From Bricks 2 Clicks

Brick-and-Mortars gradually remove some concrete from under their feet as Web integrators develop online presences that boost their bottom lines

A year ago, trendsetting Internet service companies made a killing helping dot-com start-ups realize their e-business dreams. Then in April, that market soured as dot coms fell out of favor with Wall Street analysts and venture capitalists. That's when enterprising e-business specialists turned to brick-and-mortar giants, who were generally behind in e-business and needed to catch up quickly.

The windfall many service providers expected did not materialize, at least not then. In late summer, for example, Cysive, Scient, Viant, Xpedior and others conceded that their growth rates were slowing. Yes, they still believe brick-and-mortar giants offer tremendous opportunities, but not without extra work. Sales cycles, service providers have found, have lengthened. Deals have become more complex. And scrutiny of contracts and objectives has intensified. As a result, a new and realistic, if not sober, approach to selling brick-and-mortar companies has emerged. It will likely shape the market for Internet service companies for years to come.

"Companies are taking a much more holistic approach to the Web," says Phillip Say, e-business strategist for Novo, a San Francisco-based e-business developer. "Established businesses are now looking to apply Web technology to their core business." This means brick-to-click undertakings will assess the entire impact of the Web throughout a corporate business. That's good news to solution providers who can leverage existing technology investments into efficient Web solutions.

Novo, for example, has developed brick-to-click strategies for large national retailers such as Proctor & Gamble and Krause's Furniture. The integrator is working to design and engineer new Web portals for United, Delta, Continental and Northwest Airlines. Say believes such large clients are interested in adopting new technology, but want to know its impact on their internal processes and procedures before they proceed.

Unlike their dot-com counterparts, brick-and-mortar players realize that the launch of Web sites will have a tremendous impact on their existing organizations in everything from sales channels to customer fulfillment to call centers. As a result, clients need to understand the overall impact and implications of the technology before a site goes live.

Charting Retail Strategies
In addition to impact, brick-and-mortar companies have shown they're more interested in traditional, financial metrics than dot-com start-ups. That includes return on investment, net profits and customer-acquisition costs.

Such an approach is much more sophisticated today than many new Internet retail companies that are still focused primarily on selling to large numbers of customers have undertaken in the past. In fact, using the Web to boost company sales is a notion that is hardly dead, though many brick-and-mortar companies have nearly killed themselves trying to figure out a viable strategy.

Office supply giant Staples, for example, launched its Staples.com online site in early 1999, largely as an extension to its existing retail and catalog business. The expense associated with the Web effort pummeled the parent company's stock price and generated just an estimated $94 million in online revenue--about 1 percent of Staples' total 1999 revenue of $8.9 billion. Staples completely revamped the site in May, adding new search tools, small-business services and a streamlined checkout procedure. It has also promoted the site heavily in its existing stores and by offering rebates in newspaper advertisements to customers who move to the Web for their purchases.

JCPenney is another old-line company grappling with a Web strategy. The retailer pulled in an estimated $102 million from its Web site in 1999, less than one-half of 1 percent of its $32.5 billion in 1999 total revenue. Even so, JCPenney's Web effort may be successful, at least when judged against Internet-only competitors. Web retailer Bluefly, for example, racked up just $5 million in annual sales. Another online retailer, Boo.com, went out of business this spring after posting heavy losses. JCPenney revamped its site in March, adding a browser tool for female shoppers that allows them to model clothes on a replica of their body dimensions before an actual purchase. That is a concept executives of Lands' End, a direct merchant of casual clothing, said they pioneered last year.

Also waiting in the wings are giant discounters Wal-Mart and Kmart. Both announced online initiatives this winter and plan huge site expansions for the upcoming holiday shopping season, but they are keeping close-mouthed about their specific plans and partnerships (though Wal-Mart has already sued Amazon.com for allegedly hiring away some of its employees). Both brick-and-mortar companies have opened offices in Silicon Valley, a sign the competitive fray is about to get serious.

In another twist, some traditional retailers are actually forming alliances with their dot-com competitors in an effort to master the Web game. Toys "R" Us stumbled online last year, turning away customers at Toysrus.com in a pre-Christmas buying frenzy because its site couldn't support heavy traffic. To make amends, Toys "R" Us gave away $100 gift certificates after it was unable to fill 4 percent of its orders by Christmas, as promised. Toys "R" Us reported $11.9 billion in revenue last year--with just $50 million derived from its online sales effort. This spring, the company announced plans to double its online staff and build two new fulfillment centers.

