FRAMINGHAM (07/17/2000) - For Pacific Sunwear of California Inc., selling sportswear on the Internet sounded like a surefire idea, until company managers realized something: Most of their potential customers didn't have credit cards.
With a target customer base of 12- to 22-year- olds, the company either had to find an alternate online payment mechanism or reconsider the entire idea of e-tailing. "Many of our customers would have been forced to ask their parents to let them use their bank card or to sit with them while shopping," says Ron Ehlers, vice president of information services for the Anaheim-based company.
"In any case, we were going to lose potential customers."
Pacific Sunwear's solution was to create a two-pronged sales approach: accept major credit cards from those who had them and utilize the services of digital cash vendors as a convenient way of dealing with those who didn't. That way, kids with cards could shop online in the usual fashion while their less-fortunate brethren could open a shopping account by having their parents send a check to a digital cash provider. Pacific Sunwear opted to use digital cash services offered by RocketCash, iCanBuy.com and DoughNet--three providers that focus primarily on younger shoppers. "Now customers without a bank card can shop our site by entering through a portal created by the digital cash company," says Ehlers.
CHANGING TIMES After years of struggling to find a sustainable marketing strategy, digital cash vendors hope they can finally seize success by targeting special-case Web merchants, such as Pacific Sunwear, and other niche markets with specific payment hurdles. As consumers have become accustomed to flinging their credit card numbers across the Internet, the long-held hope that digital cash technology would become a credit card substitute has been all but abandoned. "The new concept is that digital cash can be used alongside credit cards in certain situations, or in areas where it isn't practical to use a credit card," says Michele Pelino, the program manager for the Internet market strategies planning service at The Yankee Group Inc., a Boston-based technology research firm.
The discovery that digital cash couldn't effectively compete against credit cards was bitter news for the industry's pioneers. Most first-generation digital cash vendors, such as DigiCash and CyberCash, are now either defunct or have expanded their focus to include multiple payment types and new technologies. "The commerce model that was originally envisioned simply didn't pan out," says Pelino. "The industry had to change or die."
Second-generation digital cash vendors have learned to stop fighting credit cards and work within the system. "Going head-to-head against credit card companies didn't make sense," says Jeffrey Mason, president and CEO of RocketCash, a Mountain View, Calif.-based digital cash vendor. "We're looking to provide a service that credit card companies can't or won't offer."
HARD CURRENCY The goal is to make life easier for consumers. But installing a digital cash system can be a major--and potentially painful--undertaking. "It was actually rather difficult," says Cara Santiago, e-commerce marketing director for shoes and fashion accessories retailer Steven Madden Ltd. The New York City-based company recently implemented a RocketCash-based payment system but encountered headaches when it tried to force-fit the technology into an existing Web e-commerce environment that was visually attractive but short on order tracking and other key e-commerce support features. In the end, it took the development team several months to iron out a series of glitches. The experience didn't dampen Santiago's enthusiasm for digital cash technology, however. "It's worth pursuing," she says, "but it will work easier when you have a solid, standardized shopping cart foundation."
As e-commerce changes, digital cash may increasingly become worth the trouble.
A growing interest in micropayments--charges too trivial to justify the use of a credit or debit card, such as paying a dollar or so to download a single song, a particular picture or a lone news clip--will help the digital cash industry turn the corner, says Judith Rosall, research director of Boston-based Aberdeen Group. Rosall says that the technology's moment has arrived. "Digital cash technologies will begin growing in adoption and acceptance in the next two years and will contribute to significant worldwide e-commerce market growth, particularly in the sales of digital content, digital music and online gaming," says Rosall.
Digital cash vendors are hoping that micropayments will open untapped e-commerce markets. Their rationale is simple: as purchase prices drop, the cost of processing transactions rises dramatically. The fixed costs of processing credit card transactions less than a dollar consume almost their entire transaction amount. For transactions less than US$20, digital cash is less expensive than processing credit cards in-house. This is particularly true for transactions of less than $5, where digital cash processing costs can be 25 percent to 50 percent cheaper than dealing with a credit card company. "In the convenience e-commerce market, using a credit card is like writing a check for a pack of gum," says Benjamin Herzberg, former director of partner development for ExchangePath, a digital cash vendor in New York City.
Like many digital cash vendors, ExchangePath requires users to establish and fund an account that's debited as the customer makes purchases. Several other vendors, such as Seattle-based QPass, combine micropayments into a single monthly charge that's sent to a major credit card account supplied by the user.
