By popular - and Wall Street - consensus, Amazon.com, CDNow, Peapod and similar offerings have become signature examples of the power of online retailing. But to me, these companies are only the forerunners of the real retail revolution yet to come.
Today, the focus is on how the Web affects traditional retail stores. In the long run, the big story will be the Web's ability to create retailers where there has been none before.
To see why, look at today's trendsetters. Amazon.com is certainly a useful service, but it has hardly revolutionised my book-buying. Between the two of us, my wife and I buy at least a half-dozen books per month - but we pretty much use Amazon only when we think something will be hard to find. Even then, for really obscure works, the Boston Public Library has had a much higher hit rate. Unless you live in a remote area or find getting out difficult, Amazon is just a nice, additional option.
A similar perspective could be applied to CDs, travel planning, stocks and food. My local Tower Records store already has pretty much every CD I'm interested in. Unless you're an active stock trader, telephone and mail do a pretty good job of managing the typical set of consumer mutual funds. And as one who travels a lot, I still haven't found any compelling reason to make my own reservations. Again, these services are nice, but ancillary.
It would be more useful to me if the Web could bring the retail experience to new areas. As someone who works independently, I would like to be able to go to an online health insurance store where I could check out what various companies offer to meet my needs. Doing comparisons today is basically torture. Similarly, I could use Web stores to compare car insurers and rates, mortgages, hotels, restaurants, car rental agencies - even telephone services. All of these would be much more useful than ordering food.
But perhaps more important, the emergence of these stores will likely have a much more profound impact on their existing industries than anything resulting from today's Web retailers. Insurance companies, banks and health care providers are all used to dealing directly with their own customers. All have benefited greatly from the ability to build a high level of familiarity - and inertia, which tends to raise consumer switching costs. When was the last time you changed your car insurance company?
A retail environment could fundamentally change that. Certainly, direct price and service comparisons would become far easier to compile. But just as important, retailers impose their own pressures on suppliers in areas that are the virtual equivalents of shelf space, inventory, discounts, bundling, introductory offers, service and so on.
Selling through a retailer has always been fundamentally different and generally more efficient than selling direct. The point that people tend to miss is that retail stores exist because they provide real value. Though many Web pundits talk of retail as an inherently wasteful thing - one the Web had best get rid of - the next generation of Web entrepreneurs will bring a far different perspective: to them, retail stores are great for consumers. The big question is how to create more of them.
(Moschella is an author, independent consultant and weekly columnist for Computerworld. His Internet address is [email protected].)