But then the company reversed itself and signed a 10-year contract with Amazon.com to link its online sales operation. Under the deal, Toys "R" Us is responsible for selecting and buying the toys, while Amazon receives flat fees and a small percentage of each online sale. Toys "R" Us says the alliance will help bring profitability to Toysrus.com two to three years sooner than expected.

The new alliances and new Web strategies in the retail sector are being formed at a time when many traditional companies are struggling with developing new business models. A report released in January by consulting firm Deloitte Consulting found that only two-thirds of 400 surveyed retailers had Web sites, and roughly only 100 of the companies were actually selling online. Of those that had Web sites, nearly one-third believed they served no strategic purpose. Among those companies surveyed that were selling online, nearly half reported they were filling orders from the same distribution centers used by their brick-and-mortar operations. Another 30 percent said they were fulfilling the orders directly from their store shelves. Deloitte executives concluded the brick-and-mortar companies needed to evolve their business models, develop multi-channel sales and invest heavily in technology to be successful.

Organizational Impact
The emphasis on technology greatly benefits solution providers and Web integrators. Understanding the beneficial impact technology can have throughout an enterprise organization--and the way it can change the entire customer equation--stands in stark contrast to the early dot-com emphasis on building name recognition instead of infrastructure, many solution providers and CIOs believe.

"With traditional companies, we take a different approach," says Anish Dhanda, president of NetNumina Solutions, a Boston-based Web integrator that provides e-business solutions to Fortune 1000 companies. "Our approach focuses on more of an architectural level. We'll come in and look at the existing technology, evaluate their existing skillsets and then ask how they want to move forward." When dealing with brick-and-mortar companies, Dhanda believes, it's critical to address their specific technology needs, provide the right tools and build the solution around existing legacy systems.

"You can't have a solution that is pre-determined before you come in," he says. "You have to study their specific needs and be prepared to work with them as a team. You have to take more of an architected approach and provide the right tools." It is also important to accept existing legacy systems and build the new solution to leverage off them. "You can't be afraid of it," Dhanda says. "Just because they have a legacy hole, it doesn't mean it doesn't work."

NetNumina's client base includes AEW Capital Management, Citibank subsidiary CrossMar, the Federal Home Loan Bank of Boston and insurance company W.R. Berkley. Berkley, based in Greenwich, Conn., illustrates the kind of problem solution providers typically are brought in to solve. Berkley is a holding company that operates in all segments of the commercial and personal insurance business. It has several thousand insurance agents hooked into a legacy system comprising more than 5,000 screen formats and 50,000 data items. The company needed to upgrade its system to make it much more flexible and scalable. It needed to enable its agents to access the Web remotely to enter the policy data, but the company did not want to lose the integrity and information contained in the existing legacy system. And, of course, security was another key concern.

Assessing Corporate Needs
"We were concerned about hackers and such, but the biggest issue for our agents was concern about the other agents being able to get in and see all their business," says Hank Berkley, vice president of information technology. He says NetNumina developed a solution that used Java/CORBA and XML to migrate information from the mainframe legacy systems to the Web. The solution also provides complete inquiry capability, making detailed policy data available online to thousands of agents across the country.

Berkley says it helped greatly that NetNumina had the particular programming skills needed for the project. It also helped that the company was highly flexible, knowledgeable, understood the peculiarities of the vertical market and had developed a "comfort factor" with the company. "We had used them for a small consulting project before," Berkley says. "The reality is, we talked to a lot of people about helping us. They came in with more of an open slate. A lot of other companies tried to give us solutions before they even looked at our [legacy] system. These guys were more willing to listen to what we needed. We felt they were smart people. When we sat down, I felt comfortable they could understand what we were talking about."

Berkley is slowly rolling out the upgrade, facing another challenge in consolidating the operations of four other recently acquired insurance companies. As a result, Berkley employees are using four different data systems on the back end. NetNumina designed the online inquiry system to interface with any of the four back-end systems. "Internally, it saves a lot of problems for us," Berkley says. "We don't need four different Web systems because inquiries can be found on any of the systems. They [NetNumina] were able to bring in a lot of different database services and pieces from our legacy system."

