IP: U.S. NEWS COVER STORY: Gold Rush in Cyberspace

[Dave Farber <farber () central cis upenn edu>]

Copyright, 1995, U.S. News & World Report All rights reserved.


U.S.NEWS & WORLD REPORT, NOVEMBER 13, 1995


Businesses and entrepreneurs are rushing into cyberspace like forty-niners
driven mad by gold fever. Just last week, the smell of money pervaded
Boston's World Trade Center as 30,000 people representing multinationals,
mom and pop shops, fortune hunters, saints and sinners spent four days
wandering through Internet World's city-size landscape of exhibits, booths
and marquees touting avenues to riches on the Net. 




   The attraction for business is obvious: For an investment of as little
as $30 a month, almost anybody with a personal computer and a modem can
set up a base of operations on the World Wide Web, a global network of
computers that is part of the Internet (glossary, Page 77). Web ``pages''
can be seen by millions of users on the Net, an expanding universe of
networks that has doubled in size annually for a decade and now spans 150
nations. It's that huge body of potential consumers that has businesses
scrambling to get onto the Web, to which 6.64 million computers are
already hooked up. There are more than 100,000 Web sites already,
including one from U.S. NEWS that begins operation this week, and the
number doubles every 21/2 months. 




   The popular Yahoo guide to the Web lists more than 23,540 companies. The
Shopper, a Web directory, currently lists over 370 Internet shopping malls
selling everything from peonies to pythons. Last month, InsWeb launched itself
as ``a consumercentric information and purchasing site.'' InsWeb expects to list
more than 50 insurance services by next year, possibly turning the often tedious
and confusing purchase of auto and life insurance into a point-and-click
experience. And just last month, Security First Network Bank became the first
financial institution to offer full-service banking on the Net. It's no wonder
that Vinton Cerf, a pioneer of the Internet, exults: ``This is the year that
business discovered the Internet.''




   To many, this is the dawn of a radical new commercial era in which a single
medium combines elements that used to be conveyed separately: text, voice,
video, graphics. Countless firms will be transformed in the process, including
publishing, banking, retailing and deliverers of health care, insurance and
legal services. Predicts the newsletter COMPUTERLETTER: ``The Web will become
the transparent fluid in which all of our personal, corporate and public data
are miraculously suspended.''


LOOKING OUT.


Still, a question nags: Is there a market for this commercial zeal? Answer:
There is a fairly small one now and probably a large one to come in the next
decade. But many things must happen technologically and creatively to draw more
paying customers.




   For starters, there is some encouraging news for sellers on the Web. Last
week, a major survey by Nielsen Media Research (famed for its TV-market
analysis) found that 24 million people in the United States and Canada have used
the Internet in the past three months--more than 18 million of whom used the
Web. The survey, commissioned by CommerceNet, a consortium of more than 130
companies doing business on the Web, found that 37 million in North America have
access to the Net--a figure three times higher than that measured in other
surveys. Nearly two thirds of Web users surveyed have a college education, and
half are in professional and managerial occupations. Respondents spend about
51/2 hours a week using the Net for everything from E-mail to Web browsing.
About a third are female--a number that surprised many who thought cyberspace
was almost exclusively a male domain.




   Given the growth and increasing commercialism of the Web, it is easy to
forget that the system was created only in 1989 to help scientists share
information. (The Internet itself was set up in 1969.) Graphical browsers,
software programs that help users mouse-click their way around the Web, were
first developed in 1993, and the popularity of Netscape Communications'
Navigator browser caused an explosion of activity last year. Overall, about 2.5
million North Americans have bought something via the Internet, says Tom Masotto
of CommerceNet. 




   As enticing as those findings are, though, there are major obstacles for
firms trying to sell on the Web. First, most information on the Internet is
already free, as is much software. Experienced Internauts, not used to paying
for things they download, may be reluctant to pay as they go. Second, as
spectacular as the Web technology is, it still has a considerable way to go to
become attractive to the great numbers of consumers who are used to the
amenities of mall and catalog culture (story, Page 80).




   Commerce will begin in earnest on the Web when the computer becomes as easy
to use as a telephone or a microwave oven. It can be daunting to boot (turn on)
a computer, phone a help-line consultant to learn how to use the software and
seek help often to figure out how to negotiate cyberspace. The computer is
evolving into an information appliance. But that day won't truly arrive until
computers get easier to use and conveyors--telephone companies and cable
television companies--hook up homes with high-speed data lines that end those
annoying delays when folks try to download a picture or a sound bite from a Web
site.




   Third, consumers have to feel a lot safer transacting business on the Web
than they do now. The Internet was never built to be a tight ship, yet it is
already as secure as many of the services people use daily and probably more
secure than telephones and faxes. ``Even the banking systems are penetrated, but
we don't stop using banks,'' says David Farber, Moore professor of
telecommunications at the University of Pennsylvania. Still, Internet security
could be vastly improved if the government loosened its hermetic controls over
civilian uses of powerful cryptography, which could be used to encrypt credit
card and other vital sales information. But experts like Robert Seidman,
publisher of SEIDMAN'S ONLINE INSIDER, warn that consumers should not be fooled
into thinking that electronic commerce will ever achieve total security, an
impossibility whenever computers are involved.




   Fourth, even if transactions become more secure, there are many other
unresolved privacy implications of the Web that might bother many consumers.
``Companies can already track trails of `mouse droppings' over the Internet,
finding out which Web sites you go to and for how long,'' says Larry Irving,
head of the National Telecommunications and Information Administration. Last
month, he recommended that all communications providers, including broadcasters,
cable TV companies, telephone companies, wireless operators and those who
provide Internet services, voluntarily ``inform their customers about what
information they intend to collect and how it will be used.'' There is no law,
says Irving, that stops providers from gathering information that identifies ``a
person's entertainment-viewing habits, telephone-calling patterns, shopping
preferences and even voting behavior.''




