August 17, 1999 Web posted at: 11:15 a.m. EDT (1515 GMT) by Daintry Duffy

From...

(IDG) -- When 13-year-old Andrew Tyler of Haddonfield, N.J., logged on to eBay's site earlier this year using his parents' password, he quickly developed a taste for the frenetic atmosphere of the auction house. During the next few weeks, he placed bids on 13 items totaling just under $3 million. His bids included $1.2 million for a medical center in Florida, $500,000 for a Van Gogh painting and $900,000 for an antique bed once owned by Sir John A. MacDonald, Canada's first prime minister.

The bidding spree came to an abrupt end when a representative of the auction house in Kingston, Ontario, that was selling the bed called to arrange payment and spoke with Andrew's mother. After the extent of his eBay bidding was revealed, a humbled Andrew admitted to The Times in London, "I'm in big trouble."

Andrew's well-publicized foray into Internet auctioneering should come as no surprise.

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After all, the Internet is a kid's playground. Many successful Internet-based companies were started by individuals who celebrated their business launch by getting their dads to buy them a six-pack. They conceive an original idea, get some venture capital, do an IPO, and the next thing they know, a media giant is knocking on their door offering to make them millionaires. It's quite a good game.

At least, that's what can happen. For every company that has eked out a successful niche on the Internet, hundreds languish in anonymity or quickly fold. "The barriers to entry are pretty low," admits Debra Chrapaty, president and COO of E-Trade technologies and CIO at Palo Alto, Calif.-based E-Trade Group, "but the barriers to really succeeding are very, very high."

A handful of companies on the CIO-100 list this year have managed to clamber their way to the top of the online jungle gym. We spoke to them about some of the challenges they faced along the way, how they expect the landscape of e-business to change in the coming years and how they plan to stay on top.

Customer service

Service with a smile counts for little on the Web, and one of the lessons that companies learn early on is that online customers have very different service expectations than traditional customers. Chrapaty sums up the needs of Internet customers: "They want speed and reliability. They want consistency. And most of our customers are pretty technically savvy, so when they speak to a customer service rep, they want someone who can speak their language." Achieving all of this while keeping up with the furious pace of doing business on the Web is like trying to log on to AOL at 7 p.m.—it ain't easy.

Amazon.com in Seattle is all too conscious of the importance of keeping customers happy—if customers are unhappy with its service, they can take their business to barnesandnoble.com with the click of a button. And one lost customer on the Internet can quickly translate into many. "If they have a good experience, they can tell 1,000 people or 10,000 people through e-mail and list services," says David Risher, senior vice president at Amazon.com. "If they have a bad experience, the same holds true." Dealing with virtual customers has its own particular challenges.

Risher points out that electronic contact tends to subtly raise people's expectations, and it has the added consequence of suppressing the politeness gene in customers. Individuals who are quite reasonable face-to-face often view e-mail as an opportunity to vent their frustrations in a no-holds-barred fashion, which is fine by Amazon. "We're part of the same culture," says Risher, "so it works for us. But I think it means that you have to provide much better service than in the physical world."

Opportunities to customize on the Internet also tend to breed particularly vocal customers. One of Yahoo's most popular features is the My Yahoo option, which allows users to tailor their own pages with the news and information they want. Yahoo has noted that one interesting side effect of offering this service to its registered customers—all 47 million of them—is that people get very possessive of the site. "I used to work on the product side, on classifieds," recalls Ellen Siminoff, Yahoo's vice president of business development in Santa Clara, Calif., "and one day we changed how we registered classifieds. We got tons of e-mail—some people were very happy; others were unhappy. I think you have to take that feedback very seriously."

Providing customers with the tools to help themselves may be necessary for Internet companies to provide an adequate level of customer service. To prepare for the holiday season last year, Amazon.com redesigned the order history section of its Web site, making it easier for customers to check on order status and answer many of their own questions.

E-Trade and Dell, of Round Rock, Texas, have also both developed sophisticated customer service sites for their customers. E-Trade's E-Station site allows customers to update their personal information as well as check the status of account transfers, wire funds, request stock certificates and liquidate shares. Dell's Ask Dudley online service puts a unique spin on customer service by keeping things simple. Customers can type a question like, "I'm having trouble loading Windows 98—what do I do?" They receive a response based on the key words in the question. The Ask Dudley service receives 100,000 requests per week.

Robert Langer, director of Dell.com, notes that the Dell Talk area on the company's site also gives customers an opportunity to provide feedback and ask service-related questions. Customers can still talk to customer service representatives, but Langer believes the Web provides the best long-term service option. "We find that customers have a much richer and deeper service experience when they choose to use an online medium rather than the telephone," says Langer. "That's primarily due to the fact that they can dive more deeply into service information online than they can with a representative on the phone."