Engineered Approach
Larry Tanning, president of Denver-based IT services provider Tanning Technology, believes that taking a very methodological approach to enterprise clients is the best way to help them turn from brick to click businesses. Such companies have been slow to respond to the promise of the Web, he concedes, but that is because they are forced to deal with significant supply-chain and infrastructure issues before moving forward. "I believe the brick-and-mortar guys are going to be the real drivers in the next wave of the Internet," Tanning says.

In his view, the successful approach stresses integration of Web technology with existing business processes and procedures. "It's all about exposing your business processes to the Web in a way that allows you to be responsive [to customers] and bring new things to market," he says. That also means taking a deliberate, collaborative, "engineered approach" to Web technology. "The challenge is to develop an architecture and a road map [for enterprise clients] that stands the test of time," he says.

Tanning is taking that detailed, widescale approach with The Hartford Financial Services Group, an $11 billion financial services and insurance company. Tanning is attempting to design and deploy an enterprise solution for The Hartford that can quickly and efficiently deliver customer-focused solutions and improve customer-service levels. The partnership, Tanning adds, allows The Hartford to focus on customer business issues while the service provider delivers the overall technology infrastructure. "They are trying to deliver greater service to more customers [over the Web] while integrating with their back-office legacy systems," he explains.

Delivering Specific Solutions
Of course, not every brick-to-click solution is so widescale. In many other cases, brick-and-mortar companies have turned to Web integrators to fulfill small but significant pieces of their online strategies.

Stan Hock, director of communications for Trinchero Family Estates in California's Napa wine region, used two integrators to supplement internal IT efforts to launch and operate the Sutter Home winery and four other related Web sites. He remembers when executives with local integrator Free Run Technologies began talking to Sutter and competing California wineries about the Web's value as a marketing tool back in 1993. Initially, Free Run was rebuffed. "They came knocking on the door in 1993 and said, 'Here's the Internet! Here's what it's about, and here's how we can make it happen,'" Hock recalls. "I was resistant." But his resistance wore down as he saw competitors start Web sites and realized that major consumer brands similar to Sutter were establishing Web presences.

"There were evangelists. They were persistent," Hock says of the local integrators. "They were largely responsible for getting most of the wine industry online." (The company lists 30 clients, including vineyards, resorts and a limousine service in California's wine country.) Hock used Free Run to launch Sutter's first Web site--which he describes as an online brochure--in 1996. Eventually, with Free Run's help in creating a shopping-cart model, the site was upgraded and used more strategically for marketing ventures and then as a marketing platform for limited

e-commerce activities. Now, the site is being used "to create synergy between our online and offline marketing programs, like the ones we have with grocery stores," Hock says. He uses his own Web designer to make Web site changes, but hosts the site on Free Run's high-capacity servers (which are co-located at Exodus) "because they are really not the area [of expertise] of our own MIS department, and I can't afford to have the Web site out of commission. Free Run is very reliable," he says. Hock notes that his IT department "really isn't involved with the Web sites" but focused more on internal networking issues.

More recently, Hock turned to Red Sky, an Internet professional services organization, to enhance the Sutter Home and related sites with "applied entertainment" features that add interactivity and encourage users to pass site links along to friends. One feature, for example, is an instant e-mail message that allows one group member to invite others linked to the site for a glass of wine after work. Red Sky has taken similar innovative approaches with Miller Brewing. More recently, the PSO signed a two-year $2 million contract with Texaco to consult on innovative approaches to the company's e-business plans.

Red Sky president Howard Belk says his company will likely become involved in eight to 20 different e-business proj-ects for Texaco, including working on its Olympic-sponsored Web site. "We also expect to be doing some things with their service-station network," Belk explains. And he expects Red Sky to work with Texaco's Fuel and Marine Marketing unit to develop a wireless- and Web-based order and procurement system that tracks fuel shipments and deliveries around the world.

The Texaco contract underscores another important consideration for brick-and-mortar companies: flexibility. Red Sky is essentially offering cutting-edge technology solutions to a variety of entrepreneurial business units that are far-flung divisions of a global Fortune 1000 giant. It is also leveraging its vertical market expertise with its knowledge of technology.

"We've earmarked different resources to build a Texaco team of about 50 different people in our New York and Houston offices," Belk says. "We have established a very high level of comfort with them through the Houston office, and we have a lot of vertical expertise in the oil industry. There was clearly a need for this at Texaco."

And 1,999 other Fortune 1000 companies.

Tweet

   

More Channel Programs