Distributors dread the day when their customers start buying from competitors over the Web. That day has already come in other industries.
Using the Web to do important business activities went from being a novel idea to a fact of life in 1997. The following six industries are panicked about the "sudden," large impact that the Web has had on their structure:
Automobile sales. Auto-by-Tel gave a big prize to a lady from Pennsylvania in early December. She was the one-millionth customer to request a quote for a car from their Web service, which funnels quote requests to 2,600 participating dealers. Because the average car today costs $20,000, that's $20 billion worth of auto purchases that the Web affects, mostly in the past year.
In response to Auto-by-Tel's success, General Motors and the other auto manufacturers may soon start offering consumers direct Internet access to car "configurators," national inventory location and e-mail quoting from dealers via their own sites. Ford and GM are both buying and consolidating dealers in certain markets to rationalize channel costs to compete with the alternative Web-based networks.
Personal computers. Michael Dell, chief executive officer, Dell Computer Corp., Round Rock, Texas, set up a Web site to sell computers directly to consumers at the beginning of 1997. Users simply click on pull-down menus loaded with basic computer specifications, and within minutes, they can virtually create their own computer systems.
By the end of the year, www.dell.com was averaging $3 million worth of online computer sales daily, and even had some $6 million sales days in December. Now Dell is wiring its Web site into the intranets of their biggest corporate accounts, such as Ford, and into its suppliers' just-in-time delivery systems. Durable goods manufacturers in the U.S. that have items special ordered through distributors by end-users must be thinking about how they can be the first in their industry to give end users what they want-direct access for faster, easier and less expensive purchasing.
It doesn't mean that distributors can't play a residual role as a virtual re-seller doing pre- and post-cyber-sell duties for a quarterly commission check. But it has to happen. End-users have already spoken about how they want to buy cars and personal computers. Most distributors sell far less fancy stuff. The securities industry. Online brokerage firms were laughed at and ignored by traditional securities firms in mid-1996 when E-Trade went public. Now every major firm with the exception of Merrill Lynch is online. By December, Charles Schwab had 1.1 million online accounts with $77 billion in assets. Online trades per day went from 95,000 at the end of the first quarter to 138,000 at the end of the third quarter, while commissions-per-trade dropped from $32 to $17.24. Although more players have jumped into the fray-22 Internet operators at last count-the industry is operationally profitable. You will hear plenty about it this year, as the online securities industry is projected to spend $250 million in advertising in 1998 to promote itself.
Do you think all of the stock-pushing reps can move up the pyramid to become true "consultants" that people will want to pay $300 to $800 per trade in commissions? Why do this when you can get better, faster, total information on a 24-hour, seven-day-a-week basis and buy stuff at 10% of the normal commission rate? Trading on the Web removes a lot of the traditional bundled value and activity involved in personal selling.
The telephone business. Last month, Qwest Communications International, Denver, Colo., a start-from-scratch, state-of-the-art bandwidth firm began offering 7.5-cents-per-minute long-distance rates anywhere in the U.S. for nine western states using Internet telephony technology. The company will offer the same deal to 80% of the population by early 1999, when its 16,000-mile North American network is finished. Experts forecast that by 2001 most businesses will have continuous connections to the Internet that they will use for much of their calling, along with data and fax transmission.
The travel industry. Travel agents saw their commissions for domestic airline tickets chopped another 20% in 1997. Internet sales of airline tickets from the carriers directly to the consumer have passed the $1 billion run rate, and are projected to double in volume in 1998. However, there are more travel agents than ever before, because the barriers to entry are now an Internet hook-up from your house.
The information and publishing industries. The interactive Wall Street Journal edition went from being free to having 150,000 paid subscribers (including me) and it's still increasing. Twenty-nine online business and professional services collectively surpassed 25.3 million online subscriptions in the third quarter, and they are growing at a 5%-per-quarter growth rate. We must rethink how the Internet will affect our distribution industry and 100-year-old business models.
Editor's note: This article was edited from the author's essay "1997 Developments in Channels of Distribution," which can be found in its entirety on the Merrifield Consulting Group's Web site at www.merrifield.com.
The Web is already changing the business world. Here's how you can prepare your company for when these changes hit the electrical industry:
Become a believer. As you can see from the examples discussed here, it's not a question of whether the Web will change the distribution industry, but of when. Some observers believe this industry is one can't-miss, "killer application" of a Web-based-business model away from a real revolution.
Look to the leaders. If you want to see where electronic commerce is going, keep close tabs on what some of its most vocal proponents are doing. Companies like Eclipse, Grainger, Graybar, Hubbell, Panduit, Prophet 21, Summit Electric Supply, T&B and Trade Service are leading the charge.
Be proactive. If you haven't already done so, appoint or hire a point person to bring your company up-to-speed on electronic commerce. It's also a must to make sure all key managers buy into doing business electronically, and to incorporate it into your company's short- and long-term planning.