The scene is a picturesque little Italian town featured in an IBM television commercial for electronic commerce. A stuffy-looking American couple stumble across a small shop that looks as ancient as the woman who runs it. "Look, they make olive oil," the tourist lady proclaims. Her tone is clear: this is a quaint and tradition-steeped enterprise. "We have three stores in Ohio," the tourist lady says proudly. The old woman is quick to reply: "Ohio? We sell in Ohio, and California, and Canada, and Argentina." How? Of course. The tourist lady is chastened: "They're on the Internet," she says.
Or, as yet another ad puts it, isn't everybody on the Internet? Not yet, but they're getting there - fast. At least one person in 49 per cent of Canadian households now has Internet access, at home or work, according to figures from the Toronto office of International Data Corp. (Canada) Ltd. About 10 million Canadians counted themselves Internet users last year - and projections estimate that will climb to 23.9 million (of a population of about 32.5 million) by 2003. Worldwide, Internet traffic doubles every 100 days. Those soaring numbers have a huge impact on the way consumers shop and businesses function. IDC's forecasts for e-commerce are phenomenal. Revenues in 1998 in Canada: $5.3 billion; five years after that: $80.4 billion. That's a growth rate of 1,416 per cent. Anyone who didn't believe the Web was the next wave of commerce is about to get trampled. This looks like the gold rush on amphetamines.
Business on the Internet started with the purchase of software and computers, but it is quickly becoming the means for many consumers to buy just about anything - from Beanie Babies on auction sites, to bulky big-ticket items like cars and household appliances. Even flea markets are getting in the game: last week, Halifax-based Salter New Media, an affiliate of the same company that produces the comedy series This Hour Has 22 Minutes, announced that it is expanding its Bargoon.com (www.bargoon.com), an auction and flea-market site already operating in Canada, into the United States. "Anything where information is part of the purchase decision is a candidate for electronic commerce," says David Pecaut, an Iowa native now living in Toronto who heads the worldwide e-commerce practice at U.S.-based Boston Consulting Group. Confounding the skeptics, even clothing is becoming a popular Internet buy, although Paul Walters, Sears Canada Inc.'s chief executive, doubts the day will come when a woman shops online for an evening dress. But otherwise - just about anything goes.
In 1998, only $688 million of Canadian retail trade - or less than one per cent of all sales - was transacted on the Net. But a study conducted by IDC for the Retail Council of Canada and IBM Canada Ltd. predicts that within five years the number will rise to 4.6 per cent. After that, "we really don't know how it's going to turn out," says Joe Greene, director of Internet research at IDC and one of the study's authors. But Greene and others expect the growth rate to quicken as electronic commerce moves into the mainstream. "We're now at the beginning of an e-commerce explosion," says James McQuivey, a senior analyst at Forrester Research in Cambridge, Mass., which is a leader among the firms tracking Internet trends. He believes individual access to the Net is one of the few limits on how far expansion will go.
E-commerce appears to be rebuilding the foundations of modern business. "It's not just a shopping channel," says David Marcus, head of IBM Canada Ltd.'s retail consulting practice. The World Wide Web has created a new breed of businesses, mostly American still, such as Amazon.com Inc., Yahoo! Inc. and E*Trade Group Inc. Established firms are now forced to remake themselves at a frenzied pace to take on new competitors in a phenomenon that Microsoft Corp. chairman Bill Gates calls "punctuated chaos," where change is interrupted only by short periods of stability. David Leslie, the Toronto-based CEO of consulting firm Ernst & Young, says that successful business leaders must understand that old ways of doing things are under constant threat. "People have to be bold," he says. "You have to be prepared to risk your traditional businesses."
