business to capture whole markets with unheard-of ease, emerged and seemingly dominated the stage. Dialogue became the language of digits, numbers, hits, and herds. Finding money and making money became the acts of the play — King Lear’s tragedy was no longer within himself, but rather became his failure to win the venture-capital lottery. Act Three, it appeared, was played out with the sale of months-old businesses for vast sums, the players then marching off the stage garland in gold.

Fortune 500’s became the misfortunate. They even became relegated to their own theatre — historic but in some decay, while the electronics set up their own proscenium next door.

Watching all this was the audience — you and I. Our love of the pageant has become one of mixed reactions: enamored with how facile we have all become talking and trading with one another, even while, as consumers, we have grown impatient with even a moment’s delay or a bump in the road in meeting our needs — now.

As General Electric’s president and CEO, John F. Welch, Jr., once observed, it’s really the same as it has always been. Someone selling something and someone buying something. Our speedy new players upon the stage — those dot-coms, those “pure plays” — have taken us by storm, leaving “traditional” bricks and mortar companies to plod along a path suddenly leading them away from the impatient consumer.

Ironically, however, their speed has been both their making and their twist of fate. Like all theatre, the drama is in the snags along the path. Customers have found those who play purely within the electronic marketplace often to be less than satisfactory in meeting their needs. Speed and its companion, convenience, are fine bricks in one’s business foundation. But they are not the only mantels upon which permanence rests.

Meanwhile, those business that have long been building customer relations through store fronts, catalogs, and one-on-one relationships; that have long been playing out their performances under the critical eyes of customer satisfaction, P & L statements, and successful strategic planning built upon a foundation of sound business practices — those business are regaining their balance upon the stage.

The short and the long of it is that, as a result, we are seeing the pure plays now reaching out for hitherto traditional business practices: some are setting up their own store fronts, and others are building partnerships with the traditionals. All have discovered that they must plug their hemorrhaging of dollars in order to maintain the respect of customers and the support of investors. The old-fashioned profit-and-loss statement looms in the horizon once more.

At the same time, the traditionals have awakened to the new realities of the playing field. Customers are clearly drawn to the convenience and speed of e-business tools and techniques. The need, these companies are saying to themselves, is to incorporate the Internet into their traditional business practices not only to capture or recapture traditional customers, but to quickly outpace the dot-coms in adding potential customers from around the globe to their base.

The present is thus painted in a variety of colors all intersecting at the customer. Indeed, in a way never before witnessed, the consumer would seem to be in control of the marketplace. On the one side we have the vivid colors of speed, convenience, and the daily battle for a new global market share — one which could be lost the next day by anyone clever enough to play the game a little better, a little faster, or a little bit more customer-savvy. On the other side we have the earth tones of fundamental, solid business practices — tempered, however, with a new sense of “entre-preneurism” and “intra-preneurism” that has developed as a core seismic change in doing business.

As the dot-coms and the traditionals develop multiple channels for doing business, a number of scenarios and subplots within and without emerge. As each strive to inaugurate new and often seemingly contradictory mechanisms and philosophies of doing business, for instance, we are seeing internal employee-churning due to the restructuring of departmental hierarchy, mission, and practices. For employees, new skills are in demand while older skills fall by the wayside. Leadership requires such a variety of competencies — old and new — that some are finding themselves making exits to no applause and little recognition for achievements made in a bygone-world now changed beyond return.

In the external contest, while global in nature — where each business will place itself in this eventually dominant marketplace — the customer again becomes the focus overall. Always we return to the reality of goods being made, sold, and bought. The tempest that surrounds that simple, constant dynamic is the drama forever being played out. Only now the stage is the world.

Let us examine in some depth three key factors in this dynamic: customers’ declaration of independence; the multi-channeling of business practices necessary for engaging in commerce with the new customer of the new modern; and the chaos this is generating within both the traditional and pure-play businesses.

About a year ago there appeared on the Internet a statement of customer-power entitled “The Cluetrain Manifesto.” In April 1999, Wall Street Journal reporter Thomas Petzinger, Jr., wrote an article about the “Manifesto” entitled, “Web Rebels Try to Make Managers Talk Like Humans.” He told his readers:

“Fortunately, there’s still time for clueless companies to get clued in. The shortcut begins at www.cluetrain.com.

“Over the past two weeks, thousands have flocked there to read the ‘Cluetrain Manifesto.’ Hundreds have sworn to the document by signing their names. Some of the signatories are probably your customers. A few may be your employees.

“The Manifesto is the pretentious, strident, and absolutely brilliant creation of four marketing gurus who have renounced marketing-as-usual. They are Doc Searls, a former flack from Silicon Valley who now helps publish Linux Journal; David Weinberger of Boston, a consultant, Web publisher, and frequent National Public Radio commentator; Rick Levine of Boulder, Colo., a top designer for Sun Microsystems; and Christopher Locke, an Internet visionary who runs a one-man shop called Entropy Web Consulting, also in Boulder.”