While micropayments could work for any type of inexpensive product, shipping costs tend to limit purchases to items easily delivered directly onto shoppers' computers. As a result, digital cash vendors hope to convince magazine and newspaper publishers, as well as other content providers, to charge a modest fee for the materials they currently give away. ExchangePath, for example, has payment arrangements with financial research and reporting companies, such as Institutional Investor and Zacks Investment Research. Qpass, on the other hand, works with The Wall Street Journal Interactive, Morningstar and several other e-publishers. iPIN, a digital cash company located in San Francisco, has set payment arrangements with various music content providers, including MJuice.com, BuyMP3.com and Emusic.com.
CREDIT CRUNCH Despite digital cash vendors' newly found faith in niche markets and micropayments, the industry's success remains far from assured. Only a handful of nonbusiness publishers have shown much interest in peddling their articles with the help of digital cash mechanisms. Online music sales, on the other hand, are threatened by the introduction of file distribution networks, such as Napster, which allow music fans to download tunes--albeit illegally--for nothing. And online gambling--a niche touted as a promising market for digital cash by Aberdeen's Rosall--remains a small market that's facing increasing pressure from U.S. regulators, most of whom would like to see the practice outlawed.
But even if micropayment strategies overcome these hurdles to blossom during the next few years, digital cash vendors won't necessarily be in the clear. The companies stand to face stiff competition from established credit card companies, which aren't likely to let a bunch of startups run away with a burgeoning industry. American Express, Visa and MasterCard are already experimenting with several types of lower overhead electronic payment systems.
Those projects could be accelerated if micropayments and other digital cash niche markets take off, says The Yankee Group's Pelino.
Telephone companies are also edging into the micropayments field, as smart phones and other mobile Internet access devices begin to arrive in shoppers' hands. Wireless technologies, such as WAP and Bluetooth, will soon enable shoppers to charge online purchases directly to their phone bills. Several digital cash vendors, however, are looking to partner with phone companies to become the intermediaries that transfer charges between merchants and phone bills.
RISING PROFILES As digital cash becomes further integrated into the Internet payment process, the e-commerce community will find itself gradually adapting to the new technology, says Aberdeen's Rosall. Many products and services that are now free will come at a price. "Digital cash technologies will significantly impact the pricing and content models offered over the Web," she says. If that's true, then anyone who sells products on the Internet needs to pay attention.
NEW PRODUCTS SWIMMING A DATA SEA DolphinSearch has released a product designed to help failing corporate memories. The company's KnowledgeBox reportedly utilizes research about the cognitive process of dolphins to create a search tool not for navigating ocean currents but for discovering hidden knowledge inside online corporate documents. Users attach the KnowledgeBox to their networks, configure it to search specific directories, and let the box index documents using fuzzy logic techniques. Employees can then search for documents through a browser-based interface. The KnowledgeBox supports a variety of file formats, including Microsoft Word and Excel, PDF, Lotus Notes and HTML. The box will be available this summer for a list price of $10,000. For more information, visit www.dolphinsearch.com or call 805 640-9984.
QUICK BOOKS Sometimes you don't need that self-help tech book tomorrow or the next day. Sometimes you need it now. To help the impatient and the desperate, tech-book publisher O'Reilly & Associates (creator of the Nutshell series of technology titles) and digital book distributor Ibooks.com have combined to offer some 160 O'Reilly titles online. Visitors to O'Reilly Unbound can preview the titles, purchase them, and download them in electronic form for immediate use. Book prices vary by title. For more information, visit www.ibooks.com.
NO MORE MISSING PAPER CLIPS SupplyPro has combined a system to secure office, safety and industrial supplies with a business-to-business system designed to keep critical supplies in stock. The Internet-enabled Automated Inventory Management System lets only authorized users remove supplies while simultaneously tracking who took what and when. The high-tech cabinets also automatically reorder dwindling supplies through the Web without human intervention. SupplyPro says the system is "supplier agnostic" and can work with a variety of supply providers. The company also offers a Web-based management tool that lets administrators monitor and generate reports for all of their SupplyPro cabinets. Cabinet systems start at around $12,000 plus a 1 percent monthly support fee. For more information, visit www.supplypro.com or call 877 334-0231.