The changes are coming in many industries, but a few sectors stand out for the magnitude of the transformation. Canadian retailers are being forced to take to the Net to defend their turf against American players. Canadians weaned on bank machines and debit cards are taking easily to the Web to handle their financial needs, with online stock trading now menacing the traditional brokerage business. In the auto business, consumers are buying cars on the Net, while the industry ponders how to roll custom-made vehicles off assembly lines to fill Web purchase orders. Travel is under siege: agents must get online or risk being pushed aside by cyber-competitors that include Microsoft. In the media business, packaging existing content rather than producing original material is becoming the ticket to success for new competitors like Yahoo! and Canada's Sympatico.
Yet for most Canadian businesses, the question is whether they fully appreciate that there is no more business as usual? The answer appears to be no. "People have not perceived this as the threat it really is," says Pecaut. The Retail Council study released in mid-June bears out Pecaut's view. It shows that only one-quarter of the top Canadian retailers are selling online, compared with half of their U.S. counterparts.
This reluctance to adopt e-commerce has led to the southbound flow of online dollars. The Retail Council survey proves what has long been suspected: Canadians spent $688 million over the Net last year, with 63 per cent of that going to U.S. Web sites. It's not that Canadians were happy about cross-border cyber-shopping - most said they would have preferred to buy from domestic sites. "But Canadian retailers aren't out there," says IBM's Marcus.
Why the hesitation? Blame it on generally conservative executives who balk at the time and expense involved in opening an online store, and the lack of sizable and immediate profits. But the pace of change, driven by the falling costs of computing power and the rise in Internet use, is so rapid that waiting for the full picture to come into focus may not be an option. "It's just a clear strategy for self-destruction," says Ford of Canada president Bobbie Gaunt, who wants all Ford dealers online by year-end and expresses concern that Canadian business leaders are being too slow to embrace the Net.
E-commerce would not be the first trend Canadian retailers have missed, the Retail Council study notes, citing such issues as Sunday shopping, big-box chains and catalogue shopping. Missing out again could mean more retail debacles like Eaton's. "This should be a wake-up call for Canadian retailers," says Marcus.
Far more Canadians use the Internet, of course, than ever go shopping on it - only 12 per cent of users made a Web purchase last year. A key issue in holding people back is a fear that credit-card transactions are insecure: 97 per cent of U.S. consumers in a 1998 Ernst & Young study said they weren't buying online because of security concerns. Canadian studies have made similar findings. But as cyber-shoppers get used to the process, fear recedes. Chuck Wilson, vice-president of e-commerce at the Royal Bank of Canada, says consumers should have no worries as long as they are shopping in the secure Web environment now offered by virtually all commerce sites. It is merchants who bear the real security risks - they have no way of knowing whether cardholders are legitimate. The credit-card industry is getting close to a programming solution, but for the moment banks treat a Web purchase as a "moto" - a mail-order, telephone order - where the business bears the risk if the card has been stolen.
Consumer activity on the Web is the most visible part of the electronic commerce juggernaut, but is overshadowed by what businesses are doing with each other as suppliers and buyers. Last year, business-to-business sales generated an impressive $4.6 billion in online sales, up from $1.5 billion the previous year. The federal government is gradually moving its procurement online with a Web site called Merx, which is now handling another $8 billion to $10 billion a year in sales that are not included in the Retail Council estimates. About 35,000 companies use the system, operated by Toronto-based Cebra Inc., to bid on government work.
As in every gold rush, some trails offer more glitter than gilt. Boston Consulting's Pecaut says when people look ahead to the next few years, they overestimate the changes that e-commerce will bring. But looking a decade ahead, he says, they underestimate the transformation - because it is hard to conceive of change that profound. This is, he says, like the dawn of the automobile age. Few in 1899 could have looked at a car and predicted suburbs. All we know now is that the future is coming faster than we can imagine.
Shopping at the Cyberspace Mall
Sam Sniderman, better known as Sam the Record Man, is pumped. As he holds court in his absolutely uncool Toronto office - with carpet up one wall and two paper Rolodexes on his desk - what has Sam's attention at age 79 is the Internet. This is a guy who remembers not just vinyl but the 78s that he sold out of his brother Sid's radio store. When his store expanded and moved downtown to Yonge Street, Sam says out-of-towners would come in and look at his stock - now about 500,000 titles - and tell him they wished there was a store like his where they lived. "We're going to be able to do that," he says of his new Internet location. "People who wanted to clone Sam the Record Man in their city can now clone it in their house."