There are 95 points or “theses” to the manifesto. While some points verge on the ridiculous, many strike home particularly in memory of Christmas’s past, when some of the pure plays (total dot-com companies) struck out in the game of customer satisfaction in the delivery of goods and promises. The entire manifesto, which can be found at www.cluetrain.com, is worth reading. It commemorates the time of our new modern when a couple of players got run over by a train.

The essence of the manifesto’s statement lies in these words: “most corporations . . . only know how to talk in the soothing, humorless monotone of the mission statement, marketing brochure, and your-call-is-important-to-us busy signal. Same old tone, same old lies. . . . But learning to speak in a human voice is not some trick. . . . They will only sound human when they empower a real human being to speak on their behalf.” The manifesto’s statement concludes by pointing out that “corporate firewalls have kept smart employees in and smart markets out. It’s going to cause real pain to tear those walls down. But the result will be a new kind of conversation. And it will be the most exciting conversation business has ever engaged in.”

“The Cluetrain Manifesto” reminds us that our business is now customer-driven in a way never before experienced. The manifesto says to us that:

And what form is that discourse taking? An August 1, 2000 online Business Week magazine article by Marcia Stepanek speaks of a new Website entitled eComplaints.com, in which founder Jennifer Biscoe invites customers to lodge their complaints about customer service from the traditional companies like Wal-mart to the pure plays like Amazon.com. Her site has logged over 10,000 complaints since last December. To be sure Ms. Stepanek is passing the complaints along — making sure that the customer dialogue is heard, and felt!

There arises no small degree of irony, however, upon learning that Ms. Stepanek, in true entrepreneurial fashion, will be churning the discourse from her mill into detailed market research data — for sale at $12,000 to $36,000 per year.

Author Stepanek concludes her piece by revealing a site entitled customerssuck.com, where frustrated service reps get the opportunity to take a few loud-mouthed customers to lunch. Only fair.

Another recent Web-fed article speaking to this point appeared recently (July 2000) on the Wharton School of Business Website (knowledge.wharton.upenn.edu). It reports the thoughts of McKinsey & Company consultant and author, John Hagel, who acknowledges that the shift in power favoring consumers can create challenging situations for companies. “If a business is not focused on getting cost out of the value chain, it will be impossible to compete,” Hagel cautions. “But if that is all a company focuses on, it has a serious dilemma. It will be managing a smaller and smaller business.”

In short, companies must realize the power of the Internet, which is e-business, to help drive their search for new products and add value for their customers. This process will cause “restructuring and soul searching by companies about what business they are actually in,” Hagel concludes.

On August 28, 2000, Business Week’s online site (www.businessweek.com) remarked in an article entitled “Brands in a Bind” that the masters of the superbrand, Coca-Cola, McDonald’s, Procter & Gamble, among a short list of others, were at the top of the heap. No longer.

While Coca-Cola is still number one, its brand value dropped $11 billion over recent years. Four of the next five were all technology companies: Microsoft, IBM, Intel, and Nokia. “That’s why,” the article asserts, “traditional big-brand companies are striving furiously to reinvent themselves and to restore value to their venerable brands.”

As Lamb suggests in the opening quote, these changes go both ways, as does a pendulum. “No one thinks that the current identity crisis in brands will be the end of such corporate behemoths as P&G and Gillette.” (Really?) “But to restore their luster in this new era where the Net rules, old-brand companies are going to have to get with the program,” the article’s authors assert. “For those that fail to do so, the cost will be great. For those that succeed, the turmoil of the past few years could provide a healthy catharsis.”

Statistics would seem to bear out that assertion. USA Today has noted over the past few months changes taking place in the marketplace. While most traditionals have been slow to “get with the program,” some are regaining dominance over the pure play dot-coms in their categories.

In the apparel industry, for example, the pure play Bluefly with sales of $5 million is lost in the shuffle compared to such companies as Lands’ End at a $1.38 billion take through their own Internet site (up from $61 million a year before), and the Gap with an estimated 1999 online revenue of $50 to $100 million.

A March 8, 2000 article in USA Today reported that Lands’ End’s success was “largely due to Website features promoting human inter-action. These include electronic chat, which allows real-time access to customer service agents around the clock.”

Banks and lenders have been quite successful in attracting customers through their online portals as well as those holding up bricks and mortar. Bank of America boasted 15 million customers last year. Of those, 2.1 million or 14% entered online. This compared to pure-play E-Trade Bank that drew a mere 200,000 customers — all online.

