Cover Story

Technology

What a profitable Web we weave

Issue: "Year in Review 1999," Jan. 8, 2000

In 1999, Microsoft took a hit and the Internet became a shopping mall. The word e-commerce graduated from industry buzzword to potent economic force. New stores like eToys.com, Pets.com, and Buy.com celebrated a record year while traditional retailers like Kmart, Radio Shack, and Wal-Mart went shopping for high-tech companies to help them compete in this new arena. The rise of "e-tailing" in 1999 was a bonanza for the consumer. Prices, especially PC prices, dropped through the floor as "dot coms" fell over one another trying to lure customers. E-tailers invested in massive system upgrades to handle an estimated 10 million new customers coming online to buy Christmas presents this year. For online stores, the goal was simple: Attract people to your website, get them to put products in a virtual "shopping cart," then ring up their credit cards-or else. "It is a make or break time. There is no forgiveness period this year," said Paul Bates, vice president of the information products group at online market research firm Bizrate.com. The company found that Christmas season orders to their 2,700 Web-based clients were more than four times what they were a year ago. TV and radio filled with commercials as online shops pumped hundreds of millions into advertising. As the holidays approached, the mania increased. "They are selling so fast that there are 18-wheelers lined up outside of their warehouses and the pickers are picking faster than the stockers can stock," said Jim Daniell, chief executive of OrderTrust, which helps companies run their websites. While online stores offer the latest convenience shopping since the heyday of paper catalogs, their Achilles' heel is customer service. Two-thirds of those cyber-shopping carts are abandoned before transactions are complete, according to Seema Williams, an e-commerce analyst for Forrester Research in Cambridge, Mass. Many customers complain of unanswered e-mail and constantly busy 1-800 phone lines. "People get frustrated with the level of customer service available," she said. "They're in a hurry." With all the smoke surrounding online auctions, one winner in e-commerce is eBay, which made online auction a household word. The site sells no products. Instead it simply brings buyers and sellers together: Individuals come there and post items for bid, and others from around the world try to cook up the best price. The site-which made headlines because of bogus auctions where kooks claim to sell items like human organs and babies-has become America's garage sale, as every conceivable item goes on the block. eBay is also a place for parents to outbid each other for Christmas treasures: More than 50,000 Pokémon items were listed for sale. About 250,000 new items hit the site every day. The whole online shopping bonanza has some local governments angry that local stores are losing sales, thus denying them valuable sales-tax revenue. Both Republicans and Democrats are calling for legislation to tax the Net. "What we are doing right now is creating a loophole, an unfair loophole," said Gov. William Janklow, R-S.D. "Success in America should not be based on a loophole." More eyes looking at legislation and technology turned to Microsoft, which is behind in the e-commerce race and faces an uncertain future at the hands of the court system. U.S. District Judge Thomas Penfield Jackson held in a Nov. 5 ruling that the company has a monopoly over desktop PCs via Windows. Microsoft was accused of misusing its market muscle to promote its Internet Explorer web browser, which most Internet surfers use to view eBay, Pets.com, and WORLDmag.com. Microsoft's Bill Gates warned that government regulation will stifle innovation: "These are the early years, and the partnerships we have will define success in years to come." Microsoft signed a deal with Radio Shack that will have software kiosks coming to as many as 7,000 Radio Shack stores nationwide. Thus, the line between physical and online shopping starts to blur. As for the next decade, it maybe one for the Internet similar to TV's in the 1950s and radio's in the 1930s: a time of consolidation.

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