The newly launched cyberspace version of Sam's (www.samscd.com) now offers about 200,000 music titles. It joins a growing list of other Canadian retailers who are making the shift to Internet commerce, offering everything from books to groceries to refrigerators. They are bewitched by forecasts that $80 billion worth of business will be transacted in Canada on the Net by 2003. And they are frightened by the come-from-nowhere success of U.S.-based companies such as bookseller Amazon.com, which has gone from $22 million in sales in 1996 to $892 million last year, and now sells far more than just books, including CDs and electronics. As they confront the fact that Internet commerce is not a fad, companies are "waking up and they're quite worried," says David Pecaut, head of the global electronic-commerce practice at Boston Consulting Group's Toronto office.
Companies that have established brand names on the Web have a huge advantage. Amazon.com is successfully fending off larger rivals who have arrived later to the Net. Experts warn that with change coming at the warp speed of the Internet (seven years ago, the World Wide Web didn't exist), merchants adapting to electronic commerce have no time to waste. "Traditional retailers can be very successful," Pecaut says. "But they need to move quickly."
Nowhere are the changes more evident than in the music industry, where the product is already in digital form. Retailers, artists and the big recording labels are all being swept up in the transformation. From his experience, Sam knows that a winning formula doesn't last forever. When he started in the business, Promenade Music was the market leader in Toronto, but "they couldn't see the change from 78s to micro-groove long-play" (albums or LPs). When he moved his store to Yonge Street in 1961, A&A Records was the market leader. Sam's (the firm still bears the quaint name Sniderman Radio Sales and Service Ltd.) later had its turn at the top before being displaced by British giant HMV Media Group. The shift to Internet commerce is one change he hopes he has seen in time.
Sam and son Jason, who runs the Web site, insist they have some strengths in the coming battle with established U.S. players like CDnow Inc. and Amazon. The big advantages any Canadian retailer enjoy are that prices are set in Canadian dollars and there are no customs duties. But companies such as Sam's also bring an entrenched brand name and a reputation. "I'm hopeful that will be the magic," Sam says of the 62-year-old image.
His national chain of 65 stores and the Web site will promote each other. Web customers will be able to search Sam's database, which will eventually include every one of the half-million titles in the flagship Yonge Street store. "The store is a wonderful resource," says Jason, "but it's sometimes a challenge to find what you want." In time, terminals displaying the Web site may be added to the stores so shoppers can do their own searches.
While Sam's launched its Web site in early April, some artists were already in place. Toronto musician Jane Siberry has had her site for three years. Siberry's Sheeba Records site (www.sheeba.ca) allows fans to buy her CDs and place advance orders for new releases. But in an early portent of the potential revolution in music retailing, Siberry has imminent plans to allow consumers to download high-quality music off the Web, eliminating the manufacturer and the middleman. While her company handles some sales through stores and mail order, the Internet "is my main outlet," she says, although declining to say how much music she has sold at the site.
Siberry once had a lucrative contract with Warner Bros. Records, but left to go independent in a tussle over artistic freedom. Similarly, the latest album by the Toronto-based Cowboy Junkies, Rarities, B-Sides and Slow, Sad Waltzes, is available only online (at Amazon.com) and at their live performances. For years, musicians have hawked independently produced CDs from the stage, but the Internet promises to make independence more profitable. With a format known as MP3, music that is near-CD quality can be quickly downloaded and played on computers and portable players or burned onto a personal CD. Artists such as Siberry, Prince and rapper Chuck D of Public Enemy are hoping the Net will allow them to make music and money. "What it creates is so positive on so many levels," says Siberry. "There's such a direct connection between the fans and the artist."