KEEP A CLOSE WATCH Web-enabled digital cameras are becoming ubiquitous: They monitor morning commutes, check out the waves at the world's surfing hot spots and even watch the goings-on in private homes for public entertainment. Now Global Webnet hopes to make Web cameras just another corporate tool. The company's DSL-connected cameras house everything necessary for webcasting, including a processor, TCP/IP connectivity, video compression software and tools that let administrators control and monitor the cameras remotely. Global Webnet hosts the video distribution services on its own servers and can do custom development for individual applications. Global Webnet can also provide secure camera access, so only authorized users can view the transmitted images.
Camera packages start at $150 per month for customers. For more information, visit www.gwninc.com or call 213 252-7480.
MORE SURE STORAGE Hewlett-Packard Co. has released the latest in its line of SureStore E Tape Libraries, the 6/140. The automated drive library is available in four- or six-drive configurations capable of holding from 100 to 140 tapes.
The library works under HP-UX, Sun Microsystem's Solaris and Microsoft Windows NT supports both SCSI and Fibre Channel connections. The unit uses HP's DLT 8000 drive technology and provides up to 5.6TB of storage. Customers can also upgrade the drives to more advanced HP technology at a later date. Pricing for the 6/140 starts at $95,000. For more information, visit www.enterprisestorage.hp.com or call 800 637-7740.
JUST SAY NO TO DOWNLOADS Downloading demo versions of software or requesting evaluation copies from vendors can be a time-consuming process. Now Runaware.com will let users test full-featured versions of applications over the Web, without requiring a lengthy download or installation process.
Customers simply visit the Runaware website, choose the software they want to evaluate and sample it online. The site also features product descriptions and user comments about the sample packages. The company has also announced plans to let customers purchase or rent software packages through the Runaware site in the near future. For more information, visit www.runaware.com.
PREDICTIONS OPTICAL NETWORKING OPTICAL NETWORKING ARRIVES The rapid incursion of optical network components will open up a range of new possibilities for corporations with large bandwidth demands, says Andrew McCormick, senior analyst for optical communications at Aberdeen Group and author of a recent report on the optical networking market.
According to McCormick, that worldwide market will grow from $3.4 billion as of the end of 1999 to $17.7 billion by the year 2003. The growth is starting with long-haul backbone products today, McCormick says, but it will quickly migrate to metropolitan area networks and--eventually--even to the desktop.
The growth of optical will give CIOs new options in how they deal with high-bandwidth requirements--both for long-term and short-term needs. With end-to-end optical networks in place, companies will be able to lease individual wavelengths of light along the fiber, providing them with OC48-class (2.45Gbps) speeds. But the nature of the network will let them lease these wavelengths on a much more cost-effective basis--for instance, leasing the line only for the duration of a worldwide teleconference.
Emerging standards in the market will also allow companies to quickly and easily switch providers, allowing them to constantly shop for the best price-performance available without getting locked in to a single provider long-term.
While the core technologies for these services exist today, McCormick says, don't expect them to appear overnight. Their widespread use may take another five years to materialize. -Christopher Lindquist REVISIT TELECOMMUTING TELECOMMUTING COMES HOME Far from a fading fad, remote workers have become mainstream By Fred Hapgood In the '80s, the spread of networking inspired a handful of techno-enthusiasts to look a few steps down the road and predict an end to commuting, the collapse of the commercial real estate market, and a world where the idea of having two lives--one in which you worked and one in which you lived--became obsolete.
The reaction to these pipe dreams was immediate and severe. People, the skeptics said, needed to be away from the distractions of home. Managers needed to see employees at their desks. Telecommuting isolated people from the corporate culture--it took them "out of the loop." These arguments proved persuasive. "As recently as the mid-'90s, I could go to a conference and be the only person there presenting research on telecommuting," recalls Sumita Raghuram, a professor at Fordham Business School.
CIO published its own look at telecommuting in July 1991, when the tide of skepticism was near its height. From the tone of the piece, you can tell that we felt our audience had a negative bias. "Telecommuting, like Pittsburgh, is often unfairly dismissed..." we began. The essence of the piece was that even though telecommuting was generally thought of as a "frivolous work option for people who aren't serious about their jobs," there actually was hard evidence of productivity gains that needed to be considered.
Even so, we stopped far short of arguing that telecommuting was an easy-to-implement, natural workplace relationship. Managers had to pick the telecommuting employees carefully and manage them in just the right way. But, we insisted, done right, it could be worth doing.
In retrospect we were far too conservative. Data from a number of studies suggest that the population of telecommuters (typically defined as employees or independent contractors who work at home during normal business hours at least one day a month) has grown at an average rate of almost 20 percent a year, from 3.4 million in 1990 to 20 million (or 10 percent of the U.S. labor force) in 1999, and many analysts think that rate will continue to grow for years to come.