Competition

Internet companies are increasingly expanding their turf to attract new customers. Amazon.com, for example, has broadened its services to include not only books but videos, music, e-cards and auctions. It has also formed alliances with Drugstore.com, Pets.com, HomeGrocer.com and Sothebys Holdings. E-Trade began as a transactional brokerage site but now offers a wide range of financial content and real-time information, placing it in the same space as companies like Cable News Network's CNNfn.

Chrapaty expects E-Trade's diversification to continue. When Christos Cotsakos, chairman and CEO of E-Trade, first offered her the CIO position, Chrapaty was reluctant to accept because she felt that her background in sports entertainment had little bearing on the business of an online brokerage company. But he lured her with his vision of E-Trade's migration into the realm of digital financial media. "We have all the dimensions of a media company," agrees Chrapaty. "We've got the excitement of the product, we've got rich content, we've got the distribution, and we've got the eyeballs of America."

While Internet companies are still growing their businesses to create additional lines of revenue, Amazon's Risher points out that physical companies that want to become a competitive force on the Web are at a disadvantage. In a thinly veiled jab at competitor Barnes & Noble, he points out that it's next to impossible for those companies to be focused on both the Internet space and the physical space. After all, online companies don't need to worry about finding locations for new stores or hiring enough nose-ringed teenagers to work the espresso bars.

Cyber and brick-and-mortar companies operate so differently that even if each offers the same product, a radically different way of thinking about issues like marketing and customer service is required. Companies that haven't cut their teeth on the Internet may find that transition difficult to make. "Companies that are very focused on the Internet and insanely focused on providing what customers want are the types of companies that, five years down the road, I expect to be long-term winners and probably long-term competition for us," says Risher.

Partnerships and acquisitions between media conglomerates and Internet-based companies are also fueling competition. Two examples are The Walt Disney Co.'s purchase of Infoseek Corp. to form Go.com; and NBC's merger plans with Xoom.com and Snap.com to form a new company called NBC Internet (NBCi).

For the media giants, an acquisition is a comparatively inexpensive way to secure a foothold in the dot-com marketplace. For second-tier Internet companies, a big-name partnership can instantly give them clout among the online market leaders. Yahoo's Siminoff expects that trend to continue, pointing out that second-tier Internet players will increasingly need those partnerships to survive.

Current and future challenges

The Internet may be a virtual environment, but the potential to hit a cyber gold mine is very real. The number-one challenge for companies like Amazon.com, however, is going to be achieving profitability while continuing to keep up with the rapid pace of Internet innovation. While it's true that Amazon. com's revenues have continued to climb each quarter, sometimes dramatically, Amazon the company still racked up a $36.4 million net loss in the first quarter of 1999.

Despite this, it continues to build and buy. Risher, for one, is encouraged by Amazon.com's performance. "We have essentially said that we want to take a long-term approach to our profitability and to building the company.... Our eye is on the ball (our customers) and not the scoreboard (the stock)." Nonetheless, you can bet that behind the bravado lies concern and a sense of urgency regarding its losses. Yahoo and Dell are both profitable, and analysts are watching Amazon.com and E-Trade carefully to see whether they can turn a profit before the stock market turns bearish.

Continuing to service customers well is another ongoing challenge for these companies as they draw greater numbers of customers into the fold. Companies still need to design their sites for a broad group of users with varying levels of experience and a large range of connectivity speeds. Yahoo's Siminoff points out that making the company's site easy for newbies to use without annoying the more experienced users is a long-term task.

As online customers increase in numbers and sophistication, look for the Internet to become firmly entrenched in their everyday lives. Companies like the ones profiled here are eager to capitalize on the proliferation of new Internet access tools that will soon be available. Siminoff expects that people will connect to Yahoo via alternative devices like pagers, cell phones and set-top boxes as well as conventional PCs. As appliances in the home become networked and IP-enabled, the opportunities for portal sites like Yahoo are virtually limitless. Instead of pointing you toward a grocery site like Peapod.com, Yahoo may be networked to your refrigerator. Out of milk? Yahoo could communicate that fact to Peapod automatically, averting a cereal crisis the next morning.

E-Trade has already jumped on the future bandwagon with the release of 3Com's Palm VII. The handheld device features E-Trade as part of its wireless Internet-access package. When Web TV becomes available, E-Trade will be accessible via a set-top box that will allow customers to have streaming video and real-time, personalized content on their television screens. "One click away with a transactional agent, that's where I'm going to be," promises Chrapaty. "I want to be in your living room. In fact, it's not that I want to be—I will be."

Daintry Duffy is a staff writer for CIO.