The music industry, dominated by giant players like Seagram Co. Ltd.'s Universal Music Group, clearly hopes to outflank the Web start-ups. The industry detests the MP3 format because it can be freely copied and distributed across the Internet. Record companies are pushing for a standard format that will foil use without payment. But Sony Music Entertainment and Universal have jumped the gun on plans for a common format: each has announced its own plans for selling music over the Net.
Whether or not artists ever wrest control from the corporate giants, MP3 or other formats may spell the end of mass-produced music. Sam's online store may have downloadable libraries available late this year that will allow customers to put together their own CDs, with the music they like, in the order they want.
While Sam Sniderman challenges Amazon in music retailing, Larry Stevenson, president of Chapters Inc. (www.chapters.ca), is waging a similar battle in books against that same U.S. gorilla of e-commerce. Stevenson believes that he, too, has an edge or two on Amazon. Chapters rang up $578 million in total sales last year - with just an undisclosed fraction from the Internet. With 59 stores, the Chapters brand is well-known and that helps to draw Web site traffic. Electronic kiosks linked to the site are being rolled out in the stores, while banners unfurl the message that Chapters is open for cyber-shopping. Stevenson is also banking on Canadians and Americans having different reading tastes.
The Net is going to become an important way to sell books, with Stevenson expecting that Web sales could capture as much as 15 per cent of sales in four to five years. But even such partisans of electronic commerce do not believe that bookstores will soon become historical relics. "The Internet is going to be very large, but it won't replace stores," he says. "A large number of people who enjoy books love bookstores."
It's one thing for books and music to become staples of electronic commerce, but refrigerators? Paul Walters, chairman of Sears Canada Inc. (www.sears.ca), says he can use Internet sales to push Sears' market share in the appliance category to 50 per cent from its current 33 per cent. The company's stores and agents are as close to ubiquitous as is possible in the real world with 109 department stores and 1,932 catalogue pickup locations. But Sears on the Web can be anywhere there is a line and a computer. So this year, the Web site will begin offering more than 2,000 different models of major appliances, in addition to what is now a limited selection of general merchandise. The Sears site now offers fewer than 10 per cent of the products found in its stores. While appliances may seem a bit bulky to be sold over the Net, consumers typically absorb a lot of information before buying. "It's a category that is information-dependent," says Walters - and making sense of mountains of data is one thing the Web does well.
Some retailers worry their Internet sites will steal business from existing operations, depreciating their huge investments in real estate. Walters has no such fear. Sears is already a big player in catalogue sales, with all the logistics in place: its own trucking company, widespread locations to pick up goods, processes to handle not just orders but returns - 30 per cent of merchandise ordered by catalogue gets sent back. Books and music were the easy part of Internet commerce, says Walters. "It's another thing to move a refrigerator."
Many Web retailers are not yet making money, their eyes trained on future growth, not present profits. Walters believes that with his operations already in place, the Internet can quickly lead to profits. The cost of handling a catalogue sale by phone is $11, but Walters estimates the Web can shave $2 off that. "In electronic sales, the customer does the work of the sales associate."
If books and music are the staples of Web commerce, others salivate at the prospect of what can be done with groceries. So far, several services exist in the United States, although none makes money and none attracts the kinds of sales numbers that make future profits a possibility. In Canada, the one major supermarket chain now experimenting with Web sales is Sobeys Quebec Inc. The Cybermarket (www.iga.net), created in 1996 and available only to Quebec residents, allows placement of an order with an individual store over the Web. The system only handles about 120 orders a week and groceries can be picked up or delivered. The problem so far is time: it takes about 45 minutes for the average person to shop in person and about 40 minutes at Sobeys' site for a first order, says company president Pierre Croteau. To reduce order time, Sobeys is running a test with 20 people using a so-called CyberPen, a handheld, wireless scanner that customers stroke across bar codes on used cans and other goods to build a shopping list. So far, says Croteau, online grocery shopping "is something for the future."
