A Talk by Linda Rossetti, HBS - Getting It Wrong and Getting It Right in E-Commerce

by Martha Lagace, Staff Writer, HBS Working Knowledge

Linda Rossetti

One of the easiest mistakes to make in Internet business, according to e-strategy consultant Linda Rossetti, is to get distracted by the technology and forget that it's all about advancing your business.

Technology is a great enabler, she told past and current enrollees in HBS Executive Education's Owner/President Management (OPM) program, but it's essential to keep your eye where the value is: in changing the business model and enhancing the relationship with the customer.

These are lessons the big corporations of the Fortune 1000 have learned, though not always easily. Smaller firms, she told the OPM participants, can benefit from an understanding of the big players' failures and successes.

Rossetti (HBS MBA '91) founder of the consulting firm eMaven, presented examples from the Fortune 1000 and other companies in a recent presentation at HBS entitled "Great Triumphs and Blunders of Fortune 1000 Companies."

"These examples were not chosen to say, 'This is the answer, go copy it,' she told the group of about 100 executives. "They're here to help you think differently about your businesses.

"The people that are most successful are those who are willing to think outside their existing business model."

Extending the Model
One large company that has embraced the Internet to good effect has been Federated Department Stores. Federated, the parent company of Macy's and Bloomingdale's among others, has used the Web to extend its business by setting up sites for each brand.

"Last year in all of its accrued business online, Federated achieved 200 million dollars of revenue. It was a fraction of one percent of their business," said Rossetti, "but those of you who know e-commerce know that it's a respectable result today in business-to-consumer e-commerce."

But Federated also went beyond simple retail sites with a number of savvy acquisitions, including deals for distribution firms Fingerhut and Ordertrust, deals that have positioned them to provide back-end services like order handling, shipping and fulfillment for Barnes & Noble and others.

"They understood that they had an expertise, and that expertise was about logistics and distribution," said Rossetti. "And they used that expertise to think differently about the needs of the emerging e-commerce community.

"Federated saw that the valuation of their business would be driven by an incremental revenue stream that was going to come out of new relationships from e-commerce. So they decided to take some fixed assets that were previously supporting physical world businesses—to keep those going—but also reposition those assets to get an incremental revenue stream from serving e-commerce providers.

"They've understood that a new business model for them in this space is trying to accelerate their business into new markets by leveraging their expertise."

The Other Side of the Coin
Less successful among early Fortune 1000 efforts on the Web was Levi's.

The apparel company spent an enormous amount of money and energy installing advanced technologies on its site in an effort to dazzle consumers and entice them to purchase jeans, said Rossetti. Yet in the end, all the wizardry did not have the desired effect. A more balanced strategy was obviously needed: one that used the technology as a bridge rather than a barrier to attracting customers.

"As we look at what are in fact the triumphs and the blunders, as we evaluate success online, what we find is that the best organizations actually use the technology to advance a relationship with the customer," she said. "That customer can be an external customer—meaning a customer that buys your product—or a customer can be a business partner or even an employee.

"When companies focus on questions like ‘What are the relationships that we're trying to affect?' and ‘How can this technology advance our business?' there are super returns for companies that can get there.

"But companies that get distracted by the technology, and Levi's is an excellent example, discover that it's usually a circuitous path to results"—and more often to failure.

Information, Dialogue, Transactions
Enhancing the customer relationship through technology generally takes place in three identifiable buckets, said Rossetti. The first is Information; the second is Dialogue; and the third is Transactions.

Information, she said, shouldn't stop with simply posting the information on the Web. Simple technologies—like letting the user e-mail the information to a friend—can be inexpensive and enormously powerful tools.

Syndication of information is another trend, said Rossetti, citing the example of Walgreen's using syndicated content from the Mayo Clinic on its site. "In the beginning of the Web, people thought that success was driving traffic to some destination, some dot.com. That has quickly fallen away to say that success is actually distributing your information to places where someone who will perceive it of value will be."

Dialogue is another great way of building the customer relationship, said Rossetti. "Dialogue is often forgotten and an enormous enabler of results on a Web site. Stopping at the dialogue stage and enabling dialogue with some key customers or business partners can be more meaningful in terms of business results to the company earlier than commerce itself."

Amazon.com's opt-in email list serve—through which customers can sign up for regular email recommendations of what's new in their area of interest, be it cookbooks or electronic gadgets—is one prominent example.

But interaction with customers can be even more sophisticated than that, Rossetti said, noting the innovative way Autobytel.com engages customers in a "relationship." Autobytel allows its users to "park" their vehicle at the site: "I tell them the year and the make of my car," said Rossetti, "and they send me an email reminder about warranty services and any of the scheduled maintenance I need to do for my car.

"It's a terrific enabler of the businesses that actually benefit from that. Obviously, the [auto] service organizations are driving this."

The Secret Is the Concept
These are simple examples of ideas that work, Rossetti told the group, challenging OPM participants and alumni to ask themselves whether simple procedures are part of how they form their own e-strategy.

E-commerce is really about concepts, she said. "The answer is not just advancing an existing business model. Some of the most successful people have tried to understand their assets and expertise, and use those to try to get into new business models.

"As we look around, success means driving at the concepts that will extend your business," she said. "And technology is an enormous enabler."