Dozens of similar stories are being played out in such industries as computer hardware and software, office supplies, brokers, and air travel. On June 15, 2000 Business Week reported on a new study from Jupiter Communications, which predicts that by the year 2003 U.S. companies will more than double the amount spent on Internet-based infrastructure over the level spent in 1999. Infrastructure spending in 1999 ran at $56 billion; operations and maintenance came to $97 billion. By 2003 those figures will rise to an estimated $89 billion and $259 billion, respectively.

This is not to say that we are seeing the end of the pure-play revolution — or perhaps evolution would be a better way to phrase it. We have not seen the end of the Amazons, the eToys, and the drugstore.com’s. The drive away from structural dysfunction and drastic financial bloodletting is leading the pure plays in the direction of adapting traditional-value chain basics. These include configuring strategies for developing organizational functionality, consumer-wise delivery of products through proven traditional avenues, and the making of profits in order to prove to the venture capitalists that continued investment will not result in still more dollars thrown to the wind.

As Jim Silver, publisher of The Toy Book, a toy-industry trade journal, puts it, for Toys R Us for instance, “getting the Internet experience is much easier than getting the toy expertise” (eCompany Now [September 2000]: p. 162). The asset that Toys R Us gives toysrus.com is simply that it has been selling toys for years — it knows the industry.

A July 6, 2000 “data nugget” available through Business Week online, reveals that “immediate earnings are becoming a must for Internet start ups.” Statistics derived from ActivMedia Research reveals that nearly two thirds of business-to-consumer (B2C) sites will edge into the black in the year 2000. At the same time about 50% of the business-to-business (B2B) companies will also experience the joy of turning a profit. By the end of 2000, 69% of the B2Cs and 49% of the B2Bs project profitability. Another 16% of the B2Cs and 18% of the B2Bs see themselves as going into the black one to five years out. Interestingly, some 24% of the B2Bs have no intention of ever making a profit. Only 8% of the B2Cs can imagine such a thing for themselves.

USA Today reports (March 8, 2000) that the Boston Consulting Group (BCG) has found that customer satisfaction is as critical for the pure plays as it is for the traditionals. “The only skill to be able to shop on the Internet should be typing,” commented Michael Silverstein, BCG’s head of consumer goods practice. “Online retailing success stems from focus on the total business at the outset,” article author Lorrie Grant reports, “including customer service and ease of transaction.” Simply put, today’s customers, euphoric in a sea of buying and trading dot-com opportunities, have discovered that ease of access and low cost does not always translate into a better product — nor, increasingly, better service. Many dot-coms excel in the acquisition of, and are currently on top in the fight for, traffic. Fewer, however, have proven equipped to offer traditional quality customer service. Customers are not happy. And the public has the buying power to make their displeasure known. The customer is in control!

Traditional companies have taken note. Many have begun to move to the next level of competitiveness: integrating the speed and convenience of the Internet with their well-honed customer service practices. These quickly moving traditionals have begun to recapture customers seemingly lost to the pure plays.

What is crystallizing is called “multi-channel e-business”: the merging of the traditional and new economic drivers. This emerging world is not going to be an easy transition for any business — large or small, new or traditional. More than ever before, service and value will reign together. Many businesses will fail to put the two together well enough, fast enough, or often enough to survive. The advantage will come to those who quickly grasp what tomorrow will look like and how to arrive there ahead of the competition.

Our actors upon the stage are asking, how will all of these changes affect the new modern marketplace? What will tomorrow look like, and how can I get there?

Among those who would dare to write the script is Killen & Associates, a Palo Alto-based market research company that focuses upon the impact of the Internet, specializing in electronic bill presentment and payment (EBPP), electronic statement presentment (ESP), and multi-channel e-business (MCEB). In a report recently released, entitled “Multichannel E-Business: Competitive Advantage for 21st-Century Global Enterprises,” Killen & Associates presents a particularly interesting framework for the amalgamation of the traditionals and the pure plays — each seeking their place, if not dominance, upon the stage.

In its executive summary of this well-executed piece, Killen advanced the thesis that “MCEB (multi-channel e-business) will likely prove to be the single, most powerful means by which Global 2000 companies can meet the threat of the pure plays and other e-business-savvy competitors.” Parts of the summary are worth citing at length:

“For the past two years, the business media has focused on the meteoric rise of the ‘dot-coms’. . . . The prevailing assumption of those who write about e-commerce is that the Internet ‘pure-plays,’ fueled by their enormous cost advantages and often staggering market capitalizations, will drive their non-digital counterparts out of business. Scant attention has been given to the potential for the opposite to occur as we enter the new millennium.