But the future of online retail is what mesmerizes everyone. Online sales in 1998 in the United States - which is showing the way in e-commerce - accounted for about one per cent of retail revenues, according to a study by the Ernst & Young consulting company. That will grow to nine per cent by 2001 and it is anyone's guess what the estimates are beyond that. "The current revenue is not the issue," says Walters at Sears. "It's where it's going." Sam Sniderman cannot conceal his enthusiasm: "I just can't wait." This, after all, is a man who has previously learned how to spin vinyl into gold.
A Clever Eye to the Future
So what's down the road as electronic commerce takes hold? Experts offer these glimpses:
Clever Cars: Onboard computers with wireless Internet connections will be able to book a service appointment at a dealership and place an order for a part - without human assistance. In the event of a breakdown, the computer will be able to notify a tow truck.
Clever ABMs: Customers could be greeted with messages on a screen asking if they want to take out the same amount they withdrew the day before, or warned that an account is near its overdraft limit.
Co-operative agents: The NCR Knowledge Lab in England is developing agents - small computer programs that may be sent off to work on the Internet. An agent could search the Net for the best price on a Ford minivan. NCR's agent is also smart enough that if it finds similar programs looking for the same minivan, it could team up with them to arrange a bulk purchase deal. Some primitive software is already at work. Sites like Amazon.com use agents to recommend books to buyers based on previous purchases.
Banking on a Naked Need for Money:
When people say it really isn't about money, it's about money. But when Brian Donovan closed his account at TD Bank's Green Line discount brokerage and moved his stock portfolio over to E*Trade Canada, it was about service and the convenience of online trading. Although Green Line Investor Services also offers trading over the Web, he preferred the range of research services at E*Trade. "Everything is right there," he says. Donovan, a Halifax sales representative, is no computer nerd - but he has happily climbed on the bandwagon of electronic finance, not just for his investments but for banking as well. "I can bank naked," he says.
The attraction of banking in the buff is growing as Canadians make the easy leap from a predilection for automated tellers and debit cards to the Internet. More than 1.6 million customers now have online banking access with the Big Five banks; by the end of 1998, about 200,000 online trading accounts had been set up, according to estimates from E*Trade prepared by U.S.-based Forrester Research Inc. E*Trade (www.canada.etrade.com) now has more than 11,000 accounts, up about 140 per cent from a year earlier. "There's been a dramatic shift to the Web in terms of banking and brokerage," notes Chuck Wilson, vice-president of e-commerce at the Royal Bank of Canada (www.royalbank.com).
But the Internet will do more than make it possible to bank and trade stocks at any time of the day or night. An increasing array of financial services will be available on the Web, including what may be The Next Big Thing - using the Internet instead of the mail to send out bills.
With people doing more of their routine banking by phone and on the Net, bank officials say they will be able to give more personal service to customers dealing with complex transactions. In the future, account managers plan to make a habit of visiting people applying for mortgages. Experts say brokers and bank branches will not disappear: "People still want face-to-face contact," says Wilson. But the Internet will likely change the way customers pay for services. Brokers may begin to charge for their advice instead of taking commissions on stock trades. Bank clients who insist on dealing with humans for routine transactions that could be handled more cheaply on the Internet could pay increasingly higher service charges. "Personal contact will be there," says Ross McKay, vice-president of business banking services at the Canadian Imperial Bank of Commerce (www.cibc.com). "We may price it differently in the future."
Canadian retailers may be slow to embrace Internet commerce, but observers say Canada's big banks, which dominate both banking and the brokerage industries, have moved aggressively to give themselves post position in what many are calling the New Economy. "In the United States, it's the retail industry that is driving e-commerce," says Wilson. "In Canada, it's the banks and the telcos [telephone companies]."
In the old world, customers did their business when it was convenient for their bankers and brokers. In the new world of e-commerce, people do what they want to do when they want to do it. Donovan likes to go over his portfolio in the evening, doing his research using a variety of online sources that offer information once available only to brokers. "I control my destiny seven days a week," he told Maclean's. E*Trade Canada president Colleen Moorehead says there are many like him: "There isn't an hour during the 24-hour cycle that we do not receive e-mails or orders." Bank officials say their systems are likewise busy at all hours.