   Still, overcoming these concerns is only the beginning of the challenge to
entice consumers. The other ingredients of doing business on the Web:


* UNDERSTAND THE MEDIUM. Conducting business on the Web, a phenomenon with no
parallel in communications history, will demand new strategies in advertising
and marketing. Unlike broadcasting and print, which are one-to-many entities
with a passive audience, the Internet is a many-to-many medium in which everyone
with a computer and modem is a potential publisher. Web surfers, for example,
tend to be self-directed. They typically have little patience for
``brochureware,'' advertisements that are thrown up like so many billboards.




   The Web gives commerce a unique opportunity to communicate directly with
employees and customers around the world. ``The Web can be a powerful tool for
fostering connections, building associations, delivering information and
creating online communities,'' says John December, co-author of THE WORLD WIDE
WEB UNLEASHED. ``These activities are much more subtle than home shopping.''




   The Web levels the playing field, so that small businesses and entrepreneurs
can battle bigger foes on a more evenhanded basis. Advertising on major media
like TV involves major cash. But establishing a Web site is inexpensive, and a
site is relatively easy to update daily. It has been a cheap, effective
marketing mechanism for the likes of Jeff Smith, guitarist for a suburban
Washington, D.C., pop band, who uses his Web site to play song samples and offer
the band's CDs through the mail. The downside is that attracting people to your
site relies largely on word of mouth. If you build it, they might not come.


* MAKE IT INTERACTIVE. The best way to lure people back for repeat visits to Web
sites is to make them dynamic and intellectually challenging. For instance, the
NANDO TIMES, an electronic newspaper created by the News and Observer Publishing
Co., updates its content every five minutes. Donna Hoffman, an Internet
marketing expert at Vanderbilt's Owen Graduate School of Management's Project
2000, says the best sites are those that invite playfulness, inducing what
psychologist Mihaly Csikszentmihalyi has dubbed a ``flow'' state, totally
absorbing the user's time and attention. Flow is akin to the reverie experienced
when playing chess, for example, or while focusing on the challenge of rock
climbing.




   Some sites jump out as exceptional examples of how different the Web is from
old consumer models. At CDnow, a Penllyn, Pa., business founded in 1994 by
26-year-old twins Jason and Matthew Olim, customers can order from a catalog of
over 165,000 compact disks, cassettes, vinyl records and music videos or plunge
into 300,000 reviews from the well-respected ALL-MUSIC GUIDE and 12,000 artists'
biographies. A powerful program built into the site allows a search for
recordings by artist, title and key words. The program also tells about an
artist's musical influences and lists other performers in the same genre. Each
name is ``hot linked,'' so a mouse click connects the customer to even more
information. CDnow's seemingly endless layers of subdirectories make it easy and
fun to get lost in a world of information, education and
entertainment--precisely the ingredients crucial for inducing flow.




   Another surprisingly popular site is the Federal Express page. Customers can
track their FedEx shipments traveling through the system by typing in the
package receipt number. Although tracking a parcel sounds like geeky fun at
best, FedEx exerts a curious pull precisely because it is free, utilitarian,
dynamic in a gamelike way and consumer self-directed. It is also a lifesaver for
someone worried about a package gone astray. In September, 168,000 customers
tracked packages  on the site, whose activity increases by about 30 percent
monthly, says Federal Express Electronic Commerce Marketing Manager Robert
Hamilton. The Web, says Hamilton, is ``one of the best customer relationship
tools ever.''


* TRY NEW MARKETING STRATEGIES. The Web is still so mysterious as a sales medium
that some entrepreneurs are thinking about giving away free Internet access and
browsers to lure people onto it. ``Once I can get people to my home page,'' says
one businessman, ``then I'll figure out what to do with them.'' And, presumably,
what to sell them. Last week, AT&T announced that it was giving away that free
access to 110,000 schools--a $150 million grant that officials say will pay off
in later years when those kids become paying consumers of information services.


* USE IT IN-HOUSE. Businesses that think only about making money, however, may
be missing one of the Web's uses: saving money. It can streamline an
organization's information distribution to customers and workers. Sun
Microsystems, which operates a Web-based program called SunSolve, says it saves
$250,000 every three months just by eliminating toll-free calls. Customers log
directly onto Sun's Web site for current information, documentation and software
updates, says Sun spokesman George Paolini. Sun also uses the Internet to
distribute Java, its new software program, a further savings of $50,000 per
month over what it would have cost to distribute the program on CD-ROMs.




   Sun has also developed an ``intranet''--that is, a Web site that the company
uses to communicate with its employees. Instead of relying on the haphazard
distribution of electronic memos, employees can visit their company's Web pages
at their convenience to search through archived information about company
projects, personnel matters and policies. This can be a boon for the growing
ranks of telecommuters.




   Eventually, the Internet could replace or supplement everything from
television to telephones. Last month, Intel Corp. announced the development of
Intercast, which will link the Internet and television to personal computers.
Consumers could be using their computers to view Web pages combined with
television by late next year. ``PC sales are exploding, and sooner or later,
just about all those users are going to wind up on the Internet. What other
marketing medium offers that kind of potential growth?'' says Richard Notebaert,
chief executive officer of Ameritech. The message for businesspeople
contemplating their place in cyberspace is simple and direct: Get linked or get
lost.


BY VIC SUSSMAN WITH KENAN POLLACK