Where we went wrong was in buying the assumption that telecommuting and ordinary work were two distinct options. In reality, there is a huge gray area of employees who are not at their desks eight hours a day no matter how they get to work. They are on call, or with a client, or on the road or somewhere else in the corporate domain. As networking applications and access options became more powerful and widespread in the '90s, CIOs used company networks to reintegrate these "remote employees" into the corporate fabric. As they did, these "teleworkers" and their managers learned how to use conference calls, e-mail and periodic office visits to keep in sufficient touch with each other.
These skills and attitudes were as compatible with telecommuting as any other mode of the emerging world of "virtual work." Indeed, a recent report from the New Jersey Institute of Technology found that many companies didn't even bother to keep track of the amount of telecommuting going on. "Since team members were often geographically dispersed anyway, telecommuting was not seen as a disrupter," the report said. It also suggested that companies interested in telecommuting ask around to see how much remote work is taking place without their knowledge. "Your organization may be further ahead than you think," the report concluded. In short, during the last decade telecommuting grew rapidly but informally, from the bottom up.
Nortel Networks in Nashville is a good example. According to Mike Taylor, director of teleworking solutions at the company, more than 13 percent, or 10,000-plus, of the company's employees now work offsite (mostly from their homes). He expects that number to grow to 15,000 by the end of this year. While there are intrinsic reasons to support the transition (telecommuters register 35 percent higher on Nortel's measures of employee effectiveness, perhaps because they are not distracted by the office buzz). Taylor thinks the basic reason is that Nortel as a whole is evolving toward the paradigm of virtual human resources.
"You have to manage by results, not by observing behavior," Taylor says.
Managers need to get weekly status reports. Communications, including mentor relations, require a deliberate structure. And while critical for a successful telecommuting program, Taylor thinks those same suggestions make for good management in any case.
Do it right, and the results can become obvious: Nortel's telecommuting program has already saved the company $15 million in real estate costs, according to Taylor. And as the program continues to expand, those costs will keep dropping.
"I have to wonder," he says, echoing our mid-'80s predictions, "just how much corporate real estate we are going to need." Perhaps the end of commuting will come yet.
UNDER DEVELOPMENT FAST-PATTERN PROCESSORS NETWORK BOTTLENECK BREAKER Much-needed help has arrived for voice and data networks straining under increasing demand for higher speeds and multiple protocols.
Agere, a network processor developer recently acquired by Lucent Technologies, offers a high-speed chip that's designed to break network bottlenecks. The Austin, Texas-based startup's Fast Pattern Processor (FPP) is the first network processor that can handle complex data, including Internet protocol (IP), asynchronous transfer mode (ATM) and several other protocols--at speeds of up to 2.5Gbps. "The device allows customers to move packets 25 times faster than current programmable processor technology," says Ford Tamer, Agere's former CEO, now general manager of Lucent's network processor group. "This ability to send packets at 'wire speed' means that packets don't have to be slowed down to direct them through the network."
The programmable processor's applications include such tasks as routing, switching, network management, firewalls and monitoring. The device also lets carriers provide new service offerings--such as billing, load balancing, voice and video over IP, and virtual private network and WAN services--via software changes rather than by replacing system hardware. "Our goal was to create a processor that offered maximum speed and flexibility," says Tamer.
Network processors recently became a hot commodity, as the growth of the Internet and related technologies have forced carriers to explore new ways of keeping up with exploding customer demand. FPP will allow carriers to get more value out of their networks and allow them to offer customers important quality-of-service guarantees, says Andrew Cray, a senior analyst for telecommunications hardware at Aberdeen Group, a technology research company based in Boston. "Being able to identify and route critical application traffic at full speed is something that carriers really want to be able to do."
While Agere has a head start in the network processor field, its lead may not last long. Both IBM and Intel are developing high-throughput chips that could equal or overtake Agere's FPP within a year or two. But Tamer isn't worried.
"We're continuing our development and are moving forward." Having access to Lucent's deep pockets and development resources isn't likely to hurt Agere's competitive position, says Cray.
"The FPP is available two ways: a 33MHz processor comes as part of a $75,000 integrated development environment intended for design engineers. The 133MHz version is available in 100-unit quantities for $750 each. Cray says the products are just starting to appear on the market, but their full impact won't be felt until next year. -John Edwards