While Canadians have had a few years to get used to online banking and stock trading, plans to start sending bills over the Internet may catch them by surprise. Two competing plans - one from a consortium called e-route Inc. and the other led by Canada Post - are well-advanced, with pilot programs set for this year and full-scale operations planned to start next year. Consumers will be able to choose whether they want to receive bills over the Internet or by mail. With e-route's system, customers logging onto a bank's site would see an alert that a bill has arrived. They could then schedule when to pay it.
As ever more financial services migrate online, cash could soon become about the only tangible left. Naturally, of course, the digital designers are working on eliminating that, too.
The media's new messengers:
The setting would be more at home in an Elmore Leonard novel than a script for corporate success. The smell of stale beer and cigarettes lingers in a near-deserted Toronto bar; a guy wearing a light suit and a dark shirt runs an ancient freight elevator that rises to a rooftop meeting. The occasion: an appearance by Jeff Mallett, the Canadian-born president of Yahoo! Inc., who is in town to launch several new products on his company's Canadian Web site (www.ca.yahoo.com). Mallett wears an open-necked shirt, his sports jacket slung over the back of a barstool. This is California casual, Silicon Valley-style. But what makes people pay attention is the phenomenal success of Yahoo! (the exclamation point is part of the name) and Mallett's stark assertion: "We are now building the pre-eminent 21st-century media company."
That's quite a goal for a company that didn't exist six years ago and operates only on the Web. Yahoo! went public in 1996 and now carries a stock market valuation in the range of such giants as CBS Corp. It easily outdistances icons of the media industry such as the New York Times Co. and the Washington Post Co. The company, which was founded by two graduate students, now has operations in 19 countries.
What separates Yahoo! from traditional media companies is that it does not create content - in fact it takes pride in not doing so. News comes from the Reuters and Associated Press wire services; financial information and sports from a variety of sources. And there is content that only a Web site could love: personalized home pages, free e-mail, messaging software so users can tell when friends are online, telephone directories and maps. "We're not in the content-creation business," says Mallett. "We're in the distribution business."
In its desire to leave the storytelling to others, Yahoo! is not alone. Canada's most popular Web site, Sympatico (www.sympatico.ca), is run by a Toronto company called MediaLinx Interactive LP. "We don't see ourselves as content providers," says MediaLinx CEO Shaun Purdue. "We're an aggregator." That's the Web term for those who take content, whether news or telephone and movie listings, and assemble it so users can easily find what they are seeking.
In the world of the Internet, the job of bringing informational order out of informational chaos may prove - as Mallett clearly hopes - to be the thing that separates the successful media companies from the also-rans. Michael O'Neil, Canadian manager for International Data Corp., a U.S.-based high-tech research and consulting firm, notes the world is now flooded with far more information than any human could digest in a lifetime. Helping people to make sense of infinite amounts of information has become, he says, "an act of creation."
Sympatico's place in Internet publishing is also noteworthy because of its parentage. MediaLinx is not owned by one of Canada's big media companies, but by the phone company; Purdue's last job was as chief operating officer of Bell. The company also owns a substantial minority interest in Canoe (www.canoe.ca), the country's second-largest Web site, whose principal owner is the newspaper publisher Quebecor Inc.
Why is the phone company now in the media business? Bell thinks strong Canadian Web sites will persuade people to buy Internet access, part of Bell's core business. If Bell is unable to establish a strong presence on the Web, says Purdue, it risks being pushed aside in the fight to retain a direct relationship with its customers. In the geek language of e-business, it's called "disintermediation." In plainer terms, "we'll be marginalized," Purdue says.
That is just one example of the blurring of business boundaries. Another is the Quicken Canada Web site (www.quicken.ca), run by the new media division of Rogers Media Inc. (which owns Maclean's). Quicken, which offers a wide range of financial information, is a partnership between Rogers and Intuit Canada Ltd., which produces financial management software. In the United States, The Hearst Corp., a publishing giant, has joined forces with Whirlpool Corp. to sell appliances on the Net through a soon-to-be-launched site called brandwise.com. What Hearst brings to the partnership is its long-established Good Housekeeping brand name.