“In fact, the pure plays are finding that they must ‘muddy’ themselves with traditional infrastructure, service, and logistics functions if they are to attract and satisfy more customers. In this respect, Global 2000 companies are light years ahead of the dot-coms; they have built, refined, and honed extensive distribution and service assets over the last 40 to 50 years. The catch is that these competitive jewels are buried in layers of traditional organizational structures and business processes. To succeed, major corporations must tap into these assets and integrate them into a Web business model, even though it may cause disruption of conventional processes, cannibalization of existing sales channels, and redefinition of the roles of industry participants.”

MCEB, we are told, enables established corporations to become highly competitive, scalable, and customer-focused as traditional businesses that incorporate Web-based structures and processes into their real strengths: distribution and service. This is on top of proven product performance and branding as key advantage points.

At the same time, Web-based pure plays are seeking those same advantages in a number of ways, including teaming up with traditionals, opening up their own store fronts, mergers, acquisitions, and branding, to name but a few.

The Killen & Associates report challenges the pace of change by throwing down the gauntlet to move quickly in the direction of multi-channel e-business construction. They forecast that the profit of doing so will come to those who take advantage of the present turn of events to move swiftly into the next stage of our new modern economy. “There are roughly 25,000 firms in the United States with more than 500 employees,” they comment. “Roughly one percent of these firms are currently on track to implement MCEB, while 30 percent will follow in three years, and most of the remainder will adopt MCEB by 2010.”

In closing, let us draw a parallel, as did Lamb, to the human equation within our new modern business place. The disruption, cannibalization, and redefinition — mentioned in the Killen & Associates report — affects you and me: all of us mere mortals staring up at the sky wondering what the world is coming to and keeping a wary eye open for a place of safety amidst change.

In his article entitled “ePocalypse Now,” which appears in the September 2000 issue of eCompany Now magazine, author David Kirkpatrick writes that the “e-commerce effort can cause brutal infighting, backstabbing, and blind panic.” He comments that:

“We all know about the nice thing the Web can do for a company: It can help sell more product and increase efficiency. It is the greatest technological advance since the computer, yea, since electricity itself. But moving toward the Web can cause damage too: It can create deep divisions between departments and resentment in longtime employees. . . . For every enthusiast who sees the Net’s business potential as infinite and unquestionable, there’s someone else for whom that potential inspires fear, denial, and resistance — usually in that order.”

One of the most telling quotes from Kirkpatrick’s article is a comment from an e-commerce systems salesperson, who reports that “I can flatly say that at every single one of our customers, there is somebody in the organization who is trying to kill what we’re doing.”

Kirkpatrick offers six “rules for avoiding Web disaster.” While perhaps a touch oversimplistic, the point is well made. He includes in his list the obvious — “the CEO has to drive the bus” — to the penetrating — “get your marketing and tech departments to quit bickering” and “no matter what, your salespeople will hate you.” In between there is the sublime: “make sure everyone takes a nice, long swig of the Kool-Aid.”

Traditionalist and dot-com experienced, James Shaffer offers additional insights into this transformation process in an article entitled “Fighting Genetics: How Can Bricks Beget Clicks?” which appears in the present issue of Maine Business Indicators. Shaffer holds that organizations tend to “carry their old ‘genetic’ cultural characteristics into new ventures.” The question then becomes, how to apply existing resources to give birth to new and different business forms?

Yet, as we continually step back for our macro view of the pendulum swing, we note a recent article in USA Today (August 16, 2000) which heralds the “trend” of college graduates shunning dot-coms in exchange for the “security” of the traditional firms. “Many also are realizing,” author Stephanie Armour asserts, “that technology has permeated traditional firms, providing them a chance to get tech skills without joining a dot-com whose future is unknown.”

Additional trend watching divulges the backlash to the arrival of the e-business astute, technologically savvy college grad at the door. Salaries being paid to these new arrivals often comes in at dollars and perks well beyond those being enjoyed by long-time employees who, with less pertinent skills, are already fighting the big “change reaction” syndrome.

As with every generation, every epoch of our civilization, every exponential growth in ideas, technology, and dreams, human beings lie at the heart of the equation. When it comes to our feelings of uncertainty in the face of manifest change, we are no more sophisticated today than in Lamb’s generation. The entrepreneurs of the early 19th century pushed at the envelope just as hard as those who push at the new modern envelope today, albeit perhaps with consequences far more consequential to our planet.

In a recent issue of Business Week, Richard S. Tedlow, Harvard University business historian, pondered the issue in his article, “The Challenge for the 21st Century: Balancing Entrepreneurial Zeal with Time-Tested Concepts of Financial and Managerial Discipline,” (August 21-28, 2000). One questions if it will take a century for that balance to take place. It could easily happen within the weeks and months ahead, leaving Tedlow and the rest of us to wonder what the next test will be and where it will leave us.

There is a March of Science mounted on our new modern stage. But who among us shall beat the drums, not so much for its retreat, but, as it advances, for its humanity?

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