But is anyone making money? Bell hopes that MediaLinx and Canoe will eventually turn profits. And Yahoo! is already in the black. "We have to think that profits matter," says Mallett. For a company that aspires to be the Disney or Time Warner of the Web, it can hardly believe otherwise.
A Road More Travelled: Agencies Must Adapt as Online Trip Bookings Grow
Bailey's Travel Ltd. is a long walk from being one of the world's big companies. Based in Dartmouth, N.S., it employs a staff of four, and after 12 years in business, earns annual revenues of less than $3 million. Bailey's is used to competing with giant firms like American Express Travel and Carlson Wagonlit Travel, but now it must confront a different breed of mammoth competition: Microsoft Corp.
These days, the software giant from Redmond, Wash., is very much a part of the industry, having launched its Expedia travel Web site (www.expedia.msn.ca) three years ago. Expedia now sells more than 5,000 airline tickets a day, more than Bailey's sells in five months. Travel is not the only industry that Microsoft has successfully invaded as the advent of electronic commerce begins to blur the boundaries that traditionally divided companies into distinct sectors. The company also has Web sites selling cars and offering financial information.
In Canada, online ticket sales have been slower to take off than in the United States, where about four per cent of tickets are now purchased on the Web. But Peter Vezina, Bailey's manager, says the trend is too powerful to ignore. "So far, we haven't noticed a big impact, but it's inevitable. In a few years, we're going to be going 50-50 with the big guys."
Expedia is definitely among the big guys, racking up more than $750 million in travel sales a year. Despite that, John Pollard, Expedia's international group manager at Microsoft headquarters, is quick to provide a reality check that proves e-commerce is still in its infancy. Against total U.S. industry revenues of about $150 billion a year, "we're tiny," he says.
The big travel sites, such as the Canadian version of Travelocity (www.travelocity.ca), owned by the Texas-based Sabre Group Holdings Inc., all offer similar services. They allow you to research travel destinations, as well as check - and reserve - airline tickets, car rentals and hotel rooms. They keep track of frequent-flyer memberships and provide deals on such leisure travel items as cruises and resort packages. In short, they do pretty much everything that a travel agent would do. For Pollard, that's no surprise: "Expedia is a travel agent."
Expedia and other online competitors use the full throttle of computer power to their advantage. Keeping track of every airline that flies a particular route, and of the different prices, is something that computers - and by extension, the Internet - do well. Travel agents have done this for years, using their own systems to sort options for their clients. So, says Pollard, Microsoft's entry is not as peculiar as it might appear: "There's a huge amount of information to wade through - that's a great software problem."
Online services have another advantage over traditional competitors. All travel agents have seen their profit margins cut in recent years as airlines have trimmed and set caps on agency commissions. Online services have suffered the same fate, but they also draw revenue from advertising and from fees for providing car-rental firms and hotels with a prominent place on Web pages. Pollard is loath to give figures, but says Expedia earns millions of dollars a year in advertising revenue.
Expedia's bread and butter is travel on heavily used routes. "That's where the major market is," he says. But pile complexity on complexity and travel agents have the edge. The online sites, for example, cannot easily allow someone to book two legs of a trip in economy and another in business class. "There's still a lot of stuff out there," admits Pollard, "that takes the artificial intelligence of humans."
Along with cuts to commission, competition from the Web has become yet another cross to bear. But travel industry executives still believe agents can compete. One answer is with their own Web sites - or maybe the best way to stay in the game is through exceptional service. "I deliver my tickets personally to my clients' homes," says Vezina. That's something no Web site can ever do.
Cars: The Deal of the Next Century
Dale Arthur, a retired Edmonton businessman, is the proud new owner of a 1999 Chevy Silverado two-tone truck - white with pewter accents. He and his wife, Gloria, have long wanted to travel, and needed something that could pull a large trailer. He got a good price on the Silverado, and the options he wanted, including a bigger engine - without spending hours traipsing to dealer showrooms. Instead, he bought his truck over the Internet.
Car and truck sales on the Net are just starting to rev up. Last year in the United States (Canadian data is not available), about 800,000 new cars, worth $28 billion, were sold through online sites. That number is expected to reach 5.2 million cars and $200 billion in sales by 2003, according to a study by U.S.-based Forrester Research. As the change takes hold, the entire industry - from manufacturer to local car dealer - will be turned upside down. Bobbie Gaunt, president of Ford of Canada and an ardent believer that the Web is not just a passing fancy, says companies will have to redo the way they do business. If not, she warns, "you are not even going to survive."
Arthur bought his truck through a service known as Autobytel.ca Inc. (www.autobytel.ca), one of several car-purchase sites. People use the site to research their purchase, get reviews and information on prices, safety issues, fuel economy, and options. When a user decides to buy, California-based Autobytel passes the customer referral to a dealer in its network - in Canada, this includes about 150 new-car dealers in every province except Newfoundland.
Arthur knew he wanted a Silverado. After making his selection online - a process that took about 30 minutes - Autobytel sent his request to Don Wheaton Chevrolet-Oldsmobile in Edmonton. Bryan Jewell, the dealer's Internet sales manager, called and offered a set price of $39,900. That was the best price Arthur found: he was glad to avoid negotiating because, like many people, he hates to haggle. Services like Autobytel offer prices that can only be beaten by aggressive shopping and bargaining. After a few more phone calls and some e-mail, Arthur's deal was done.
Microsoft's CarPoint site takes the service a few steps further. (While it is run by Brantford, Ont., native Lindsay Sparks, a network of Canadian dealers will not be established until next year.) CarPoint's databases list the available options for each vehicle. The site also provides a video, so a customer may look over the inside and outside of the vehicle. But like Autobytel, purchases are handled through affiliated dealers - 2,700 of them in the United States.
About five per cent of U.S. cars are now being sold through the Internet, but many car dealers remain skeptical that this poses a threat. Rick Gauthier, president of the Canadian Automobile Dealers Association, points to the fact that Autobytel and CarPoint still refer customers to dealers. "At the end of the day," says Gauthier, "the customer still needs to go into the dealer and touch the car."
But even that appears to be changing, and fast. In mid-May, the newest of what may be a new breed of Internet car sites set up shop on the Web. At CarsDirect.com, based in California, the entire transaction is completed without the buyer ever contacting a dealer. "We take it a step further," CEO Scott Painter told Maclean's. The service, which will be available in Canada by year's end, can even deliver the car to the buyer's home or office. CarsDirect, which gets its auto inventory through brokers and dealers, also handles financing.
Some customers will always want to take a test drive. But Painter and CarPoint's Sparks say, increasingly, new-car buyers feel less need to touch the upholstery and check under the hood. Because the Internet sites offer so much data, Sparks says online customers visit an average of 1.2 dealers before buying, compared with between three and five for off-line sales. Boston Consulting Group estimates one-quarter of car purchases are now researched on the Internet.
The volume of auto sales on the Web already shows promise. At Don Wheaton, Jewell has sold 60 or 70 cars over the Net in the past seven months, a sales rate he calls about average for the business. At CarPoint, Sparks says the service generated about 130,000 U.S. sales leads a month in the last three months of 1998: 20 per cent of them lead to purchases.
The real revolution could come when a Web surfer can order his or her car or truck online and made to order, as Dell now does with computers. Ford employees in the United States already use the company's internal Internet to order cars off the assembly line. The public could begin to custom-order cars in "months to maybe a year," Gaunt says. It now takes between 20 and 70 days to manufacture and deliver a vehicle. Ford's goal: 10 days.
Perhaps sooner than they realize, many buyers will be clicking, rather than kicking new tires.
Maclean's July 12, 1999